UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[x] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended June 30, 2006
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ____________ to ____________
Commission file number: 001-16133
DELCATH SYSTEMS, INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 06-1245881
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1100 Summer Street, 3rd Floor, Stamford, CT 06905
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(Address of Principal Executive Offices)
(203) 323-8668
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(Issuer's Telephone Number)
N/A
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(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 [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act. Yes [ ] No [X]
As of August 7, 2006, 19,889,039 shares of the Issuer's common stock, $0.01 par
value, were issued and outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
DELCATH SYSTEMS, INC.
Index
Page No.
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Part I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements (Unaudited)
Condensed Balance Sheet - June 30, 2006 3
Condensed Statements of Operations for the Three and Six Months Ended 4
June 30, 2006 and 2005 and Cumulative from Inception
(August 5, 1988) to June 30, 2006
Condensed Statements of Cash Flows for the Six Months Ended 5
June 30, 2006 and 2005 and Cumulative from Inception
(August 5, 1988) to June 30, 2006
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis or
Plan of Operation 9
Item 3. Controls and Procedures 11
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Unregistered Sales of Equity Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 13
Item 6. Exhibits 13
Signatures 14
Delcath Systems, Inc.
(A Development Stage Company)
Condensed Balance Sheet
(Unaudited)
June 30, 2006
June 30,
Assets 2006
----------------
Current assets:
Cash and cash equivalents $ 6,512,798
Certificates of deposit 7,291,000
Interest receivable 181,449
Prepaid insurance 34,917
----------------
Total current assets 14,020,164
Furniture and fixtures, net 5,411
----------------
Total assets $ 14,025,575
================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 888,972
----------------
Total current liabilities 888,972
----------------
Stockholders' equity
Common stock, $0.01 par value, 70,000,000
shares authorized 197,415
Additional paid-in capital 41,524,212
Deficit accumulated during development stage (28,585,024)
----------------
Total stockholders' equity 13,136,603
----------------
Total liabilities and stockholders'
equity $ 14,025,575
================
See accompanying notes to condensed financial statements
3
Delcath Systems, Inc.
(A Development Stage Company)
Condensed Statements of Operations
(Unaudited)
Cumulative
From Inception
Three Months Ended Six Months Ended (August 5, 1988)
June 30, June 30, to
2006 2005 2006 2005 June 30, 2006
---------------------------------- -------------------------- ----------------
Costs and expenses:
General and administrative expenses
(Includes $166,743 stock option com-
pensation expense in 2006 - See Note 5) $ 1,090,967 $ 292,145 $ 1,652,517 $ 707,403 $ 10,091,722
Research and development costs
(Includes $338,539 stock option com-
pensation expense in 2006 - See Note 5) 635,217 382,806 1,401,857 934,167 18,461,337
------------- ------------ -------------- ------------- ----------------
Total costs and expenses 1,726,184 674,951 3,054,374 1,641,570 28,553,059
------------- ------------ -------------- ------------- ----------------
Operating loss (1,726,184) (674,951) (3,054,374) (1,641,570) (28,553,059)
Other income (expense):
Interest income 160,465 49,867 304,517 101,159 1,638,113
Interest expense - - - - (171,473)
------------- ------------ -------------- ------------- ----------------
Net loss $ (1,565,719)$ (625,0$4) $ (2,749,857) $ (1,540,411) $ (27,086,419)
============= ============ ============== ============= ================
Common share data:
Basic and diluted loss
per share $ (0.08) $ (0.04) $ (0.14) % (0.10)
============= ============ ============== =============
Weighted average number
of shares of common
stock outstanding 19,633,405 15,491,060 19,418,425 15,424,912
============= ============ ============== ==============
See accompanying notes to condensed financial statements
4
DELCATH SYSTEMS, INC.
(A Development Stage Company)
Condensed Statements of Cash Flows
(Unaudited)
Cumulative
Six Months Ended from inception
June 30, (August 5, 1988)
2006 2005 to June 30, 2006
-------------------------- ----------------
Cash flows from operating activities:
Net loss $ (2,749,857) $ (1,540,411) $ (27,086,419)
Adjustments to reconcile net
loss to net cash used in operating activities
Stock option compensation expense 505,282 - 3,038,944
Stock and warrant compensation expense
issued for consulting services - - 339,711
Depreciation expense 2,143 3,030 39,887
Amortization of organization costs - - 42,165
Changes in assets and liabilities:
(Increase) decrease in prepaid expenses (8,000) 28,538 (34,917)
Increase in interest receivable (89,875) (50,048) (181,449)
Increase (decrease) in accounts
payable and accrued expenses 558,902 (134,298) 888,972
-------------------------- ----------------
Net cash used in operating activities (1,781,405) (1,693,189) (22,953,106)
-------------------------- ----------------
Cash flows from investing activities:
Purchase of furniture and fixtures - - (45,298)
Purchase of short-term investments (1,800,000) (1,047,077) (23,867,494)
Proceeds from maturities of short-term investments 5,606,790 3,055,129 16,576,494
Organization costs - - (42,165)
-------------------------- ----------------
Net cash provided by (used in)
investing activities 3,806,790 2,008,052 (7,378,463)
-------------------------- ----------------
Cash flows from financing activities:
Net proceeds from sale of stock and
exercise of stock options and warrants 2,783,282 313,399 35,690,041
Repurchases of outstanding common stock - - (51,103)
Dividends paid - - (499,535)
Proceeds from short-term borrowings - - 1,704,964
-------------------------- ----------------
Net cash provided by
financing activities 2,783,282 313,399 36,844,367
-------------------------- ----------------
Increase in cash and cash equivalents 4,808,667 628,262 6,512,798
Cash and cash equivalents at beginning of period 1,704,131 202,335 -
-------------------------- ----------------
Cash and cash equivalents at end of period $ 6,512,798 $ 830,597 $ 6,512,798
========================== ================
Cash paid for interest $ - $ - $ 171,473
========================== ================
Supplemental disclosure of non-cash 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
========================== ================
See accompanying notes to condensed financial statements
5
Delcath Systems, Inc.
(A Development Stage Company)
Notes to Condensed 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 while greatly inhibiting their entry into the general
circulation system. It is hoped that the procedure will result in a meaningful
treatment for cancer. In November 1989, the Company was granted an IDE
(Investigational Device Exemption) and an IND (Investigational New Drug) for its
product by the FDA (Food and Drug Administration). The Company is seeking to
complete clinical trials in order to obtain separate FDA pre-market approvals
for the use of its delivery system using doxorubicin and melphalan,
chemotherapeutic agents, to treat malignant melanoma that has spread to the
liver.
Note 2: Basis of Presentation
The accompanying financial statements are unaudited and have been prepared by
the Company in accordance with accounting principles generally accepted in the
United States of America. 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 (consisting of normal recurring accruals) necessary for a fair
statement of the results for the interim periods ended June 30, 2006 and 2005
and cumulative from inception (August 5, 1988) to June 30, 2006.
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, 2005, which are
contained in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 2005 as filed with the Securities and Exchange Commission.
Note 3: Research and Development Costs
Research and development costs include the costs of materials, personnel,
outside services and applicable indirect costs incurred in development of the
Company's proprietary drug delivery system. All such costs are charged to
expense when incurred.
Note 4: Stockholders' Equity
During the six months ended June 30, 2006, the Company received net proceeds of
$6,388 ($1.022 per share) upon the exercise of 1,250 of the Representative Unit
Purchase Warrants that were issued to underwriters as part of the 2003 public
offering. In addition, 6,250 Representative's Common Stock Warrants were
exercised and net proceeds of $8,000 ($1.28 per share) were received with an
additional 6,250 shares of common stock being issued.
The Company received a net amount of $10,300 upon the exercise of 10,000 in
stock options during the six months ended June 30, 2006. All were exercised at a
price of $1.03 per share.
6.
During the six months ended June 30, 2006, the Company received net proceeds of
$2,758,594 as 143,308 of the March 2004 Warrants were exercised, 349,573 of the
November 2004 Warrants were exercised, and 376,507 of the November 2005 Warrants
were exercised for which it has issued shares of its common stock.
The following table sets forth changes in stockholders' equity during the six
months ended June 30, 2006:
Common Stock, $0.01 Par Value Deficit Accumulated
Issued and Outstanding Additional During
-------------------------------
No. of shares Amount Paid in Capital Development Stage Total
------------- ------ -------------- ----------------- -----
Balance at December 31, 2005 18,849,653 $188,497 $38,244,566 $(25,835,167) $12,597,896
Issuance of common stock in
connection with the exercise of
2003 Representative's Unit
Purchase Warrants 6,250 62 6,326 -- 6,388
Issuance of common stock in
connection with the exercise of
Representative's Common Stock
Warrants 6,250 62 7,938 -- 8,000
Issuance of common stock in
connection with the exercise of
stock options 10,000 100 10,200 -- 10,300
Issuance of common stock in
connection with the exercise of
2004 and 2005 Warrants 869,388 8,694 2,749,90 -- 2,758,594
Vesting of stock options -- -- 505,282 -- 505,282
Net loss for six months ended
June 30, 2006 (2,749,857) (2,749,857)
---------- -------- ----------- ------------- -----------
Balance at June 30, 2006 19,741,541 $197,415 $41,524,212 $(28,585,024) $13,136,603
========== ======== =========== ============= ============
Note 5: Stock Option Plan
In December 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123R, "Share-Based Payment"
(SFAS 123R). This Statement is a revision of SFAS No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), and supersedes Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), and its
related implementation guidance. SFAS 123R establishes accounting for equity
instruments exchanged for employee services. Under the provisions of SFAS 123R,
share-based compensation is measured at the grant date, based upon the fair
value of the award, and is recognized as an expense over the employee's
requisite service period (generally the vesting period of the equity grant).
Prior to January 1, 2006, the Company accounted for share-based compensation to
employees in accordance with APB 25, as permitted by SFAS No. 123, and,
accordingly, did not recognize compensation expense for the issuance of options
with an exercise price equal to or greater than the market price at the date of
grant. The Company also followed the disclosure requirements of SFAS 123 as
amended by SFAS 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure". Effective January 1, 2006, the Company adopted the modified
prospective approach and accordingly, prior period amounts have not been
restated. Under this approach, the Company is required to record compensation
cost for all share-based payments granted after the date of adoption based on
the grant date fair value, estimated in accordance with the provisions of SFAS
123R, and for the unvested portion of all share-based payments previously
granted that remain outstanding based on the grant date fair value, estimated in
accordance with the
7.
original provisions of SFAS 123. The Company will expense its share-based
compensation for share based payments granted after January 1, 2006 under the
ratable method, which treats each vesting tranche as if it were an individual
grant. Adoption of this standard did not have a significant impact on the
Company's financial condition or results of operations.
The Company periodically grants stock options for a fixed number of shares of
common stock to its employees, directors and non-employee contractors, with an
exercise price greater than or equal to the fair market value of our common
stock at the date of the grant. The Company estimates the fair value of stock
options using a Black-Scholes valuation model. Key inputs used to estimate the
fair value of stock options include the exercise price of the award, the
expected post-vesting option life, the expected volatility of our stock over the
option's expected term, the risk-free interest rate over the option's expected
term, and our expected annual dividend yield. Estimates of fair value are not
intended to predict actual future events or the value ultimately realized by
persons who receive equity awards. There have been no share-based payments
granted in 2006.
The required adoption of SFAS No. 123R as of January 1, 2006 is expected to
significantly increase compensation expense for future grants. The actual impact
on future years will be dependent on a number of factors, including our stock
price and the level of future grants and awards. In addition, costs related to
accounting and valuation services of stock options currently outstanding in
accordance with SFAS No. 123R would have been cost prohibitive to the Company if
the Company had not adopted certain measures. Based on these considerations and
after discussion of applicable accounting literature, the Compensation Committee
of the Board of Directors approved accelerating the vesting of all unvested
stock options effective January 1, 2006. Unvested options having exercise prices
of $2.78 and $3.59 per share, representing the right to purchase a total of
approximately 1 million shares, became exercisable as a result of the vesting
acceleration. All other terms and conditions in the original grants remain
unchanged. The acceleration of vesting resulted in the recognition of a non cash
compensation expense of $505,282 on January 1, 2006 which is included in general
and administrative expenses and research and development costs in the statements
of operations.
Prior to January 1, 2006, the Company accounted for stock-based compensation
plans in accordance with the provisions of APB 25, as permitted by SFAS No. 123,
and, accordingly, did not recognize compensation expense for the issuance of
options with an exercise price equal to or greater than the market price at the
date of grant. There were no share-based grants during the six month period
ended June 30, 2005. Following the methodology of SFAS No. 123 regarding
compensation costs based on the fair value for all employee stock option grants,
the net loss and net loss per share for the six months ended June 30, 2005 would
have been increased to the pro forma amounts indicated as follows:
Net loss, as reported $ (1,540,411)
Stock-based employee
compensation expense included
in net loss, net of related
tax effects 0
Stock-based employee
compensation determined under
the fair value based method,
net of related tax effects (35,235)
------------
Pro forma net loss $ (1,575,646)
============
Loss per share (basic and diluted):
As reported $ (0.10)
Pro forma (0.10)
8.
The Company established an Incentive Stock Option Plan, a Non-Incentive Stock
Option Plan, the 2000 Stock Option Plan, the 2001 Stock Option Plan and the 2004
Stock Incentive Plan (collectively, the "Plans") under which stock options,
stock appreciation rights, restricted stock, and stock grants may be awarded. A
stock option grant allows the holder of the option to purchase a share of the
Company's Common Stock in the future at a stated price. The Plans are
administered by the Compensation Committee of the Board of Directors which
determines the individuals to whom the options shall be granted as well as the
terms and conditions of each option grant, the option price and the duration of
each option.
The Company's Incentive and Non-Incentive Stock Option Plans were approved and
became effective on November 1, 1992. During 2000, 2001 and 2004, respectively,
the 2000 and 2001 Stock Option Plans and the 2004 Stock Incentive Plan, became
effective. Options granted under the Plans vest as determined by the Company and
expire over varying terms, but not more than five years from the date of grant.
All outstanding options are fully vested. Stock option activity for the six
month period ended June 30, 2006 is as follows:
The Plans
------------------------------------------------------------------------
Exercise Weighted Weighted
Price Average Average
Stock Per Exercise Remaining Life
Options Share Price (Years)
------ ----- ----- -------
Outstanding at December 31, 2005 1,385,800 $0.71 - $3.59 $2.51 4.17
Granted 0
Expired 0
Exercised 10,000 $1.03 $1.03
---------
Outstanding at June 30, 2006 1,375,800 $0.71 - $3.59 $2.52 3.69
=========
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(a) Plan of Operation
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 our current or future
drug-delivery system and uncertainties regarding our ability to obtain financial
and other resources for any research, development and commercialization
activities. These factors, and others, are discussed from time to time in our
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.
OVERVIEW
Since our founding in 1988 by a team of physicians, 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 for the development of our medical device and the clinical trials of
our
9.
product, and the pursuit of patents worldwide. We expect to continue to incur
significant losses from costs for product development, clinical studies,
securing patents, regulatory activities, manufacturing and establishment of a
sales and marketing organization without any significant revenues. A detailed
description of the cash used to fund historical operations is in the financial
statements and the notes thereto. Without an FDA-approved product and commercial
sales, we will continue to be dependent upon existing cash and the sale of
equity or debt to fund future activities. While 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.
During 2001, the Company initiated a Phase I clinical study at The National
Cancer Institute of the Delcath system for isolated liver perfusion using the
chemotherapeutic agent, melphalan. The Phase I trial marked an expansion in the
potential labeled usage beyond doxorubicin, the chemotherapeutic agent used in
our initial clinical trials. Enrollment of new patients in the Phase I trial was
completed in 2003.
During 2004, we commenced a Phase III clinical trial study of the Delcath drug
delivery system for inoperable cancer in the liver using doxorubicin. We are
currently recruiting sites worldwide.
During 2005, we commenced a Phase II multiple histology study of the Delcath
drug delivery system for cancers related to the colon, breast, and lymph nodes
using melphalan and patients are being enrolled and treated.
In 2006, we started enrolling and treating patients in a Phase III protocol for
the study of the Delcath drug delivery system for inoperable cancer in the liver
using melphalan.
Over the next 12 months, we expect to continue to incur substantial expenses
related to the research and development of our technology, including Phase III
clinical trials using melphalan and doxorubicin with the Delcath system and
Phase II clinical trials using melphalan with the Delcath system. Additional
funds, when available, will be committed to pre-clinical and clinical trials for
the use of other chemotherapy agents with the Delcath system for the treatment
of liver cancer, and the development of additional products and components. We
will also continue efforts to qualify additional sources of the key components
of our device, in an effort to further reduce manufacturing costs and minimize
dependency on a single source of supply.
Liquidity and Capital Resources
We expect our available funds to be sufficient for our anticipated needs for
working capital and capital expenditures through 2007 provided no studies using
new agents or treating new organs are initiated or a substantial increase in
sites for the Phase III human clinicals occurs. The Company is not projecting
any capital expenditures that will significantly affect the Company's liquidity
during the next 12 months. The Company is projecting the hiring of one
additional employee.
Our future liquidity and capital requirements will depend on numerous factors,
including the progress of our research and product development programs,
including clinical studies; the timing and costs of making various United States
and foreign regulatory filings, obtaining approvals and complying with
regulations; the timing and effectiveness of product commercialization
activities, including marketing arrangements overseas; the timing and costs
involved in preparing, filing, prosecuting, defending and enforcing intellectual
property rights; and the effect of competing technological and market
developments.
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 of its ever achieving consistent profitability. The Company believes
its capital resources are adequate to fund operations for at least the next
twelve months but anticipates that it will require additional working capital
after 2007 or earlier if new studies or trials are
10.
initiated or, again, if a substantial increase in sites for the Phase III human
clinicals occurs. There can be no assurance that such working capital will be
available on acceptable terms, if at all.
During the six months ended June 30, 2006, the Company had exercises of
previously issued options and warrants. Please see Note 4 to the June 30, 2006
Condensed Financial Statements included in Part I of this filing and
incorporated herein by reference for a complete description of share issuances
together with receipt of proceeds. We plan to use the net proceeds to fund, in
part, the Phase III clinical trial using doxorubicin and the Phase III clinical
trial at The National Cancer Institute using melphalan.
Application of Critical Accounting Policies
The Company's financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America.
Certain accounting policies have a significant impact on amounts reported in the
financial statements. A summary of those significant accounting policies can be
found in Note 1 to the Company's financial statements contained in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 2005 as filed with
the Securities and Exchange Commission. The Company has not adopted any
significant new accounting policies or modified the application of existing
policies during the six months ended June 30, 2006.
(b) Management's Discussion and Analysis of Financial Condition and
Results of Operations
Not Applicable.
(c) Off-balance sheet arrangements
The Company does not have any off-balance sheet arrangements.
Item 3. CONTROLS AND PROCEDURES
Based on an evaluation of the Company's disclosure controls and procedures
performed by the Company's Chief Executive Officer and its Chief Financial
Officer as of the end of the period covered by this report, the Company's Chief
Executive Officer and its Chief Financial Officer concluded that the Company's
disclosure controls and procedures have been effective.
As used herein, "disclosure controls and procedures" means controls and other
procedures of the Company that are designed to ensure that information required
to be disclosed by the Company in the reports that it files or submits under the
Securities Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the rules and forms issued by the Securities and
Exchange Commission. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by the Company in the reports that it files or submits under the
Securities Exchange Act is accumulated and communicated to the Company's
management, including its principal executive officer or officers and its
principal financial officer or officers, or persons performing similar
functions, as appropriate to allow timely decisions regarding required
disclosure.
Since the date of the evaluation described above, there were no significant
changes in the Company's internal controls or in other factors that could
significantly affect these controls, and there were no corrective actions with
regard to significant deficiencies and material weaknesses.
11.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
On August 4, 2006, the Company instituted a lawsuit against Robert Ladd,
Laddcap Value Associates LLC and Laddcap Value Partners LP (collectively, the
"Ladd Defendants") in the U.S. District Court for the District of Columbia. The
lawsuit alleges that the Ladd Defendants have made a series of material
misstatements and omissions in violation of the Securities Exchange Act of 1934
in its 13D filings, Valuation Proxy Solicitation and Schedule 14A Preliminary
Proxy Statement for their proposed consent solicitation seeking to replace the
Company's Board of Directors. The principal relief sought by the Company is an
order: (a) enjoining its proposed consent solicitation until after a trial can
be held on the merits; (b) mandating that the Ladd Defendants publicly correct
their misstatements and omissions following a trial on the merits; and (c)
prohibiting the Ladd Defendants from making any further misstatements and
omissions.
In addition, on August 4, 2006, the Company instituted a lawsuit against
Jonathan Foltz by filing a complaint in the State of Connecticut Superior Court
for the Judicial District of Stamford/Norwalk at Stamford. The complaint alleges
that Mr. Foltz, the former Director of Operations of Delcath, has
misappropriated various Delcath trade secrets and other proprietary information
and has wrongly shared such protected information with various Laddcap
investment vehicles and has also used the information for his own personal gain.
The complaint alleges that Mr. Foltz violated the Uniform Trade Secrets Act and
the Unfair Trade Practices Act of Connecticut. The relief sought by the Company
includes a temporary and permanent injunction, money damages, including punitive
damages, and attorney's fees.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In April 2006, the Company issued an aggregate of 376,507 shares of its
Common Stock upon exercise of then outstanding Warrants to Purchase Shares of
Common Stock dated November 27, 2005. The Company received an aggregate of
$1,355,425 upon such exercises. On May 30, 2006, the Company issued an aggregate
of 51,868 shares of its Common Stock upon exercise of then outstanding Warrants
to Purchase Shares of Common Stock dated March 19, 2004. The Company received an
aggregate of $156,123 upon such exercises. The Company claims an exemption from
registration of the offer and sale of the shares of Common Stock issued upon
exercise of these Warrants under Rule 506 under the Securities Act of 1933 on
the basis that each of the purchasers is an accredited investor.
No underwriter was involved in the exercise of these Warrants, and the Company
paid no underwriting discount or commission in connection therewith. Proceeds
from the sale of securities will be used to fund current and future operations.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
On June 13, 2006, the Company held its 2006 Annual Meeting of Stockholders.
At the meeting, the stockholders voted on the election of two Class III
directors of the Company to hold office until the Annual Meeting of Stockholders
in 2009 and until their successors are duly elected and qualified. They also
voted on a resolution proposed by a stockholder that recommended that the
Company's Board of Directors retain the services of a nationally recognized
investment banking and/or merger advisory firm with expertise in the medical
device industry to assist the Company in exploring a potential sale to or a
business combination with a third party to maximize stockholders value.
12.
The stockholders voted 10,437,498 shares in favor of electing Mark Corigliano to
serve as a Class III director and withheld authority to vote 7,507,395 shares.
The stockholders voted 10,408,998 shares in favor of electing Victor Nevins to
serve as a Class III director and withheld authority to vote 7,535,895 shares.
The term of office of Daniel Isdaner as a Class I director will continue until
the Annual Meeting of Stockholders in 2007. The term of office of each of M. S.
Koly and Samuel Herschkowitz, M.D. as Class II directors will continue until the
Annual Meeting of Stockholders in 2008. Votes for the stockholder resolution
were 7,725,767, votes against the resolution were 4,991,779, and votes
abstaining were 283,465.
Item 5. Other Information
The information included in Item 2 of this report is incorporated by
reference into this Item 5.
Item 6. EXHIBITS
31.1 Certification by Chief Executive Officer Pursuant to Rule 13a-14.
31.2 Certification by Chief Financial Officer Pursuant to Rule 13a-14.
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350 as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350 as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
13.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
DELCATH SYSTEMS, INC.
(Registrant)
August 14, 2006 /s/ PAUL M. FEINSTEIN
------------------------------------
Paul M. Feinstein
Chief Financial Officer (on behalf of
the registrant and as the principal
financial and accounting officer of
the registrant)
14.
EXHIBIT INDEX
No. Description
--- -----------
31.1 Certification by Chief Executive Officer Pursuant to Rule 13a-14.
31.2 Certification by Chief Financial Officer Pursuant to Rule 13a-14.
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350 as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350 as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.