================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the quarterly period ended March 31, 2001
[ ] Transition report under 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 Small Business Issuer as Specified in Its Charter)
Delaware 06-1245881
- -------------------------------- ---------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1100 Summer Street, 3rd Floor, Stamford, CT 06905
----------------------------------------------------
(Address of Principal Executive Offices)
(203) 323-8668
----------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
NONE
----------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
----- -----
As of May 14, 2001, there were 3,903,816 shares of the Issuer's Common Stock,
$0.01 par value, issued and outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
----- -----
================================================================================
DELCATH SYSTEMS, INC.
INDEX
Note: Net loss for the quarter ended March 31, 2001 and for the cumulative
period from inception (August 5, 1988) to March 31, 2001 have been
restated to include as an expense in the first quarter of 2001, the
estimated value of warrants issued as explained in Note 4 of Notes to
Financial Statements.
Page No.
--------
Part I. FINANCIAL INFORMATION 3
Item 1. Financial Statements (Unaudited) 3
Balance Sheet (Restated) - March 31, 2001 3
Statements of Operations for the Three Months Ended 4
March 31, 2001 (Restated) and 2000 and Cumulative from
Inception (August 5, 1988) to March 31, 2001 (Restated)
Statements of Cash Flows for the Three Months Ended 5
March 31, 2001 (Restated) and 2000 and Cumulative from
Inception (August 5, 1988) to March 31, 2001 (Restated)
Notes to Financial Statements 6
Item 2. Plan of Operation 6
Part II. OTHER INFORMATION 8
Item 2. Changes in Securities 8
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
2
DELCATH SYSTEMS, INC.
BALANCE SHEET
(UNAUDITED)
MARCH 31, 2001
MARCH 31,
ASSETS 2001
(Restated)
------------
Current assets:
Cash and cash equivalents $ 4,865,432
Interest receivable 8,566
Prepaid insurance 43,331
------------
Total current assets 4,917,329
Furniture and fixtures, net 11,902
Due from affiliate 24,000
------------
Total assets $ 4,953,231
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 223,994
Short term borrowings 230,000
------------
Total current liabilities 453,994
------------
Stockholders' equity
Common Stock 39,039
Additional Paid-In Capital 18,835,159
Deficit accumulated during development stage (14,374,961)
------------
Total stockholders' equity 4,499,237
------------
Total liabilities and stockholders'
equity $ 4,953,231
============
3
DELCATH SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
CUMULATIVE
FROM INCEPTION
(AUGUST 5, 1988)
THREE MONTHS ENDED MARCH 31, TO
2001 2000 MARCH 31, 2001
(Restated) (Restated)
--------------------------------------------------------
Costs and expenses:
Legal consulting and accounting fees $ 422,294 98,273 5,413,524
Stock option compensation expense -- -- 2,520,170
Compensation and related expenses 122,978 52,921 2,870,594
Other operating expenses 123,076 64,432 2,612,556
--------------------------------------------------------
Total costs and expenses 668,348 215,626 13,416,844
--------------------------------------------------------
Operating loss (668,348) (215,626) (13,416,844)
Interest income 76,771 5,502 709,022
Interest expense (12,632) -- (168,534)
--------------------------------------------------------
Net loss $ (604,209) (210,124) (12,876,356)
========================================================
Common Share data:
Basic and diluted loss
per share $ (0.15) (0.24)
====================================
Weighted average number
of shares of common
stock outstanding 3,903,852 863,196
4
DELCATH SYSTEMS, INC.
CASH FLOWS
(UNAUDITED)
CUMULATIVE
FROM INCEPTION
THREE MONTHS ENDED (AUGUST 5, 1988)
3/31/2001 TO MARCH 31, 2001
(Restated) 3/31/2000 (Restated)
------------ ------------ ------------
Cash flow from operating activities:
Net loss $ (604,209) (210,124) (12,876,356)
Adjustments to reconcile net loss to net
cash used in operating activities
Stock option compensation expense
(reversal) -- -- 2,520,170
Stock and warrant compensation expense 198,000 -- 236,286
Depreciation expense 1,140 750 10,890
Amortization of organization costs -- -- 42,165
(Increase) decrease in prepaid expenses 25,835 (93,449) (43,331)
(Increase) decrease in interest receivable 23,802 3,082 (8,566)
Due from affiliate -- -- (24,000)
(Decrease) increase in accounts
payable and accrued expenses (574,921) 9,621 223,994
------------ ------------ ------------
Net cash used in operating activities (930,353) (290,120) (9,918,748)
------------ ------------ ------------
Cash flows from investing activities:
Purchase of furniture and fixtures (7,792) -- (22,792)
Purchase of short-term investments -- -- (1,030,000)
Proceeds from maturities of short-term investments -- -- 1,030,000
Organization costs -- -- (42,165)
------------ ------------ ------------
Net cash used in investing activities
(7,792) -- (64,957)
------------ ------------ ------------
Cash flows from financing activities:
Net proceeds from sale of stock and
exercise of stock options and warrants -- -- 13,413,708
Dividends Paid -- -- (499,535)
Deferred IPO costs -- (52,703) --
Proceeds from short-term borrowings -- -- 1,934,964
------------ ------------ ------------
Net cash provided by (used in)
financing activities -- (52,703) 14,849,137
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents (938,145) (342,823) 4,865,432
Cash and cash equivalents at beginning of period 5,803,577 561,078 --
------------ ------------ ------------
Cash and cash equivalents at end of period $ 4,865,432 218,255 4,865,432
============ ============ ============
Supplemental cash flow activities:
Conversion of debt to common stock $ -- -- 1,704,964
============ ============ ============
Common stock issued for preferred stock dividends $ -- -- 999,070
============ ============ ============
Conversion of preferred stock to common stock $ -- -- 24,167
============ ============ ============
Common stock issued as compensation
for stock sale $ -- -- 510,000
============ ============ ============
Cash paid for interest $ 1,294 -- 139,271
============ ============ ============
Common stock, options, warrants issued as compensation
for consulting services $ 198,000 -- 236,286
============ ============ ============
5
Delcath Systems Inc.
Notes to Financial Statements
Note 1: Description of Business
Delcath Systems, Inc. (the "Company") is a development stage company which was
founded in 1988 for the purpose of developing and marketing a proprietary drug
delivery system capable of introducing, and removing, high dose chemotherapy
agents to a diseased organ system while greatly inhibiting their entry into the
general circulation system. In November 1989, the Company was granted an
Investigational Device Exemption ("IDE") and an Investigational New Drug ("IND")
status for its product by the Food and Drug Administration ("FDA").
Note 2: Basis of Presentation
The accompanying financial statements are unaudited and have been prepared by
the Company in accordance with generally accepted accounting principles. Certain
information and footnote disclosures normally included in the Company's annual
financial statements have been condensed or omitted. The interim financial
statements, in the opinion of management, reflect all adjustments (including
normal recurring accruals) necessary for a fair statement of the results for the
interim periods ended March 31, 2001 and 2000.
The results of operations for the interim periods are not necessarily indicative
of the results of operations to be expected for the fiscal year. These interim
financial statements should be read in conjunction with the audited financial
statements and notes thereto for the year ended December 31, 2000, which are
contained in the Company's Form 10-KSB as filed with the Securities and Exchange
Commission on March 30, 2001.
Note 3: Capital Stock and Warrants
The common stock and per share data for all periods gives effect to reverse
stock splits of 1 for 2.2881 shares on September 28, 2000 and 1 for 1.2666
shares on October 11, 2000, resulting in and aggregate reverse split of
approximately 1 for 2.8981 shares.
Note 4: Restatements for Warrants Issued
The net loss and the loss per share for the three months ending March 31, 2001
and for the cumulative period from inception (August 5, 1988) to March 31, 2001
have been restated to give effect to the following common stock warrants issued
by the Company in 2001 for consulting services: (1) 150,000 warrants to purchase
150,000 units at $7.00 per unit, through January 4, 2005, each unit consisting
of one fully-paid and non-assessable share of common stock, and one Common Stock
Purchase Warrant entitling the holder to purchase one share of Delcath Common
Stock for $6.60 per share. None of these warrants were exercised as of March 31,
2001. Such warrants, valued at $175,000, were recognized as an expense in the
first quarter of 2001. The warrants granted were fully vested and
non-forfeitable, and, accordingly, were immediately expensed since they were not
subject to a significant penalty for non-performance; and (2) 150,000 warrants
to purchase up to 150,000 shares of Delcath Common Stock for $6.60 per share.
None of these warrants have been exercised as of March 31, 2001. 25,000 of such
warrants vested in the first quarter of 2001 and the remaining 125,000 warrants
vest if the share price of the Company's Common Stock exceeds certain share
price levels above the IPO price. As of March 31, 2001, none of the price levels
have been met. Warrants subject to this agreement expire in April 2005. The
25,000 vested warrants have been valued at $23,000, and were recognized as an
expense in the first quarter of 2001. The 25,000 warrants that vested in 2001
were non-forfeitable and were immediately expensed since they were not subject
to a significant penalty for non-performance. The expenses, as noted above,
recognized with these two warrant issues are non-cash expenses.
The value of the above warrants were $1.17 per warrant for warrants described in
(1) above, and $.90 per warrant for the 25,000 warrants that vested immediately
described in (2) above, and were estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions, respectively: risk free interest rates of 4.95% and 5.9%,
volatility of 26.7% and 22.9%, expected lives of four years and four and one
half years, with no dividend yield for either issue.
The above warrant issuances had previously not been recorded by the Company. The
effects of these issuances on previously reported net loss and net loss per
share are as follows:
Cumulative from
inception (August 5,
Three months ended 1988) to
March 31, 2001 March 31, 2001
-------------- --------------
Previously Previously
Restated reported Restated reported
-------- -------- -------- --------
Net loss $ (604,209) (406,209) (12,876,356) (12,678,356)
Basic and diluted loss
per share $ (0.15) (0.10)
ITEM 2. PLAN OF OPERATION
OVERVIEW
The Company was founded in 1988 by a team of physicians. Since our inception, we
have been a development stage company engaged primarily in developing and
testing the Delcath system for the treatment of liver cancer. A substantial
portion of our historical expenses have been in support of the development and
the clinical trials of our product. Until our initial public offering, we had
been dependent upon venture capital financing to fund our activities. Without an
FDA pre-marketing approved product, we have generated minimal revenues from
product sales. We have been unprofitable to date and have had losses of $572,581
and $960,185 for the years ended December 31, 1999 and 2000 and $604,209 for the
three months ended March 31, 2001. Cumulative losses from inception through
March 31, 2001 were $12,876,356. Losses have continued through the date of this
report. We expect to incur additional losses over the next three years and
anticipate these losses will increase significantly in this period due to
continued requirements for product development, clinical studies, regulatory
activities, manufacturing and establishment of a sales and marketing
organization. The amount of future net losses and time required to reach
profitability are uncertain. Our ability to generate significant revenue and
become profitable will depend on our success in commercializing our device.
Development of the Company's platform technology for isolated perfusion began in
1988 and has progressed through Phase I and II human clinical trials using
doxorubicin to treat cancers in the liver. In December 1999, the Company
received approval from the FDA to conduct Phase III clinical trials using
doxorubicin to treat
6
certain cancers in the liver. The Company is now contacting physicians at
medical centers who have expressed interest in participating in these clinical
trials. While there can be no assurance regarding the start of these trials, the
Company anticipates the physicians will be ready to start recruiting patients in
the second quarter of 2001.
The Company continues to expend substantial resources on the testing of its
initial product for isolated perfusion of the liver. These expenditures are
expected to rise substantially now that the Company has completed its initial
public offering and received FDA approval to proceed with Phase III human
clinical trials using doxorubicin for the treatment of malignant melanoma that
has spread to the liver. The Phase III trials will seek to demonstrate the
safety and efficacy of the Delcath system for this use. There can be no
assurance that the trials will be completed or that the FDA will approve
marketing of the Company's product once they are complete.
Sale of medical devices in the United States requires approval by the FDA, which
is contingent upon the results of the Phase III human clinical trials. Sale of
medical devices outside of the United States is controlled by local regulations
and the FDA regulates export of the devices from the United States.
The Company will also continue to expend resources on other projects, including
research and development stage clinical trials for other chemotherapy agents. If
additional funds are raised, other projects may be started as well.
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements, which are subject to certain
risks and uncertainties that can cause actual results to differ materially from
those described. Factors that may cause such differences include but are not
limited to, uncertainties relating to our ability to successfully complete Phase
III clinical trials and secure regulatory approval of any of our current or
future drug-delivery systems, uncertainties regarding our ability to obtain
financial and other resources for our research, development and commercial
activities. These factors, and others, are discussed from time to time in the
Company's filings with the Securities and Exchange Commission. You should not
place undue reliance on these forward-looking statements, which speak only as of
the date they are made. We undertake no obligation to publicly update or revise
these forward-looking statements to reflect events or circumstances after the
date they are made.
LIQUIDITY AND CAPITAL RESOURCES
Until completion of its initial public offering, the Company financed its
operations primarily through private placements of our common and preferred
stock. Prior to the completion of the initial public offering, the Company
raised $9,816,686 through the private sale of shares of its Class A Preferred
Stock, Class B Preferred Stock and Common Stock. In August and September 2000,
the Company also borrowed $230,000 for which it issued $230,000 principal amount
of promissory notes, which bear interest at an annual rate of 22% and are due on
May 27, 2001. Of these notes, $50,000 in principal amount was subscribed to by
M.S. Koly, Chief Executive Officer, President and Director of the Company, and
$40,000 principal amount was subscribed to by the mother of Samuel Herschkowitz,
M.D., our Chairman of the Board and Chief Technology Officer. The Company
expects to pay approximately $267,400 (including interest) to the holders of
these notes in May 2001. In October 2000, the Company completed an initial
public offering. We sold 1,200,000 units for $6.00 per unit, each unit
consisting of one share of our Common Stock and one redeemable warrant to
purchase one share of our Common Stock for $6.60 per share until October 18,
2005. The Company received $7.2 million before offering costs and before paying
cash dividends on preferred shares of approximately $499,535. After underwriting
discounts and cash expenses of the offering, the net proceeds to us were
approximately $5.4 million.
7
Our cash and cash equivalents totaled $4,865,432 on March 31, 2001, a decrease
of $938,145 from December 31, 2000.
Over the next 12 months, the Company expects to continue to incur expenses
related to the research and development of our technology, including Phase III
clinical trials using doxorubicin with the Delcath system and pre-clinical and
clinical trials for the use of other chemotherapy agents with the Delcath System
for the treatment of cancers in the liver.
We expect to begin doxorubicin trials during the second quarter of 2001. These
trials are expected to take 12 to 18 months to complete. The collation, analysis
and submission of the results of the trials to the FDA will take an additional
three months and we estimate that the FDA will respond to our submission within
three months.
We expect to incur significant additional operating losses over each of the next
several years and expect cumulative losses to increase significantly as we
continue to expand our research and development, clinical trials and marketing
efforts. During the next 12 months, we expect to purchase approximately $50,000
in computer, laboratory and testing equipment. We also expect to hire
approximately two additional employees in the areas of research and development,
regulatory and clinical management, marketing and administrative functions at an
estimated annual expense of $235,000. The number and timing of such hiring will
vary depending upon the success of the international marketing efforts and
progress of the clinical trials.
The Company anticipates that the net proceeds of our initial public offering,
together with our other available funds, will be sufficient to meet our
anticipated needs for working capital and capital expenditures through at least
the next 12 months. These operating expenses are expected to be at significantly
higher levels than past periods primarily in order to support and monitor the
envisioned Phase III clinical trials. Our future liquidity and capital
requirements, however, will depend on numerous factors, including: the progress
of our research and product development programs, including clinical studies;
the timing and costs of various United States and foreign regulatory filings;
the timing and effectiveness of product commercialization activities, including
marketing arrangements overseas; the timing and costs involved in obtaining
regulatory approvals, if ever, and complying with regulatory requirements; the
timing and costs involved in preparing, filing, prosecuting, defending and
enforcing intellectual property rights; and the effect of competing
technological and market developments.
If the proceeds of the initial public offering, together with our currently
available funds, are not sufficient to satisfy our spending plans, we will be
required to revise our capital requirements or to seek additional funding
through borrowings and/or additional sales of securities. We cannot assure you
that our available funds will be sufficient to fund our clinical trials with
respect to the use of the Delcath system with doxorubicin to treat liver cancer.
We also cannot assure you that additional financing will become available if
needed.
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
(a) - (c) Not applicable.
(d) The effective date of our first registration statement, filed on Form SB-2
under the Securities Act of 1933 (no. 333-39470) relating to our initial public
offering of our Common Stock, was October 19, 2000. A total of 1,200,000 units
were sold for $6.00 per unit, each unit consisting of one share of our Common
Stock and one redeemable warrant to purchase one share of our Common Stock for
$6.60 per share until October 18, 2005. The initial public offering generated
gross proceeds to the Company of $7.2 million, of which $720,000 was deducted
for the underwriting discount. Cash expenses relating to the offering, including
the discount and non-accountable expense reimbursement to the underwriter,
totaled approximately $1.8 million. Net proceeds to
8
Delcath were approximately $5.4 million. The cash expenses related to the
underwriting were $350,000 higher than expected, resulting in the actual net
proceeds to Delcath being $350,000 lower than estimated in the registration
statement. The Company has adjusted the use of proceeds to reflect the change in
net proceeds. We expect to use the net proceeds as follows:
Approximate
dollar amount
-------------
Research and development:
Phase III clinical trials using the Delcath system with
doxorubicin $ 3,750,000
Research and development stage clinical trials for other
chemotherapy agents $ 425,000
Repayment of indebtedness $ 270,000
Working capital and general corporate purposes $ 955,000
-------------
Total $ 5,400,000
=============
From the time of receipt through March 31, 2001, approximately $790,000 of the
net proceeds were expended as shown in the table below. The remaining net
proceeds are being held in temporary investments in short-term commercial paper.
Actual through
March 31, 2001
--------------
Research and development:
Phase III clinical trials using the Delcath system with
doxorubicin $ 575,000
Research and development stage clinical trials for other
chemotherapy agents $ 15,000
Repayment of indebtedness
Working capital and general corporate purposes $ 200,000
-------------
Total $ 790,000
=============
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the quarter for
which this report is being filed.
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DELCATH SYSTEMS, INC.
-------------------------------
(Registrant)
Date: March 6, 2002 /s/ Thomas S. Grogan
-------------------------------------------
Thomas S. Grogan
Chief Financial Officer (on behalf of
the registrant and as the Principal
Financial Officer of the registrant)
10
