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Assets and Liabilities Measured at Fair Value
 6 Months Ended
Jun. 30, 2011
Assets and Liabilities Measured at Fair Value [Abstract]  
Assets and Liabilities Measured at Fair Value
 
Note 6:    Assets and Liabilities Measured at Fair Value
 
Derivative warrant liability
The Company allocated part of the proceeds of a private placement and a public offering of the Company's common stock to warrants issued in connection with such transactions. The Company determined that these warrants should be classified as liabilities rather than equity.  The valuation of the warrants is determined using an option pricing model. This model uses inputs such as the underlying price of the shares issued when the warrant is exercised, volatility, risk free interest rate and expected life of the instrument.   The Company has determined that the warrant derivative liability should be classified within Level 3 of the fair-value hierarchy by evaluating each input for the model 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 FASB ASC 820-10-35. There are six inputs: the closing price of the Company's common stock on the day of evaluation; the exercise price of the warrants; the remaining term of the warrants; the volatility of Delcath's stock over that term; annual rate of dividends; and the riskless 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 our historical practice of not granting dividends. The closing price of the Company's common stock would fall under Level 1 of the fair-value hierarchy as it is a quoted price in an active market (820-10-35-40). The riskless rate of return is a Level 2 input as defined in 820-10-35-48, while the historical volatility is a Level 3 input as defined in FASB ASC 820-10-55-22. Since the lowest level input is a Level 3, the Company determined the warrant derivative liability is most appropriately classified within Level 3 of the fair value hierarchy.
 
In September 2007, the Company completed the sale of 3,833,108 shares of its common stock and the issuance of warrants to purchase 1,916,554 common shares (the “2007 Warrants” and together with the 2009 Warrants, the “Warrants”) in a private placement to institutional and accredited investors. The Company received net proceeds of $13.3 million in this transaction. The Company allocated $4.3 million of the total proceeds to 2007 Warrants (see below). The 2007 Warrants were initially exercisable at $4.53 per share beginning six months after the issuance thereof and on or prior to the fifth anniversary of the issuance thereof. As required by the 2007 Warrant agreement, both the exercise price and number of warrants were adjusted following the Company's June 9, 2009 sale of common stock. The 2007 Warrants are currently exercisable at $3.44 per share with 1,469,456 warrants outstanding at June 30, 2011. The shares were issued pursuant to an effective registration statement on Form S-3.

In June 2009, the Company completed the sale of 869,565 shares of its common stock and the issuance of warrants to purchase 1,043,478 common shares (the “2009 Warrants”) pursuant to a subscription agreement with a single investor. The Company received gross proceeds of $3.0 million, with net cash proceeds after related expenses from this transaction of approximately $2.67 million. Of those proceeds, the Company allocated an estimated fair value of $2.2 million to the 2009 Warrants (see below), resulting in net proceeds of $476,255. The 2009 Warrants are currently exercisable at $3.60 per share with 1,043,478 warrants outstanding at June 30, 2011 and have a five-year term. The shares and warrants were issued pursuant to an effective registration statement on Form S-3.

The $2.2 million in proceeds allocated to the 2009 Warrants and the $4.3 million in proceeds allocated to the 2007 Warrants are classified as derivative instrument liabilities. The terms of the Warrants provide for potential adjustment in the exercise price and are therefore considered to be derivative instrument liabilities that are subject to mark-to-market adjustment each period. As a result, for the six month period ended June 30, 2011, the Company recorded pre-tax derivative instrument income of $11.0 million. The resulting derivative instrument liabilities totaled $7.0 million at June 30, 2011. The fair value of the Warrants at June 30, 2011 was determined by using the Black-Scholes model assuming a risk free interest rate of 0.80% for the 2009 Warrants and 0.25% for the 2007 Warrants, volatility of 81.46% for the 2009 Warrants and 84.27% for the 2007 Warrants and an expected life equal to the contractual life of the Warrants (June 2014 and September 2012, respectively).

Management believes that the possibility of an actual cash settlement with a warrant holder is quite remote, and expects that the Warrants will either be exercised or expire worthless, at which point the then existing warrant liability will be credited to stockholders' equity when exercised or recorded through earnings if allowed to expire worthless.

Money Market Funds
Cash and cash equivalents includes a money market account valued at $31.0 million.
 
The table below presents the Company's assets and liabilities measured at fair value on a recurring basis as of June 30, 2011, aggregated by the level in the fair value hierarchy within which those measurements fall:

Assets and Liabilities Measured at Fair Value on a Recurring Basis at June 30, 2011

   
Level 1
  
Level 2
  
Level 3
  
Balance at June 30, 2011
 
Assets
            
Marketable equity securities
 $9,000  $-  $-  $9,000 
Money market funds
  30,985,111   -   -   30,985,111 
Total Assets
 $30,994,111  $-  $-  $30,994,111 
Liabilities
                
Warrant liability
 $-  $-  $7,012,723  $7,012,723 
Total Liabilities
 $-  $-  $7,012,723  $7,012,723 

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
 
   
Warrant Liability
 
Beginning balance
 $18,005,014 
Total decrease in the liability included in earnings
  (10,992,291)
Ending balance
 $7,012,723