Delcath Systems, Inc. (NASDAQ: DCTH) is in a bit of a rough spot. For some time, the company has been working to get a reverse split approved by investors; many of the same investors who have already shot down the idea have hit message boards telling other investors not to agree to it this time around. However, in what seems to be a last-ditch effort to get the reverse split approved, DCTH released news yesterday of the extinguishment of Convertible Notes that is contingent on the reverse split being approved.
DCTH Makes A Last Ditch Effort To Get Investors To Vote For A Reverse Split
As mentioned above, Delcath Systems has been working for some time to get a reverse split approved by investors. In doing so, the company has moved the deadline on the vote to September 7th, hoping for a yes vote from investors if given time. Nonetheless, that didn’t seem to be going well as the company released new news yesterday in what seems to be an attempt to get the RS approved.
In news that broke yesterday, DCTH said that it has negotiated an agreement that would lead to the extinguishment of its 2016 Convertible Notes from the holder of the majority of these notes. Under the agreement, about 90% of the remaining $12.6 million in debt associated with the convertible notes would be extinguished. However, there’s a caveat here. In order for this deal to go through, shareholders must approve the reverse stock split.
Under the terms of the agreement, which is effective immediately, the DCTH Series A and B preferred shares will be redeemed at $1.65 million in restricted cash that will be released to the company. Also, if shareholders approve the RS, several transactions will occur to extinguish the convertible notes. First and foremost, the note holder will release all restrictions on $6.4 million in remaining restricted cash. $4 million in convertible notes will be redeemed. Finally, the company and note holder will exchange $2.4 million of the remaining convertible notes for new warrants to purchase 40 million shares of common stock at an exercise price of $0.35. At the end of the day, a final amount of $3.8 million in debt will remain until it is either converted or redeemed in accordance with the original convertible note agreement.
Talking About The Reverse Stock Split
While it seems unlikely that, even with the news that was released yesterday, investors will vote to approve the reverse split, doing so would likely turn out to be a long-run positive. The reason for this is simple. As with just about any other company, DCTH has made mistakes. Because of these mistakes, they are between a rock and a hard place when it comes to finances. A reverse split would likely help to cure these issues.
First and foremost, the reverse split will move the agreement above into effect. On top of the extinguishment of the convertible notes, the reverse split would not only make it so that DCTH qualifies to remain listed on the NASDAQ, but it will also open about $13.7 million in much needed funding. So, essentially, if the RS were to take place, Delcath Systems would have the finances it needs in order to keep the company alive and well through the next major clinical catalyst.
What If A Reverse Split Is Voted Down?
At the moment, it seems as if the vote is going to be a no vote. If this happens, DCTH is likely headed for some seriously choppy waters. The company is going to need to find some way to bring funds in to allow the company to stay afloat, and management will likely have to take a massive pay cut from their current – admittedly exorbitant – salaries.
At the end of the day, if a no vote takes place, the company may even be forced to put itself up for sale. Not only would it likely lose its listing on the NASDAQ, it would also likely run out of money incredibly quickly. At this point, a sale of assets may be the only other option.
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Here’s the reality… I like DCTH. I like what they are doing. I like the fact that they have Chemosat approved and it’s saving lives in Europe and the UK. However, the company is burning through money like a wildfire during a drought-riddled California summer! While achieving approval in the United States would be an incredible feat for the company, likely opening the door to massive amounts of revenue, doing so will require money. Therein lies the dilemma. At the end of the day, no one quite knows which way this will go. However, I will continue to keep my fingers crossed in hopes that the company will figure out how to get themselves out of the pickle they have found themselves in.
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