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Assets and Liabilities Measured at Fair Value
 9 Months Ended
Sep. 30, 2012
Assets and Liabilities Measured at Fair Value [Abstract]  
Assets and Liabilities Measured at Fair Value
Note 7:
Assets and Liabilities Measured at Fair Value

Derivative warrant liability
The Company allocated part of the proceeds of a private placement and two public offerings of the Company's common stock to warrants issued in connection with those 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 FASB ASC 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 May 2012, the Company completed the sale of 15,333,340 shares of its common stock and the issuance of warrants to purchase 4,600,002 common shares (the "2012 Warrants") pursuant to an underwriting agreement. The Company received proceeds of $21.5 million, with net cash proceeds after related expenses from this transaction of approximately $21.1 million. Of those proceeds, the Company allocated an estimated fair value of $3.4 million to the 2012 Warrants. At September 30, 2012, the 2012 Warrants were exercisable at $1.65 per share with 4,600,002 warrants outstanding. The 2012 Warrants have a three-year term. The shares and warrants 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 proceeds of $3.0 million, with net cash proceeds after related expenses from this transaction of approximately $2.7 million. Of those proceeds, the Company allocated an estimated fair value of $2.2 million to the 2009 Warrants (see below). As required by the 2009 Warrant agreement, the exercise price of the warrants was adjusted following the Company's May 31, 2012 sale of common stock and warrants. At September 30, 2012, the 2009 Warrants were exercisable at $1.33 per share with 1,043,478 warrants outstanding.  The 2009 Warrants have a five-year term. The shares and warrants were issued pursuant to an effective registration statement on Form S-3.
 
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") 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 those proceeds to the 2007 Warrants (see below). In accordance with the provisions of the 2007 Warrant agreement, both the exercise price and number of warrants were adjusted following the Company's May 31, 2012 sale of common stock and warrants and became exercisable at $1.49 per share with 3,392,592 warrants outstanding. The 2007 Warrants expired on September 21, 2012. Approximately 3.0 million warrants were exercised during the quarter ended September 30, 2012. The remaining liability after the warrant exercises was credited to pre-tax derivative intrument income.
 
The $3.4 million in proceeds allocated to the 2012 Warrants and the $2.2 million in proceeds allocated to the 2009 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 nine month period ended September 30, 2012, the Company recorded pre-tax derivative instrument income of $1.0 million. The resulting derivative instrument liabilities totaled $4.6 million at September 30, 2012. Management expects that the warrants will either be exercised or expire worthless. The fair value of the Warrants at September 30, 2012 was determined by using an option pricing model assuming the following:
 
 
2012 Warrants
2009 Warrants
Expected volatility
83.54
%
85.83
%
Risk-free interest rates
0.28
%
0.21
%
Expected life (in years)
2.7
1.7

 
Money Market Funds
Cash and cash equivalents includes a money market account valued at $2.0 million.

The table below presents the Company's assets and liabilities measured at fair value on a recurring basis as of September 30, 2012, 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 September 30, 2012
(in thousands)

Level 1
Level 2
Level 3
Balance at
September 30, 2012
Assets
 
 
 
 
Money market funds
$
1,967
-
-
$
1,967
Total Assets
$
1,967
-
-
$
1,967
Liabilities
Warrant liability
$
-
-
$
4,561
$
4,561
Total Liabilities
$
-
-
$
4,561
$
4,561

 
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
(in thousands)

Warrant Liability
Beginning balance
$
2,439
Total change in the fair value of the liability included in earnings
(1,025
)
Fair value of warrants issued
4,055
 Fair value of warrants exercised or expired
(908
) 
Ending balance
$
4,561