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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

Or

☐ | TRANSITION 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)

Delaware |  | 06-1245881
(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 class |  | Trading Symbol(s) |  | Name of each exchange on which registered
Common stock, $0.01 par value per share |  | DCTH |  | The NASDAQ Capital Market

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 ☒ No ☐

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 ☒ No ☐

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 filer ☐ |  | Accelerated filer | ☐
Non-accelerated filer ☒ |  | Smaller reporting company | ☒
|  | Emerging growth company | ☐

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 9, 2021, 7,356,289 shares of the Company’s common stock, $0.01 par value, were outstanding.

DELCATH SYSTEMS, INC.

Table of Contents

| Page
PART I—FINANCIAL INFORMATION |
Item 1. | Financial Statements (Unaudited) |
| Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 | 3
| Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2021 and 2020 | 4
| Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the three and nine months ended September 30, 2021 and 2020 | 5
| Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 | 7
| Notes to the Condensed Consolidated Financial Statements | 9
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 24
Item 4. | Controls and Procedures | 24
PART II—OTHER INFORMATION |
Item 1. | Legal Proceedings | 25
Item 5. | Other Information | 25
Item 6. | Exhibits | 27
SIGNATURES | 29

2

DELCATH SYSTEMS, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share data)

|  | September 30, |  |  | December 31, |
|  | 2021 |  |  | 2020 |
Assets |  |  |  |  |  |  |  |
Current assets |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 24,865 |  |  | $ | 28,575 |
Restricted cash |  |  | 4,151 |  |  |  | 181 |
Accounts receivable, net |  |  | 69 |  |  |  | 57 |
Inventories |  |  | 1,238 |  |  |  | 855 |
Prepaid expenses and other current assets |  |  | 1,995 |  |  |  | 2,670 |
Total current assets |  |  | 32,318 |  |  |  | 32,338 |
Property, plant and equipment, net |  |  | 1,380 |  |  |  | 1,351 |
Right-of-use assets |  |  | 727 |  |  |  | 946 |
Total assets |  | $ | 34,425 |  |  | $ | 34,635 |
Liabilities and Stockholders' Equity |  |  |  |  |  |  |  |
Current liabilities |  |  |  |  |  |  |  |
Accounts payable |  | $ | 1,187 |  |  | $ | 1,774 |
Accrued expenses |  |  | 3,269 |  |  |  | 4,859 |
Deferred revenue, current |  |  | 496 |  |  |  | 525 |
Lease liabilities, current |  |  | 409 |  |  |  | 495 |
Loan payable, current |  |  | — |  |  |  | 382 |
Convertible notes payable, current |  |  | — |  |  |  | 2,000 |
Total current liabilities |  |  | 5,361 |  |  |  | 10,035 |
Deferred revenue, non-current |  |  | 1,584 |  |  |  | 2,072 |
Lease liabilities, non-current |  |  | 318 |  |  |  | 450 |
Loan payable, non-current |  |  | 10,834 |  |  |  | — |
Convertible notes payable, non-current |  |  | 4,602 |  |  |  | — |
Total liabilities |  |  | 22,699 |  |  |  | 12,557 |
Commitments and contingencies (Note 11) |  |  | — |  |  |  | — |
Stockholders' equity |  |  |  |  |  |  |  |
Preferred stock, $.01 par value; 10,000,000 shares authorized; 11,707 and 20,631 shares issued and outstanding at September 30, 2021, and December 31, 2020, respectively |  |  | — |  |  |  | — |
Common stock, $.01 par value; 40,000,000 shares authorized; 7,356,289 and 5,996,101 shares issued and outstanding at September 30, 2021, and December 31, 2020, respectively |  |  | 74 |  |  |  | 60 |
Additional paid-in capital |  |  | 427,301 |  |  |  | 417,449 |
Accumulated deficit |  |  | (415,629 | ) |  |  | (395,327 | )
Accumulated other comprehensive loss |  |  | (20 | ) |  |  | (104 | )
Total stockholders' equity |  |  | 11,726 |  |  |  | 22,078 |
Total liabilities and stockholders' equity |  | $ | 34,425 |  |  | $ | 34,635 |

See accompanying Notes to Condensed Consolidated Financial Statements.

3

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, |
| 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Product revenue | $ | 395 |  |  | $ | 340 |  |  | $ | 1,054 |  |  | $ | 778 |
Other revenue |  | 127 |  |  |  | 126 |  |  |  | 393 |  |  |  | 361 |
Cost of goods sold |  | (227 | ) |  |  | (188 | ) |  |  | (541 | ) |  |  | (434 | )
Gross profit |  | 295 |  |  |  | 278 |  |  |  | 906 |  |  |  | 705 |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Research and development expenses |  | 2,955 |  |  |  | 3,260 |  |  |  | 10,159 |  |  |  | 8,457 |
Selling, general and administrative expenses |  | 4,036 |  |  |  | 1,998 |  |  |  | 10,621 |  |  |  | 6,571 |
Total operating expenses |  | 6,991 |  |  |  | 5,258 |  |  |  | 20,780 |  |  |  | 15,028 |
Operating loss |  | (6,696 | ) |  |  | (4,980 | ) |  |  | (19,874 | ) |  |  | (14,323 | )
Change in fair value of the warrant liability, net |  | — |  |  |  | — |  |  |  | — |  |  |  | (2,832 | )
Interest expense, net |  | (420 | ) |  |  | (44 | ) |  |  | (501 | ) |  |  | (132 | )
Other income (loss) |  | (9 | ) |  |  | 33 |  |  |  | 73 |  |  |  | 160 |
Net loss |  | (7,125 | ) |  |  | (4,991 | ) |  |  | (20,302 | ) |  |  | (17,127 | )
Deemed dividend for triggering of warrant down round feature |  | — |  |  |  | — |  |  |  | — |  |  |  | (55 | )
Net loss attributable to common stockholders | $ | (7,125 | ) |  | $ | (4,991 | ) |  | $ | (20,302 | ) |  | $ | (17,182 | )
Net loss | $ | (7,125 | ) |  | $ | (4,991 | ) |  | $ | (20,302 | ) |  | $ | (17,127 | )
Other comprehensive (loss) income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation adjustments |  | 51 |  |  |  | (103 | ) |  |  | 84 |  |  |  | (39 | )
Total other comprehensive loss | $ | (7,074 | ) |  | $ | (5,094 | ) |  | $ | (20,218 | ) |  | $ | (17,166 | )
Common share data: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic loss per common share | $ | (0.94 | ) |  | $ | (1.16 | ) |  | $ | (2.93 | ) |  | $ | (7.75 | )
Diluted loss per common share | $ | (0.94 | ) |  | $ | (1.16 | ) |  | $ | (2.93 | ) |  | $ | (7.75 | )
Weighted average number of basic shares outstanding |  | 7,587,643 |  |  |  | 4,288,593 |  |  |  | 6,923,541 |  |  |  | 2,217,611 |
Weighted average number of diluted shares outstanding |  | 7,587,643 |  |  |  | 4,288,593 |  |  |  | 6,923,541 |  |  |  | 2,217,611 |
See accompanying Notes to Condensed Consolidated Financial Statements. |

4

DELCATH SYSTEMS, INC.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(Unaudited)

(in thousands, except share and per share data)

|  | Three and nine months ended September 30, 2021 |
|  | Preferred Stock |  |  | Common Stock |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | $0.01 Par Value |  |  | $0.01 Par Value |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | No. of Shares |  |  | Amount |  |  | No. of Shares |  |  | Amount |  |  | Additional Paid in Capital |  |  | Accumulated Deficit |  |  | Accumulated Other Comprehensive Income |  |  | Total |
Balance at January 1, 2021 |  |  | 20,631 |  |  | $ | — |  |  |  | 5,996,101 |  |  | $ | 60 |  |  | $ | 417,449 |  |  | $ | (395,327 | ) |  | $ | (104 | ) |  | $ | 22,078 |
Compensation expense for issuance of stock options |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 2,148 |  |  |  | — |  |  |  | — |  |  |  | 2,148 |
Shares settled for services |  |  | — |  |  |  | — |  |  |  | 2,636 |  |  |  | — |  |  |  | 57 |  |  |  | — |  |  |  | — |  |  |  | 57 |
Conversion of Preferred stock into common stock |  |  | (150 | ) |  |  | — |  |  |  | 15,000 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Exercise of warrants into common stock |  |  | — |  |  |  | — |  |  |  | 237,520 |  |  |  | 3 |  |  |  | 2,373 |  |  |  | — |  |  |  | — |  |  |  | 2,376 |
Net loss |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (6,747 | ) |  |  | — |  |  |  | (6,747 | )
Total comprehensive loss |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 94 |  |  |  | 94 |
Balance at March 31, 2021 |  |  | 20,481 |  |  |  | — |  |  |  | 6,251,257 |  |  |  | 63 |  |  |  | 422,027 |  |  |  | (402,074 | ) |  |  | (10 | ) |  |  | 20,006 |
Compensation expense for issuance of stock options |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,626 |  |  |  | — |  |  |  | — |  |  |  | 1,626 |
Conversion of Preferred stock into common stock |  |  | (8,774 | ) |  |  | — |  |  |  | 877,379 |  |  |  | 9 |  |  |  | (8 | ) |  |  | — |  |  |  | — |  |  |  | 1 |
Exercise of warrants into common stock |  |  | — |  |  |  | — |  |  |  | 221,141 |  |  |  | 2 |  |  |  | 15 |  |  |  | — |  |  |  | — |  |  |  | 17 |
Net loss |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (6,430 | ) |  |  | — |  |  |  | (6,430 | )
Total comprehensive loss |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (61 | ) |  |  | (61 | )
Balance at June 30, 2021 |  |  | 11,707 |  |  |  | — |  |  |  | 7,349,777 |  |  |  | 74 |  |  |  | 423,660 |  |  |  | (408,504 | ) |  |  | (71 | ) |  |  | 15,159 |
Compensation expense for issuance of stock options |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 2,449 |  |  |  | — |  |  |  | — |  |  |  | 2,449 |
Proceeds allocated to warrant |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,171 |  |  |  | — |  |  |  | — |  |  |  | 1,171 |
Cash issuance costs of warrant |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (44 | ) |  |  | — |  |  |  | — |  |  |  | (44 | )
Exercise of warrants into common stock |  |  | — |  |  |  | — |  |  |  | 6,512 |  |  |  | — |  |  |  | 65 |  |  |  | — |  |  |  | — |  |  |  | 65 |
Net loss |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (7,125 | ) |  |  | — |  |  |  | (7,125 | )
Total comprehensive loss |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 51 |  |  |  | 51 |
Balance at September 30, 2021 |  |  | 11,707 |  |  | $ | — |  |  |  | 7,356,289 |  |  | $ | 74 |  |  | $ | 427,301 |  |  | $ | (415,629 | ) |  | $ | (20 | ) |  | $ | 11,726 |

See accompanying Notes to Condensed Consolidated Financial Statements.

5

DELCATH SYSTEMS, INC. |
Condensed Consolidated Statement of Stockholders' Equity (Deficit), continued |
(Unaudited) |
(in thousands, except share and per share data) |
|  | Three and nine months ended September 30, 2020 |
|  | Preferred Stock |  |  | Common Stock |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | $0.01 Par Value |  |  | $0.01 Par Value |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | No. of Shares |  |  | Amount |  |  | No. of Shares |  |  | Amount |  |  | Additional Paid in Capital |  |  | Accumulated Deficit |  |  | Accumulated Other Comprehensive Income |  |  | Total |
Balance at January 1, 2020 |  |  | 41,517 |  |  | $ | — |  |  |  | 67,091 |  |  | $ | 1 |  |  | $ | 364,785 |  |  | $ | (371,171 | ) |  | $ | 28 |  |  | $ | (6,357 | )
Compensation expense for issuance of stock options |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 25 |  |  |  | — |  |  |  | — |  |  |  | 25 |
Shares settled for services |  |  | — |  |  |  | — |  |  |  | 2,717 |  |  |  | — |  |  |  | 30 |  |  |  | — |  |  |  | — |  |  |  | 30 |
Conversion of Preferred stock into common stock |  |  | (70 | ) |  |  | — |  |  |  | 2,915 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Fractional rounding related to Reverse Stock Split |  |  | — |  |  |  | — |  |  |  | 50 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Registration costs |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (106 | ) |  |  | — |  |  |  | — |  |  |  | (106 | )
Fair value of warrants reclassified from liability to equity |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 6,199 |  |  |  | — |  |  |  | — |  |  |  | 6,199 |
Net loss |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (7,861 | ) |  |  | — |  |  |  | (7,861 | )
Total comprehensive loss |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 65 |  |  |  | 65 |
Balance at March 31, 2020 |  |  | 41,447 |  |  |  | — |  |  |  | 72,773 |  |  |  | 1 |  |  |  | 370,933 |  |  |  | (379,032 | ) |  |  | 93 |  |  |  | (8,005 | )
Shares settled for services |  |  | — |  |  |  | — |  |  |  | 70,259 |  |  |  | 1 |  |  |  | 605 |  |  |  | — |  |  |  | — |  |  |  | 606 |
Conversion of Preferred stock into common stock |  |  | (15,497 | ) |  |  | — |  |  |  | 1,549,609 |  |  |  | 15 |  |  |  | (16 | ) |  |  | — |  |  |  | — |  |  |  | (1 | )
Conversion of Pre-funded Series F Warrants |  |  | — |  |  |  | — |  |  |  | 6,000 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Public Offering - issuance of common stock and warrants |  |  | — |  |  |  | — |  |  |  | 1,823,000 |  |  |  | 18 |  |  |  | 19,360 |  |  |  | — |  |  |  | — |  |  |  | 19,378 |
Net loss |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (4,275 | ) |  |  | — |  |  |  | (4,275 | )
Total comprehensive loss |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (1 | ) |  |  | (1 | )
Balance at June 30, 2020 |  |  | 25,950 |  |  |  | — |  |  |  | 3,521,641 |  |  |  | 35 |  |  |  | 390,882 |  |  |  | (383,307 | ) |  |  | 92 |  |  |  | 7,702 |
Conversion of Preferred stock into common stock |  |  | (4,477 | ) |  |  | — |  |  |  | 447,700 |  |  |  | 4 |  |  |  | (4 | ) |  |  | — |  |  |  | — |  |  |  | — |
Exercise of Series F Warrants |  |  | — |  |  |  | — |  |  |  | 60,117 |  |  |  | 1 |  |  |  | 601 |  |  |  | — |  |  |  | — |  |  |  | 602 |
ATM Offerings |  |  | — |  |  |  | — |  |  |  | 6,100 |  |  |  | — |  |  |  | 66 |  |  |  | — |  |  |  | — |  |  |  | 66 |
Net loss |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (4,991 | ) |  |  | — |  |  |  | (4,991 | )
Total comprehensive loss |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (103 | ) |  |  | (103 | )
Balance at September 30, 2020 |  |  | 21,473 |  |  | $ | — |  |  |  | 4,035,558 |  |  | $ | 40 |  |  | $ | 391,545 |  |  | $ | (388,298 | ) |  | $ | (11 | ) |  | $ | 3,276 |

See accompanying Notes to Condensed Consolidated Financial Statements

6

DELCATH SYSTEMS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

|  | Nine months ended September 30, |
|  | 2021 |  |  | 2020 |
Cash flows from operating activities: |  |  |  |  |  |  |  |
Net loss |  | $ | (20,302 | ) |  | $ | (17,127 | )
Adjustments to reconcile net loss to net cash used in operating activities: |  |  |  |  |  |  |  |
Stock option compensation expense |  |  | 6,224 |  |  |  | 25 |
Restricted stock compensation expense |  |  | — |  |  |  | 406 |
Depreciation expense |  |  | 115 |  |  |  | 125 |
Amortization of right of use assets |  |  | — |  |  |  | 26 |
Amortization of original issue discount costs |  |  | 127 |  |  |  | — |
Warrant liability fair value adjustment |  |  | — |  |  |  | 2,832 |
Interest expense accrued related to convertible notes |  |  | 119 |  |  |  | 120 |
Changes in assets and liabilities: |  |  |  |  |  |  |  |
Decrease (increase) in prepaid expenses and other assets |  |  | 676 |  |  |  | (100 | )
Increase in accounts receivable |  |  | (12 | ) |  |  | (82 | )
Increase in inventories |  |  | (383 | ) |  |  | (185 | )
Increase in deferred offering costs |  |  | — |  |  |  | (268 | )
Decrease in accounts payable |  |  | (588 | ) |  |  | (3,032 | )
Decrease in accrued expenses |  |  | (1,652 | ) |  |  | (312 | )
Decrease in deferred revenue |  |  | (517 | ) |  |  | (256 | )
Net cash used in operating activities |  |  | (16,193 | ) |  |  | (17,828 | )
Cash flows from investing activities: |  |  |  |  |  |  |  |
Purchase of property, plant and equipment |  |  | (144 | ) |  |  | (708 | )
Net cash used in investing activities |  |  | (144 | ) |  |  | (708 | )
Cash flows from financing activities: |  |  |  |  |  |  |  |
Principal payments on financing leases |  |  | — |  |  |  | (26 | )
Net payments related to registration costs |  |  | — |  |  |  | (106 | )
Net proceeds from Public Offering |  |  | — |  |  |  | 19,377 |
Gross proceeds from ATM Offering |  |  | — |  |  |  | 70 |
Issuance costs related to ATM Offering |  |  | — |  |  |  | (4 | )
Principal payments on D&O insurance financing |  |  | (382 | ) |  |  | (440 | )
Net proceeds from debt financing |  |  | 14,437 |  |  |  | — |
Net proceeds from the exercise of warrants |  |  | 2,458 |  |  |  | 601 |
Net cash provided by financing activities |  |  | 16,513 |  |  |  | 19,472 |
Foreign currency effects on cash |  |  | 84 |  |  |  | (39 | )
Net increase in total cash |  |  | 260 |  |  |  | 897 |
Total Cash, Cash Equivalents and Restricted Cash: |  |  |  |  |  |  |  |
Beginning of period |  |  | 28,756 |  |  |  | 10,183 |
End of period |  | $ | 29,016 |  |  | $ | 11,080 |

7

DELCATH SYSTEMS, INC. |
Condensed Consolidated Statements of Cash Flows, continued |
(Unaudited) |
(in thousands) |
|  | Nine months ended September 30, |
|  | 2021 |  |  | 2020 |
Supplemental Disclosure of Cash Flow Information: |  |  |  |  |  |  |  |
Cash paid during the periods for: |  |  |  |  |  |  |  |
Interest expense |  | $ | 260 |  |  | $ | 7 |
Supplemental Disclosure of Non-Cash Investing and Financing Activities: |  |  |  |  |  |  |  |
Reclassification of 2019 warrants from liability to equity |  | $ | — |  |  | $ | 6,199 |
Conversions of preferred stock into common stock |  | $ | 9 |  |  | $ | 20 |
Issuance of restricted stock for accrued fees due to a former board member |  | $ | 57 |  |  | $ | — |
Right of use assets obtained in exchange for lease obligations |  | $ | 192 |  |  | $ | 729 |

See accompanying Notes to Condensed Consolidated Financial Statements.

8

DELCATH SYSTEMS, INC.

Notes to the Condensed Consolidated Financial Statements

(in thousands, except share and per share data)

(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, 2021 and 2020 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, 2020 (the “Annual Report”), which was filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2021 and may also be found on the Company’s website (www.delcath.com). In these notes to the condensed consolidated financial statements the terms “us”, “we” or “our” refer to Delcath and its consolidated subsidiaries.

Description of Business

We are an interventional oncology company focused on the treatment of primary and metastatic liver cancers. Our lead product candidate, the HEPZATO™ KIT (melphalan hydrochloride for injection/hepatic delivery system), or HEPZATO™, is a drug/device combination product. HEPZATO is designed to administer high-dose chemotherapy to the liver while controlling systemic exposure and associated side effects. In Europe, our commercial product is a stand-alone medical device having the same device components as the HEPZATO KIT 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.

Our clinical development program for HEPZATO is primarily comprised of the FOCUS Clinical Trial for Patients with Hepatic Dominant Ocular Melanoma (FOCUS Trial), a global registration clinical trial that is investigating objective response rate in metastatic ocular melanoma, or 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 which will maximize the value of the HEPZATO platform.

Risks and Uncertainties

Due to the global outbreak of SARS-CoV-2, a novel strain of coronavirus that causes Coronavirus disease (COVID-19), the Company experienced an impact on certain areas of its business. These effects included a slowing of patient recruitment in the FOCUS trial and a reduction in the pace at which we can monitor data at our clinical trial sites. The resulting delay in completing enrollment and additional time required to monitor data caused our announcement for the top-line data from our FOCUS Trial to shift to early 2021 and to be modified to a preliminary analysis. We now plan to submit a New Drug Application (NDA) to the FDA in the first quarter of 2022 for the treatment of mOM. The ability to achieve this goal is contingent on our ability to monitor data at our clinical sites and therefore the timeline may shift as access to the clinical sites changes in response to the rapidly evolving situation. We have also experienced an increased volatility in EU commercial product revenue and additional impacts to the business may arise that we are not aware of currently. The ultimate impact of the pandemic on the Company’s results of operations, financial position, liquidity, or capital resources cannot be reasonably estimated at this time.

Liquidity and Going Concern

The accompanying interim condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred losses since inception and expects to continue incurring losses for the next several years. These losses, among other factors, raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s existence is dependent upon management’s ability to obtain additional funding sources or to enter into strategic alliances. Adequate additional financing may not be available to the Company on acceptable terms, or at all. If the Company is unable to raise additional capital and/or enter into strategic alliances when needed or on attractive terms, it would be forced to delay, reduce, or eliminate its research and development programs or any commercialization efforts. There can be no assurance that the Company’s efforts will result in the resolution of the Company’s liquidity needs. If Delcath is not able to continue as a going concern, it is likely that holders of its common stock will lose all of their investment. The accompanying interim condensed consolidated financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern.

9

The Company anticipates incurring additional losses until such time, if ever, that it can generate significant sales. These circumstances raise substantial doubt about the Company's ability to continue as a going concern within one year after the date that the financial statements are issued. Additional working capital is required to continue operations. Operations of the Company are subject to certain risks and uncertainties, including, among others, uncertainty of product development and clinical trial results; uncertainty regarding regulatory approval; technological uncertainty; uncertainty regarding patents and proprietary rights; comprehensive government regulations; limited commercial manufacturing, marketing, or sales experience; and dependence on key personnel.

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 entities controlled by Delcath 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, 2021 and 2020; however, certain information and footnote disclosures normally included in our audited consolidated financial statements included in our Annual Report on Form 10-K 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

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, 2020, except for the following:

Reclassifications

Certain prior period balances have been reclassified in order to conform to current period presentation. These reclassifications have no effect on previously reported results of operations or loss per share.

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Simplifying the Accounting for Income Taxes. The list of changes is comprehensive; however, the changes will not significantly impact the Company due to the full valuation allowance that is recorded against the Company’s deferred tax assets. Early adoption of ASU 2019-12 is permitted, including adoption in any interim period for public business entities for periods for which financial statements have not yet been issued. An entity that elects to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption must adopt all the amendments in the same period. The Company adopted ASU 2019-12 on January 1, 2021, and there was no material impact on the Company’s financial statements or disclosures.

Recently Issued Accounting Pronouncements

On May 3, 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This new standard provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. This standard is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Issuers should apply the new standard prospectively to modifications or exchanges occurring after the effective date of the new standard. Early adoption is permitted, including adoption in an interim period. If an issuer elects to early adopt the new standard in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The Company is evaluating this new standard.

10

(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. Restricted cash does not include required minimum balances.

Cash, cash equivalents, and restricted cash balances were as follows:

|  | September 30, |  |  | December 31, |
|  |  | 2021 |  |  |  | 2020 |
Cash and cash equivalents |  | $ | 24,865 |  |  | $ | 28,575 |
Restricted balance for loan agreement |  |  | 4,000 |  |  |  | — |
Letters of credit |  |  | 101 |  |  |  | 131 |
Security for credit cards |  |  | 50 |  |  |  | 50 |
Total cash, cash equivalents and restricted cash shown in the statements of cash flows |  | $ | 29,016 |  |  | $ | 28,756 |

(3) | Inventories

Inventories consist of the following:

|  | September 30, |  |  | December 31, |
|  | 2021 |  |  | 2020 |
Raw materials |  | $ | 665 |  |  | $ | 435 |
Work-in-process |  |  | 573 |  |  |  | 420 |
Total inventories |  | $ | 1,238 |  |  | $ | 855 |

(4) | Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:

|  | September 30, |  |  | December 31, |
|  | 2021 |  |  | 2020 |
Clinical trial expenses |  | $ | 1,630 |  |  | $ | 1,497 |
Insurance premiums |  |  | 154 |  |  |  | 845 |
Royalty receivable |  |  | 124 |  |  |  | - |
Other |  |  | 87 |  |  |  | 328 |
Total prepaid expenses and other current assets |  | $ | 1,995 |  |  | $ | 2,670 |

(5) | Property, Plant, and Equipment

Property, plant, and equipment consist of the following:

|  | September 30, |  |  | December 31, |  |  | Estimated
|  | 2021 |  |  | 2020 |  |  | Useful Life
Buildings and land |  | $ | 1,222 |  |  | $ | 1,109 |  |  | 30 years - Buildings
Enterprise hardware and software |  |  | 1,860 |  |  |  | 1,862 |  |  | 3 years
Leaseholds |  |  | 1,804 |  |  |  | 1,826 |  |  | Lesser of lease term or estimated useful life
Equipment |  |  | 1,094 |  |  |  | 1,063 |  |  | 7 years
Furniture |  |  | 203 |  |  |  | 204 |  |  | 5 years
Property, plant and equipment, gross |  |  | 6,183 |  |  |  | 6,064 |  |  |
Accumulated depreciation |  |  | (4,803 | ) |  |  | (4,713 | ) |  |
Property, plant and equipment, net |  | $ | 1,380 |  |  | $ | 1,351 |  |  |

11

Depreciation expense for the three and nine months ended September 30, 2021 was approximately $36.2 and $114.6 as compared to approximately $32.8 and $124.8 for the same period in 2020.

(6) | Accrued Expenses

Accrued expenses consist of the following:

|  | September 30, |  |  | December 31, |
|  | 2021 |  |  | 2020 |
Clinical expenses |  | $ | 1,507 |  |  | $ | 2,698 |
Compensation, excluding taxes |  |  | 1,108 |  |  |  | 1,598 |
Professional fees |  |  | 257 |  |  |  | 225 |
Interest on convertible note |  |  | 353 |  |  |  | 234 |
Other |  |  | 44 |  |  |  | 104 |
Total accrued expenses |  | $ | 3,269 |  |  | $ | 4,859 |

(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.

Pursuant to a 2014 sublease agreement (the “2014 Sublease”) and a 2015 sublease agreement (the “2015 Sublease”) the Company subleased portions of its leased premises in Galway, Ireland to a sublessee. On May 15, 2020, the Company and its sublessee entered into amendments to the 2014 Sublease and the 2015 Sublease pursuant to which (i) the 2014 Sublease and 2015 Sublease were extended from May 31, 2020 to August 2, 2021, (ii) effective July 1, 2020, the leased premises under the 2015 Sublease would be expanded to include an additional 4,999 square feet of space, and (iii) effective July 1, 2020, the rent under the 2015 Sublease would increase from approximately $14.6 per month to $20.6 per month. The Company analyzed the terms of the amended 2014 Sublease and 2015 Sublease and determined that its ROU asset for the master operating lease was not impaired as a result of the amendments. On June 25, 2020, the Company entered into a sub-lease agreement (the “2021 Sub-Lease”) with its previous sublessee under the 2014 Sublease and 2015 Sublease pursuant to which, effective August 2, 2021, the previous sublessee would become the lessee and the Company would then sub-lease its portion of the premises in Galway, Ireland from the previous sublessee. The Company rent under the 2021 Sub-Lease is approximately $3.7 per month for a term of five years.

The following table summarizes the Company’s operating leases as of and for the nine months ended September 30, 2021:

|  | US |  |  | Ireland |  |  | Total |
Lease cost |  |  |  |  |  |  |  |  |  |  |  |
Operating lease cost |  | $ | 315 |  |  | $ | 136 |  |  | $ | 451 |
Sublease income |  |  | — |  |  |  | (132 | ) |  |  | (132 | )
Total |  | $ | 315 |  |  | $ | 4 |  |  | $ | 319 |
Other information |  |  |  |  |  |  |  |  |  |  |  |
Operating cash flows out from operating leases |  |  | (315 | ) |  |  | (136 | ) |  |  | (451 | )
Operating cash flows in from operating leases |  |  | - |  |  |  | 132 |  |  |  | 132 |
Right-of-use assets exchanged for new operating lease liabilities |  |  | - |  |  |  | 192 |  |  |  | 192 |
Weighted average remaining lease term |  |  | 1.3 |  |  |  | 4.8 |  |  |  |  |
Weighted average discount rate - operating leases |  |  | 8 | % |  |  | 8 | % |  |  |  |

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Remaining maturities of the Company’s operating leases, excluding short-term leases, are as follows:

|  | US |  |  | Ireland |  |  | Total |
Year ended December 31, 2021 |  | $ | 101 |  |  | $ | 12 |  |  | $ | 113 |
Year ended December 31, 2022 |  |  | 406 |  |  |  | 46 |  |  |  | 452 |
Year ended December 31, 2023 |  |  | 67 |  |  |  | 46 |  |  |  | 113 |
Year ended December 31, 2024 |  |  | - |  |  |  | 46 |  |  |  | 46 |
Year ended December 31, 2025 |  |  | - |  |  |  | 46 |  |  |  | 46 |
Year ended December 31, 2026 |  |  | - |  |  |  | 27 |  |  |  | 27 |
Total |  |  | 574 |  |  |  | 223 |  |  |  | 797 |
Less present value discount |  |  | (33 | ) |  |  | (37 | ) |  |  | (70 | )
Operating lease liabilities included in the condensed consolidated balance sheets at September 30, 2021 |  | $ | 541 |  |  | $ | 186 |  |  | $ | 727 |

| (8) | Loans and Convertible Notes Payable

|  | September 30, 2021 |  |  | December 31, 2020 |
|  | Gross |  |  | Discount |  |  | Net |  |  | Gross |  |  | Discount |  |  | Net |
Loan - Avenue [1] |  | $ | 12,638 |  |  | $ | (1,804 | ) |  | $ | 10,834 |  |  | $ | - |  |  | $ | - |  |  | $ | - |
Convertible Note Payable - Rosalind |  | $ | 2,000 |  |  | $ | — |  |  | $ | 2,000 |  |  | $ | 2,000 |  |  | $ | — |  |  | $ | 2,000 |
Convertible Loan Payable - Avenue |  |  | 3,000 |  |  |  | (398 | ) |  |  | 2,602 |  |  |  | — |  |  |  | — |  |  |  | — |
|  | $ | 5,000 |  |  | $ | (398 | ) |  | $ | 4,602 |  |  | $ | 2,000 |  |  | $ | — |  |  | $ | 2,000 |
[1] The gross amount includes the 4.25% final payment of $637.5. |

Remaining maturities of the Company's loan and convertible note payables are as follows: |
|  | Loans |  |  | Convertible Notes |  |  | Total |
Year ended December 31, 2021 |  | $ | - |  |  | $ | - |  |  | $ | - |
Year ended December 31, 2022 |  |  | 571 |  |  |  | 143 |  |  |  | 714 |
Year ended December 31, 2023 |  |  | 6,857 |  |  |  | 1,714 |  |  |  | 8,571 |
Year ended December 31, 2024 |  |  | 5,210 |  |  |  | 3,143 |  |  |  | 8,353 |
Total |  | $ | 12,638 |  |  | $ | 5,000 |  |  | $ | 17,638 |

The Avenue Warrant was valued at issuance at $1,309 using the Black-Scholes option pricing method using the following assumptions:

|  | August 6, |
|  | 2021 |
Contractual term (years) |  | 5.07 |
Expected volatility |  | 187.0% |
Risk-free interest rate |  | 0.77% |
Expected dividends |  | 0.00% |

Term Loan from Avenue Venture Opportunities Fund, L.P.

On August 6, 2021, the Company entered into a Loan and Security Agreement (the “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 $20,000 (the “Loan”). The 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 Loan is secured by all of the Company’s assets globally, including intellectual property. The Loan maturity date is August 1, 2024.

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The initial tranche of the Loan is $15,000, including $4,000 which has been funded into a restricted account and will be released upon achievement of (a)(x) positive FOCUS trial efficacy per the trial’s predefined Statistical Analysis Plan (SAP) (specifically the Overall Response Rate exceeds the prespecified threshold for success defined in the SAP by a statistically significant amount); and (y) based on data contained within the FOCUS trial database and appropriate for use with the U.S. Food and Drug Administration, safety and tolerability among FOCUS trial participants is within the range of currently approved and commonly used cytotoxic chemotherapeutic agents; and (b) raising subsequent net equity proceeds of at least $20,000. The Company may request an additional $5,000 of gross proceeds between October 1, 2022 and December 31, 2022, with funding, subject to the approval of Avenue’s Investment Committee.

In connection with the Loan, the Company issued to Avenue a warrant (the “Avenue Warrant”) to purchase 127,755 shares of common stock at an exercise price per share equal to $0.01. The Avenue Warrant is exercisable until August 31, 2026.

Up to $3,000 of the principal amount of the loan outstanding may be converted, at the option of the Lender, into shares of the Company’s common stock at a conversion price of $11.98 per share.

The Company will make monthly interest-only payments during the first fifteen months of the term of the Loan, which could be increased to up to twenty-four months upon the achievement of specified performance milestones. Following the interest-only period, the Company will make equal monthly payments of principal plus interest until the maturity date, when all remaining principal outstanding and accrued interest must be paid. If the Company prepays the Loan, it will be required to pay (a) a prepayment fee of 3% if the Loan is prepaid during the interest-only period; and (b) a prepayment fee of 1% if the Loan is prepaid after the interest-only period. The Company must make an incremental final payment equal to 4.25% of the aggregate funding.

The Company paid an aggregate commitment fee of $150 at closing. Upon funding a second tranche of the Loan, the Lender will earn a 1.0% fee on the $5,000 of incremental committed capital, for a total commitment fee of $200.

The 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 Loan Agreement also contains customary events of default, including non-payment of principal or interest, violations of covenants, bankruptcy and material judgments.

The Company determined that the embedded conversion option associated with the Loan was not required to be bifurcated. The Company determined that the Avenue Warrant met the criteria to be equity-classified. The $637 value of the final payment was treated as original issue discount. The $1,171 relative fair value of the Avenue Warrant was credited to Additional Paid in Capital while it was debited as debt discount. Of the $563 of cash issuance costs, $519 was allocated to the Loan and was recorded as debit discount, while $44 was allocated to the Avenue Warrant and was debited to Additional Paid in Capital. Of the $2,327 of aggregate debt discount, $1,909 was allocated to the non-convertible portion of the Loan, while $418 was allocated to the convertible portion of the Loan. Aggregate debt discount amortization of $127 was recorded during the three months ended September 30, 2021, including $107 related to the non-convertible portion of the Loan and $19 related to the convertible portion of the Loan. The Company also determined that the convertible portion of the loan did not include a beneficial conversion feature, because the effective conversion price exceeded the commitment date market price of the Company’s common stock.

Extension and Amendment of Convertible Note Payable – Rosalind

As previously reported, on August 6, 2021, the Company executed an agreement to amend an aggregate of $2,000 outstanding

secured convertible notes payable to Rosalind Opportunities Fund I L.P. and Rosalind Master Fund L.P., respectively, which (a)

reduces the conversion price of the convertible notes to $1,198 per share of the Company’s Series E Convertible Preferred

Stock; and (b) extends the maturity date of the convertible notes to October 30, 2024. In addition, in order to induce the

Company’s lender Avenue to provide the Loan described above, the holders of the convertible notes agreed to subordinate (a)

all of the Company’s indebtedness and obligations to the holders; and (b) all of the holders’ security interest, to the Loan and

Avenue’s security interest in the Company’s property.

|  | Conversion price |  |  | Current interest rate |  |  | Principal |
Convertible notes payable |  |  |  |  |  |  |  |  |  |  |  |
July 2019 Notes - Rosalind (maturity date - October 30, 2024)1 |  | $ | 1,198 |  |  | 8.00% |  |  | $ | 2,000 |
August 2021 Note - Avenue (maturity date - August 1, 2024) |  | $ | 12 |  |  | 10.95% |  |  | $ | 3,000 |

1 The notes are convertible into shares of the Company’s Series E Convertible Preferred Stock.

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(9) | Stockholders’ Equity

Preferred Stock

Series E and Series E-1 Convertible Preferred Stock

During the nine months ended September 30, 2021, an aggregate of 8,924 shares of Series E and Series E-1 Convertible Preferred Stock were converted into 892,379 shares of the Company’s common stock.

As of September 30, 2021, there were an aggregate of 11,707 shares of Series E and Series E-1 Convertible Preferred Stock outstanding.

Other Common Stock Issuances

During the nine months ended September 30, 2021, the Company issued 465,173 shares of common stock associated with the exercise of warrants, including 215,000 prefunded warrants at an exercise price of $0.01 per share for aggregate cash proceeds of $2,458.

Stock Incentive Plan

2020 Omnibus Equity Incentive Plan

As of September 30, 2021, there were 2,475,000 shares of the Company’s common stock reserved under the Delcath Systems, Inc. Omnibus Equity Incentive Plan (the “2020 Plan”), of which 1,275,250 remained available to be issued.

Share-Based Compensation

The following is a summary of stock option activity for the nine months ended September 30, 2021:

|  | Number of Option |  |  | Weighted Average Exercise Price Per Share |  |  | Weighted Average Remaining Contractual Term (in years) |  | Aggregate Intrinsic Value |
Outstanding at January 1, 2021 |  |  | 1,078,499 |  |  | $ | 12.68 |  |  |  |  |  |  |
Granted |  |  | 621,750 |  |  |  | 10.02 |  |  |  |  |  |  |
Exercised |  |  | — |  |  |  | — |  |  |  |  |  |  |
Cancelled/Forfeited |  |  | (2,000 | ) |  |  | 11.67 |  |  |  |  |  |  |
Outstanding at September 30, 2021 |  |  | 1,698,249 |  |  | $ | 11.71 |  |  | 9.3 |  | $ | 260 |
Exercisable at September 30, 2021 |  |  | 443,729 |  |  | $ | 12.20 |  |  | 9.2 |  | $ | 39 |

The Company values stock options using the Black-Scholes option pricing model and used the following assumptions during the reporting periods:

|  | Three months ended September 30, |  | Nine months ended September 30,
|  | 2021 |  |  | 2020 |  | 2021 |  |  | 2020
Expected term (years) |  | 5.1 - 6.3 |  |  | N.A. |  | 5.1 - 6.3 |  |  | N.A.
Expected volatility |  | 179.2% - 181.3% |  |  | N.A. |  | 178.3% - 181.3% |  |  | N.A.
Risk-free interest rate |  | 0.74% - 1.10% |  |  | N.A. |  | 0.74% - 1.10% |  |  | N.A.
Expected dividends |  | 0.00% |  |  | N.A. |  | 0.00% |  |  | N.A.

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The weighted average estimated fair value of the stock options granted during the three and nine months ended September 30, 2021, was approximately $9.70 and $9.69 per share, respectively.

The following table summarizes information for stock option shares outstanding and exercisable at September 30, 2021

|  |  |  |  |  | Options Exercisable |
Range of Exercise Prices |  | Outstanding Number of Options |  |  | Weighted Average Remaining Option Term (in years) |  |  | Number of Options |
$9.85 - $10.99 |  |  | 621,750 |  |  | 9.9 |  |  |  | 94,445 |
$11.00 - $14.99 |  |  | 944,000 |  |  |  | 9.0 |  |  |  | 314,785 |
$15.00 - $24.99 |  |  | 132,000 |  |  |  | 9.0 |  |  |  | 34,000 |
$25.00 + |  |  | 499 |  |  | 7.3 |  |  |  | 499 |
|  |  | 1,698,249 |  |  | 9.2 |  |  |  | 443,729 |

The following is a summary of share-based compensation expense in the statement of operations for the three and nine months ended September 30, 2021

|  | Three months ended September 30, |  |  | Nine months ended September 30, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Cost of goods sold |  |  | 60 |  |  |  | — |  |  |  | 152 |  |  |  | — |
Research and development |  |  | 734 |  |  |  | — |  |  |  | 1,827 |  |  |  | 6 |
Selling, general and administrative |  |  | 1,655 |  |  |  | — |  |  | $ | 4,245 |  |  |  | 425 |
Total |  | $ | 2,449 |  |  | $ | — |  |  | $ | 6,224 |  |  |  | 431 |

At September 30, 2021, there was $8,653 of aggregate unrecognized compensation expense related employee and board stock option grants. This will be recognized over the next 2.2 years.

Warrants

The following is a summary of warrant activity for the nine months ended September 30, 2021:

|  | Warrants |  |  | Weighted Average Exercise Price |  |  | Weighted Average Remaining Life (in years) |
Outstanding at January 1, 2021 |  |  | 4,236,687 |  |  | $ | 9.13 |  |  |  |  |
Warrants issued |  |  | 127,755 |  |  |  | 0.01 |  |  |  |  |
Warrants exercised |  |  | (469,933 | ) |  |  | 5.88 |  |  |  |  |
Warrants expired |  |  | — |  |  |  | — |  |  |  |  |
Outstanding at September 30, 2021 |  |  | 3,894,509 |  |  | $ | 9.27 |  |  |  | 3.5 |
Exercisable at September 30, 2021 |  |  | 3,894,509 |  |  | $ | 9.27 |  |  |  | 3.5 |

The following table presents information related to stock warrants at September 30, 2021

|  |  |  |  |  |  |  | Warrants Exercisable |
Range of Exercise Prices |  |  | Outstanding Number of Warrants |  |  | Weighted Average Remaining Warrant Term (in years) |  | Number of Warrants |
$ | 0.01 |  |  |  | 283,755 |  |  | 4.2 |  |  | 283,755 |
$ | 10.00 |  |  |  | 3,610,754 |  |  | 3.4 |  |  | 3,610,754 |
|  |  |  |  | 3,894,509 |  |  | 3.5 |  |  | 3,894,509 |

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(10) | Net Loss per Common 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 and 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, 2021 and 2020 because their effects would be anti-dilutive:

|  | September 30, |
|  | 2021 |  |  | 2020 |
Stock options |  |  | 1,698,249 |  |  |  | 499 |
Common stock warrants - equity |  |  | 3,894,509 |  |  |  | 3,991,373 |
Common stock reserved for conversion of preferred shares |  |  | 1,170,721 |  |  |  | 2,147,394 |
Assumed conversion of convertible notes |  |  | 488,031 |  |  |  | 146,288 |
Total |  |  | 7,251,510 |  |  |  | 6,285,554 |

At September 30, 2021, the Company had 283,755 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, 2021 and 2020:

| Three months ended September 30, |  |  | Nine months ended September 30, |
| 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Weighted average shares issued |  | 7,354,428 |  |  |  | 3,917,593 |  |  |  | 6,665,826 |  |  |  | 2,015,863 |
Weighted average pre-funded warrants |  | 233,215 |  |  |  | 371,000 |  |  |  | 257,715 |  |  |  | 201,748 |
Weighted average shares outstanding |  | 7,587,643 |  |  |  | 4,288,593 |  |  |  | 6,923,541 |  |  |  | 2,217,611 |

(1 1) | Commitments and Contingencies

Litigation, Claims and Assessments

Following the May 18, 2020 resignation (effective June 1, 2020) of Jennifer Simpson, the Company’s former President and CEO, and Barbra Keck, the Company’s former CFO (the “Claimants”), it became evident that there was a dispute regarding the Company’s compensation obligations. In a letter dated, June 29, 2020, an attorney representing the Claimants made certain claims and threatened litigation against the Company. On or about July 27, 2020, the Claimants filed a statement of claim with the American Arbitration Association against the Company. The Claimants sought payment of certain purported unpaid compensation amounts claimed to be due to them, in an approximate amount of $1,140 in the aggregate, as well as unspecified statutory damages under the New York Labor Law, attorneys’ fees and costs, and statutory interest. The Company denied any liability or wrongdoing and was vigorously defending against the claims, with contested arbitration hearings initially scheduled to commence in the week of May 17, 2021. However, the Claimants and the Company agreed to participate in non-binding mediation of their dispute before a neutral mediator, which resulted in the arbitration proceedings being placed in abeyance pending the outcome of the mediation process. With the assistance of the neutral mediator and after careful consideration by the Company’s board of directors following several weeks of negotiations, the Claimants and the Company agreed in mid-May of 2021 to a confidential settlement of their dispute to avoid the expenses and distractions of further arbitration proceedings, with no admission of liability or wrongdoing on the part of the Company. While the Company had accrued for the full purported unpaid compensation amount of $1,140 as of December 31, 2020, the Company ultimately paid less in full and final settlement of its dispute with both of the Claimants. As a result of the confidential settlement, the AAA Arbitration was dismissed with prejudice on June 1, 2021.

In April 2021, the Company issued an invoice for €1,000 (which currently converts to approximately $1,160) to medac GmbH, a privately held, multi-national pharmaceutical company based in Germany (“medac”), the Company’s EU product distribution

17

partner, for a milestone payment due under the License, Supply and Marketing Agreement (the “License Agreement”) dated December 10, 2018, between the Company and medac, pursuant to the License Agreement, a milestone is due upon achieving positive efficacy in the FOCUS trial as defined by the FOCUS trial protocol. Per the trial protocol and associated Statistical Analysis Plan, positive efficacy is based on whether the Objective Response Rate (ORR) exceeds a prespecified threshold. A preliminary analysis of the FOCUS trial data based on 87% of enrolled patients was released on March 31, 2021, and subsequently presented at the American Society of Clinical Oncology (ASCO) Annual Meeting held virtually from the 4 th through the 8 th of June 2021. Per that analysis, the ORR exceeded the prespecified threshold. While the final ORR is not yet known, given the magnitude by which the ORR exceeded the prespecified endpoint and the small number of patients yet to be assessed, the final ORR will be greater than the prespecified endpoint regardless of the responder status of the remaining patients. medac disagrees that the milestone is due and claims that a full clinical study report is required in addition to the existing ORR analysis. medac has not disputed the accuracy of the ORR analysis or underlying data but simply asserts that a full clinical study report is required prior to payment. While the C ompany disagrees with this interpretation, since medac has stated they do not intend to pay the invoice at this time, under revenue recognition criteria set out in ASC 606 we cannot recognize the revenue in the quarter ending September 30, 2021.

(1 2) | Subsequent Events

Termination of Agreement with medac

On October 12, 2021, the Company notified medac in writing that it was terminating the License Agreement, with the effective

date of termination of the License Agreement stipulated as April 12, 2022, due to medac’s nonpayment of the FOCUS trial

efficacy milestone. In a letter dated October 27, 2021, medac notified the Company that it disputed the Company’s right to terminate the License Agreement and threatened to claim damages from the Company should it fail to withdraw its notice of termination of the License Agreement. The License Agreement stipulates that disputes between the parties are to be handled via

binding arbitration. Communication between the Company and medac is ongoing and at the time of the filing neither party has initiated arbitration.

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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, 2020 to provide an understanding of its results of operations, financial condition and cash flows.

All references in this Quarterly Report to “we,” “our,” “us” and the “Company” refer to Delcath Systems, Inc., and its subsidiaries unless the context indicates otherwise.

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 our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 in Item 1A under “Risk Factors” and in Item 7A “Quantitative and Qualitative Disclosures About Market Risk,” and the risks detailed from time to time in our future reports filed with the Securities and Exchange Commission (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 Delcath Hepatic Delivery system;

| • | the progress and results of our research and development programs;

| • | our expectations about the COVID-19 pandemic and any potential disruption or impact to our operations;

| • | submission and timing of applications for regulatory approval and approval thereof;

| • | our ability to successfully source certain components of CHEMOSTAT and HEPZATO and enter into supplier contracts;

| • | 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.

.

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Overview

The following section should be read in conjunction with Part I, Item 1: Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q as well as Part I, Item 1: Business; and Part II, Item 8: Financial Statements and Supplementary Data of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Company Overview

We are an interventional oncology company focused on the treatment of primary and metastatic liver cancers. Our lead product candidate, the HEPZATO™ KIT (melphalan hydrochloride for injection/hepatic delivery system), or HEPZATO™, is a drug/device combination product. HEPZATO is designed to administer high-dose chemotherapy to the liver while controlling systemic exposure and associated side effects. HEPZATO has not been approved for sale in the United States. In Europe, our commercial product is a stand-alone medical device having the same device components as the HEPZATO KIT 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 regulated as a combination drug and device by the United States Food and Drug Administration (FDA). Primary jurisdiction for regulation of HEPZATO has been assigned to the FDA’s Center for Drug Evaluation and Research. The FDA has granted the active moiety melphalan hydrochloride five orphan drug designations for the treatment of patients with ocular (uveal) melanoma, cutaneous melanoma, hepatocellular carcinoma, intrahepatic cholangiocarcinoma, and neuroendocrine tumors. The FDA has granted the active moiety doxorubicin one orphan drug designation for the treatment of patients with hepatocellular carcinoma. In Europe, CHEMOSAT is regulated as a Class IIb medical device and received its CE Mark in 2012. We are commercializing CHEMOSAT in select markets in the United Kingdom and the European Union, or the EU, where we believe the prospect of securing reimbursement coverage for the use of CHEMOSAT is strongest.

Our most advanced development program is the treatment of ocular melanoma liver metastases, or mOM, a type of metastatic liver cancer, with HEPZATO. HEPZATO is being studied in the FOCUS Clinical Trial for Patients with Hepatic Dominant Ocular Melanoma (FOCUS Trial), a global registration clinical trial that is investigating objective response rate in mOM. The FOCUS Trial is being conducted at approximately 30 sites in the United States and Europe. The FOCUS Trial initiated treatment on the final enrolled patient on October 2, 2020, with the last patient on the study having been treated on May 18, 2021. The primary endpoint of the FOCUS Trial is Objective Response Rate (ORR) as measured by RECISTv1.1, in the Intent to Treat (ITT) population. The single arm trial was powered to demonstrate a superior ORR versus checkpoint inhibitors, one of the few mOM treatment categories with a significant amount of peer reviewed publications. The checkpoint inhibitor ORR was calculated based on a meta-analysis covering 16 different publications which included 476 patients. The pooled overall response rate was 5.5% [95% CI: 3.6, 8.3]. To achieve statistical significance at a 95% Confidence Interval the lower bound of the ORR for HEPZATO is required to exceed the 8.3% upper bound of the meta-analysis. Secondary endpoints include Duration of Response (DOR), Disease Control Rate (DCR), Overall Survival (OS), and Progression-Free Survival (PFS). Additional exploratory outcome measures include time to objective response, hepatic progression-free survival, hepatic objective response, and quality of life, safety, and other pharmacokinetic measures. Initially, the trial was a randomized controlled trial which was amended to a single arm trial given slow enrollment due to the rarity of ocular melanoma, absence of crossover to the experimental trial arm, competing clinical trials and the commercial availability of CHEMOSAT in Europe. Included in the prespecified analyses are comparisons against the Best Alternative Care (BAC) arm which enrolled 32 patients prior to the amendment to a single-arm trial.

On March 31, 2021, Delcath released a preliminary analysis of the FOCUS trial data based on 87% of enrolled patients using prespecified analyses. An Independent Review Committee assessed an ORR of 29.2% [95% CI: 20.1, 39.8] in the ITT population, the lower bound of which exceeded the upper bound of the predefined success criterion (8.3%) for the primary ORR endpoint. Given the large difference between the predefined success criteria and the interim results, the ORR on the full ITT population will exceed the predefined success criterion regardless of the response status of the small number of patients still to be analyzed.

In the per protocol populations, evaluable patients in the HEPZATO arm had a statistically significant improvement over BAC in prespecified endpoints including: ORR of 32.9% [95% CI: 22.8, 44.4] versus 13.8% [CI: 3.9, 31.7] for the BAC arm (Chi-square P<0.05), Median PFS of 9.0 months [95% CI: 6.2, 11.8] versus 3.1 months [95% CI: 2.7, 5.7] for the BAC arm (HR=0.41 p<0.001), and DCR of 70.9% [95% CI: 59.6, 80.6] versus 37.9% [95% CI: 20.7, 57.7] for the BAC arm (p<0.002). In this preliminary analysis, DOR and OS were not yet evaluable. Since not all patients were evaluable for all time points, these preliminary analyses may change as data matures.

In the HEPZATO safety population of 94 patients, 38 patients (40.4%) experienced a treatment-emergent serious adverse event. The most commonly reported treatment-emergent serious adverse events were thrombocytopenia (14.9% of patients), neutropenia (10.6% of patients), and leukopenia (4.2% of patients), which were well-manageable. 5% of patients experienced treatment-emergent serious cardiac adverse events. In all cases the events resolved with no ongoing complications. There were no treatment-related deaths in the trial.

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We have paused a global Phase 3 clinical trial of HEPZATO investigating the treatment of patients with intrahepatic cholangiocarcinoma, (the ALIGN Trial) due to difficulties in enrollment. In addition to the FOCUS Trial and the ALIGN Trial, our commercial development plan also includes a registry for CHEMOSAT cases performed in Europe and support of select investigator-initiated trials, or IITs.

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 indications which will maximize the value of the HEPZATO platform. This may result in a restart of the ALIGN Trial. We believe that the disease states we are investigating and intend to investigate are unmet medical needs that represent significant market opportunities.

COVID-19

Due to the global outbreak of SARS-CoV-2, a novel strain of coronavirus that causes Coronavirus disease (COVID-19), the Company experienced an impact on certain areas of its business. These effects included a slowing of patient recruitment in the FOCUS Trial and a reduction in the pace at which we can monitor data at our clinical trial sites. The resulting delay in completing enrollment and additional time required to monitor data caused our announcement for the top-line data from our FOCUS Trial to shift to early 2021 and to be modified to a preliminary analysis. We intend to submit a New Drug Application (NDA) to the FDA in the first quarter of 2022 for the treatment of mOM once the FOCUS Trial has been completed. The ability to achieve this goal is contingent on our ability to monitor data at our clinical sites and therefore the timeline may shift as access to the clinical sites changes in response to the rapidly evolving situation. COVID-19 has caused us to experience an increase in volatility in EU commercial product revenue. The results of the FOCUS Trial should also support securing reimbursement coverage for the use of CHEMOSAT in Europe. Additional impacts of COVID-19 on our business may arise that we are not aware of currently. The ultimate impact of the pandemic on the Company’s results of operations, financial position, liquidity, or capital resources cannot be reasonably estimated at this time.

Medical Device Directive Transition to Medical Device Regulation

The European Commission recently reviewed the Medical Device Directive legislative framework and promulgated REGULATION (EU) 2017/745 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 5 April 2017 on medical devices, amending Directive 2001/83/EC, Regulation EC) No 178/2002 and Regulation (EC) No 1223/2009 and repealing Council Directives 90/385/EEC and 93/42/EEC. This new Medical Device Regulation became effective on May 25, 2017, marking the start of a 3-year transition period for manufacturers selling medical devices in Europe to comply with the new medical device regulation, or MDR, which governs all facets of medical devices. The transition task is highly complex and touches every aspect of product development, manufacturing production, distribution, and post marketing evaluation. As a result of the worldwide COVID-19 pandemic, on April 17, 2020, the European Parliament adopted the European Commission’s proposal to postpone the implementation of the MDR (EU) 2017/745 by 12 months. This urgently drafted proposal to delay the MDR is in response to the exceptional circumstances associated with the COVID-19 pandemic and the potential impact it may have had on the MDR implementation. The new Date of Application (DoA) for the MDR was May 26, 2021.

Effectively addressing these changes will require a complete review of our device operations to determine what is necessary to comply. We do not believe the MDR regulatory changes will impact our business at this time, though implementation of the medical device legislation may adversely affect our business, financial condition and results of operations or restrict our operations.

Due to COVID-related delays experienced by the medical device industry and Notified Bodies (NB) alike, as of September 30, 2021, Delcath has not yet achieved MDR certification. However, our current CE Mark under the Medical Device Directive remains effective until April 2024 and allows us to fully operate, in Europe, accordingly, as Delcath and our Notified Body work closely together through the certification process.

Results of Operations for the three and nine months ended September 30, 2021 (in thousands)

Three months ended September 30, 2021 compared with three months ended September 30, 2020

Revenue

We recorded approximately $522 in revenue for the three months ended September 30, 2021 compared to $466 for the three months ended September 30, 2020. The increase of $56 in revenue is mainly due to an increase in CHEMOSAT unit sales to medac and associated royalty income.

Cost of Goods Sold

For the three months ended September 30, 2021, we recorded cost of goods sold of approximately $227 compared to $188 for the three months ended September 30, 2020. This increase is primarily related to the increase in sales volume.

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Research and Development Expenses

Research and development expenses are incurred for the development of HEPZATO and consist primarily of payroll and payments to contract research and development companies. To date, these costs are related to generating pre-clinical data and the cost of manufacturing HEPZATO for clinical trials and conducting clinical trials. For the three months ended September 30, 2021, research and development expenses decreased to $2,955 from $3,260 in the prior year period. The decrease of approximately $1,550 in clinical trial expenses is mainly due to the completion of the dosing phase of the FOCUS trial in May 2021. This was offset by recording of stock option expense of $734 and an increase due to additional compensation expense related to the hiring of six additional employees and an increase in costs related to preparation for the NDA submission.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of payroll, rent and professional services such as accounting and legal services. For the three months ended September 30, 2021 and 2020, selling, general and administrative expenses were $4,036 and $1,998, respectively. The increase is primarily related to the recording of stock option expense of $1,655 during the three months ended September 30, 2021.

Other Income/Expense

Other income/expense is primarily related to income or expense associated with financial instruments. For the three months ended September 30, 2021 and 2020, other (income)/expense were $429 and $11 of expense, respectively. The change is mostly related to $255 of interest expense and $127 of amortization expense for the original issue discount on the debt financing transaction between the Company and Avenue Venture Opportunities Fund, L.P., as discussed below under the heading Liquidity and Capital Resources.

Net Loss

Our net loss for the three months ended September 30, 2021 was $7,125, an increase of $2,134 compared to net loss of $4,991 for the three months ended September 30, 2020. The increase is mainly due to the third quarter stock option expense of $2,449.

Nine months ended September 30, 2021 compared with nine months ended September 30, 2020

Revenue

We recorded approximately $1,447 in revenue for the nine months ended September 30, 2021 compared to $1,139 for the nine months ended September 30, 2020. The increase of $308 in revenue is mostly due to an increase in CHEMOSAT unit sales to medac and associated royalty income.

Cost of Goods Sold

For the nine months ended September 30, 2021, we recorded cost of goods sold of approximately $541 compared to $434 for the nine months ended September 30, 2020 This increase is primarily related to the increase in sales volume.

Research and Development Expenses

Research and development expenses are incurred for the development of HEPZATO and consist primarily of payroll and payments to contract research and development companies. To date, these costs are related to generating pre-clinical data and the cost of manufacturing HEPZATO for clinical trials and conducting clinical trials. For the nine months ended September 30, 2021, research and development expenses increased to $10,159 from $8,457 in the prior year period. The increase is partially due to recording stock option expenses of $1,827 in 2021. The balance of the increase was due to additional compensation expense related to the hiring of five additional employees and an increase in costs related to the ongoing FOCUS trial and preparation for the NDA submission.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of payroll, rent and professional services such as accounting and legal services. For the nine months ended September 30, 2021 and 2020, selling, general and administrative expenses were $10,621 and $6,571, respectively. The increase is primarily related to the recording of stock option expense of $4,396 during the nine months ended September 30, 2021

Other Income/Expense

Other income/expense is primarily related to income or expense associated with financial instruments. For the nine months ended September 30, 2021 and 2020, other (income)/expense were $428 and $2,804 of expense, respectively. The change is mostly related to the fair value adjustment recorded in the first quarter of 2020 related to the warrant liability and offset by $255 of interest expense and $127 of amortization expense for the original issue discount on the debt financing transaction between the Company and Avenue Venture Opportunities Fund, L.P., as discussed below under the heading Liquidity and Capital Resources.

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Net Loss

Our net loss for the nine months ended September 30, 2021 was $20,302, an increase of $3,175 compared to net loss of $17,127 for the nine months ended September 30, 2020. The increase is mainly due to the year-to-date stock option expense of $6,224 offset by $2,832 related to the fair value adjustment recorded in the first quarter of 2020 related to the warrant liability.

Liquidity and Capital Resources

At September 30, 2021, we had cash, cash equivalents and restricted cash totaling $29,016, as compared to cash, cash equivalents and restricted cash totaling $28,756 at December 31, 2020 and $11,080 at September 30, 2020. During the nine months ended September 30, 2021 and 2020, we used $16,193.0 and $17,828.5, respectively, of cash in our operating activities. In the nine months ended September 30, 2021, we raised $2,458 of cash related to the exercises of warrants and received net proceeds of $14,437 related to the debt financing transaction between the Company and Avenue Venture Opportunities Fund, L.P., as discussed below.

Term Loan from Avenue Venture Opportunities Fund, L.P.

As previously reported, on August 6, 2021, the Company entered into a Loan and Security Agreement (the “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

$20,000 (the “Loan”). The 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 Loan is secured by all of the Company’s assets globally, including

intellectual property. The Loan maturity date is August 1, 2024.

The initial tranche of the Loan is $15,000, including $4,000 which has been funded into a restricted account and will be released upon

achievement of (a)(x) positive FOCUS trial efficacy per the trial’s predefined Statistical Analysis Plan (SAP) (specifically the Overall

Response Rate exceeds the prespecified threshold for success defined in the SAP by a statistically significant amount); and (y) based

on data contained within the FOCUS trial database and appropriate for use with the U.S. Food and Drug Administration, safety and

tolerability among FOCUS trial participants is within the range of currently approved and commonly used cytotoxic chemotherapeutic

agents; and (b) raising subsequent net equity proceeds of at least $20,000. The Company may request an additional $5,000 of gross

proceeds between October 1, 2022 and December 31, 2022, with funding subject to the approval of Avenue’s Investment Committee.

In connection with the Loan, the Company issued to Avenue a warrant (the “Avenue Warrant”) to purchase 127,755 shares of common stock at an exercise price per share equal to $0.01. The Avenue Warrant is exercisable until August 31, 2026.

Up to $3,000 of the principal amount of the Loan outstanding may be converted, at the option of the Lender, into shares of the Company’s common stock at a conversion price of $11.98 per share.

The Company will make monthly interest-only payments during the first fifteen months of the term of the Loan, which could be

increased to up to twenty-four months upon the achievement of specified performance milestones. Following the interest-only period,

the Company will make equal monthly payments of principal plus interest until the maturity date when all remaining principal

outstanding and accrued interest must be paid. If the Company prepays the Loan, it will be required to pay (a) a prepayment fee of 3%

if the Loan is prepaid during the interest-only period; and (b) a prepayment fee of 1% if the Loan is prepaid after the interest-only

period. The Company must make an incremental final payment equal to 4.25% of the aggregate funding.

The Company paid an aggregate commitment fee of $150 at closing. Upon funding a second tranche of the Loan, the Lender will earn

a 1.0% fee on the $5,000 of incremental committed capital, for a total commitment fee of $200.

The 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 Loan Agreement also contains customary events of default, including non-payment of principal or interest, violations of covenants, bankruptcy and material judgments.

The Company’s financial condition raises substantial doubt about our ability to continue as a going concern for a period of at least one year from the date that the financial statements included elsewhere in this Quarterly Report on Form 10-Q are issued. Our financial statements do not include adjustments to the amounts and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern. Our ability to continue as a going concern depends on our ability to raise additional capital through the sale of equity or debt securities to support our future operations.

Our future results are subject to substantial risks and uncertainties. We have operated at a loss for our entire history, and we anticipate that our losses will continue for the foreseeable future. There can be no assurance that we will ever generate significant revenues or achieve profitability. We expect to use cash, cash equivalents and investment proceeds to fund our future clinical and operating

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activities. Our future liquidity and capital requirements will depend on numerous factors, including the initiation and progress of clinical trials and research and product development programs; obtaining approvals and complying with regulations; the timing and effectiveness of product commercialization activities, including marketing arrangements; 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 has no off-balance sheet arrangements.

Application of Critical Accounting Policies

Our financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America. During the nine months ended September 30, 2021, there were no material changes to our critical accounting policies as reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. A description of certain accounting policies that may have a significant impact on amounts reported in the financial statements is disclosed in Note 3 to the Company’s audited consolidated financial statements contained in its Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Item 3. | Quantitative and Qualitative Disclosures about Market Risk

We may be minimally exposed to market risk through changes in market interest rates that could affect the interest earned on our cash balances.

We measure all derivatives, including certain derivatives embedded in contracts, at fair value and recognize them on the balance sheet as an asset or a liability, depending on our rights and obligations under the applicable derivative contract.

Item 4. | Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of our Chief Executive Officer and Interim Principal Accounting Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act). Based on that evaluation, our Chief Executive Officer and Interim Principal Accounting Officer concluded that our disclosure controls and procedures as of September 30, 2021 (the end of the period covered by this Quarterly Report on Form 10-Q), have been designed and are functioning effectively to provide reasonable assurance that the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Interim Principal Accounting Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls over Financial Reporting

There was no change in our internal control over financial reporting (as define in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II: OTHER INFORMATION

Item 1. | Legal Proceedings

From time to time, claims are made against the Company in the ordinary course of business, which could result in litigation. Claims and associated litigation are subject to inherent uncertainties and unfavorable outcomes could occur, such as monetary damages, fines, penalties, or injunctions prohibiting us from selling our products or engaging in other activities. The occurrence of an unfavorable outcome in any specific period could have a material adverse effect on our results of operations for that period or future periods.

Following the May 18, 2020 resignation (effective June 1, 2020) of Jennifer Simpson, the Company’s former President and CEO, and Barbra Keck, the Company’s former CFO (the “Claimants”), it became evident that there was a dispute regarding the Company’s compensation obligations. In a letter dated, June 29, 2020, an attorney representing the Claimants made certain claims and threatened litigation against the Company. On or about July 27, 2020, the Claimants filed a statement of claim with the American Arbitration Association against the Company. The Claimants sought payment of certain purported unpaid compensation amounts claimed to be due to them, in an approximate amount of $1,140 in the aggregate, as well as unspecified statutory damages under the New York Labor Law, attorneys’ fees and costs, and statutory interest. The Company denied any liability or wrongdoing and was vigorously defending against the claims, with contested arbitration hearings initially scheduled to commence in the week of May 17, 2021. However, the Claimants and the Company agreed to participate in non-binding mediation of their dispute before a neutral mediator, which resulted in the arbitration proceedings being placed in abeyance pending the outcome of the mediation process. With the assistance of the neutral mediator and after careful consideration by the Company’s board of directors following several weeks of negotiations, the Claimants and the Company agreed in mid-May of 2021 to a confidential settlement of their dispute to avoid the expenses and distractions of further arbitration proceedings, with no admission of liability or wrongdoing on the part of the Company. While the Company had accrued for the full purported unpaid compensation amount of $1,140 as of December 31, 2020, the Company ultimately paid less in full and final settlement of its dispute with both of the Claimants. As a result of the confidential settlement, the AAA Arbitration was dismissed with prejudice on June 1, 2021.

Item 5. | Other Information

Appointment of Interim Principal Accounting Officer

On November 4, 2021, the Board of Directors of the Company appointed the Company’s Chief Executive Officer, Gerard Michel, to serve in the additional role of interim Principal Accounting Officer of the Company, effective November 15, 2021 and until such time as a permanent replacement for Ms. Christine Padula, the current interim Principal Accounting Officer, has been identified and appointed. As previously reported, on October 20, 2021, Ms. Padula informed the Company of her intention to resign as interim Principal Accounting Officer of the Company, effective November 15, 2021, to pursue a new opportunity.

At the Market Offering of Common Stock

On August 18, 2020 and as previously reported in the Company’s Current Report on Form 8-K filed with the SEC on that date, the Company entered into a Controlled Equity OfferingSM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor Fitzgerald”), pursuant to which the Company may offer and sell, from time to time, through Cantor Fitzgerald, as sales agent, shares of the Company’s common stock, par value $0.01 per share ( “Placement Shares”). During the Company’s fiscal year ended December 31, 2020, the Company sold a total of 77,644 Placement Shares through Cantor Fitzgerald under the Sales Agreement for which the Company received total gross proceeds of $910,000. In fiscal year 2020, Placement Shares were offered and sold pursuant to the Company’s effective “shelf” registration statement on Form S-3 (Registration Statement No. 333-227970), the base prospectus contained therein, dated December 21, 2018, and a prospectus supplement dated August 18, 2020 relating to an offering of up to $10 million of Placement Shares. Any further offers and sales of Placement Shares by the Company under the Sales Agreement will be made pursuant to the Company’s effective “shelf” registration statement on Form S-3 (Registration Statement No. 333-257428) (the “Registration Statement”), the base prospectus contained therein, dated July 2, 2021, and a prospectus supplement dated November 9, 2021 relating to an offering of up to $25 million of Placement Shares (the “ATM Offering”).

The Company has no obligation to sell any Placement Shares under the Sales Agreement. Subject to the terms and conditions of the Sales Agreement, Cantor Fitzgerald will use commercially reasonable efforts, consistent with its normal trading and sales practices, applicable state and federal law, rules and regulations and the rules of the Nasdaq Stock Market, to sell Placement Shares from time to time based upon the Company’s instructions, including any price, time or size limits specified by the Company. Under the Sales Agreement, Cantor Fitzgerald may sell Placement Shares by any method deemed to be an “at the market offering” as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended. The Company will pay Cantor Fitzgerald a commission of 3.0% of the aggregate gross proceeds from each sale of Placement Shares, reimburse Cantor Fitzgerald’s legal fees and disbursements up to $50,000 and provide Cantor Fitzgerald with customary indemnification and contribution rights. The Sales Agreement may be

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terminated by Cantor Fitzgerald or the Company upon notice to the other party as provided in the Sales Agreement, or by Cantor Fitzgerald at any time in certain circumstances, including the occurrence of a material and adverse change in the Company’s business or financial condition that makes it impractical or inadvisable to market the Placement Shares or to enforce contracts for the sale of the Placement Shares.

The foregoing description of the material terms of the Sales Agreement does not purport to be complete and is qualified in its entirety by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 18, 2020 and incorporated herein by reference.

A copy of the opinion of McCarter & English, LLP, relating to the legality of the Placement Shares, is filed as Exhibit 5.1 to this Quarterly Report on Form 10-Q and is hereby incorporated by reference into the Registration Statement.

The information herein regarding the ATM Offering shall not constitute an offer to sell or the solicitation of any offer to buy the Placement Shares, nor shall there be any offer, solicitation or sale of the Placement Shares in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such state or jurisdiction.

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Item 6. | Exhibits

Exhibit No. |  | Description
3.1 |  | Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1/A filed September 25, 2019).
3.2 |  | Amendment to the Amended and Restated Certificate of Incorporation of the Company dated October 17, 2019 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 23, 2019).
3.3 |  | Certificate of Correction to Amendment to the Amended and Restated Certificate of Incorporation of the Company dated October 22, 2019 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on October 23, 2019).
3.4 |  | Amendment to the Amended and Restated Certificate of Incorporation of the Company, effective December 24, 2019 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on December 30, 2019).
3.5 |  | Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company, dated November 23, 2020 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on November 24, 2020).
3.6 |  | Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit 3.2 to Amendment No. 1 to Company’s Registration Statement on Form SB-2).
5.1 |  | Opinion of McCarter & English, LLP*
10.1 |  | Loan and Security Agreement, dated August 6, 2021, between the Company and Avenue Venture Opportunities Fund, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 11, 2021)
10.2 |  | Supplement to the Loan and Security Agreement, dated August 6, 2021, between the Company and Avenue Venture Opportunities Fund, L.P. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 11, 2021)
10.3 |  | Warrant, dated August 6, 2021, issued by the Company to Avenue Venture Opportunities Fund, L.P. (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on August 11, 2021)
10.4 |  | Second Note Amending Amendment, dated as of August 6, 2021, between the Company and Rosalind Opportunities Fund I L.P. and Rosalind Master Fund L.P. (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on August 11, 2021)
10.5 |  | Note Amending Agreement, dated as of July 15, 2019, between the Company and Rosalind Opportunities Fund I L.P. and Rosalind Master Fund L.P. (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on August 11, 2021)
10.6 |  | 8% Secured Promissory Note, dated July 15, 2019, issued by the Company to Rosalind Opportunities Fund I L.P. (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on August 11, 2021)
10.7 |  | 8% Secured Promissory Note, dated July 15, 2019, issued by the Company to Rosalind Master Fund L.P. (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on August 11, 2021)
23.1 |  | Consent of McCarter & English (included in Exhibit 5.1)*
31.1 |  | Certification by Chief Executive Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2 |  | Certification by Interim Principal Accounting Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1 |  | Certification by 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 by Interim Principal Accounting Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
101.INS |  | Inline XBRL Instance Document*

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101.SCH |  | Inline XBRL Taxonomy Extension Schema Document*
101.CAL |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF |  | Inline XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB |  | Inline XBRL Taxonomy Extension Label Linkbase Document*
101.PRE |  | Inline XBRL Taxonomy Extension Presentation Linkbase Document*
104 |  | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

* | Filed herewith.

** | This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any filing, except to the extent the Company specifically incorporates it by reference.

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DELCATH SYSTEMS, INC.

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.
November 9, 2021 | /s/ Gerard Michel
| Gerard Michel
| Chief Executive Officer

November 9, 2021 | /s/ Christine Padula |
| Christine Padula
| Interim Principal Accounting Officer

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