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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
Or
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number: 001-16133
______________________
DELCATH SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
______________________
Delaware06-1245881
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1633 Broadway, Suite 22C
New York, NY 10019
(Address of principal executive offices)
(212) 489-2100
(Registrant’s telephone number, including area code)
______________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.01 par value per shareDCTH
The NASDAQ Capital Market
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated fileroAccelerated filero
Non-accelerated filerxSmaller reporting companyx
Emerging growth companyo
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of November 8, 2023, 22,046,101 shares of the Company’s common stock, $0.01 par value, were outstanding.


DELCATH SYSTEMS, INC.
Table of Contents
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DELCATH SYSTEMS, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except share and per share data)
September 30,
2023
December 31,
2022
Assets
Current assets
Cash and cash equivalents$40,462 $7,671 
Restricted cash50 4,151 
Accounts receivable, net205 366 
Inventory2,667 1,998 
Prepaid expenses and other current assets2,712 1,969 
Total current assets46,096 16,155 
Property, plant and equipment, net1,374 1,422 
Right-of-use assets107 285 
Total assets$47,577 $17,862 
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable$753 $2,018 
Accrued expenses5,230 4,685 
Lease liabilities, current35 186 
Loan payable, current5,080 7,846 
Convertible notes payable, current2,876  
Total current liabilities13,974 14,735 
Warrant liability5,773 
Other liabilities, non-current1,111 1,144 
Loan payable, non-current 3,070 
Convertible notes payable, non-current2,000 4,772 
Total liabilities22,858 23,721 
Commitments and contingencies (see note 13)
Stockholders’ equity (deficit)
Preferred stock, $0.01 par value; 10,000,000 shares authorized; 37,787 and 11,357 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively
  
Common stock, $0.01 par value; 80,000,000 shares authorized; 19,688,991 shares and 10,046,571 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively
197 100 
Additional paid-in capital518,607 451,608 
Accumulated deficit(494,026)(457,484)
Accumulated other comprehensive loss(59)(83)
Total stockholders’ equity (deficit)24,719 (5,859)
Total liabilities and stockholders’ equity$47,577 $17,862 
See accompanying Notes to Condensed Consolidated Financial Statements.
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DELCATH SYSTEMS, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(in thousands, except share and per share data)
Three months ended September 30,Nine months ended September 30,
2023202220232022
Product revenue$434 $906 $1,526 $1,909 
Other revenue   171 
Total revenues434 906 1,526 2,080 
Cost of goods sold(133)(235)(464)(449)
Gross profit301 671 1,062 1,631 
Operating expenses:
Research and development expenses4,662 4,065 12,793 14,152 
Selling, general and administrative expenses6,195 4,779 15,147 13,477 
Total operating expenses10,857 8,844 27,940 27,629 
Operating loss(10,556)(8,173)(26,878)(25,998)
Change in fair value of warrant liability(9,384) (8,224) 
Interest expense, net(395)(730)(1,454)(2,040)
Other income (expense)(5)26 14 2 
Net loss(20,340)(8,877)(36,542)(28,036)
Other comprehensive income:  
Foreign currency translation adjustments5 (46)24 (82)
Total other comprehensive loss$(20,335)$(8,923)$(36,518)$(28,118)
Common share data:  
Basic and diluted loss per common share$(1.14)$(0.96)$(2.61)$(3.29)
Weighted average number of basic and diluted shares outstanding17,863,0789,215,78613,985,2488,536,006
See accompanying Notes to Condensed Consolidated Financial Statements.
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DELCATH SYSTEMS, INC.
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
(Unaudited)
(in thousands, except share data)
Preferred Stock
$0.01 Par Value
Common Stock
$0.01 Par Value
Additional
Paid
in Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
No. of
Shares
AmountNo. of
Shares
Amount
Balance at January 1, 202311,357$ 10,046,571$100 $451,608 $(457,484)$(83)$(5,859)
Compensation expense for issuance of stock options— — 1,661 — — 1,661 
Private placement -issuance of common shares, net of expenses— 19,6461 55 — — 56 
Issuance of common stock with the employee stock purchase plan— 15,417— 47 — — 47 
Net loss— — — (9,000)— (9,000)
Total comprehensive income— — — — 19 19 
Balance at March 31, 202311,357$ 10,081,634$101 $453,371 $(466,484)$(64)$(13,076)
Compensation expense for issuance of stock options— — 1,661 — — 1,661 
Conversion of Series F-1 Preferred shares to common shares— 4,629,53947 11,222 — — 11,269 
Series Preferred F-2 Shares Issuance9,624— — 7,099 — — 7,099 
Prefunded warrant exercise538,82855
Issuance of common stock related to stock option exercises46822
Net loss— — — (7,202)— (7,202)
Total comprehensive income— — — —   
Balance at June 30,202320,981$ 15,250,469$153 $473,355 $(473,686)$(64)$(242)
Compensation expense for issuance of stock options2,7832,783
Conversion of Series F-2 Preferred shares to common shares(4,721)1,430,60314-14
Series F-3 Preferred Shares Issuance34,85942,38842,388
Conversion of Series F-3 Preferred shares to common shares(13,232)2,940,44030-291
Conversion of Series E Preferred shares to common shares(100)10,000
Common Stock warrant exercise31,110
Issuance of common stock with the employee stock purchase plan26,01876— 76
Issuance of common stock related to stock option exercises35111
Compensation expense for issuance of employee stock purchase plan47— 47
Net loss(20,340)(20,340)
Total comprehensive income55
Balance at September 30, 202337,787$ 19,688,991$197 $518,607 $(494,026)$(59)$24,719 

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Preferred Stock
$0.01 Par Value
Common Stock
$0.01 Par Value
Additional
Paid
in Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
No. of
Shares
AmountNo. of
Shares
Amount
Balance at January 1, 202211,357$ 7,906,728$79 $432,831 $(420,976)$18 $11,952 
Compensation expense for issuance of stock options— — 2,271  — 2,271 
Net loss— — — (9,000)— (9,000)
Total comprehensive income— — — — 2 2 
Balance at March 31, 202211,357$ 7,906,728$79 $435,102 $(429,976)$20 $5,225 
Compensation expense for issuance of stock options— — 2,119 — — 2,119 
Net loss— — — (10,159)— (10,159)
Total comprehensive income— — — — (31)(31)
Balance at June 30, 202211,3577,906,728$79 $437,221 $(440,135)$(11)$(2,846)
Compensation expense for issuance of stock options1,6271,627
Private placement - issuance of common stock and prefunded warrants, net of expense690,95474,8894,896
Net loss(8,877)(8,877)
Total comprehensive income(46)(46)
Balance at September 30, 202211,357$ 8,597,682$86 $443,737 $(449,012)$(57)$(5,246)
See accompanying Notes to Condensed Consolidated Financial Statements.
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DELCATH SYSTEMS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Nine months ended September 30,
20232022
Cash flows from operating activities:  
Net loss$(36,542)$(28,036)
Adjustments to reconcile net loss to net cash used in operating activities:  
Stock option compensation expense6,152 6,016 
Depreciation expense87 98 
Warrant liability fair value adjustment8,224  
Non-cash lease expense262 339 
Amortization of debt discount582 574 
Interest expense accrued related to convertible notes120 120 
Changes in operating assets and liabilities:  
Prepaid expenses and other assets(743)708 
Accounts receivable161 (493)
Inventory(669)(515)
Accounts payable and accrued expenses(437)2,907 
Other liabilities, non-current(270)861 
Deferred revenue (170)
Net cash used in operating activities(23,073)(17,591)
Cash flows from investing activities:  
Purchase of property, plant and equipment(39)(209)
Net cash used in investing activities(39)(209)
Cash flows from financing activities:  
Net proceeds from private placement22,960 4,896 
Proceeds from the issuance of common stock relating to the employee stock purchase plan123  
Repayment of debt(6,313) 
Proceeds from exercise of warrants35,004  
Proceeds from exercise of stock options3  
Net cash provided by financing activities51,777 4,896 
Foreign currency effects on cash25 (67)
Net increase (decrease) in total cash28,690 (12,971)
Total Cash, Cash Equivalents and Restricted Cash:  
Beginning of period11,822 26,953 
End of period$40,512 $13,982 
Cash, Cash Equivalents and Restricted Cash consisted of the following:  
Cash$40,462 $9,831 
Restricted Cash50 4,151 
Total$40,512 $13,982 
Nine months ended September 30,
20232022
Supplemental Disclosure of Cash Flow Information:
Cash paid during the periods for:
Interest expense$1,122 $1,337 
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Right of use assets obtained in exchange for lease obligations$84 $ 
Conversion of mezzanine equity to common shares$11,269 $ 
Conversion of mezzanine equity to preferred shares$7,099 $ 
See accompanying Notes to Condensed Consolidated Financial Statements.
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DELCATH SYSTEMS, INC.
Notes to the Condensed Consolidated Financial Statements
(amounts in thousands, except share and per share amounts)
(1)    General
The unaudited interim condensed consolidated financial statements of Delcath Systems, Inc. (“Delcath” or the “Company”) as of and for the three and nine months ended September 30, 2023 and 2022 should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “Annual Report”), which was filed with the Securities and Exchange Commission (the “SEC”) on March 27, 2023 and may also be found on the Company’s website (www.delcath.com). In these notes to the interim condensed consolidated financial statements the terms “us”, “we” or “our” refer to Delcath and its consolidated subsidiaries.
Description of Business
The Company is an interventional oncology company focused on the treatment of primary and metastatic liver cancers. The Company’s lead product, the HEPZATO KITTM (“HEPZATO” melphalan for Injection/Hepatic Delivery System), a drug/device combination product, was approved by the U.S. Food and Drug Administration (the “FDA”) on August 14, 2023 indicated as a liver-directed treatment for adult patients with uveal melanoma with unresectable hepatic metastases affecting less than 50% of the liver with no extrahepatic disease, or extrahepatic disease limited to the bone, lymph nodes, subcutaneous tissues, or lung that is amenable to resection or radiation. In Europe, the hepatic delivery system is a stand-alone medical device having the same device components as HEPZATO, but without the melphalan hydrochloride and is approved for sale under the trade name CHEMOSAT Hepatic Delivery System for Melphalan, or CHEMOSAT, where it has been used at major medical centers to treat a wide range of cancers of the liver.
In the United States, HEPZATO is considered a combination drug and device product and is regulated as a drug by the FDA. Primary jurisdiction for regulation of HEPZATO has been assigned to the FDA’s Center for Drug Evaluation and Research. The FDA has granted Delcath six orphan drug designations (five for melphalan in the treatment of patients with ocular (uveal) melanoma, cutaneous melanoma, intrahepatic cholangiocarcinoma, hepatocellular carcinoma, and neuroendocrine tumor indications and one for doxorubicin in the treatment of patients with hepatocellular carcinoma).
The Company’s clinical development program for HEPZATO was comprised of the FOCUS Clinical Trial for Patients with Hepatic Dominant Ocular Melanoma (the “FOCUS Trial”), a global registration clinical trial that investigated objective response rate in metastatic ocular melanoma (“mOM”). The Company is currently reviewing the incidence, unmet need, available efficacy data and development requirements for a broad set of liver cancers in order to select a portfolio of follow-on indications that will maximize the value of the HEPZATO platform. In addition to HEPZATO’s approved use to treat mOM, the Company believes that HEPZATO has the potential to treat other liver dominant cancers, such as Metastatic Colorectal Cancer and Cholangiocarcinoma, and plans to begin the study of HEPZATO to treat such conditions in the near future. The Company believes that the disease states it is investigating and intends to investigate are unmet medical needs that represent significant market opportunities.
As the Company prepares for commercial launch of HEPZATO, the Company continues its expanded access program (“EAP”) in the United States to make HEPZATO readily available to mOM patients. The Company is focused on continuing to treat these patients enrolled in the EAP sites.
On February 28, 2022, CHEMOSAT received Medical Device Regulation (“MDR”) certification under the European Medical Devices Regulation (2017/745/EU), which may be considered by jurisdictions when evaluating reimbursement. As of March 1, 2022, the Company has assumed direct responsibility for sales, marketing and distribution of CHEMOSAT in Europe.
Risks and Uncertainties
The Company is subject to risks common to companies in the biopharmaceutical industry including, but not limited to, the risks associated with developing product candidates and successfully launching and commercializing its drug/device combination products, the Company's ability to obtain regulatory approval of its such products in the United States and other geography markets, the uncertainty of the broad adoption of its approved products by physicians and consumers, and significant competition.
In addition, high rates of inflation have resulted in the U.S. Federal Reserve raising interest rates. Increases in interest rates, especially if coupled with reduced government spending and volatility in financial markets, may further increase economic uncertainty and heighten these risks. Furthermore, if additional banks and financial institutions enter receivership or
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become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our or our partners’ ability to access existing cash, cash equivalents and investments may be threatened and could have a material adverse effect on our business and financial condition, including our ability to access additional capital on favorable terms, or at all, which could in the future negatively affect our ability to pursue our business strategy.
Liquidity and Going Concern
On September 30, 2023, the Company had cash, cash equivalents and restricted cash totaling $40.5 million, as compared to cash, cash equivalents and restricted cash totaling $11.8 million at December 31, 2022. During the nine months ended September 30, 2023, the Company used $23.1 million of cash in its operating activities and $6.3 million for principal payments.
The Company’s future results are subject to substantial risks and uncertainties. The Company has operated at a loss for its entire history and there can be no assurance that it will ever achieve or maintain profitability. The Company has historically funded its operations primarily with proceeds from sales of common stock, warrants and prefunded warrants for the purchase of common stock, sales of preferred stock, proceeds from the issuance of convertible debt and borrowings under loan and security agreements.
The Company believes that current cash and cash equivalents will enable the Company to have sufficient cash through the launch of HEPZATO. If there is a substantial delay in the launch of HEPZATO, the Company expects to need to raise additional capital under structures available to the Company, including debt and/or equity offerings, which may not be on favorable terms. If commercialization were significantly delayed, the Company would not have sufficient funds to meet its obligations within twelve months from the issuance date of these condensed consolidated financial statements. As such, there is uncertainty regarding our ability to maintain liquidity sufficient to operate our business effectively, which raises substantial doubt about our ability to continue as a going concern.
The Company’s capital commitments over the next twelve months include (a) $6.0 million to satisfy accounts payable, accrued expenses and lease liabilities and (b) $8.6 million of loan principal payments. Additional capital commitments beyond the next twelve months include (a) $0.1 million of lease liabilities; (b) $1.0 million for settlement of litigation with medac; and (c) $2.0 million of convertible note principal payments, if the holders do not elect to convert the notes into equity.
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 wholly owned subsidiaries and all significant inter-company accounts and transactions have been eliminated in consolidation.
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 September 30, 2023 and 2022; however, certain information and footnote disclosures normally included in our audited consolidated financial statements 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
Other than the policies listed below, there have been no material changes to our significant accounting policies as set forth in Note 3 Summary of Significant Accounting Policies to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Warrant Liabilities
The Company determined the warrant liability was not in accordance with the provisions of ASC 480, Distinguishing Liabilities from Equity, which classifies and measures certain financial instruments with characteristics of both liability and equity. Entities must consider whether to classify contracts that may be settled in its own stock, such as warrants, as equity of the entity or as an asset or liability. If an event that is not within the entity’s control could require net cash settlement,
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then the contract should be classified as an asset or a liability at their fair value at issuance with subsequent changes in fair value recorded in earnings.
The Company has accounted for the Preferred Warrants as derivative instruments in accordance with ASC 815, Derivatives and Hedging. The Company classified the Preferred Warrants issued in conjunction with the Preferred Purchase Agreement (defined below) and the Common Warrants issued in conjunction with the Common Purchase Agreement (as defined below) as a liability due to the existence of a pre-specified volatility input to the Black-Scholes calculation which would be used to calculate the repurchase price of the Preferred Warrants and Common Warrants in the event of a Fundamental Transaction, as defined.
The valuations of the warrant liability and Series F-1 Preferred Stock (defined below) were determined using option pricing models. These models use inputs such as the underlying price of the shares issued at the measurement date, volatility, risk free interest rate and expected life of the instrument. In addition, the Company used probabilities of the FDA approval of the HEPZATO KIT (“FDA Approval”) and of recording at least $10 million in quarterly U.S. revenue from the commercialization of HEPZATO as inputs to determine the fair value of warrants liability and Series F-1 Preferred Stock. The Company intends to adjust the fair value of the warranty liability at the end of each reporting period.
Recently Adopted and Issued Accounting Pronouncements
We have not been required to adopt any accounting standards that had a significant impact on our consolidated financial statements in the two years ended December 31, 2022. We do not expect any recently issued accounting standards to have a significant impact on our consolidated financial statements.
Revision of Previously Issued Quarterly Financial Statements
In preparation of the Company's audited financial statements as of and for year ended December 31, 2022, the Company determined it needed to correct previously reported share-based compensation expense for each quarter during 2022. The correction for share-based compensation increased the net loss in amount of $0.8 million for the first quarter of 2022, $0.5 million for the second quarter of 2022 and $0.4 million for the third quarter of fiscal 2022. The share-based compensation adjustment is a non-cash adjustment and did not have any impact on the cash balances for the Company.
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The following tables contain the financial information for the periods previously reported and have been updated to reflect the revisions of the Company’s financial statements. The revisions do not have an impact on the Company’s cash position. The Company has not amended its previously filed Quarterly Reports on Form 10-Q for the three quarterly periods ended September 30, 2022. The impact of the revision on the Company’s financial statements for the three and nine months ended September 30, 2022 is reflected in the following table:
(In thousands)As previously reported
Adjustment
As revised
Balance Sheet for September 30, 2022 (unaudited)
Additional paid-in capital$442,066 $1,671 $443,737 
Accumulated deficit$(447,341)$(1,671)$(449,012)
Consolidated Statement of Operations and Comprehensive Loss for the three months ended September 30, 2022 (unaudited)
Research and development expenses$3,953 $112 $4,065 
Selling, general and administrative expenses4,519 260 4,779 
Total operating expenses8,472 372 8,844 
Operating loss(7,801)(372)(8,173)
Net loss(8,505)(372)(8,877)
Total other comprehensive loss(8,551)(372)(8,923)
Basic and diluted loss per common share$(0.92)$(0.04)$(0.96)
Consolidated Statement of Operations and Comprehensive Loss for the nine months September 30, 2022 (unaudited)
Research and development expenses$13,649 $503 $14,152 
Selling, general and administrative expenses12,309 1,168 13,477 
Total operating expenses25,958 1,671 27,629 
Operating loss(24,327)(1,671)(25,998)
Net loss(26,365)(1,671)(28,036)
Total other comprehensive loss(26,447)(1,671)(28,118)
Basic and diluted loss per common share$(3.09)$(0.20)$(3.29)
Consolidated statement of Stockholders’ Equity (Deficit) for the three months ended September 30, 2022 (unaudited)
Compensation expense for issuance of stock options$1,255 $372 $1,627 
Net loss$(8,505)$(372)$(8,877)
Consolidated statement of Stockholders’ Equity (Deficit) for the nine months ended September 30, 2022 (unaudited)
Compensation expense for issuance of stock options$4,345 $1,671 $6,016 
Net loss$(26,365)$(1,671)$(28,036)
Consolidated Statement of Cash Flows for the nine months ended September 30, 2022 (unaudited)
Net loss$(26,365)$(1,671)$(28,036)
Stock option compensation expense$4,345 $1,671 $6,016 
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(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.
Cash, cash equivalents, and restricted cash balances were as follows:
(In thousands)September 30,
2023
December 31,
2022
Cash and cash equivalents$40,462 $7,671 
Restricted balance for loan agreement 4,000 
Letters of credit 101 
Security for credit cards50 50 
Total cash, cash equivalents and restricted cash shown in the statements of cash flows$40,512 $11,822 
On March 15, 2023, the Company returned to Avenue (as defined below) the $4.0 million held in restricted cash to pay down a portion of the outstanding Avenue Loan (defined below) balance. On March 31, 2023, the letter of credit for the sub-lease agreement for office space at 1633 Broadway, New York, NY expired.
(3)    Inventory
Inventory consists of the following:
(In thousands)September 30,
2023
December 31,
2022
Raw materials$924 $763 
Work-in-process1,582 1,102 
Finished goods161 133 
Total inventory$2,667 $1,998 
(4)    Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following:
(In thousands)September 30,
2023
December 31,
2022
Clinical trial expenses$1,630 $1,630 
Insurance premiums71 123 
Professional services655 121 
Other356 95 
Total prepaid expenses and other current assets$2,712 $1,969 
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(5)    Property, Plant, and Equipment
Property, plant, and equipment consist of the following:
(In thousands)September 30, 2023December 31, 2022Estimated Useful Life
Buildings and land$1,301 $1,301 
30 years - Buildings
Enterprise hardware and software1,855 1,855 3 years
Leaseholds1,772 1,774 Lesser of lease term or estimated useful life
Equipment1,262 1,222 7 years
Furniture201 201 5 years
Property, plant and equipment, gross6,391 6,353 
Accumulated depreciation(5,017)(4,931)
Property, plant and equipment, net$1,374 $1,422 
Depreciation expense for the three and nine months ended September 30, 2023 and 2022 was less than $0.1 million for each period.
(6)    Accrued Expenses
Accrued expenses consist of the following:
(In thousands)September 30,
2023
December 31,
2022
Clinical expenses$2,105 $1,470 
Compensation, excluding taxes1,535 1,040 
Professional fees61 1,087 
Interest on convertible note673 553 
Other856 535 
Total accrued expenses$5,230 $4,685 
(7)    Leases
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 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.
For the three and nine months ended September 30, 2023 and 2022, the Company recognized $0.1 million and $0.3 million, respectively, of operating lease expense in the U.S. and less than $0.1 million of operating lease expense in Ireland for the same periods.
As of September 30, 2023:
(In thousands)U.S.IrelandTotal
Operating cash flows for operating leases$238 $24 $262 
Weighted average remaining lease term0.02.8
Weighted average discount rate - operating leases8 %8 %
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As of August 31, 2023, the lease of office space at 1633 Broadway, New York, NY was converted to a month-to-month lease. No ROU assets or lease liabilities are recognized on the balance sheet for this arrangement.
Remaining maturities of the Company’s operating leases, excluding short-term leases, are as follows:
U.S.IrelandTotal
Year ended December 31, 2023$ $11 $11 
Year ended December 31, 2024 42 42 
Year ended December 31, 2025 42 42 
Year ended December 31, 2026 25 25 
Total 120 120 
Less present value discount (13)(13)
Operating lease liabilities included in the condensed consolidated balance sheets at September 30, 2023$ $107 $107 
(8)    Loans and Convertible Notes Payable
September 30, 2023December 31, 2022
Gross
Discount
Net
Gross
Discount
Net
Loans Payable, Current5,610 (530)5,080 8,570 (724)7,846 
Loans Payable, Non-Current   3,353 (284)3,070 
Total - Loans Payable1
$5,610 $(530)$5,080 $11,923 $(1,008)$10,916 
Convertible Notes Payable - Current$3,000 $(124)$2,876 $ $ $ 
Convertible Notes Payable - Non-Current$2,000 $ $2,000 $5,000 $(228)$4,772 
Total - Convertible Notes Payable$5,000 $(124)$4,876 $5,000 $(228)$4,772 
Total - Loans and Notes Payable10,610 16,923 
1 The gross amount includes the 4.25% final payment of $0.5 million.
Remaining maturities of the Company’s loan and convertible note payables are as follows:
(In thousands)LoansConvertible
Notes
Total
Year ended December 31, 2023$ $ $ 
Year ended December 31, 20245,610 5,000 10,610 
Total$5,610 $5,000 $10,610 
Term Loan from Avenue Venture Opportunities Fund, L.P.
On August 6, 2021, the Company entered into a Loan and Security Agreement (the “Avenue Loan Agreement”) with Avenue Venture Opportunities Fund, L.P. (the “Lender,” or “Avenue”) for a term loan in an aggregate principal amount of up to $20.0 million (the “Avenue Loan”). The Avenue Loan bears interest at an annual rate equal to the greater of (a) the sum of 7.70% plus the prime rate as reported in The Wall Street Journal and (b) 10.95%. The interest rate at September 30, 2023 was 16.20%. The Avenue Loan is secured by all of the Company’s assets globally, including intellectual property. The Avenue Loan matures on August 1, 2024.

The initial tranche of the Avenue Loan was $15.0 million, including $4.0 million that was funded into a restricted account. On March 15, 2023, the Company returned to Avenue $4.0 million held in the restricted cash to pay down a portion of the
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outstanding loan balance, principal payments of $2.1 million and an incremental 4.25% of the final payment of $0.2 million. On March 31, 2023, the Avenue Loan Agreement was amended (the “Avenue Amendment”) to defer the interest only period to September 30, 2023, with an additional extension option upon FDA Approval for the HEPZATO KIT and subsequent receipt of at least $10 million from the sale and issuance of equity securities. On August 14, 2023, the Company received FDA approval and has subsequently received over $10 million from the exercise of Tranche A Preferred Warrants. At the Company’s option, it has elected to extend the interest only period to December 31, 2023 and principal payments are deferred until January 2024.
Up to $3.0 million of the principal amount of the Avenue Loan outstanding may be converted, at Avenue's option, into shares of the Company’s common stock at a conversion price of $11.98 per share.
The Avenue Loan Agreement requires the Company to make and maintain representations and warranties and other agreements that are customary in loan agreements of this type. The Avenue Loan Agreement also contains customary events of default, including non-payment of principal or interest, violations of covenants, bankruptcy and material judgements.
In connection with the initial entry into the Avenue Loan Agreement, the Company issued warrants to Avenue (the “Initial Avenue Warrant”) to purchase 127,755 shares of common stock at an exercise price per share equal to $0.01. The Initial Avenue Warrant is exercisable until August 31, 2026. Additionally, in connection with the Avenue Amendment, the Company issued to Avenue a warrant to purchase 34,072 shares of common stock at an exercise price per share equal to $0.01.
The Company determined that the embedded conversion option associated with the Avenue Loan did not require bifurcation and met the criteria for equity classification. In addition, the amendment was recorded under debt modification guidance. Aggregate debt discount amortization of $0.2 million and $0.6 million was recorded during the three and nine months ended September 30, 2023 and 2022, respectively. Interest expense incurred was $0.3 million and $0.4 million for the three months ended September 30, 2023 and 2022, respectively and $1.1 million and $1.3 million for the nine months ended September 30, 2023 and 2022, respectively.
Convertible Notes Payable
The Company has $2.0 million of principal outstanding related to Senior Secured Promissory Notes (the “Rosalind Notes”) which bear interest at 8% per annum. Pursuant to the original terms, the Rosalind Notes were convertible into Series E Preferred Stock at a price of $1,500 per share and were to mature on July 16, 2021. Interest expense was $0.1 million for the nine months ended September 30, 2023 and 2022, respectively.
On August 6, 2021, the Company executed an agreement to amend the Rosalind Notes to (i) reduce the conversion price to $1,198 per share of the Company’s Series E Preferred Stock; and (ii) extend the maturity date to October 30, 2024. In addition, the holders of the Rosalind Notes agreed to subordinate all of the Company’s indebtedness and obligations to Avenue and all of the holders’ security interest, to the Avenue Loan and Avenue’s security interest in the Company’s property.

(9)    Preferred Purchase Agreement
On March 27, 2023, we entered into a securities purchase agreement with certain accredited investors (the “Preferred Purchase Agreement”), pursuant to which on March 29, 2023, the Company issued and sold, in a private placement (the “Series F Preferred Offering”), (i) 24,900 shares of Series F-1 Convertible Preferred Stock, par value $0.01 per share (the “Series F-1 Preferred Stock”), (ii) tranche A warrants (the “Preferred Tranche A Warrants”) to acquire 34,859 shares of Series F-3 Convertible Preferred Stock, par value $0.01 per share (the “Series F-3 Preferred Stock”) and (iii) tranche B warrants (the “Preferred Tranche B Warrants,” together with the Preferred Tranche A Warrant, the “Preferred Warrants”) to acquire 24,900 shares of Series F-4 Convertible Preferred Stock, par value $0.01 per share (the “Series F-4 Preferred Stock”) for an aggregate offering price of $24.9 million before deducting the fees paid to the placement agent and the financial advisors and other financing expenses payable by the Company.
The gross proceeds of $24.9 million from the Series F Preferred Offering have been allocated first to the Preferred Warrant liabilities at their fair value of $4.9 million, with the residual of $20.0 million being allocated to the Series F-1 Preferred Stock.
During the three months ended September 30, 2023, all of the Preferred Tranche A Warrants were exercised for an aggregate exercise price of $34.9 million into 34,859 shares of Series F-3 Preferred Stock and 13,232 shares of Series F-3
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Preferred Stock were concurrently converted into 2,940,440 shares of common stock (in accordance with the beneficial ownership limitations then in effect). The Preferred Tranche B Warrants are exercisable for 24,900 shares of Series F-4 Preferred Stock, with an aggregate exercise price of $24.9 million until the earlier of (i) 21 days following the Company's announcement of receipt of at least $10 million in quarterly U.S. revenue from the commercialization of HEPZATO and (ii) March 31, 2026.
Following stockholder approval, pursuant to the Certificate of Designation of Preferences, Rights and Limitations of the Series F Convertible Voting Preferred Stock (the “Certificate of Designation”), each share of Series F-1 Preferred Stock automatically converted into shares of common stock and/or, if applicable (in accordance with the beneficial ownership limitations then in effect), shares of Series F-2 Preferred Stock, par value $0.01 per share (the “Series F-2 Preferred Stock” and, together with the Series F-1 Preferred Stock, the Series F-3 Preferred Stock and the Series F-4 Preferred Stock, the “Series F Preferred Stock”) in lieu of common stock. Subject to limitations set forth in the Certificate of Designation, the shares of Series F-2, F-3 and F-4 Preferred Stock are convertible into common stock at the option of the holder at the conversion price of $3.30 per share, $4.50 per share and $6.00 per share, respectively, rounded down to the nearest whole share, and in each case subject to the terms and limitations contained in the Certificate of Designation. As of September 30, 2023, 33,229 shares of the Company's Series F-1, F-2 and F-3 Preferred Stock were converted into 9,000,582 shares of common stock. As of September 30, 2023, there were 4,903 shares of Series F-2 Preferred Stock, 21,627 shares of Series F-3 Preferred Stock and no shares of Series F-4 Preferred Stock outstanding.
The Series F-2, F-3 and F-4 Preferred Stock are not mandatorily redeemable, redeemable at the holder’s election or contingently redeemable at the holder’s election (at this point, a Deemed Liquidation Event would potentially trigger pro rata liquidation payments to the preferred and common stockholders on a pro rata “as converted” basis). Accordingly, the Series F-2, F-3 and F-4 Preferred are now classified as permanent equity.
The Company determined that the outstanding Preferred Warrants should be liability-classified. See “Note 1 – Warrant Liabilities” for a discussion of the accounting treatment of the Common Warrants and Preferred Warrants.

(10)    Stockholders’ Equity
Public and Private Placements
Common Purchase Agreement
On March 27, 2023, the Company entered into a securities purchase agreement (the “Common Purchase Agreement”) with the Company’s Chief Executive Officer, Gerard Michel, pursuant to which the Company agreed to issue and sell, in a private placement (the “Common Offering”) shares of common stock, tranche A warrants (“Common Tranche A Warrants”) to acquire 31,110 shares of common stock, tranche B warrants (“Common Tranche B Warrants”, together with the Common Tranche A Warrants, the “Common Warrants”) to acquire 16,666 shares of common stock. On March 29, 2023, the Company closed the Common Offering.
The aggregate exercise price of the Common Tranche A Warrants issued pursuant to the Common Offering is approximately $0.1 million.
On August 14, 2023, the Company announced the receipt of the FDA Approval and all Common Tranche A Warrants were exercised and converted into 31,110 shares of common stock.
The aggregate exercise price of the Common Tranche B Warrants issued in the Common Offering is approximately $0.1 million. The Common Tranche B Warrants are exercisable for an aggregate of 16,666 shares of common stock until the earlier of 21 days following the Company’s announcement of receipt of recording at least $10 million in quarterly U.S. revenue from the commercialization of HEPZATO and March 31, 2026.
The Company determined that the outstanding Common Warrants should be liability-classified. See “Note 1 – Warrant Liabilities” for a discussion of the accounting treatment of the Common Warrants and Preferred Warrants.
Registration Rights for Preferred and Common Offerings
Pursuant to the Preferred Purchase Agreement and the Common Purchase Agreement (collectively, the “Purchase Agreements”), the Company filed a registration statement on Form S-3 (the “Resale Registration Statement”) providing for
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the resale by the investors party thereto of the common stock issuable upon conversion of the Registrable Shares (as defined in the Purchase Agreements). The Resale Registration Statement became effective on June 28, 2023.
There is no established public trading market for the Series F Preferred Stock, the Preferred Warrants, or the Common Warrants and the Company does not intend to list such securities on any national securities exchange or nationally recognized trading system.
At-the-Market Offering
The Company has entered into a Controlled Equity OfferingSM Sales Agreement (“ATM Sales Agreement”), with Cantor Fitzgerald & Co. (the “Sales Agent”), pursuant to which the Company may offer and sell, at its sole discretion through the Sales Agent, shares of common stock having an aggregate offering price of up to $17.0 million. To date, the Company has sold approximately $4.0 million of its common stock, prior to issuance costs, under the ATM Sales Agreement. No sales were made during the three and nine months ended September 30, 2023.
Authorized Shares
In June 2023, stockholders approved an amendment to the Company’s Amended and Restated Certificate of Incorporation to increase the total number of shares of its common stock authorized for issuance from 40 million shares to 80 million shares. The Company is authorized to issue 80 million shares of common stock, $0.01 par value, and 10 million shares of preferred stock, $0.01 par value. As of September 30, 2023, the Company has designated the following preferred stock:

Designated Preferred SharesSeptember 30, 2023
Series A4,200 
Series B2,360 
Series C590 
Series D10,000 
Series E 40,000 
Series E-112,960 
Series F-1 24,900 
Series F-224,900 
Series F-334,860 
Series F-424,900 
Total179,670 
Preferred Stock
As of September 30, 2023, there were an aggregate of 11,257 shares of Series E and Series E-1, 4,903 Series F-2 and 21,627 Series F-3 Convertible Preferred Stock outstanding, respectively.
Omnibus Equity Incentive Plan
On September 30, 2020, the Company’s 2020 Omnibus Equity Incentive Plan (the “2020 Plan”) was adopted by the Company’s Board of Directors. On November 23, 2020, the Company’s stockholders approved the 2020 Plan. The 2020 Plan will continue in effect until the tenth anniversary of the date of its adoption by the Board or until earlier terminated by the Board. The 2020 Plan is administered by the Board of Directors or a committee designated by the Board of Directors. On June 12, 2023, the stockholders approved the amendment to the Company’s 2020 Plan to increase the number of shares of common stock available under the plan by 2.65 million shares. The 2020 Plan provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards, as well as other stock-based awards or cash awards that are deemed to be consistent with the purposes of the plan to Company employees, directors and consultants. As of September 30, 2023, there are 5,125,000 shares of common stock reserved under the 2020 Plan, of which 1,802,841 remained available to be issued.
In addition to options granted from the 2020 Plan, the Company also grants employment inducement grants pursuant to Listing Rule 5635(c) of the corporate governance rules of the NASDAQ Stock Market. These inducement grants are intended to provide incentive to certain individuals to enter into employment with the Company. Inducement grants are
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granted outside of the 2020 Plan, however they are governed in all respects as if they were issued under the 2020 Plan. These grants do not reduce the number of options available for issuance under the 2020 Plan.
Stock Options
The following tables include information for all options granted including inducement grants that are granted outside of the 2020 Plan.
The Company values stock options using the Black-Scholes option pricing model and used the following assumptions, on a weighted-average basis, during the reporting periods:
 Nine Months Ended September 30,
 20232022
Expected terms (years)5.75.4
Expected volatility160.4%164.3%
Risk-free interest rate3.99%1.86%
Expected dividends0.00%0.00%
The following is a summary of stock option activity for the nine months ended September 30, 2023:
Number of Options Weighted Average
Exercise Price Per Share
Weighted Average
Remaining
Contractual Term
(in years)
Aggregate Intrinsic
Value
Outstanding at January 1, 20232,235,052$10.30 7.8$35,875 
Granted2,122,7576.08 9.1
Exercised(819)4.67 
Expired(115,772)8.80 
Cancelled/Forfeited(104,390)7.22 
Outstanding at September 30, 20234,136,828$8.26 8.5$72,850 
Exercisable at September 30, 20232,020,026$10.29 7.7$ 
The following table summarizes information for stock option shares outstanding and exercisable at September 30, 2023:
Options Outstanding
Range of Exercise PricesOutstanding Number of
Options
Weighted Average
Remaining Option Term
(in years)
Number of Options
$2.83 - $51.50
4,136,3298.54,136,329
$51.50+
4995.3499
4,136,8288.54,136,828
The following is a summary of share-based compensation expense in the statement of operations for the three and nine months ended September 30, 2023:
Three Months Ended September 30,Nine Months Ended September 30,
(In thousands)2023202220232022
Selling, general and administrative$1,674 $1,117 $3,774 $3,984 
Research and development1,027 458 2,095 1,872 
Cost of goods sold129 52 283 160 
Total$2,830 $1,627 $6,152 $6,016 
At September 30, 2023, there was $7.7 million of aggregate unrecognized compensation expense related employee and board stock option grants. The cost is expected to be recognized over a weighted average period of 2.4 years.
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Common Stock Warrants
The following is a summary of common stock warrant activity for the nine months ended September 30, 2023:
 Warrants
Weighted Average Exercise Price
Weighted Average
Remaining Life
(in years)
Outstanding at January 1, 20235,153,291$7.01 
Warrants issued81,8482.94 
Warrants exercised(569,938)0.26 
Outstanding at September 30, 20234,665,201$7.76 1.9
Exercisable at September 30, 20234,665,201$7.76 1.9
The following table presents information related to common stock warrants outstanding at September 30, 2023:
Warrants Exercisable
Range of Exercise PricesOutstanding
Number of
Warrants
Weighted Average
Remaining Warrant Term
(in years)
Number of Warrants
$0.011,037,7923.41,037,792
$6.00
16,6662.516,666
$10.003,610,7431.43,610,743
4,665,2011.94,665,201
As of September 30, 2023, there were 538,828 warrants priced at $0.01 and 31,110 warrants priced at $4.50 exercised for 569,938 common shares.
Preferred Stock Warrants
The following is a summary of preferred stock warrant activity for the nine months ended September 30, 2023:
WarrantsWeighted Average Exercise PriceWeighted Average
Remaining Life
(in years)
Outstanding at January 1, 2023 $ 
Warrants issued59,7591,000 
Warrants exercised(34,859)1,000 
Outstanding at September 30, 202324,900$1,000 2.5
Exercisable at September 30, 202324,900$1,000 2.5
Employee Stock Purchase Plan
In August 2021, the Company’s Board of Directors, with shareholder approval in May 2022, adopted the Employee Stock Purchase Plan (the “ESPP”). The ESPP provides for a maximum of 260,295 shares of common stock to be purchased by participating employees. Employees who elect to participate in the ESPP will be able to purchase common stock at the lower of 85% of the fair market value of common stock on the first or last day of the applicable six-month offering period. In January 2023, an aggregate of 15,417 shares were purchased by participating employees for the offering period of July 1, 2022 to December 31, 2022. In July 2023, an aggregate of 26,018 shares were purchased by participating employees for the offering period of January 1, 2023 to June 30, 2023.

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(11)    Net Loss per 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 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, convertible preferred shares, and preferred and common 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 September 30, 2023 and 2022 because their effects would be anti-dilutive:
September 30,
20232022
Common stock warrants3,627,4094,461,249
Assumed conversion of preferred stock warrants4,149,994
Assumed conversion of preferred stock7,417,4731,135,721
Assumed conversion of convertible notes488,031488,031
Stock options4,136,8282,249,955
Total19,819,7358,334,956

At September 30, 2023, the Company had 1,037,792 pre-funded warrants outstanding. The following table provides a reconciliation of the weighted average shares outstanding calculation for the three and nine months ended September 30, 2023 and 2022:
Three months ended September 30,Nine months ended September 30,
2023202220232022
Weighted average shares issued16,825,2868,470,00612,745,0358,096,551
Weighted average pre-funded warrants1,037,792745,7801,240,213439,455
Weighted average shares outstanding17,863,0789,215,78613,985,2488,536,006

(12)    Income Taxes
As discussed in “Note 14—Income Taxes” to the notes to the consolidated financial statements contained in the 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.
The Inflation Reduction Act of 2022 included tax legislation that became effective in the first quarter of 2023. Significant legislation for corporate taxpayers includes a corporate alternative minimum tax of 15% for companies with $1 billion or more in average net financial statement profits over the three previous years, as well as a 1% indirect excise tax on the repurchase of shares by a publicly traded company. The Company does not expect this legislation to have an effect on the tax provision as of September 30, 2023, however the Company will continue to evaluate the effect on the tax provision each reporting period.

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(13)    Commitments and Contingencies
medac Matter
In April 2021, the Company’s wholly owned subsidiary, Delcath Systems Ltd, issued to medac GmbH, a privately held, multi-national pharmaceutical company based in Germany (“medac”), an invoice for a €1 million milestone payment under a License, Supply and Marketing Agreement dated December 10, 2018 (the “medac Agreement”) between medac and the Company. The medac Agreement provided to medac the exclusive right to market and sell CHEMOSAT in certain designated countries for which the Company was entitled to a combination of upfront and success-based milestone payments as well as a fixed transfer price per unit of CHEMOSAT and specified royalties.
In response to medac’s subsequent dispute and non-payment of the invoice, on October 12, 2021, the Company notified medac in writing that it was terminating the medac Agreement due to medac’s nonpayment of the €1 million milestone payment, with the effective date of termination of the medac Agreement being April 12, 2022. On December 16, 2021, the Company initiated an arbitration proceeding pursuant to the dispute resolution procedures of the medac Agreement for the non-payment of the invoice.
On December 30, 2022, the parties reached a final settlement of the matter and the Company agreed to pay medac either (a) a royalty on sales of CHEMOSAT units over a defined minimum for a period of five years or until a maximum payment has been reached, or (b) a minimum annual payment of $0.2 million in the event the annual royalty payment does not reach the agreed minimum payment amount. The Company has estimated the fair value of the settlement to be $1.3 million as of September 30, 2023 and recorded $1.1 million as other liabilities, non-current and $0.2 million as accrued expenses on the Company’s condensed consolidated balance sheet as of September 30, 2023.
Lachman Consulting Services, Inc.
On January 24, 2023, Lachman Consultant Services, Inc (“Lachman”) served the Company with a complaint alleging that Delcath owed Lachman approximately $0.9 million in unpaid consulting fees plus interest, costs and attorneys’ fees. The dispute arose from a July 22, 2021 agreement between Lachman and Delcath under which Lachman provided assistance to the Company in regard to preparing for a FDA inspection and good manufacturing practices, training and support. A settlement was reached on July 5, 2023, under which the Company paid Lachman $0.9 million.
(14)    Fair Value Measurements
The table below presents activity within Level 3 of the fair value hierarchy, our liabilities carried at fair value for the nine months ended September 30, 2023:
Level 3
(In thousands)Contingent
liabilities
WarrantsTotal
Balance at January 1, 2023$1,280 $ $1,280 
Total change in foreign exchange(9) (9)
Fair value of the warrant liability issued 4,940 4,940 
Warrant liability fair value adjustment 8,224 8,224 
Change due to warrant exercise$ $(7,391)$(7,391)
Balance at September 30, 2023$1,271 $5,773 $7,044 
Contingent liabilities are re-measured to fair value each reporting period using projected financial targets, discount rates, probabilities of payment, and projected payment dates. Projected contingent payment amounts are discounted back to the current period using a discounted cash flow model. Projected financial targets are based on our most recent internal operational budgets and may take into consideration alternate scenarios that could result in more or less profitability for the respective service line. Increases or decreases in projected financial targets and probabilities of payment may result in significant changes in the fair value measurements. Increases in discount rates and the time to payment may result in lower fair value measurements. Increases or decreases in any of those inputs in isolation may result in a significantly lower or higher fair value measurement.
As disclosed in Note 9 and Note 10 of the Company’s consolidated financial statements, the Company allocated part of the proceeds of the Series F Preferred Offering to warrant liability issued in connection with the transaction. The valuations of the warrants were determined using option pricing models. The Company concluded that the Preferred Warrants were not in the scope of Accounting Standards Codification (ASC 480), Distinguishing Liabilities from Equity (ASC 480,) since the
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Preferred Warrants are not mandatorily redeemable; and do not have obligations to issue a variable number of shares of preferred stock. The Company determined the Preferred Warrants met the definition of a derivative in accordance with ASC 815 but were not considered indexed to the Company’s common stock since the warrants require early settlement by repurchasing the preferred warrants for cash in an amount equal to the Black-Scholes value in the event of a Fundamental Transaction at pre-specified volatility of 100% as an input to the Black-Scholes calculation. The Company determined to record the Preferred Warrants at fair value with subsequent changes in fair value recorded in earnings at the end of each reporting period. For the three and nine months ended September 30, 2023, the Company recorded other expense of $9.4 million and $8.2 million, respectively, related to the change in fair value of the warrant liability and Tranche A Warrant exercises. These models use inputs such as the underlying price of the shares issued at the measurement date, volatility, risk free interest rate and expected life of the instrument. The Company has classified the warrants as a long-term liability due to certain provisions relating to the holders’ ability to exercise the warrants beyond twelve months of the reporting date.
The fair value of the preferred and common warrants at September 30, 2023 and March 29, 2023 was determined by using option pricing models assuming the following:
March 29, 2023September 30, 2023
Risk free interest rate
3.80% - 4.80%
 4.80%
Expected term (years)
0.5 - 3.0
 2.5
Expected volatility
70% - 75%
 70%
Expected dividends0.00%0.00%
Additionally, the Company has determined that the warrant liability should be classified within Level 3 of the fair-value hierarchy by evaluating each input for the option pricing models against the fair-value hierarchy criteria and using the lowest level of input as the basis for the fair-value classification as called for in ASC 820. There are six inputs: closing price of the Company’s stock on the day of evaluation; the exercise price of the warrants; the remaining term of the warrants; the volatility of the Company’s stock over that term; annual rate of dividends; and the risk-free rate of return. Of those inputs, the exercise price of the warrants and the remaining term are readily observable in the warrant agreements. The annual rate of dividends is based on the Company’s historical practice of not granting dividends. The closing price of the Company’s stock would fall under Level 1 of the fair-value hierarchy as it is a quoted price in an active market (ASC 820-10). The risk-free rate of return is a Level 2 input as defined in ASC 820-10, while the historical volatility is a Level 3 input as defined in ASC 820. Since the lowest level input is a Level 3, the Company determined the warrant liability is most appropriately classified within Level 3 of the fair value hierarchy.
The following tables present information about the Company’s financial assets and liabilities that have been measured at fair value as of September 30, 2023 and December 31, 2022 and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value. In general, the fair values were determined using Level 3:
(In thousands)
Quoted Prices in
Active Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
September 30,
2023
Liabilities:    
Contingent liability$ $ $1,271 $1,271 
Warrant liability  5,773 5,773 
Total liabilities$ $ $7,044 $7,044 
(In thousands)Quoted Prices in
Active Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
December 31,
2022
Liabilities:    
Contingent liability$ $ $1,280 $1,280 
Total liabilities$ $ $1,280 $1,280 
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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the financial condition and results of operations of Delcath Systems, Inc. (“Delcath” or the “Company”) should be read in conjunction with the unaudited interim condensed consolidated financial statements and notes thereto contained in Item 1 of Part I of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “Annual Report”), which was filed with the Securities and Exchange Commission (the “SEC”) on March 27, 2023, to provide an understanding of its results of operations, financial condition and cash flows.
All references in this Quarterly Report on Form 10-Q to “we,” “our,” “us” and the “Company” refer to Delcath Systems, Inc., and its subsidiaries unless the context indicates otherwise.
This Quarterly Report on Form 10-Q and may include trademarks, service marks and trade names owned or licensed by us, including CHEMOFUSE, CHEMOSAT, CHEMOSATURATION, DELCATH, HEPZATO, HEPZATO KIT, PHP and THE DELCATH PHP SYSTEM. Solely for convenience and readability, trademarks, service marks and trade names, including logos, artwork and other visual displays, may appear in a non-traditional trademark usage manner, including without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks, service marks and trade names. All trademarks, service marks and trade names included in this Quarterly Report on Form 10-Q are the property of the Company or the Company’s licensor, as applicable.
Disclosure Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 with respect to our business, financial condition, liquidity, and results of operations. Words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “could,” “would,” “will,” “may,” “can,” “continue,” “potential,” “should,” and the negative of these terms or other comparable terminology often identify forward-looking statements. Statements in this Quarterly Report on Form 10-Q that are not historical facts are hereby identified as “forward-looking statements” for the purpose of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. These forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements, including the risks discussed in Item 3 “Quantitative and Qualitative Disclosures About Market Risk,” and the risks discussed in Part II, Item 1A under “Risk Factors” and the risks detailed from time to time in our future reports filed with the SEC. These forward-looking statements include, but are not limited to, statements about:
our estimates regarding sufficiency of our cash resources, anticipated capital requirements and our need for additional financing;
the commencement of future clinical trials and the results and timing of those clinical trials;
our ability to successfully commercialize CHEMOSAT and HEPZATO, generate revenue and successfully obtain reimbursement for the procedure and system;
the initiation and success of our research and development programs;
submission and timing of applications for regulatory approval and approval thereof;
our ability to successfully source components of CHEMOSAT and HEPZATO and enter into supplier contracts;
our ability to source melphalan for use in HEPZATO;
our ability to successfully manufacture CHEMOSAT and HEPZATO;
our ability to successfully negotiate and enter into agreements with distribution, strategic and corporate partners; and
our estimates of potential market opportunities and our ability to successfully realize these opportunities.
Many of the important factors that will determine these results are beyond our ability to control or predict. You are cautioned not to put undue reliance on any forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. Except as otherwise required by law, we do not assume any obligation to publicly update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events.
23

Company Overview
We are an interventional oncology company focused on the treatment of primary and metastatic liver cancers. Our lead product, the HEPZATO KITTM (“HEPZATO” melphalan for Injection/Hepatic Delivery System), a drug/device combination product, was approved by the US Food and Drug Administration (the “FDA”) on August 14, 2023 indicated as a liver-directed treatment for adult patients with uveal melanoma with unresectable hepatic metastases affecting less than 50% of the liver with no extrahepatic disease, or extrahepatic disease limited to the bone, lymph nodes, subcutaneous tissues, or lung that is amenable to resection. In Europe, the hepatic delivery system is a stand-alone medical device having the same device components as HEPZATO, but without the melphalan hydrochloride and is approved for sale under the trade name CHEMOSAT Hepatic Delivery System for Melphalan, or CHEMOSAT, where it has been used at major medical centers to treat a wide range of cancers of the liver.
In the United States, HEPZATO is considered a combination drug and device product and is regulated as a drug by the FDA. Primary jurisdiction for regulation of HEPZATO has been assigned to the FDA’s Center for Drug Evaluation and Research. The FDA has granted us six orphan drug designations (five for melphalan in the treatment of patients with ocular (uveal) melanoma, cutaneous melanoma, intrahepatic cholangiocarcinoma, hepatocellular carcinoma, and neuroendocrine tumor indications and one for doxorubicin in the treatment of patients with hepatocellular carcinoma).
Our clinical development program for HEPZATO was comprised of the FOCUS Clinical Trial for Patients with Hepatic Dominant Ocular Melanoma (the “FOCUS Trial”), a global registration clinical trial that investigated objective response rate in metastatic ocular melanoma (“mOM”). We are currently reviewing the incidence, unmet need, available efficacy data and development requirements for a broad set of liver cancers in order to select a portfolio of follow-on indications that will maximize the value of the HEPZATO platform. In addition to HEPZATO’s use to treat mOM, we believe that HEPZATO has the potential to treat other liver dominant cancers, such as Metastatic Colorectal Cancer and Cholangiocarcinoma, and plan to begin the study of HEPZATO to treat such conditions in the near future. We believe that the disease states we are investigating and intend to investigate are unmet medical needs that represent significant market opportunities.
Upon launch, we believe we believe we will have sufficient stock for HEPZATO KIT to meet the first year of our forecasted demand and intend to manage supply chain risk through stockpiled inventory and contracting with multiple suppliers for critical components.
As we prepare for the launch of HEPZATO, we continue our expanded access programs (“EAP”) in the United States to make HEPZATO readily available to mOM patients. We are focused on continuing to treat patients enrolled in the EAP sites.
On February 28, 2022, CHEMOSAT received Medical Device Regulation (MDR) certification under the European Medical Devices Regulation (2017/745/EU), which may be considered by jurisdictions when evaluating reimbursement. As of March 1, 2022, we have assumed direct responsibility for sales, marketing and distribution of CHEMOSAT in Europe.
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Results of Operations
Three months ended September 30,Nine months ended September 30,
(In thousands)2023202220232022
Total revenues$434 $906 $1,526 $2,080 
Cost of goods sold(133)(235)(464)(449)
Gross profit301 671 1,062