Delcath Systems, Inc. (NASDAQ:DCTH): Here's Our Take

Delcath Systems, Inc. (NASDAQ:DCTH) ­is a tough one to get a read on right now. The company drew a huge amount of speculative volume back during mid June when it ran from $0.02 a share to $0.35 on the back of a reverse split (RS) getting voted down by shareholders. Subsequent to the run, however, the company crashed back down and has since declined gradually into lows of $0.12 (logged mid session on Monday this week). Yesterday's close brought it up to just shy of $0.14 a piece, however, and premarket back and forth on Tuesday means Delcath will open today's session at $0.15.That's a 25% bounce from post-correction lows but remains a more than 95% discount to the mid-June highs.Markets are desperately trying to figure out what happens next.The Monday recovery comes on the back of the company filing this 8K with the SEC, detailing the establishment of a fresh batch of preferred shares, which Delcath will sell for circa $2.0 million in order to raise capital for – as stated in the filing – general corporate purposes.This is an injection of capital on what seems to be minimally dilutive terms and, at a glance, looks pretty good for the company. There is a downside, however, and it's rooted in what the extra shares mean from a voting perspective.Specifically, while the company ran on the back of a reverse split getting voted down last month, Delcath is not ready to give up on its split aspirations just yet and stated as such in the latest filing.Here is a quote pulled directly from the document:

"… conversion of the Series B Preferred Stock and otherwise three business days after receipt of shareholder approval of a reverse split of our Common Stock for which we intend to seek shareholder approval immediately upon closing of the purchase contemplated hereby."

So why is this a problem?Because, as of the most recent vote, the company was unable to gain the majority required to effect a reverse split. With the latest issue, and assuming that those in receipt of the shares are aligned with management (which is a reasonable assumption) there are an extra 10.7 million votes set to be put forward in favor of the split in question as and when it comes up for debate again.This company has nearly half a billion shares outstanding, so an extra 10 million votes isn't going to guarantee a reverse split (the vast majority of the outstanding base is owned by retail as opposed to institutions or insiders). However, it does make management's job a little easier in terms of scouting for the votes it needs and – more importantly – more than justifies the company seeking a fresh vote even though one was just turned down a few weeks ago.So this is all negative, right?Well, not necessarily. A reverse split at core is nothing more than an accounting protocol. However, when a company goes from below one dollar to above one dollar, it opens itself up to a wave of fresh short trades that otherwise wouldn't have been able to take said position (many brokers don't allow retail traders to open short positions on companies that trade below a dollar). These shorts will often push a company back down, meaning what at core is nothing more than an accounting protocol becomes something that deteriorates the proportional value of current holdings.This aside, however, it will allow the company to remain listed on the NASDAQ and – more importantly – it will finally lay to rest the downside pressure being put on this company in anticipation of a reverse split execution. This, in turn, will open up the possibility for markets to focus purely on fundamental developments, one of which has the potential to hit press very near term (this quarter or early fourth quarter) – data from the company's lead US study of its Chemosat delivery system.If this data hits press as positive and the split induced pressure is removed before it does, this one could really start to take off and revalue towards what we see as a much higher core valuation that the one it currently commands.Get the whole story: check out our previous coverage of this one here. We will be updating our subscribers as soon as we know more. For the latest updates on DCTH, sign up below!Image courtesy of cnicholsonpath via FlickrDisclosure: We have no position in DCTH and have not been compensated for this article.