10-K

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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

[X]  Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934 for the fiscal year ended December 31, 2006

[    ] 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.

                Delaware                           06-1245881

     (State or other jurisdiction of             (I.R.S. Employer
      incorporation or organization)             Identification No.)

     1100 Summer Street, Stamford, Connecticut              06905
     (Address of principal executive offices)             (Zip Code)

                                  203-323-8668
              (Registrant's telephone number, including area code)

           Securities registered pursuant to Section 12(b) of the Act:

                                                   Name of Each Exchange
Title of Each Class                                 On Which Registered
- ---------------------------------------            ------------------------
Common Stock, par value $0.01 per share             NASDAQ Small Cap
                                                    Boston Stock Exchange

           Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.01 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined by Rule 405 of the Securities Act.

                                                                Yes [ ]   No [X]

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Exchange Act.

                                                                Yes [ ]   No [X]

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  [X]  No [ ]






Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.                                            [X]

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the
Act). Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer
[ ]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).

                                                                 Yes  [ ] No [X]

The aggregate market value of the voting common stock held by non-affiliates of
the issuer, based on the closing sales price of $5.25 per share, was $98,834,096
as of June 30, 2006.

At March 1, 2007, the registrant had outstanding 21,252,613 shares of par value
$0.01 Common Stock.


                       DOCUMENTS INCORPORATED BY REFERENCE

Incorporated into Part III of this Form 10-K.

Proxy Statement for 2007 Annual Meeting of Stockholders. (A definitive proxy
statement will be filed with the Securities and Exchange Commission within 120
days after the close of the fiscal year covered by this Form 10-K).


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                                     PART I

Item 1. Business.

General

Delcath Systems was incorporated under Delaware law in 1988. We are a
development stage company with a platform technology that isolates specific
organs and body regions from the body's general circulatory system in order to
administer high dose chemotherapy and other therapeutic agents directly to a
diseased organ or body region. The first application being investigated for our
system uses the Delcath technology to isolate the liver from the general
circulatory system for the treatment of tumors of the liver. High doses of
chemotherapy are delivered directly to tumors in the liver while protecting the
patient from the toxicities that would normally result from systemic exposure to
the administered chemotherapeutic drug. These higher doses could be potentially
lethal to the patient if administered systemically. One of our trials is in the
final phase III United States Food and Drug Administration (FDA) approval
process. However, the Delcath System is not currently approved for marketing by
the FDA, and it cannot be marketed in the United States without FDA pre-market
approval. As mentioned, we are in the process of conducting a Phase III clinical
trial designed to secure marketing approval in the United States and possibly in
foreign markets for use of the Delcath system with the chemotherapy agent
melphalan, for the treatment of malignant melanoma that has spread to the liver.
We are also testing the Delcath system with melphalan against hepatocellular,
neuroendocrine and adenocarcenoma cancers that have spread to the liver in Phase
II clinical trials. Additionally, we plan to conduct pre-clinical and clinical
trials on the use of the Delcath System with other chemotherapy agents used to
treat liver cancer. Since our inception, we have raised approximately $38.0
million in funds (net of fundraising expenses), and we have invested
approximately $19.8 million of those funds in research and development costs
associated with development and testing of the Delcath system. Delcath maintains
a website at www.Delcath.com.

Strategy

Our objectives are to establish the use of the Delcath system as the standard
technique for delivering chemotherapy agents to the liver and to expand the
Delcath technology so that it may be used in the treatment of other liver
diseases and of cancers in other parts of the body. Our strategy includes the
following:

     o    Completing clinical trials to obtain FDA pre-market approval for use
          of the Delcath system with melphalan to treat malignant melanoma that
          has spread to the liver. Our highest priority is completing the Phase
          III clinical trial, data preparation, statistical analysis and filing
          of necessary regulatory documents associated with an application for
          FDA pre-market approval of the commercial sale of the Delcath system
          in the United States for use in administering melphalan in the
          treatment of melanoma that has spread to the liver. We are presently
          treating patients in trials being conducted by the National Cancer
          Institute and will seek to add clinical centers to this trial in order
          to speed the completion of the trial.

     o    Obtaining approval to market the Delcath system in the United States
          for the treatment of additional cancers in the liver. We are testing
          our system in the treatment of other cancers of the liver such as
          primary liver cancer, and tumors of neuroendocrine and adenocarcinoma
          origin that have spread to the liver using the drug melphalan. In
          2004, we commenced Phase II studies of these three cancers in the
          liver and are currently recruiting and treating patients within this
          trial. We will also continue to evaluate other promising drug
          candidates to use with our system to treat other specific tumors in
          the liver.

     o    Explore other regional therapy applications for the Delcath system. We
          are evaluating other organs and procedures that may be well suited for
          the use of our device. Other organs or body regions that may be
          evaluated for compatibility with our catheter technology include
          limbs, lungs, pancreas, and kidneys.

     o    Investigating treatment of hepatitis using anti-viral drugs. In
          addition to researching the use of other chemotherapy agents with the
          Delcath system to treat a variety of cancers, we plan to


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          research the use of other compounds with the Delcath system to treat
          other diseases of the liver including hepatitis. We intend to develop
          strategic alliances with a number of cancer centers. To this end, we
          are presently contacting recognized leading institutions and liver
          transplant centers that focus on regional cancer treatments. By
          working together with these institutions we intend to explore new
          applications for our technology and to help in the design and
          expansion of our clinical trials.

     o    We intend to improve our technology. We will continue to identify
          improvements which increase potential drug dosing, simplify the
          procedure, shorten recovery times and expand the uses of the system.
          These changes may include new catheter designs, system architectures
          and the development of filters with specific affinity to newer
          anticancer and antiviral agents.

     o    Introducing the Delcath system into foreign markets. We may seek to
          establish strategic relationships with domestic and foreign firms that
          have an established presence or experience in the foreign markets that
          we intend to target. Our strategy is to focus on markets that have a
          high incidence of liver disease and the public or private means to
          provide and pay for the associated medical treatments. According to
          the World Health Organization, many Asian and European countries,
          including China, Japan, Hong Kong, the Philippines, Australia, Greece,
          France, Germany, Italy and Spain, have a higher incidence of hepatitis
          and liver cancer than the United States. We may explore arrangements
          with strategic partners who have experience with obtaining the
          necessary regulatory approvals and the marketing of medical devices in
          those markets.



The Cancer Treatment Market

The American Cancer Society projects that 1,444,920 new cases of cancer would be
diagnosed the United States in 2007. According to the American Cancer Society's
"Cancer Facts and Figures 2007," cancer remains the second leading cause of
death in the United States exceeded only by heart disease. While researchers
continue to develop innovative new treatments for some forms of this disease,
surgical resection, chemotherapy, radiation and hormone therapy continue to be
the most commonly used treatments.

The financial burden of cancer is great for patients, their families and
society. In the year 2006, the National Institutes of Health, in the American
Cancer Society's "Cancer Facts & Figures 2007," estimated the overall costs of
cancer to be $206.3 billion, including $78.2 billion in direct medical costs,
$17.9 billion for indirect morbidity costs attributable to lost productivity due
to illness and $110.2 billion for indirect mortality costs attributable to lost
productivity due to premature death.



The Liver Cancer Market

Liver cancer is one of the most prevalent and lethal forms of cancer throughout
the world. There are two forms of liver cancer: primary and metastatic. Primary
liver cancer originates in the liver. Metastatic or secondary cancer in the
liver results from the spread of cancer from other places in the body to the
liver. In our clinical trials, we are treating patients suffering from both
primary liver cancer and metastatic cancers in the liver including metastatic
melanoma which has spread to the liver. According to the American Cancer
Society's "Cancer Facts & Figures 2007," the five-year survival rate for liver
cancer patients is approximately 10.5%, compared to 66% for all other forms of
cancer combined. Delcath believes that the five-year survival rate for
metastatic cancer in the liver is the same. In the liver, tumors can be
surgically removed only when they are located in one of the liver's two lobes.
However, since symptoms of liver cancer often do not appear until the liver
tumors are distributed throughout the liver, less than 10% of primary and
metastatic liver tumors can be surgically removed at the time of diagnosis. A
significant number of patients surgically treated for primary and metastatic
liver cancer will also experience a recurrence of their disease.

Metastatic liver cancer is characterized by microscopic cell clusters of other
forms of cancer that detach from the primary site and travel via the blood
stream and lymphatic system into the liver, where they grow into new tumors.


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This growth often continues even after removal of the primary cancer or
cancerous organ. When cancer cells enter the liver and develop into tumors, they
tend to grow very quickly. In many cases, the patient dies not from the primary
cancer, but from the tumors in the liver; the liver becomes the "life limiting
organ." People cannot survive without a liver capable of performing its critical
biologic functions, which include facilitating the conversion of food into
energy and filtering toxic agents from the blood. The liver is one of the three
most common sites to which cancer may spread. Due to numerous factors, including
the absence of viable treatment options, metastatic liver cancer often causes
death.

According to the World Health Organization, primary liver cancer is the third
most common form of cancer worldwide. It is estimated that there were 662,000
deaths from liver cancer throughout the world in 2005. The incidence of liver
cancer has been steadily increasing in the United States over the past two
decades largely due to an increase in the rate of hepatitis infection. The
American Cancer Society projects that in the United States there will be
approximately 19,160 newly diagnosed cases of primary liver cancer in 2007 and
the Company estimates that there will be approximately 222,000 newly diagnosed
cases of metastatic cancers in the liver during the same period.

Primary liver cancer is particularly prevalent in Southern Europe, Asia and
developing countries, where the primary risk factors for the disease are
present. These risk factors include: hepatitis-B, hepatitis-C, relatively high
levels of alcohol consumption, aflatoxin, cigarette smoking and exposure to
industrial pollutants. In Asia, liver cancer and diseases of the liver are one
of the most prevalent lethal diseases for males under the age of 35 years. The
largest demand for effective treatment of primary hepatoma is found in Southern
Europe and in Asia.



Current Liver Cancer Treatments

The prognosis for primary and secondary liver cancer patients is poor. Although
limited treatment options are currently available for liver cancer, they are
typically ineffective, are generally associated with significant side-effects
and can even cause death. Traditional treatment options, discussed in more
detail below, include surgery, liver transplant, chemotherapy, cryosurgery,
percutaneous ethanol injection, radiation therapy, implanted infusion pumps and
surgically isolated perfusion.



Surgery

While surgery is considered the "gold standard" treatment option to address
liver tumors, more than 90% of liver tumors are unresectable, which means they
do not qualify for surgical removal. This is most often due to the following:

     o    Operative risk: limited liver function or poor patient health
          threatens survival as a result of the surgery; or

     o    Technical feasibility: the proximity of a cancerous tumor to a
          critical organ or artery or the size, location on the liver or number
          of tumors makes surgery not feasible.

For the patients who qualify for surgery, there are significant complications
related to the procedure. Recurrence of tumors is common, and in that event,
surgery typically cannot be repeated.

We believe that delivery of drugs with the Delcath system may in some cases
assist in allowing a surgical option for tumors which are currently inoperable,
by reducing the size and number of tumors by an amount sufficient to make
resection feasible. Shrinking a tumor using chemotherapy and then removing the
tumor surgically is a procedure known as adjuvant therapy. Chemotherapy can also
be administered through the Delcath system after resection with the objective of
destroying micro metastases in the liver that may remain undetected, thus
preventing or delaying any recurrence of tumor growth.


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Transplant



Transplanting a healthy donor liver into a patient with a diseased liver is
rarely performed due to the low availability of donor organs and the high
probability of tumor recurrence within the transplanted liver.



Chemotherapy


The most prevalent form of liver cancer treatment is intravenous chemotherapy.
The effectiveness of this treatment, however, is limited by its side effects.
Generally, the higher the dosage of chemotherapy administered, the greater its
ability to kill cancer cells. However, due to the toxic nature of chemotherapy
agents, the higher the dosage administered, the greater the damage chemotherapy
agents cause to healthy tissues. As a result, the dosage of chemotherapy
required to kill cancer cells can be lethal to patients.

The side effects caused by melphalan, the drug in our current clinical trials,
are representative of the side-effects associated with many chemotherapy agents.
Melphalan can cause severe mucositis leading to ulceration of the mouth and
digestive organs, damage to a patient's immune system through destruction of
bone marrow cells, as well as acute nausea, severe vomiting, dermatological
problems and hair loss. The use of melphalan can be fatal even when administered
with careful patient monitoring.

The limited effectiveness of intravenous chemotherapy treatment and its
debilitating, often life-threatening, side-effects makes the decision to undergo
chemotherapy treatment difficult. In some instances, in an attempt to shrink
tumors, a physician may prescribe a radically high-dose of chemotherapy, despite
its side effects. In other cases, recognizing the inevitable result of liver
cancer, the physician and patient may choose only to manage the patient's
discomfort from the cancer with pain killers while foregoing treatment. While
chemotherapy may be effective under laboratory conditions, the inability to
provide high enough dosing to kill the cancer cells without causing death to the
patient limits the agent's effectiveness.



Cryosurgery

Cryosurgery is the destruction of cancer cells using sub-zero temperatures.
During cryosurgery, multiple stainless steel probes are placed into the center
of the tumor and liquid nitrogen is circulated through the end of the device
positioned in the tumor, effectively freezing it. Cryosurgery involves a cycle
of treatments in which the tumor is frozen, allowed to thaw and then refrozen.

While cryosurgery is considered to be relatively effective, we believe adoption
of this procedure has been limited because:

     o    It is not an option for patients who cannot tolerate a surgical
          procedure;

     o    It involves significant complications which are similar to other
          surgical procedures, as well as liver fracture and hemorrhaging caused
          by the cycle of freezing and thawing;

     o    It is associated with mortality rates estimated to be between one and
          five percent; and

     o    It is expensive compared to other alternatives.


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Percutaneous Ethanol Injection

Percutaneous ethanol injection, or PEI, involves the injection of alcohol into
the center of the tumor. The alcohol causes cells to dry out and cellular
proteins to disintegrate, ultimately leading to tumor cell death.

While PEI can be successful in treating some patients with primary liver cancer,
it is generally considered ineffective on large tumors. In order to perform this
treatment, tumors must be well vascularized. Unfortunately, many tumors have
poor vascularity which prevents effective treatment with this method. Patients
are required to receive multiple treatments, making this option unattractive for
many patients. Complications include pain and the potential introduction of
alcohol into the bile ducts and major blood vessels. In addition, this procedure
can cause cancer cells to be deposited along the needle track when the needle is
being withdrawn from the tumor.



Radiation Therapy

Radiation therapy uses high dose x-rays or the delivery of localized radiation
to kill cancer cells. Radiation therapy using x-rays is not considered an
effective means of treating liver cancer and is rarely used for this purpose. A
number of localized radiation delivery mechanisms are currently being used and
tested, and may hold some effectiveness against certain types of liver cancers,
but radiation therapies are usually used as an adjunct to other treatments for
liver cancer.



Implanted Infusion Pumps

Implanted infusion pumps can be used to better target the delivery of
chemotherapy agents to the tumor. Arrow International markets an implantable
pump typically used to treat colorectal cancer which has metastasized to the
liver. The pump is surgically implanted under the skin and delivers regular
doses of chemotherapeutic agents in a targeted area over time. This pump,
however, lacks a means of preventing the entry of chemotherapy agents into the
patient's general circulation after it passes through the liver. As a result,
this technique does not enable physicians to prescribe higher doses of
chemotherapy.



Surgically Isolated Perfusion

To address this trade-off between the efficacy of intravenous chemotherapy
treatment and its dire side effects, physicians have experimented with
techniques to isolate the liver from the general circulatory system and to
achieve a targeted delivery of chemotherapy agents to the liver. In the 1980's,
a physician in Germany developed a major surgical procedure in which he
surgically clamped the arteries and veins supplying the liver and diverted the
blood flow from the liver while infusing high dosages of chemotherapy agents
into the liver. A blood filtration circuit reduced drug concentrations before
returning the diverted blood to the patient. Regionalized isolated delivery can
provide improved dosing while sparing patients from some of the drug's untoward
effects on healthy areas of the body, but the treatment was not embraced by the
broad medical community because it is highly invasive, resulting in prolonged
recovery times, long hospital stays and very high costs. Despite improvements in
the surgical treatment, it remains a major operative procedure and can only be
performed at highly specialized liver cancer centers. Other physicians have
experimented with the targeted delivery of chemotherapy agents to the liver by
catheter, attempting to use one or more catheters to deliver and then remove
those chemotherapy agents before they enter the general circulatory system. We
are unaware of any non-surgical system, however, which can administer the higher
drug doses made possible with the Delcath system.


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Other Methods of Treatment

Other liver cancer treatments include hepatic arterial infusion, embolization,
chemo-embolization, radio frequency ablation, gene therapy, hyperthermia and the
use of biological response modulators, monoclonal antibodies and liposomes. Many
of these treatment options are experimental, and their effectiveness is either
limited or unknown, and many are not repeatable or have dose limiting
side-effects.



Treatment with the Delcath System

The Delcath system is designed to address the critical shortcomings of
conventional intravenous chemotherapy for the treatment of various cancers. The
Delcath system for the treatment of liver cancer isolates the liver from the
general circulatory system while treating the diseased liver with high doses of
chemotherapeutic agents and then returns the blood exiting the liver to the
general circulatory system only after the chemotherapy agent has been
substantially removed from the blood by filtration outside the body. Based on
human clinical data, we believe that the protection from the side-effects of
chemotherapy to other parts of the body that is provided by the Delcath system
allows for higher chemotherapy doses to be delivered to the liver than can be
administered by conventional intravenous delivery. By filtering out a
substantial portion of the chemotherapy agent before the blood is returned to
the blood stream and the body, other organs of the body and healthy tissue
receive less exposure to the chemotherapy agent. Therefore, these healthy
tissues and organs are less likely to suffer from the harmful side-effects of
chemotherapy. By providing higher dosing of the chemotherapy agent than would
otherwise be possible via conventional chemotherapy, the treatment generates a
higher number of killed cancer cells and may disable the ability of the
surviving cancer cells to develop metabolic mechanisms that circumvent the
killing effects.

The Delcath system kit includes the following disposable components manufactured
by original equipment manufacturers:

     o    Infusion catheter -- an arterial infusion catheter used to deliver
          chemotherapy to the liver.

     o    Double balloon catheter -- a multi-passageway catheter containing two
          low pressure occlusion balloons which are positioned to isolate the
          blood flow from the liver. These balloons are separated by
          fenestrations in the catheter which collect the drug-laden blood
          exiting the liver and divert it outside of the body through the
          catheter to the filtration circuit.

     o    Extracorporeal filtration circuit -- a blood tubing circuit
          incorporating the disposable components used with a blood pump to push
          the isolated blood through the system's filters and guide the cleansed
          blood back to the patient.

     o    Filters -- two activated carbon hemoperfusion filters used to remove
          most of the chemotherapy agent from the isolated blood coming out of
          the liver before being reintroduced to the patient's general
          circulatory system.

     o    Return catheter -- a thin-walled blood sheath used to deliver the
          filtered blood from the extracorporeal filtration circuit back into
          one of the major veins returning blood to the right atrium of the
          heart.

     o    Series of introducers and related accessories to properly place the
          catheters.

The double balloon catheter has one large passageway and three smaller
passageways. Each of two low-pressure occlusion balloons is inflated through one
of the smaller passageways. Blood flows out of the liver through the large
passageway to the filtration system. A separate access port attaches to the
large passageway and is designed for sampling fluid or flushing the system. The
third smaller passageway allows blood exiting the legs and kidneys to bypass the
isolated segment of the body and return to the heart.

The Delcath procedure involves a series of three catheter insertions, each of
which is made through the skin. During clinical test procedures, patients are
treated with intravenous sedation and local anesthesia at catheter insertion
sites. In some cases general anesthesia has been used. An infusion catheter is
positioned in the artery through which blood


                                       6






normally flows to the liver. A second catheter -- the Delcath double balloon
catheter -- is positioned in the inferior vena cava, a major vessel leading back
to the heart. The balloons on the double balloon catheter are then inflated.
This procedure prevents the normal flow of blood from the liver to the heart
through the inferior vena cava because the inferior vena cava has been blocked.
A chemotherapy agent is then infused into the liver through the infusion
catheter. The infused blood is prevented from flowing to the heart, and instead,
exits the liver through fenestrations on the double balloon catheter and flows
through this catheter out of the body where the blood is pumped through
activated charcoal filters to remove most of the chemotherapy agent. The
filtered blood is returned into the patient through the jugular vein which leads
to the superior vena cava, another major vessel of the heart, thus restoring the
cleansed blood to normal circulation. In the clinical trials, infusion is
administered over a period of thirty minutes. Filtration occurs during infusion
and for thirty minutes afterward. The catheters are removed and manual pressure
is maintained on the catheter puncture sites for approximately fifteen minutes.
The entire procedure takes approximately two to three hours to administer.

During our clinical trials, patients remain in the hospital overnight for
observation after undergoing treatment with the Delcath system. In time, we
expect the procedure to be performed on an outpatient basis, with the patient
resuming normal activities the day after the procedure is performed. An
advantage of the Delcath System is that the procedure is repeatable and we
expect a patient to undergo an average of four treatments, one every few weeks.
A new Delcath system kit is used for each treatment.



Our Clinical Trials

Following completion of the Phase I trials at the NCI, Delcath met with the FDA
to request approval to move directly from the completed Phase I study of
melphalan at NCI to a Phase III trial of patients with melanoma metastatic to
the liver. The FDA granted Fast Track review status to the protocol and allowed
Delcath to submit the study under the provision of a Special Protocol Assessment
("SPA"). The FDA granted an SPA for this trial in March 2006. Under the SPA
Agreement, a patient treated in the clinical trial as part of the non-Delcath
control group who thereafter experiences tumor progression can, with his
physician's approval, be crossed over and treated using the Delcath system. The
protocol covered by the SPA Agreement calls for the treatment of 92 patients,
equally randomized to either the Delcath treatment or to receive "Best Available
Care" in the control arm of the trial. The primary efficacy endpoint for the
trial is progression free survival which is defined as the length of time a
patient is both alive and free from any significant increase in the size of the
tumor (free from progression). Control patients whose tumors grow will have
completed their portion of the trial and at the Principal Investigator's
judgment will then be permitted to receive the Delcath treatment. Patients are
currently being treated at NCI and additional sites are expected to be added to
the trial during 2007.

We intend to complete the Phase III clinical trial with melphalan designed to
demonstrate to the FDA that administering this agent with the Delcath system to
treat malignant melanoma that has spread to the liver results in better patient
treatment outcomes than those obtained from other available treatments. Phase
III clinical trials are a prerequisite for FDA approval of Delcath's pre-market
application. During these trials, administration of melphalan through the
Delcath system must be proven to be safe and effective for the treatment of
melanoma in the liver. The FDA requires us to demonstrate that delivering
melphalan using the Delcath system results in tumor responses that are better
than those obtained in the control arm.

The FDA pre-market approval we are currently seeking is limited to
administration of melphalan with the Delcath system to treat patients suffering
from metastatic melanoma which has spread to the liver. If we are granted this
approval, we plan to seek additional FDA pre-market approvals for using the
Delcath system with other chemotherapy agents for treatment of other liver
cancers. In many instances, the process of applying for and obtaining regulatory
approvals involves rigorous pre-clinical and clinical testing. The time,
resources and funds required for completing necessary testing and obtaining
approvals is significant, and FDA pre-market approval may never be obtained for
some medical devices or drug delivery systems. If we fail to raise the
additional capital required or enter into strategic partnerships to finance this
testing or if we fail to obtain the required approvals, our potential growth and
the expansion of our business would likely be limited.

Prior to starting the Phase III trials, we conducted Phase I and II clinical
trials at several centers in the United States and overseas under
investigational device and investigational new drug exemptions granted by the
FDA. The trials


                                       7






were designed to demonstrate the system's safety and "functionality," or its
ability to administer to and extract from the liver approved and marketed
chemotherapy agents. Test subjects had primary liver cancer or cancer which had
spread to the liver. Subjects were treated with melphalan, doxorubicin or 5-FU.
These trials demonstrated that the Delcath system was capable of extracting up
to 85% of the chemotherapy agent administered to the liver. These trials
indicated that with three different anticancer agents, the Delcath system
permits the delivery of higher dosages to the cancer site while at the same time
minimizing the exposure of healthy tissue and organs to the effects of
chemotherapeutic agents.

We believe the results of the clinical trials we have conducted indicate that
the Delcath system delivered:

     o    more chemotherapy agent to the tumor site;

     o    less chemotherapy agent to the general circulation than that which
          would be delivered by administration of the same dose by intravenous
          means; and

     o    high dosing without inflicting the systemic damage that the patient
          would have experienced if he had received similar dosing using
          conventional intravenous chemotherapy administration.

In addition, clinicians involved in the Phase I and Phase II clinical trials
observed reductions in tumor size.

Further, though not demonstrated in a statistically significant manner because
of the limited number of patients tested, clinicians observed responses
including survival times of patients treated with the Delcath system which
exceeded those that would generally be expected in patients receiving
chemotherapy treatment through conventional intravenous means of delivery.

The FDA has classified the Delcath system as a drug delivery system which
requires us to obtain approval of new labeling for the drug being used in the
clinical trials. The clinical trials are designed to provide the data to support
this labeling change.



Our Clinical Trial and Agreement with The National Cancer Institute

In 2001, the Company announced that The National Institutes of Health/The
National Cancer Institute approved a Phase I clinical study protocol for
administering escalating doses of the chemotherapy agent, melphalan, through the
Delcath system to patients with metastatic and unresectable cancer of the liver.

The Phase I clinical trial conducted at The National Cancer Institute ("NCI")
has been completed and has been followed by a Phase II study treating patients
with primary liver cancers, adenocarcinomas and neuroendocrine cancers that have
metastasized to the liver and a Phase III study treating patients with melanoma
metastatic to the liver. The Phase II and Phase III clinical trials are subject
to the terms and conditions of the Cooperative Research and Development
Agreement (the "CRADA") between us and NCI.

The CRADA between Delcath and the NCI expired on December 14, 2006. It provides
for a 30 day grace period by its terms, which has passed. We have been informed
that the CRADA sub-committee of the NCI has approved an additional five-year
Cooperative Research and Development Agreement with Delcath Systems. We are
awaiting final signatures to formalize that agreement, and expect to renew this
agreement with the NCI.



Research for Hepatitis Treatment

Another disease that attacks the liver is viral hepatitis. Hepatitis is a
general term meaning inflammation of the liver and can be caused by a variety of
different viruses including hepatitis A, B, C, D and E, but usually refers to
hepatitis B and C. Hepatitis B and C are serious and common infectious diseases
of the liver, affecting millions of people throughout the world according to the
World Health Organization (WHO). WHO estimates more than 2 billion people alive
today have been infected with hepatitis B at some time in their lives. Of these,
about 350 million remain infected chronically. Up to 3% of the World's
population may harbor hepatitis C infection, with 4 million carriers in Europe
alone, according to WHO figures. The Centers for Disease control estimated there
were 185,000 cases of


                                       8






hepatitis B and 38,000 cases of hepatitis C in the U.S. in 1997. According to
the CDC, Over 5,000 Americans die from hepatitis B and over 10,000 Americans die
from hepatitis C every year. The incidence of viral hepatitis in the United
States and worldwide is increasing. The CDC further predicts the number of
deaths from hepatitis C will triple in the next two decades. The estimated cost,
including treatment and lost productivity due to sickness is estimated to be
over $700 million per year for hepatitis B and over $600 million per year for
hepatitis C. The long-range effects of some forms of hepatitis can include
massive death of liver cells, chronic active hepatitis, cirrhosis and hepatoma.
The current treatment for viral hepatitis is limited and includes long-term
injections of interferon alpha, which is similar to chemotherapy in its toxicity
and dosage limitations.

We are currently discussing the initiation of clinical trials to determine the
feasibility of using the Delcath system to administer anti-viral drugs in the
treatment of viral hepatitis. Prior to human clinical trials, we may perform
testing on different filters to determine their ability to remove certain
antiviral agents and conduct animal testing of the effect of high dose antiviral
therapy delivered into the liver.



Other Organs and Body Regions

Other areas of future treatment may include the treatment of pancreatic tumors,
biliary tumors, renal tumors and tumors of the limbs. Delcath has begun to
explore modifications to our core technology to allow for treatment of these
areas of the body using our perfusion technology. We are initiating discussions
with physicians who have shown interest in furthering the development of some of
these systems and plan to conduct bench and animal testing to establish the
feasibility of specific drugs for the treatment of these tumors.



Sales and Marketing

If we receive U. S. FDA approval, we may enter into collaboration with an
existing medical device marketer or we may market the system ourselves. If we
develop our own sales force, we intend to focus our marketing efforts on the
over fifty NCI-designated Cancer Centers in the United States recognized by NCI,
beginning with the hospitals participating in the Phase III clinical trials, as
well as key foreign institutions. We will focus these efforts on two distinct
groups of medical specialists in these comprehensive cancer centers:

     o    oncologists who have primary responsibility for the cancer patient;
          and

     o    interventional radiologists who are members of the hospital staff
          specialized in working with catheter-based systems.

Upon diagnosis of cancer, a patient is usually referred to a medical oncologist.
Depending upon the type, size and spread of tumors in the patient, this
physician generally provides palliative treatments (non-curative) and refers the
patient to a surgical oncologist if surgery appears to be an option. Both
medical and surgical oncologists will be included in our target market.
Generally, medical oncologists do not position catheters. This is done either by
an interventional radiologist or a surgeon.

We plan to hire a marketing director at such time as we receive an indication
from the FDA that approval of the Delcath system is forthcoming. If we decide to
market the Delcath System ourselves, we would then hire a sales manager and
initially four sales representatives to market the system in the United States.

In addition, if we can establish foreign testing and marketing relationships, we
plan to utilize one or more corporate partners to market products outside the
United States. We believe distribution or corporate partnering arrangements will
be cost effective, can be implemented more quickly than a direct sales force
established by us in such countries and will enable us to capitalize on local
marketing expertise in the countries we target.

Since we plan to sell the Delcath system to a large number of hospitals and
physician practices, we do not expect to be dependent upon one or a few
customers.


                                       9






Market acceptance of the Delcath system will depend upon:

     o    the ability of our clinical trials to demonstrate a measurable tumor
          reduction in patients whose tumors would not be expected to shrink
          from systemic chemotherapy;

     o    our ability to educate physicians on the use of the system and its
          benefits compared to other treatment alternatives; and

     o    our ability to convince healthcare payers that use of the Delcath
          system results in reduced treatment costs of patients.

This will require substantial efforts and expenditures.



Third-Party Reimbursement

Because the Delcath system is characterized by the FDA as an experimental
device, its use is not now reimbursable in the United States. We will not seek
to have third-party payers, such as Medicare, Medicaid and private health
insurance plans, reimburse the cost of the Delcath system until after its use is
approved by the FDA.

We believe that the Delcath system will provide significant cost savings in that
it should reduce treatment and hospitalization costs associated with the
side-effects of chemotherapy. Our planned wholesale price to the hospital for
the Delcath system kit is approximately $4,000. A patient is expected to undergo
an average of four treatments with the Delcath system, each requiring a new
system kit, resulting in projected revenue of $16,000 per patient.

We will identify a medical reimbursement expert to assist us in having the
Delcath treatment approved for reimbursement by third party payors.



Manufacturing

We plan to continue to utilize contract manufacturers to manufacture the
components of the Delcath system. The Delcath system kit is being manufactured
domestically by the OEM division of B. Braun Medical, Inc. of Germany. B. Braun
is also supplying the other catheters and accessories and assembling the Delcath
system kit. The Delcath system kit components must be manufactured and
sterilized in accordance with manufacturing and performance specifications that
are on file with the FDA. B. Braun has demonstrated that the components it
manufactures meet these specifications. B. Braun's manufacturing facility is ISO
9000 approved, which will allow the use of the system in European markets. We
have not entered into a written agreement with B. Braun to manufacture the
system either for the clinical trials or for commercial sale.

Medtronic USA, Inc. manufactures the components of the blood filtration circuit,
including the medical tubing through which a patient's blood flows and various
connectors, as well as the blood filtration pump accessories. Medtronic is a
manufacturer of components used for extracorporeal blood circulation during
cardiac surgery. The components manufactured by Medtronic have been cleared by
the FDA for other applications and can, therefore, be sourced off the shelf.
These components, however, must comply with manufacturing and performance
specifications for the Delcath system that are on file with the FDA. Medtronic
has demonstrated that the components it manufactures meet these specifications.
Medtronic's manufacturing facility is also ISO 9000 approved and, thus, the
components it manufactures may be used in European markets.

The Company currently relies on a domestic supplier for the activated charcoal
filters used in the Delcath system. These activated charcoal filters were
previously marketed in the U. S. and overseas for blood detoxification, but
their use within the Delcath system is considered experimental under Delcath's
Investigational Device Exemption (IDE) approved by the FDA. Delcath is
investigating the opportunity to collaborate with this and other filter
manufacturers to develop improved filters for use within the Delcath system.


                                       10






Competition

The healthcare industry is characterized by extensive research efforts, rapid
technological progress and intense competition from numerous organizations,
including biotechnology firms and academic institutions. Competition in the
cancer treatment industry is intense. We believe that the primary competitive
factors for products addressing cancer include safety, efficacy, ease of use,
reliability and price. We also believe that physician relationships, especially
relationships with leaders in the medical and surgical oncology communities, are
important competitive factors.

The Delcath system competes with all forms of liver cancer treatments that are
alternatives to resection including liver transplant, chemotherapy, cryosurgery,
percutaneous ethanol injection, radio frequency ablation, radiation therapy,
implanted infusion pumps, surgically isolated perfusion and the use of
biological response modulators, monoclonal antibodies and liposomes. Many of
Delcath's competitors have substantially greater financial, technological,
research and development, marketing and personnel resources. In addition, some
of our competitors have considerable experience in conducting clinical trials
and other regulatory approval procedures. Our competitors may develop more
effective or more affordable products or treatment methods, or achieve earlier
product development or patent protection, in which case our chances to achieve
meaningful revenues or profitability will be substantially reduced.



Government Regulation

General. The manufacture and sale of medical devices and drugs are subject to
extensive governmental regulation in the United States and in other countries.
The Delcath system is regulated in the United States as a drug delivery system
by the FDA under the Federal Food, Drug and Cosmetic Act. As such, it requires
approval by the FDA of a pre-market application prior to commercial
distribution.

Melphalan, the drug that we are initially seeking to have approved for delivery
by the Delcath system, is a widely used chemotherapy agent that has been
approved by the FDA. Like all approved drugs, the approved labeling includes
indications for use, method of action, dosing, side-effects and
contraindications. Because the Delcath system delivers the drug through a mode
of administration and at a dose strength that differs from those currently
approved, approval for revised labeling of melphalan permitting its use with the
Delcath system must be obtained. The clinical trials are designed to provide the
data to support this labeling change.

Under the Federal Food, Drug and Cosmetic Act, the FDA regulates the
pre-clinical and clinical testing, design, manufacture, labeling, distribution,
sales, marketing, post-marketing reporting, advertising and promotion of medical
devices and drugs in the United States. Noncompliance with applicable
requirements could result in different sanctions such as: suspension or
withdrawal of clearances or approvals; total or partial suspension of
production, distribution, sales and marketing; fines; injunctions; civil
penalties; recall or seizure of products; and criminal prosecution of a company
and its officers and employees.

Our contract manufacturers are also subject to numerous federal, state and local
laws relating to such matters as safe working conditions, manufacturing
practices, environmental protection, and disposal of hazardous or potentially
hazardous substances.

Medical Devices. The Delcath system is a Class III medical device. Class III
medical devices are those which are subject to the most stringent regulatory
controls because insufficient information exists to assure safety and efficacy
solely through general or special controls such as labeling requirements,
mandatory performance standards and post-market surveillance. As such, FDA
pre-market approval is required for Class III medical devices. It is subject to
the most stringent controls applied by the FDA to assure reasonable safety and
effectiveness. An application for pre-market approval must be supported by data
concerning the device and its components, including the manufacturing and
labeling of the device and the results of animal and laboratory testing and
human clinical trials. The conduct of Phase III clinical trials is subject to
regulations and to continuing oversight by institutional review boards at
hospitals and research centers that sponsor the trials and by the FDA. These
regulations include required reporting of adverse events from use of the device
during the trials. Under the Federal Food, Drug, and Cosmetic Act, clinical
studies for "significant risk" Class III devices require obtaining approval by
institutional review boards and the filing with the FDA of an investigational
device exemption at least thirty days before initiation of the studies. Before
commencing


                                       11






clinical trials, we obtained an investigational device exemption providing for
the initiation of clinical trials. We also obtained approval of our
investigational plan, including the proposed protocols and informed consent
statement that patients sign before undergoing treatment with the Delcath
system, by the institutional review boards at the sites where the trials were
conducted.

Given the short life expectancy of patients suffering from metastatic melanoma
of the liver, we believe that the FDA will review our pre-market application
expeditiously. However, approval of the Delcath system may take longer if the
FDA requests substantial additional information or clarification, or if any
major amendments to the application are filed. In addition, the FDA may refer
this matter to an advisory committee of experts to obtain views about the
Delcath system. This process is referred to as a "panel review," and could delay
the approval of the Delcath system. The FDA will usually inspect the applicant's
manufacturing facility to ensure compliance with quality systems regulations
prior to approval of an application. The FDA also may conduct bio-research
monitoring inspections of the clinical trial sites and the applicant to ensure
data integrity and that the studies were conducted in compliance with the
applicable FDA regulations, including good clinical practice regulations.

If the FDA's evaluations of the application, clinical study sites and
manufacturing facilities are favorable, the FDA will issue either an approval
letter or an "approvable letter" containing a number of conditions that must be
met in order to secure approval of an application. If and when those conditions
have been fulfilled to the satisfaction of the FDA, the agency will issue an
order approving the application, authorizing commercial marketing of the device
under specified conditions of use. If the FDA's evaluation of the application,
the clinical study sites or the manufacturing facilities is not favorable, the
FDA will deny approval of the application or issue a "not approvable letter."
The FDA may also determine that additional pre-clinical testing or human
clinical trials are necessary before approval, or that post-approval studies
must be conducted.

The FDA's regulations require agency approval of an application supplement for
changes to a device if they affect the safety and effectiveness of the device,
including new indications for use; labeling changes; the use of a different
facility or establishment to manufacture, process or package the device; changes
in vendors supplying components for the device; changes in manufacturing methods
or quality control systems; and changes in performance or design specifications.
Changes in manufacturing procedures or methods may be implemented and the device
distributed thirty days after the FDA is provided with notice of these changes
unless the FDA advises the pre-market approval application holder within thirty
days of receipt of the notice that the notice is inadequate or that pre-approval
of an application supplement is required.

Approved medical devices remain subject to extensive regulation. Advertising and
promotional activities are subject to regulation by the FDA and by the Federal
Trade Commission. Other applicable requirements include the FDA's medical device
reporting regulations, which require that we provide information to the FDA on
deaths or serious injuries that may have been caused or contributed to by the
use of marketed devices, as well as product malfunctions that would likely cause
or contribute to a death or serious injury if the malfunction were to recur. If
safety or efficacy problems occur after the product reaches the market, the FDA
may take steps to prevent or limit further marketing of the product.
Additionally, the FDA actively enforces regulations prohibiting marketing or
promoting of devices or drugs for indications or uses that have not been cleared
or approved by the FDA. Further, the Food, Drug and Cosmetic Act authorizes the
FDA to impose post-market surveillance requirements with respect to a Class III
device which is reasonably likely to have a serious adverse health consequence
or which is intended to be implanted in the human body for more than one year or
to be a life sustaining or life supporting device used outside a hospital or
ambulatory treatment center.

The Food, Drug and Cosmetic Act regulates a device manufacturer's design
control, quality control and manufacturing procedures by requiring the
manufacturer to demonstrate and maintain compliance with quality systems
regulations including good manufacturing practices and other requirements. These
regulations require, among other things, that:

     o    design controls, covering initial design and design changes be in
          place;

     o    the manufacturing process be regulated, controlled and documented by
          the use of written procedures; and


                                       12






     o    the ability to produce devices which meet the manufacturer's
          specifications be validated by extensive and detailed testing of every
          aspect of the process.

The FDA monitors compliance with quality systems regulations, including good
manufacturing practice requirements, by conducting periodic inspections of
manufacturing facilities. If violations of the applicable regulations are found
during FDA inspections, the FDA will notify the manufacturer of such violations
and the FDA, administratively or through court enforcement action, can prohibit
further manufacturing, distribution, sales and marketing of the device until the
violations are cured. If violations are not cured within a reasonable length of
time after the FDA provides notification of such violations, the FDA is
authorized to withdraw approval of the pre-marketing approval application.

Investigational devices that require FDA pre-marketing approval in the United
States but have not received such approval may be exported to countries
belonging to the European Union, European Economic Area and some other specified
countries, provided that the device is intended for investigational use in
accordance with the laws of the importing country, has been manufactured in
accordance with the FDA's good manufacturing practices or ISO standards, is
labeled on the outside of the shipping carton "for export only," is not sold or
offered for sale in the United States and complies with the specifications of
the foreign purchaser. The export of an investigational device for
investigational use to any other country requires prior authorization from the
FDA. An investigational device may be exported for commercial use only as
described below, under "Foreign Regulation."

Drugs. A manufacturer of a chemotherapy agent must obtain an amendment or a
supplemental new drug application for a chemotherapy product providing for its
use with the Delcath system before the system may be marketed in the United
States to deliver that agent to the liver or any other site. The FDA-approved
labeling for melphalan does not provide for its delivery with the Delcath
system. It may be necessary to partner with the holder of an approved drug
application for melphalan to make this change to the labeling of the agent. We
are in discussions with drug companies for this purpose, but we have no
assurance that we will reach agreement with a company or that the FDA will
approve the application. If this approval is obtained, it would not have a
negative effect on the manufacturer of melphalan. Rather, the drug manufacturer
would have the opportunity to expand the use of the drug as a result of changing
their label to include the Delcath labeling.

A Phase III clinical trial protocol using melphalan has been approved by the FDA
under our investigational new drug application. FDA regulations also require
that prior to initiating the trials the sponsor of the trials obtain
institutional review board ("IRB") approval from each investigational site that
will conduct the trials. We have received IRB approval from NCI and will seek
the approval of institutional review boards at additional medical centers by
assembling and providing them with information with respect to the trial.

The approved Phase III clinical trial protocol is designed to obtain approval of
both new drug labeling and a pre-market approval application providing for the
use of melphalan with the Delcath system. The trial protocol was approved by
both the FDA division that approves new drugs and the division that reviews
applications to market new devices. All of the data generated in the trial will
be submitted to both of these FDA divisions.

If we successfully complete the Phase III clinical trial we believe a
manufacturer of melphalan will submit to the FDA an application to deliver the
agent to the liver through the Delcath system. Under the Food, Drug and Cosmetic
Act, the Delcath system cannot be marketed until the new drug application, or
supplemental new drug application and the pre-market approval application are
approved, and then only in conformity with any conditions of use set forth in
the approved labeling.

Foreign Regulation. In order for any foreign strategic partner to market our
products in Asia, Europe, Latin America and other foreign jurisdictions, they
must obtain required regulatory approvals or clearances and otherwise comply
with extensive regulations regarding safety and manufacturing processes and
quality in the respective country. These regulations, including the requirements
for approvals or clearances to market, may differ from the FDA regulatory
scheme. In addition, there may be foreign regulatory barriers other than
pre-market approval or clearance.

In April 1996, legislation was enacted that permits a medical device which
requires FDA pre-market approval but which has not received such approval to be
exported to any country for commercial use, provided that the device:


                                       13






     o    complies with the laws of that country;

     o    has valid marketing authorization or the equivalent from the
          appropriate authority in any of a list of industrialized countries
          including Australia, Canada, Israel, Japan, New Zealand, Switzerland,
          South Africa and countries in the European Economic Union; and

     o    meets other regulatory requirements regarding labeling, compliance
          with the FDA's good manufacturing practices or ISO manufacturing
          standards, and notification to the FDA.

In order for us to market and sell the Delcath system in foreign jurisdictions,
we must obtain required regulatory approvals or clearances and otherwise comply
with extensive regulations.



Patents, Trade Secrets and Proprietary Rights

Our success depends in large part on our ability to obtain patents, maintain
trade secret protection and operate without infringing on the proprietary rights
of third parties. Because of the length of time and expense associated with
bringing new products through development and regulatory approval to the
marketplace, the health care industry has traditionally placed considerable
emphasis on obtaining patent and trade secret protection for significant new
technologies, products and processes. We hold the following eight United States
patents, as well as four corresponding foreign patents in Canada, Europe and
Japan that we believe are or may be material to our business:




Summary Description of Patents                                               Patent No.           Expiration Date
                                                                             ---------            ---------------
                                                                                           
Isolated perfusion method for cancer treatment                           U.S. #5,069,662         October 21, 2008
Isolated perfusion device -- catheter for use in isolated perfusion
  in cancer treatment                                                    U.S. #5,411,479         April 20, 2013
Device and method for isolated pelvic perfusion                          U.S. #5,817,046         July 14, 2017
Catheter design to allow blood flow from renal veins and limbs
  to bypass occluded segment of IVC                                      U.S. #5,893,841         August 30, 2016
Catheter with slideable balloon to adjust isolated segment               U.S. #5,919,163         July 14, 2017
Isolated perfusion method for kidney cancer                              U.S. #6,186,146         January 13, 2017
Catheter flow and lateral movement controller                            U.S. #5,897,533         September 2, 2017
Method for treating glandular diseases and malignancies                  U.S. #7,022,097         May 9, 2023


We plan to enforce our intellectual property rights vigorously. In addition, we
will conduct searches and other activity relating to the protection of existing
patents and the filing of new applications. We will specifically seek patent
improvements we identify through manufacturing and clinical use of the Delcath
system and modifications which allow us to expand the use of the system beyond
the treatment of cancers in the liver.

In addition to patent protection, we rely on unpatented trade secrets and
proprietary technological expertise. We rely, in part, on confidentiality
agreements with our marketing partners, employees, advisors, vendors and
consultants to protect our trade secrets and proprietary technological
expertise. These agreements may not provide meaningful protection of our
proprietary technologies or other intellectual property if unauthorized use or
disclosure occurs.

Employees

As of December 31, 2006 we had four full-time employees. We intend to recruit
additional personnel in connection with the research, development, manufacturing
and marketing of our products. None of our employees is represented by a union
and we believe relationships with our employees are good.

In addition to our full-time employees, we engage the services of medical,
scientific, and financial consultants.


                                       14






Internet Access to Periodic Reports

While Delcath maintains a website at www.delcath.com, it does not currently make
available its Annual Reports on Form 10-K, its quarterly reports on Form 10-Q or
its current reports on Form 8-K (or amendments thereto) available through its
website. If Delcath determines that it will modify its website, it will consider
making copies of such reports available through its website. Until such time as
Delcath's periodic reports under the Securities Exchange Act of 1934 are
available through its website, it will voluntarily provide copies of such
reports free of charge upon request.

Copies of the periodic reports that we file under the Securities Exchange Act of
1934 and amendments to such reports are also available free of charge through a
website maintained by the U.S. Securities and Exchange Commission at
www.SEC.gov.


Item 1A. Risk Factors

You should consider carefully the following factors, as well as the other
information set forth in this prospectus, prior to making an investment in our
securities. If any of the following risks and uncertainties actually occur, our
business, financial condition or operating results may be materially and
adversely affected. In this event, the trading price of our securities may
decline and you may lose part or all of your investment.

Risks Related to Our Business and Financial Condition

The following factors relate to risks that are material to our business and
financial condition. If any of the possible events we describe below turns out
to be the case, our business may be adversely affected and we may be forced to
cease or curtail our operations which may result in the loss of your entire
investment.

Our entire focus has been the development and commercialization of the Delcath
system. If we are not successful in that development and commercialization, or
if we are unable to market and sell the product, we will not generate operating
revenue or become profitable.

The Delcath system, an enabling technology for the isolation of various organs
in the body to permit the delivery of otherwise unacceptably toxic doses of
drugs, is our only product. If the Delcath system fails as a commercial product,
we have no other products to sell.

Continuing losses may exhaust our capital resources. We have had no revenue to
date, a substantial accumulated deficit, recurring operating losses and negative
cash flow.

We expect to incur significant and increasing losses while generating minimal
revenues over the next few years. From our inception on August 5, 1988 through
December 31, 2006, we have incurred cumulative losses of $35.3 million which
were principally incurred in connection with our product development efforts
and, in 2006, legal expenses. For the years ended December 31, 2005 and December
31, 2006, we incurred net losses of $2.9 million and $11.0 million,
respectively.

We have funded our operations through a combination of private placements of our
securities and through the proceeds of our public offerings in 2000 and 2003.
Please see the detailed discussion of our various sales of securities described
in Note 2 to our 2006 financial statements that are included herein. In
addition, we received proceeds of approximately $5.6 million from private
placements we completed in 2004, approximately $2.2 on exercise of warrants and
options in 2004, approximately $2.5 million from a private placement we
completed in 2005, approximately $5.5 million on exercise of warrants and
options in 2005; and approximately $5.1 million on exercise of warrants and
options in 2006.

If we continue to incur losses we may exhaust our capital resources resulting in
our being unable to complete the development and commercialization of our
product. As we incur additional losses, our accumulated deficit will further
increase. As of December 31, 2006, we had cash and cash equivalents and short
term investments of $8.7 million.


                                       15






We will likely need additional funding to complete the required clinical trials
and our efforts to raise additional financing may be unsuccessful.

Before we can obtain approval to sell our product commercially, we will need
premarket approval from the FDA which, in turn, requires that we complete
clinical trials to establish the effectiveness of our system. We will likely
need additional funding to complete the required clinical trials, and we may not
be able to raise additional funds on reasonable terms or at all.

Many of the costs incurred in conducting clinical trials are due to
uncertainties that are not within our control, including (i) the possibility
that the FDA may require additional trials and the number of trials that may be
required; (ii) the charges payable to each current or prospective clinical test
site which may be a flat fee for a certain time period or a fee based on the
number of participants in the trial; (iii) the amount of the fee per participant
which is individually negotiated with each test site; (iv) the number of
patients that may be required to be enrolled in any particular trial; (v) the
location of the test site which can affect our other costs, including the costs
of retaining a clinical research organization and out of pocket costs such as
travel; (vi) the actual number of treatments per patient in each clinical trial;
and (vii) the possible reduction in trial costs billed to the Company where a
patient's insurer agrees to cover treatment expenses. As a result, we are unable
to estimate the total costs we will incur in completing the clinical trials. In
addition, completion of the clinical trials does not guarantee that the FDA will
give us the required approvals in a timely manner or will give them to us at
all.

If we do not raise any additional capital that may be required to commercialize
the Delcath system, our potential to generate future revenues will be
significantly limited even if we receive FDA premarket approval.

Our current resources may not be sufficient to complete Phase III clinical
trials using melphalan or other clinical trials that we may pursue and will be
insufficient to fund the costs of commercializing the Delcath system which will
be significant. We have no commitments for any additional financing. If we are
unable to obtain additional financing as needed, we will not be able to sell the
system commercially.

Risks Related to FDA and Foreign Regulatory Approval

The following factors relate to risks that are material to obtaining FDA and
foreign regulatory approval. If any of the events we describe below turns out to
be the case, our business may be adversely affected and we may be forced to
cease or curtail our operations which may result in the loss of your entire
investment.

Even if the FDA grants premarket approval for use of the Delcath system for the
treatment of melanoma that has metastasized to the liver with melphalan, our
ability to market the device would be limited to that use. Separate FDA approval
would be needed to market the system for use with other drugs or to treat other
diseases. Lack of such specific approvals will limit our ability to market our
product.

If the FDA grants premarket approval for use of the Delcath system in the
treatment of melanoma that has metastasized to the liver with melphalan, our
ability to market the system would be limited to its use with that drug in
treating that disease. Thereafter, physicians could use the system for the
treatment of other cancers or using other drugs ("off label" use), but we could
not market it for such uses. This would limit our ability to market our product
and could result in substantially reduced sales.

If we do not obtain FDA premarket approval, we may not be able to export the
Delcath system to foreign markets, which will limit our sales opportunities.

If the FDA does not approve our application for premarket approval for the
Delcath system, we will not be able to export the Delcath system from the United
States for marketing abroad unless approval has been obtained from one of a
number of developed nations. If we do not have such approval, we will not be
eligible to use a simplified registration process for the Delcath system in a
number of countries including the members of the European Union, Great Britain
and Australia. We have not begun to seek foreign regulatory approval and may not
be able to obtain approval from one or more countries where we would like to
sell the Delcath system. If we are unable to market the Delcath system
internationally because we are not able to obtain required approvals, our
international market opportunity will be materially limited.


                                       16






Because of our limited experience, conduct of clinical trials and obtaining FDA
premarket approval could be delayed.

We have experienced and may continue to experience delays in conducting and
completing required clinical trials, caused by many factors, including our
limited experience:

     o    in arranging for clinical trials;

     o    in evaluating and submitting the data gathered from clinical trials;

     o    in designing trials to conform to the trial protocols authorized by
          the FDA;

     o    in complying with the requirements of institutional review boards at
          the sites where the trials may be conducted; and

     o    in identifying clinical test sites and sponsoring physicians.

Completion of our clinical trials will also depend on the ability of the
clinical test sites to identify patients to enroll in the clinical trials since
the population of appropriate subjects (i.e., patients with melanoma that has
metastasized to the liver) is limited. The trials may also take longer to
complete because of difficulties we may encounter in entering into agreements
with clinical testing sites to conduct the trials. Any significant delay in
completing clinical trials or in the FDA's responding to our submission or a
requirement by the FDA for us to conduct additional trials would delay the
commercialization of the Delcath system and our ability to generate revenues.

Third-party reimbursement may not be available to purchasers of the Delcath
system or may be inadequate, resulting in lower sales even if FDA premarket
approval is granted.

Physicians, hospitals and other health care providers may be reluctant to
purchase our system if they do not receive substantial reimbursement for the
cost of the procedures using our products from third-party payors, including
Medicare, Medicaid and private health insurance plans.

Because the Delcath system currently is characterized by the FDA as an
experimental device, Medicare, Medicaid and private health insurance plans will
not reimburse its use in the United States. We will not begin to seek to have
third-party payors reimburse the cost of the Delcath system until after its use
is approved by the FDA. Each third-party payor independently determines whether
and to what extent it will reimburse for a medical procedure or product.
Third-party payors in the United States or abroad may decide not to cover
procedures using the Delcath system. Further, third-party payors may deny
reimbursement if they determine that the Delcath system is not used in
accordance with established payor protocols regarding cost effective treatment
methods or is used for forms of cancer or with drugs not specifically approved
by the FDA.

New products are under increased scrutiny as to whether or not they will be
covered by the various healthcare plans and the level of reimbursement which
will be applicable to respective covered products and procedures. A third-party
payor may deny reimbursement for the treatment and medical costs associated with
the Delcath system, notwithstanding FDA or other regulatory approval, if that
payor determines that the Delcath system is unnecessary, inappropriate, not cost
effective, experimental or is used for a non-approved indication.

Risks Related to Manufacturing, Commercialization and Market Acceptance of the
Delcath System

We obtain necessary components for the Delcath system from sole-source
suppliers. Because manufacturers must demonstrate compliance with FDA
requirements, if our present suppliers fail to meet such requirements or if we
change any supplier, the successful completion of the clinical trials and/or the
commercialization of the Delcath system could be jeopardized.

We must ensure that the components of the Delcath system are manufactured in
accordance with manufacturing and performance specifications of the Delcath
system on file with the FDA and with drug and device good manufacturing practice
requirements. Many of the components of the Delcath system are manufactured by
sole source suppliers. If any of our suppliers fails to meet our needs, or if we
need to seek an alternate source of supply, we may be forced to suspend or
terminate our clinical trials. Further, if we need a new source of supply after
commercial introduction of


                                       17






the Delcath system, we may face long interruptions in obtaining necessary
components, which could jeopardize our ability to supply the Delcath system to
the market.

Currently the Delcath system kit is being manufactured domestically by the OEM
division of B. Braun Medical, Inc. of Germany which also supplies the other
catheters and accessories and assembles the Delcath system kit. Medtronic USA,
Inc. currently manufactures the components of the blood filtration circuit
located outside of the body, including the medical tubing through which the
patient's blood flows and various connectors and the blood filtration pump head.
The Company purchases activated charcoal filters used in the Delcath system from
a single supplier.

We do not have any contracts with suppliers for the manufacture of components
for the Delcath system. If we are unable to obtain an adequate supply of the
necessary components, we may not be able timely to complete our clinical trials.

We do not have any contracts with suppliers for the manufacture of components
for the Delcath system. Certain components are available from only a limited
number of sources. To date, we have only had components of the Delcath system
manufactured for us in small quantities for use in pre-clinical studies and
clinical trials. We will require significantly greater quantities to
commercialize the product. Notwithstanding our best efforts, we may not be able
to find an alternate source of comparable components. If we are unable to obtain
adequate supplies of components from our existing suppliers or need to switch to
an alternate supplier, commercialization of the Delcath system could be delayed.

Because of our limited experience in marketing products and our lack of adequate
personnel to market and sell products, we may not be successful in marketing and
selling the Delcath system even if we receive FDA premarket approval.

We have not previously sold, marketed or distributed any products and currently
do not have the personnel, resources, experience or other capabilities to market
the Delcath system adequately. Our success will depend upon our ability to
attract and retain skilled sales and marketing personnel or our reaching an
agreement with a third party to market our product. Competition for sales and
marketing personnel is intense, and we may not be successful in attracting or
retaining such personnel. Our inability to attract and retain skilled sales and
marketing personnel or to reach an agreement with a third party could adversely
affect our business, financial condition and results of operations.

Market acceptance of the Delcath system will depend on substantial efforts and
expenditures in an area with which we have limited experience.

Market acceptance of the Delcath system will depend upon a variety of factors
including whether our clinical trials demonstrate a significant reduction in the
mortality rate for the kinds of cancers treated on a cost-effective basis, our
ability to educate physicians on the use of the Delcath system and our ability
to convince healthcare payors that use of the Delcath system results in reduced
treatment costs to patients. We have only limited experience in these areas and
we may not be successful in achieving these goals. Moreover, the Delcath system
replaces treatment methods in which many hospitals have made a significant
investment. Hospitals may be unwilling to replace their existing technology in
light of their investment and experience with competing technologies. Many
doctors and hospitals are reluctant to use a new medical technology until its
value has been demonstrated. As a result, the Delcath system may not gain
significant market acceptance among physicians, hospitals, patients and
healthcare payors.

Rapid technological developments in treatment methods for liver cancer and
competition with other forms of liver cancer treatments could result in a short
product life cycle for the Delcath system.

Competition in the cancer treatment industry, particularly in the markets for
systems and devices to improve the outcome of chemotherapy treatment, is
intense. The Delcath system competes with all forms of liver cancer treatments
that are alternatives to the "gold standard" treatment of surgical resection.
Many of our competitors have substantially greater resources, especially
financial and technological. In addition, some of our competitors have
considerable experience in conducting clinical trials and other regulatory
procedures. These competitors are developing systems and devices to improve the
outcome of chemotherapy treatment for liver cancer. If these competitors develop
more effective or more affordable products or treatment methods, our
profitability will be substantially reduced and the Delcath system could have a
short product life cycle.


                                       18






We believe that our Chief Executive Officer and our Chief Operating Officer are
important to our efforts to commercialize the Delcath system. The unavailability
of the services of either of them could delay our successful commercial
introduction of the Delcath system.

The loss of the services of either our Chief Executive Officer or our Chief
Operating Officer could delay our completing the clinical trials, our obtaining
FDA premarket approval, our introducing the Delcath system commercially and our
generating revenues and profits. We do not have an employment agreement with
either of them.

Risks Related to Patents, Trade Secrets and Proprietary Rights

Our success depends in large part on our ability to obtain patents, maintain
trade secret protection and operate without infringing on the proprietary rights
of third parties.

Because of the length of time and expense associated with bringing new medical
devices to the market, the healthcare industry has traditionally placed
considerable emphasis on patent and trade secret protection for significant new
technologies. Litigation may be necessary to enforce any patents issued or
assigned to us or to determine the scope and validity of third-party proprietary
rights. Litigation could be costly and could divert our attention from our
business. If others file patent applications with respect to inventions for
which we already have patents issued to us or have patent applications pending,
we may be forced to participate in interference proceedings declared by the
United States Patent and Trademark Office to determine priority of invention,
which could also be costly and could divert our attention from our business. If
a third party violates our intellectual property rights, we may be unable to
enforce our rights because of our limited resources. Use of our limited funds to
defend our intellectual property rights may also affect our financial condition
adversely.

Risks Related to Products Liability

We do not currently carry products liability insurance and we may not be able to
acquire sufficient coverage in the future to cover large claims.

Clinical trials, manufacturing and product sales may expose us to liability
claims from the use of the Delcath system. Though participants in clinical
trials are generally required to execute consents and waivers of liability, a
court might find such consents and waivers of liability to be ineffective or
invalid. Were such a claim asserted and even if we prevail on the merits, we
would likely incur substantial legal and related expenses. Claims for damages,
whether or not successful, could cause delays in the clinical trials and result
in the loss of physician endorsement. A successful products liability claim or
recall would have a material adverse effect on our business, financial condition
and results of operations.

Risks Related to an Investment in Our Securities

The following factors relate to risks that are material to an investment in our
common stock. Any of these factors could result in lowering the market value of
our common stock and other securities that we might issue.

There is a relatively limited public float of our common stock. Because of this,
trades of relatively small amounts of our common stock can have a
disproportionate effect on the market price for our common stock. The market
price of our common stock has historically been volatile. During the three years
ended December 31, 2006, the range of the high and low sales prices of our
common stock have ranged from a high of $6.00 (during the quarter ended June 30,
2006) to a low of $0.92 (during the quarter ended March 31, 2004).

Sales of substantial amounts of common stock or the perception that such sales
could occur, could have an adverse effect on prevailing market prices for our
common stock.

Anti-takeover provisions in our certificate of incorporation and by-laws and
under our stockholder rights agreement may reduce the likelihood of a potential
change of control, and certain provisions of our certificate of incorporation
and by-laws and of our stockholders rights plan could make it more difficult for
the Company's stockholders to replace management.


                                       19






Provisions of our certificate of incorporation and by-laws and our stockholders
rights agreement may have the effect of discouraging, delaying or preventing a
change in control of us or unsolicited acquisition proposals that a stockholder
might consider favorable. Certain provisions of our certificate of incorporation
and by-laws and of our stockholders rights agreement could have the effect of
making it more difficult for the Company's stockholders to replace management at
a time when a substantial number of our stockholders would favor a change in
management. These include provisions:

     o    providing for a classified board; and

     o    authorizing the board of directors to fill vacant directorships or
          increase the size of our board of directors.

Furthermore, our board of directors has the authority to issue shares of
preferred stock in one or more series and to fix the rights and preferences of
the shares of any such series without stockholder approval. Any series of
preferred stock is likely to be senior to the common stock with respect to
dividends, liquidation rights and, possibly, voting rights. Our board's ability
to issue preferred stock may have the effect of discouraging unsolicited
acquisition proposals, thus adversely affecting the market price of our common
stock and warrants.

We also have a stockholder rights agreement which could have the effect of
substantially increasing the cost of acquiring us unless our board of directors
supports the transaction even if the holders of a majority of our common stock
are in favor of the transaction.

Our common stock is listed on the Nasdaq Capital Market. If we fail to meet the
requirements of the Nasdaq Capital Market for continued listing, our common
stock could be delisted.

Our common stock is currently listed on the Nasdaq Capital Market. To keep such
listing, we are required to maintain: (i) a minimum bid price of $1.00 per
share, (ii) a certain public float, (iii) a certain number of round lot
shareholders and (iv) one of the following: a net income from continuing
operations (in the latest fiscal year or two of the three last fiscal years ) of
at least $500,000, a market value of listed securities of at least $35 million
or a stockholders' equity of at least $2.5 million. We were notified by the
Nasdaq Capital Market on one occasion that we failed to meet the minimum bid
price requirement and on two occasions that we did not meet the requirement that
we meet one of the following conditions: that the market value of our common
stock be at least $35 million; that we have stockholders' equity of not less
than $2.5 million; or that we meet certain income tests. If we do not meet all
of the applicable criteria, our common stock could be delisted from the Nasdaq
Capital Market.

If our common stock is delisted from the Nasdaq Capital Market, we may be
subject to the risks relating to penny stocks.

If our common stock were to be delisted from trading on the Nasdaq Capital
Market and the trading price of the common stock were below $5.00 per share on
the date the common stock were delisted, trading in our common stock would also
be subject to the requirements of certain rules promulgated under the Exchange
Act. These rules require additional disclosure by broker-dealers in connection
with any trades involving a stock defined as a penny stock and impose various
sales practice requirements on broker-dealers who sell penny stocks to persons
other than established customers and accredited investors, generally
institutions. The additional burdens imposed upon broker-dealers by such
requirements may discourage broker-dealers from effecting transactions in
securities that are classified as penny stocks, which could severely limit the
market price and liquidity of such securities and the ability of purchasers to
sell such securities in the secondary market.

A penny stock is defined generally as any non-exchange listed equity security
that has a market price of less than $5.00 per share, subject to certain
exceptions.

Item 2. Properties.

We currently occupy approximately 3,600 square feet of office space at 1100
Summer Street, Stamford, Connecticut, on a month-to-month basis. We have
occupied these facilities since 1992, and the space is adequate for our current
needs. If we require different or additional space in the future, we believe
that satisfactory space will be available at commercially reasonable rates in or
near our current facility, although it is possible that additional facilities
and


                                       20






equipment will not be available on reasonable or acceptable terms, if at all. We
believe that our properties are adequately covered by insurance.

We believe that our facilities and equipment are in good condition and are
suitable for our operations as presently conducted and for our foreseeable
future operations.

We do not invest in real estate, interests in real estate, real estate mortgages
or securities of or interests in persons primarily engaged in real estate
activities.


Item 3. Legal Proceedings.


On August 4, 2006, the Company instituted a lawsuit against Robert Ladd, Laddcap
Value Associates LLC and Laddcap Value Partners LP (collectively, the "Ladd
Defendants") in the U.S. District Court for the District of Columbia. The
lawsuit alleged that the Ladd Defendants had made a series of material
misstatements and omissions in violation of the Securities Exchange Act of 1934
in its 13D filings, Valuation Proxy Solicitation and Schedule 14A Preliminary
Proxy Statement for their proposed consent solicitation seeking to replace the
Company's Board of Directors. The principal relief sought by the Company was an
order: (a) enjoining the Ladd Defendants proposed consent solicitation until
after a trial could be held on the merits; (b) mandating that the Ladd
Defendants publicly correct their misstatements and omissions following a trial
on the merits; and (c) prohibiting the Ladd Defendants from making any further
misstatements and omissions.


On October 8, 2006, the Company entered into a Settlement Agreement resolving
all issues outstanding with the Ladd Defendants. The agreement provided for the
immediate appointment of Mr. Robert B. Ladd, 48, Principal of Laddcap Value
Partners, to the Delcath Board of Directors and one additional independent
director to be mutually agreed upon by Laddcap and the Company. The Company
issued 100,000 shares of common stock to Laddcap as partial reimbursement for
its expenses associated with the Consent Solicitation. As part of the agreement,
Laddcap is also permitted to increase its ownership in Delcath up to a maximum
of 14.9% of Delcath's total outstanding common stock by purchasing additional
shares of Delcath common stock directly and only from Delcath for a cash price
equal to the 10 trading day average of the closing price of Delcath stock prior
to the time that an additional purchase is made.


In conjunction with the resolution, Delcath agreed to terminate its lawsuit
against the Ladd Defendants relating to its claims under Sections 13(d) and
14(a) of the Securities Exchange Act of 1934 and Laddcap agreed to end its
attempt to remove the Delcath Board of Directors.

In addition, on August 4, 2006, the Company instituted a lawsuit against
Jonathan Foltz by filing a complaint in the State of Connecticut Superior Court
for the Judicial District of Stamford/Norwalk at Stamford. The complaint alleged
that Mr. Foltz misappropriated and used various Delcath trade secrets and other
proprietary information. The relief sought by the Company included a temporary
and permanent injunction, money damages, including punitive damages, and
attorney's fees.

On February 1, 2007, following the judge's ruling dismissing the injunction, the
Company entered into a Settlement Agreement withdrawing the complaint and
agreeing to pay a portion of Mr. Foltz's legal fees. On February 9, 2007, the
Company announced it was retaining Mr. Foltz as an advisor.

We are involved in a legal proceeding that was originally filed on August 12,
2005 in the United States District Court, District of Connecticut against
Elizabeth L. Enney. The named plaintiffs are Delcath Systems, Inc. and M.S. Koly
(former CEO, President, Treasurer and Director of Delcath), individually and as
a Director of Delcath Systems, Inc. The operative complaint seeks damages for
libel. In May 2006, the libel claims were dismissed for lack of personal
jurisdiction, and in July 2006, Plaintiffs filed a new libel claim in the United
States District Court for the Northern District of Georgia. On November 1, 2006
Defendant filed a motion for Judgment claiming that Plaintiffs' complaint and
the attachments thereto, on their face, were insufficient to support Plaintiffs'
libel claim as a matter of law. On December 22, 2006, Defendant filed a motion
under Rule 11 of the Federal Rules of Civil Procedure seeking an order directing
payment to the Defendant of reasonable attorneys' fees and expenses by
Plaintiff.


                                       21






Item 4. Submission of Matters to a Vote of Security Holders.

The information contained in the first three paragraphs of Item 3 hereof are
incorporated herein by reference.



                                     PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities.

(a) Our common shares trade on the NASDAQ Capital Market and on the Boston Stock
Exchange under the symbol "DCTH."

The following table sets forth the per share range of high and low sales prices
of our Common Stock for the periods indicated as reported on the Nasdaq Capital
Market:


                            Common Stock Price Range

                                                        2006

                                                High                 Low
Quarter ended March 31, 2006                   $4.90                $3.26
Quarter ended June 30, 2006                     6.00                 3.75
Quarter ended September 30, 2006                5.95                 3.77
Quarter ended December 31, 2006                 4.05                 2.77

                                                       2005

                                               High                  Low
Quarter ended March 31, 2005                   $4.40                $2.25
Quarter ended June 30, 2005                     4.10                 1.92
Quarter ended September 30, 2005                3.38                 2.60
Quarter ended December 31, 2005                 3.90                 2.78


Pursuant to the Settlement Agreement between the Company and the Ladd Defendants
described in Item 3 above, the Company issued 100,000 shares of Common Stock to
Laddcap Value Partners LP (having a value of $3.06 per share) as partial
reimbursement for its expenses associated with the consent solicitation. The
issuance of these shares was not registered under the Securities Act of 1933 in
reliance on the exemption contained in Section 4(2) thereof and Rule 506
thereunder as an issuance solely to an accredited investor. The Company received
no cash proceeds from the issuance of these shares. All other sales of equity
securities by the Company during 2006 that were not registered under the
Securities Act have been previously reported by the Company in a Quarterly
Report on Form 10-QSB or a Current Report on Form 8-K.

As of March 8, 2007, there were approximately 80 stockholders of record of our
Common Stock and approximately 3,975 additional beneficial owners of our Common
Stock.

The graph below compares the cumulative total returns, including reinvestment of
dividends, if applicable, on the Company's Common Stock with the returns on
companies in the NASDAQ Market Index and an Industry Group Index (Hemscott
Industry Group 513 - Drug Delivery).

The chart displayed below is presented in accordance with the requirements of
the Securities and Exchange Commission. The graph assumes a $100 investment made
on December 31, 2001 and the reinvestment of all


                                       22






dividends, if applicable. Stockholders are cautioned against drawing any
conclusions from the data contained in this section, as past results are not
necessarily indicative of future performance.

                 Comparison of Five-Year Cumulative Total Return

                  COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
                          AMONG DELCATH SYSTEMS, INC.,
                  NASDAQ MARKET INDEX AND HEMSCOTT GROUP INDEX

                               [GRAPHIC OMITTED]

                                                                    
Company/Index/Market    2001        2002        2003         2004        2005         2006
Delcath Systems         100.00      147.32      81.25        268.75      303.57       330.36
Industry Group          100.00      25.69       37.22        54.41       49.00        45.33
NASDAQ Market Index     100.00      69.75       104.88       113.70      116.19       128.12




Dividend Policy

We have never paid cash dividends on our Common Stock and anticipate that we
will continue to retain our earnings, if any, to finance the growth of our
business.

Equity Compensation Plan Information

The following table sets forth certain information as of December 31, 2006 with
respect to our compensation plans under which our equity securities are
authorized for issuance.




           Plan category              Number of securities to      Weighted average           Number of securities
                                      be issued upon exercise      exercise price of          remaining available
                                      of outstanding               outstanding options,       for future issuance
                                      options,   and rights        and rights                 under equity
                                                                                              compensation plans
                                                                                              (excluding securities
                                                                                              reflected in column
                                                                                              (a))
                                                                                             

                                                (a)                          (b)                       (c)



                                       23






                                                                                          
Equity compensation plans approved
by security holders                          1,465,650                       $2.87                 1,692,500
Equity compensation plans                                                       --                        --
not approved by security holders                    --
                                      -------------------------    ------------------------   -----------------------
Total                                        1,465,650                       $2.87                 1,692,500




(b) Not applicable

(c) Not applicable



Item 6. Selected Financial Data

The selected consolidated financial data presented below under the caption
"Statement of Operations Data" and "Balance Sheet Data" as of the end of and for
each of the years in the five-year period ended December 31, 2006, are derived
from the financial statements of Delcath Systems, Inc. The financial statements
as of December 31, 2006 and 2005 and for each of the three-year period ended
December 31, 2006 (and cumulative from inception) and the report thereon, are
included under Item 8, "Financial Statements and Supplementary Data." The
selected financial data should be read in conjunction with the financial
statements and the related notes thereto and Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations."




                                             Years Ended December 31,
                     --------------------------------------------------------------------
                         2006         2005           2004          2003          2002

                                           (Dollars in thousands)
Statement of
Operations Data

                                                                
Costs and expenses    $11,699        $3,112         $3,367        $2,306       $1,897

Operating loss         11,699         3,112          3,367         2,306        1,897

Net Loss               10,952         2,865          3,266         2,250        1,807





                                             Years Ended December 31,
                     --------------------------------------------------------------------
                         2006         2005           2004          2003          2002

Balance Sheet Data

                                                                
Current assets         $8,760       $12,920         $7,338        $2,393       $1,536

Total assets            8,764        12,928          7,352         2,430        1,812

Current liabilities       670           330            565           260          175

Stockholder's equity    8,093        12,598          6,787         2,170        1,637



Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation.


                                       24






Since our founding in 1988 by a team of physicians, we have been a development
stage company engaged primarily in developing and testing the Delcath system for
the treatment of liver cancer. A substantial portion of our historical expenses
have been for the development of our medical device and the clinical trials of
our product, and the pursuit of patents worldwide, as described in Item 1 under
"Patents, Trade Secrets and Proprietary Rights." We expect to continue to incur
significant losses from costs for product development, clinical studies,
securing patents, regulatory activities, manufacturing and establishment of a
sales and marketing organization without any significant revenues. A detailed
description of the cash used to fund historical operations is in the financial
statements and the notes thereto. Without an FDA-approved product and commercial
sales, we will continue to be dependent upon existing cash and the sale of
equity or debt to fund future activities. While the amount of future net losses
and time required to reach profitability are uncertain, our ability to generate
significant revenue and become profitable will depend on our success in
commercializing our device.

During 2001, Delcath initiated the clinical trial of the system for isolated
liver perfusion using the chemotherapeutic agent, melphalan. Enrollment of new
patients in the Phase I trial was completed in 2003.

In 2004, we commenced a Phase II clinical trial protocol for the study of the
Delcath drug delivery system for inoperable primary liver cancer and
adenocarcinomas and neuroendocrine cancers that have metastazed to the liver
using melphalan.

In 2006, we started enrolling and treating patients in a Phase III protocol for
the study of the Delcath drug delivery system for inoperable melanoma in the
liver using melphalan under the Fast Track and SPA approved protocol.

Over the next 12 months, we expect to continue to incur substantial expenses
related to the research and development of our technology, including Phase III
and Phase II clinical trials clinical trials using melphalan with the Delcath
system. Additional funds, when available, will be committed to pre-clinical and
clinical trials for the use of other chemotherapy agents with the Delcath system
for the treatment of liver cancer, and the development of additional products
and components. We will also continue efforts to qualify additional sources of
the key components of our device, in an effort to further reduce manufacturing
costs and minimize dependency on a single source of supply.

     Liquidity and Capital Resources

We expect our available funds to be sufficient for our anticipated needs for
working capital and capital expenditures through 2007 provided no studies using
new agents or treating new organs are initiated outside of the CRADA with the
NCI. The Company is not projecting any capital expenditures that will
significantly affect the Company's liquidity during the next 12 months.

Our future liquidity and capital requirements will depend on numerous factors,
including the progress of our research and product development programs,
including clinical studies; the timing and costs of making various United States
and foreign regulatory filings, obtaining approvals and complying with
regulations; the timing and effectiveness of product commercialization
activities, including marketing arrangements overseas; the timing and costs
involved in preparing, filing, prosecuting, defending and enforcing intellectual
property rights; and the effect of competing technological and market
developments.

     Future Capital Needs; Additional Future Funding

The Company's future results are subject to substantial risks and uncertainties.
The Company has operated at a loss for its entire history and there can be no
assurance of its ever achieving consistent profitability. The Company believes
its capital resources are adequate to fund operations for at least the next
twelve months but anticipates that it will require additional working capital
after 2007. There can be no assurance that such working capital will be
available on acceptable terms, if at all.


                                       25






     Forward Looking Statements

Certain statements in this Form 10-K, including statements of our and
management's expectations, intentions, plans, objectives and beliefs, including
those contained in or implied by "Management's Discussion and Analysis or Plan
of Operation," are "forward-looking statements" within the meaning of Section
21E of the Securities Exchange Act of 1934, that are subject to certain events,
risks and uncertainties that may be outside our control. These forward-looking
statements may be identified by the use of words such as "expects,"
"anticipates," "intends," "plans" and similar expressions. They include
statements of our future plans and objectives for our future operations and
statements of future economic performance, information regarding our expansion
and possible results from expansion, our expected growth, our capital budget and
future capital requirements, the availability of funds and our ability to meet
future capital needs, the realization of our deferred tax assets, and the
assumptions described in this report underlying such forward-looking statements.
Actual results and developments could differ materially from those expressed in
or implied by such statements due to a number of factors, including without
limitation, those described in the context of such forward-looking statements,
our expansion strategy, our ability to achieve operating efficiencies, industry
pricing and technology trends, evolving industry standards, domestic and
international regulatory matters, general economic and business conditions, the
strength and financial resources of our competitors, our ability to find and
retain skilled personnel, the political and economic climate in which we conduct
operations, the risks discussed in Item 1 above under "Description of Business"
and other risk factors described from time to time in our other documents and
reports filed with the Securities and Exchange Commission (the "Commission"). We
do not assume any responsibility to publicly update any of our forward-looking
statements regardless of whether factors change as a result of new information,
future events or for any other reason. We advise you to review any additional
disclosures we make in our Form 10-Q, Form 8-K and Form 10-K reports filed with
the Commission.


     Application of Critical Accounting Policies

The Company's financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
notes to financial statements included in Item 8 contain a summary of the
significant accounting policies and methods used in the preparation of Delcath's
financial statements. The Company is still in the development stage and has no
revenues, trade receivables, inventories, or significant fixed or intangible
assets and therefore has very limited opportunities to choose among accounting
policies or methods. In many cases, the Company must use an accounting policy or
method because it is the only policy or method permitted under accounting
principles generally accepted in the United States of America.

Additionally, the Company devotes substantial resources to clinical trials and
other research and development activities relating to obtaining FDA and other
approvals for the Delcath system, the cost of which is required to be charged to
expense as incurred. This further limits the Company's choice of accounting
policies and methods. Similarly, management believes there are very limited
circumstances in which the Company's financial statement estimates are
significant or critical.

The Company considers the valuation allowance for the deferred tax assets to be
a significant accounting estimate. In applying SFAS No. 109, "Accounting for
Income Taxes," management estimates future taxable income from operations and
tax planning strategies in determining if it is more likely than not that the
Company will realize the benefits of its deferred tax assets.


In December 2004, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 123 (revised 2004), Share-Based Payment, which is a revision of
SFAS No. 123, Accounting for Stock-Based Compensation. SFAS 123(R) supersedes
APB Opinion No. 25, Accounting for Stock Issued to Employees and amends SFAS No.
95, Statement of Cash Flows. Generally, the approach in SFAS No. 123(R) is
similar to the approach described in SFAS No. 123. However, SFAS No. 123(R)
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the income statement based on their fair
values. Pro forma disclosure is no longer an alternative. The Company adopted
SFAS 123(R) in 2005.


                                       26






Item 7A. Quantitative and Qualitative Disclosure About Market Risk.

The Company does not use derivative financial instruments. The Company's
marketable securities consist of short-term and/or variable rate instruments and
therefore a change in interest rates would not have a material impact on the
value of these securities.

Item 8. Financial Statements and Supplementary Data.

Report of Independent Registered Public Accounting Firm
Balance Sheets as of December 31, 2006 and 2005
Statements of Operations for the years ended December 31, 2006, 2005, and 2004
and cumulative from inception (August 5, 1988) to December 31, 2006 Statements
of Stockholders' Equity for the years ended December 31, 2006, 2005, and 2004
and cumulative from inception (August 5,
1988) to December 31, 2006
Statements of Cash Flows for the years ended December 31, 2006, 2005, and 2004
and cumulative from inception (August 5, 1988) to December 31, 2006 Notes to
Financial Statements


Selected Quarterly Financial Data

Set forth below is selected quarterly financial data for each of the quarters in
the years ended December 31, 2006 and 2005.

                                      2006
                 Quarters Ended (in thousands except per share amounts)
                -------------------------------------------------------
                 March 31     June 30      September 30      December 31
Net sales        $   0        $   0          $   0            $   0
Gross Profit         0            0              0                0
Net loss         1,184        1,566          4,689            3,513
Loss per share    0.06         0.08           0.23             0.18

                                       2005
                 Quarters Ended (in thousands except per share amounts)
                -------------------------------------------------------
                 March 31     June 30      September 30      December 31
Net sales        $   0        $   0          $   0            $   0
Gross Profit         0            0              0                0
Net loss           915          625            645              680
Loss per share    0.06         0.04           0.04             0.04

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

In connection with the audits for each of the years in the two-year period ended
December 31, 2004 and for the period from August 5, 1988 (inception) to December
31, 2004, and the subsequent interim period through April 25, 2005, except for a
reportable condition with respect to the Company's internal controls regarding
identifying the Company's awards of stock options which awards were described in
the Company's Form 8-K reports dated March 22, 2005 and April 5, 2005, there
were no disagreements between the Company and Eisner LLP, the Company's former
accountant, on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreements, if not
resolved to Eisner LLP's satisfaction, would have caused Eisner LLP to make
reference to the subject matter of the disagreement (s) in connection with its
reports.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief
financial officer, evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the


                                       27






Securities Exchange Act) as of December 31, 2006. Based on this evaluation, our
chief executive officer and chief financial officer concluded that, as of
December 31, 2006, our disclosure controls and procedures were (1) effective in
accumulating and communicating information to the Company's management, as
appropriate, to allow timely decisions regarding required disclosure (2)
effective, in that that they provide reasonable assurance that information
required to be disclosed by the Company in the reports that it files or submits
under the Securities Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms.

Management's Report on Internal Control over Financial Reporting

The management of Delcath Systems, Inc. is responsible for establishing and
maintaining adequate internal control over financial reporting. Internal control
of financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated
under the Securities Exchange Act of 1934 as a process designed by, or under the
supervision of, the company's principal executive and principal financial
officers and effected by the company's board of directors, management and other
personnel, to provide reasonable assurance regarding reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles and includes those
policies and procedures that:

     o    Pertain to the maintenance of records that in reasonable detail
          accurately and fairly reflect the transactions and dispositions of the
          assets of the company;

     o    Provide reasonable assurance that transactions are recorded as
          necessary to permit preparation of financial statements in accordance
          with generally accepted accounting principles, and that receipts and
          expenditures of the company are being made only in accordance with
          authorizations of management and directors of the company; and

     o    Provide reasonable assurance regarding prevention or timely detection
          of unauthorized acquisition, use or disposition of the company's
          assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

Delcath System, Inc.'s management assessed the effectiveness of the Company's
internal control over financial reporting as of December 31, 2006. In making
this assessment, it used the criteria set forth in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on our assessment, we concluded that, as of December
31, 2006, the Company's internal control over financial reporting is effective
based on those criteria.

Carlin, Charron & Rosen, LLP, Delcath System, Inc.'s Independent Registered
Public Accounting Firm, audited our assessment of the effectiveness of the
Company's internal control over financial reporting as of December 31, 2006, as
stated in their report appearing under Item 8.

Changes in Internal Control over Financial Reporting

No change in the Company's internal control over financial reporting occurred
during the fiscal year ended December 31, 2006 that has materially affected, or
is reasonably likely to materially affect, the Company's internal control over
financial reporting.


Item 9B. Other Information.

There was no information that we were required to disclose in a Current Report
on Form 8-K during the fourth quarter of the year ended December 31, 2006 that
we have not previously reported.


                                       28






                                    PART III

Item 10. Directors, Executive Officers of the Registrant and Corporate
Governance

The information required by Items 401, 405, 406, and 407(c)(3), (d)(4) and
(d)(5) of Regulation S-K is incorporated by reference into this Form 10-K by
reference to the Company's definitive proxy statement (the "Definitive Proxy
Statement") for its 2007 Annual Meeting of Stockholders.

Item 11. Executive Compensation.

The information required by Item 402 and paragraphs (e)(4) and (e)(5) of Item
407 of Regulation S-K is incorporated into this Form 10-K by reference to the
Definitive Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.

The information required by Item 201(d) of Regulation S-K is included in this
Form 10-K under Item 5. The information required by Item 403 of Regulation S-K
is incorporated into this Form 10-K by reference to the Definitive Proxy
Statement.


Item 13. Certain Relationships and Related Transactions, and Director
Independence.

The information required by Item 404 of Regulation S-K, if any, is incorporated
into this Form 10-K by reference to the Definitive Proxy Statement.

Item 14. Principal Accountant Fees and Services.

The information required by Item 9(e) of Schedule 14A is incorporated into this
Form 10-K by reference to the Definitive Proxy Statement.

                                     PART IV

Item 15. Exhibits, and Financial Statement Schedules.

Exhibits

     Exhibit No.                      Description

     3.1  Amended and Restated Certificate of Incorporation of Delcath Systems,
          Inc., as amended to June 30, 2005. (incorporated by reference to
          Exhibit 3.1 to Registrant's Current Report on Form 8-K dated June 5,
          2006 (Commission File No. 001-16133)).

     3.2  Amended and Restated By-Laws of Delcath Systems, Inc. (incorporated by
          reference to Exhibit 3.2 to Amendment No. 1 to Registrant's
          Registration Statement on Form SB-2 (Registration No. 333-39470)).

     4.1  Rights Agreement, dated October 30, 2001, by and between Delcath
          Systems, Inc. and American Stock Transfer & Trust Company, as Rights
          Agent (incorporated by reference to Exhibit 4.7 to Registrant's Form
          8-A dated November 12, 2001 (Commission File No. 001-16133)).

     4.2  Form of Underwriter's Unit Warrant Agreement between Delcath Systems,
          Inc. and Roan/Meyers Associates L.P. (incorporated by reference to
          Exhibit 4.1 to Amendment No. 1 to Registrant's Registration Statement
          on Form SB-2 (Registration No. 333-101661)).

     4.3  Form of Warrant to Purchase Shares of Common Stock issued pursuant to
          the Common Stock Purchase Agreement dated as of March 19, 2004


                                       29






     Exhibit No.                      Description

          (incorporated by reference to Exhibit 4 to Registrant's Current Report
          on Form 8-K dated March 19, 2004 (Commission File No,. 001-16133)).

     4.4  Form of 2005 Series A Warrant to Purchase Shares of Common Stock
          issued pursuant to the Common Stock Purchase Agreement dated as of
          November 27, 2005 (incorporated by reference to Exhibit 4.1 to
          Registrant's Current Report on Form 8-K dated November 28, 2005
          (Commission File No. 011-16133)).

     4.5  Form of 2005 Series C Warrant to Purchase Shares of Common Stock
          issued pursuant to the Common Stock Purchase Agreement dated as of
          November 27, 2005 (incorporated by reference to Exhibit 4.3 to
          Registrant's Current Report on Form 8-K dated November 28, 2005
          (Commission File No. 011-16133)).

     10.1 2000 Stock Option Plan (incorporated by reference to Exhibit 10.3 to
          Registrant's Registration Statement on Form SB-2 (Registration No.
          333-39470)).

     10.2 2001 Stock Option Plan (incorporated by reference to Exhibit 10.12 to
          Amendment No. 1 to Registrant's Annual Report on Form 10-KSB for the
          year ended December 31, 2001 (Commission File No. 001-16133)). 10.3
          2004 Stock Incentive Plan (incorporated by reference to Appendix B to
          Registrant's definitive Proxy Statement dated April 29, 2004
          (Commission File No. 001-16133)).

     10.4 Common Stock Purchase Agreement dated as of March 19, 2004 by and
          among Delcath Systems, Inc. and the Purchasers Listed on Exhibit A
          thereto (incorporated by reference to Exhibit 10.1 to Registrant's
          Current Report on Form 8-K dated March 19, 2004 (Commission File No.
          001-16133)).

     10.5 Registration Rights Agr eement dated as of March 19, 2004 by and among
          Delcath Systems, Inc. and the Purchasers Listed on Schedule I thereto
          (incorporated by reference to Exhibit 10.2 to Registrant's Current
          Report on Form 8-K dated March 19, 2004 (Commission File No.
          001-16133)).

     10.6 Common Stock Purchase Agreement dated as of November 27, 2005 by and
          among Delcath Systems, Inc. and the Purchasers Listed on the Schedule
          I thereto (incorporated by reference to Exhibit 10.1 to Registrant's
          Current Report on Form 8-K dated November 28, 2005 (Commission File
          No. 001-16133)).

     10.7 Registration Rights Agreement dated as of November 27, 2005 by and
          among Delcath Systems, Inc. and the Purchasers Listed on the Schedule
          I thereto (incorporated by reference to Exhibit 10.2 to Registrant's
          Current Report on Form 8-K dated November 28, 2005 (Commission File
          No. 001-16133)).

     10.8 Form of Incentive Stock Option Agreement under the Company's 2004
          Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to
          Registrant's Quarterly Report on Form 10-QSB for the quarter ended
          June 30, 2005)).

     10.9 Form of Nonqualified Stock Option Agreement under the Company's 2004
          Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to
          Registrant's Quarterly Report on Form 10-QSB for the quarter ended
          June 30, 2005)).

     10.10 Form of Stock Grant Agreement under the Company's 2004 Stock
          Incentive Plan (incorporated by reference to Exhibit 10.3 to
          Registrant's Quarterly Report on Form 10-QSB for the quarter ended
          June 30, 2005 (Commission File No. 001-16133)).

     10.11 Settlement Agreement, dated as of October 8, 2006, by and between
          Delcath Systems, Inc., Laddcap Value Partners LP, Laddcap Value


                                       30






     Exhibit No.                      Description

          Advisors LLC, Laddcap Value Associates LLC, any affiliate of the
          foregoing, and Robert B. Ladd (incorporated by reference to Exhibit
          10.1 to Registrant's Current Report on Form 8-K dated October 8, 2006
          (Commission File No. 001-16133)).

     10.12 Settlement Agreement, dated as of December 15, 2006 between Delcath
          Systems, Inc. and M. S. Koly (incorporated by reference to Exhibit
          10.1 to Registrant's Current Report on Form 8-K dated December 21,
          2006 (Commission File No. 001-16133)).


     14   Code of Business Conduct (incorporated by reference to Exhibit 14 to
          Registrant's Annual Report on Form 10-KSB for the year ended December
          31, 2003 (Commission File No. 001-16133)).

     23   Consent of Carlin, Charron & Rosen, LLP

     24   Power of Attorney (included on the signature page hereto).

     31.1 Certification by Chief Executive Officer Pursuant to Rule 13a-14.

     31.2 Certification by Chief Financial Officer Pursuant to Rule 13a-14.

     32.1 Certification of 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 of Chief Financial Officer Pursuant to 18 U.S.C. Section
          1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
          2002.


                                       31







Signatures

Pursuant to the requirements of Section 13 or 15(d) 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.
                                       Registrant

                                       /s/ RICHARD TANEY
                                          -----------------
                                       Richard Taney, Chief Executive Officer
                                        March 16, 2007



                                       32







Each person whose signature appears below appoints Richard L. Taney as his
attorney-in-fact, with full power of substitution and resubstitution to sign any
and all amendments to this report on Form 10-K of Delcath Systems, Inc. and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorney-in-fact and agent or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.



Signature                                           Title                                        Date
- ---------                                           -----                                        ----


                                                                                           
/s/ RICHARD TANEY
- -------------------------------                      Chief Executive Officer,                    March 16, 2007
Richard Taney                                        and Director (Principal Executive Officer)


/s/ PAUL M. FEINSTEIN
- -------------------------------                     Chief Financial Officer                      March 16, 2007
Paul M. Feinstein                                   (Principal Financial Officer and
                                                    Principal Accounting Officer)


/s/ HAROLD S. KOPLEWICZ
- -------------------------------                     Chairman of the Board                       March 16, 2007
Harold S. Koplewicz, M.D.


/s/ MARK A. CORIGLIANO
- -------------------------------                     Director                                    March 16, 2007
Mark A. Corigliano

/s/ DANIEL L. ISDANER
- --------------------------------                    Director                                    March 16, 2007
Daniel L. Isdaner

/s/ SAMUEL HERSCHKOWITZ
- --------------------------------                    Director                                    March 16, 2007
Samuel Herschkowitz, M.D.

/s/ ROBERT LADD
- --------------------------------                    Director                                    March 16, 2007
Robert Ladd







                              DELCATH SYSTEMS, INC.
                                  DRAFT 3/12/07
                          (A Development Stage Company)

F-1


                          Index to Financial Statements

                                                                  Page

Report of Independent Registered Public Accounting Firm           F-2

Balance Sheets at December 31, 2006 and 2005                      F-3

Statements of Operations for the years ended December 31,
  2006, 2005 and 2004 and cumulative from inception
  (August 5, 1988) to December 31, 2006                           F-4

Statements of Stockholders' Equity for the years ended
  December 31, 2006, 2005 and 2004 and cumulative from
  inception (August 5, 1988) to December 31, 2006                 F-5

Statements of Cash Flows for the years ended December
  31, 2006, 2005 and 2004  and cumulative from inception
  (August 5, 1988) to December 31, 2006                           F-6

Notes to Financial Statements                                     F-7


                                      F-1





             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and
Stockholders of Delcath Systems, Inc.


We have audited the accompanying balance sheets of Delcath Systems, Inc. as of
December 31, 2006 and 2005, and the related statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 2006 and cumulative from incepion (August 5, 1988) to
December 31, 2006. We also have audited management's assessment, included in the
accompanying Management's Report on Internal Control Over Financial Reporting
appearing under Item 9A, that Delcath Systems, Inc. maintained effective
internal control over financial reporting as of December 31, 2006 based on
criteria established in Internal Control--Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Delcath
Systems Inc.'s management is responsible for these financial statements, for
maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express an opinion on these financial statements, an
opinion on management's assessment, and an opinion on the effectiveness of the
company's internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audit of financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. Our
audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, evaluating
management's assessment, testing and evaluating the design and operating
effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Delcath Systems, Inc. as of
December 31, 2006 and 2005, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 2006 and
cumulative from inception (August 5, 1988) to December 31, 2006 in conformity
with accounting principles generally accepted in the United States of America.
Also, in our opinion, management's assessment that Delcath Systems Inc.
maintained effective internal control over financial reporting as of December
31, 2006 is fairly stated, in all material respects, based on criteria
established in Internal Control--Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Furthermore, in our
opinion, Delcath Systems, Inc. maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2006, based on
criteria established in Internal Control--Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).



/s/ Carlin, Charron & Rosen, LLP


Glastonbury, CT
March 15, 2007


                                      F-2





                              DELCATH SYSTEMS, INC.
                          (A Development Stage Company)

                                 Balance Sheets




                                                                          December 31,      December 31,
                                                                              2006              2005
                                                                         ----------------  ----------------
                              Assets
                                                                                   
Current assets
    Cash and cash equivalents                                          $       6,289,723 $       1,704,131
    Certificates of deposit                                                    2,408,302        11,097,790
    Interest receivable                                                         -                   91,574
    Prepaid insurance                                                             61,917            26,917
                                                                         ----------------  ----------------
                    Total current assets                                       8,759,942        12,920,412

Property and equipment, net                                                        3,719             7,554
                                                                         ----------------  ----------------

                    Total assets                                       $       8,763,661 $      12,927,966
                                                                         ================  ================

              Liabilities and Stockholders' Equity
Current liabilities
    Accounts payable and accrued expenses                              $         670,367 $         330,070
                                                                         ----------------  ----------------
                    Total current liabilities                                    670,367           330,070
                                                                         ----------------  ----------------

Commitments and contingencies (Note 5)                                             --                 --

Stockholders' equity
    Preferred stock, $.01 par value; 10,000,000 shares
       authorized; no shares issued and outstanding                                --                 --
    Common stock, $.01 par value; 70,000,000 shares authorized;
       20,688,863 shares issued and 20,660,763 outstanding (2006)
       18.877,753 shares issued and 18,849,653 outstanding (2005)                206,608           188,497
    Additional paid-in capital                                                44,673,458        38,244,566
    Deficit accumulated during development stage                             (36,786,772)      (25,835,167)
                                                                         ----------------  ----------------

                  Total stockholders' equity                                   8,093,294        12,597,896
                                                                         ----------------  ----------------

                  Total liabilities and stockholders'
                    equity                                             $       8,763,661 $      12,927,966
                                                                         ================  ================




                                      F-3



                              DELCATH SYSTEMS, INC.




                          (A Development Stage Company)

                            Statements of Operations



                                                                                                      Cumulative
                                                                                                    from inception
                                                                                                   (August 5, 1988)
                                                           Year ended December 31,                        to
                                              ------------------------------------------------
                                                   2006            2005             2004          December 31, 2006
                                              ------------------------------------------------  -----------------------
                                                                                  

Costs and expenses

    General and administrative expenses     $      8,980,424 $     1,367,344 $      1,059,815 $           17,419,629
    Research and development costs                 2,718,084       1,744,251        2,306,733             19,777,564
                                              ---------------  --------------  ---------------  -----------------------

       Total costs and expenses                   11,698,508       3,111,595        3,366,548             37,197,193
                                              ---------------  --------------  ---------------  -----------------------

       Operating loss                            (11,698,508)     (3,111,595)      (3,366,548)           (37,197,193)

Other income (expense)
    Interest income                                  620,403         246,976          100,216              1,953,999
    Other Income                                     126,500            --                --                 126,500
    Interest expense                                   --               --                --                (171,473)
                                              ---------------  --------------  ---------------  -----------------------

       Net  loss                            $    (10,951,605)$    (2,864,619)$     (3,266,332)$          (35,288,166)
                                              ===============  ==============  ===============  =======================

Common share data
     Basic and diluted loss per share       $          (0.55)$         (0.18)$          (0.28)
                                              ===============  ==============  ===============

    Weighted average number of basic
           and diluted common shares
           outstanding                            19,906,932      16,038,716       11,543,256
                                              ===============  ==============  ===============


See accompanying notes to financial statements.




                                      F-4




                             DELCATH SYSTEMS, INC.
                         (A Development Stage Company)

                       Statements of Stockholders' Equity

                  Years ended December 31, 2006, 2005 and 2004
         cumulaive from inception (August 5, 1988) to December 31, 2006






                                                                   Common stock $.01 par value
                                                      ----------------------------------------------------------
                                                        Issued              In treasury       Outstanding
                                                      -------------------- -------------------------------------
                                                        No. of               No. of            No. of
                                                        shares     Amount    shares    Amount  shares    Amount
                                                      ----------   -------  --------  ------  --------   -------
                                                                                         

Shares issued in connection with the
    formation of the Company as of
    August 22, 1988                                    621,089    $ 6,211      --     $   --   621,089  $  6,211
Sale of preferred stock,
    August 22, 1988                                       --         --        --         --     --         --
Shares returned due to relevant technology
    milestones not being fully achieved,
    March 8, 1990                                         --         --     (414,059) (4,141) (414,059)   (4,141)
Sale of stock, October 2, 1990                            --         --       17,252     173    17,252       173
Sale of stock (common stock at $7.39 per share
    and Class B preferred stock at
    $2.55 per share), January 23, 1991                    --         --       46,522     465    46,522       465
Sale of stock, August 30, 1991                            --         --        1,353      14     1,353        14
Sale of stock, December 31, 1992                          --         --      103,515   1,035   103,515     1,035
Sale of stock (including 10,318 warrants,
    each to purchase one share of common
    stock at $10.87), July 15, 1994                       --         --      103,239   1,032   103,239     1,032
Sale of stock, December 19, 1996
Shares issued (including 78,438 warrants each
    to purchase one share of common stock at
    $10.87) in connection with conversion of
    short-term borrowings as of December 22, 1996         --        --        39,512     395    39,512       305
Sale of stock, December 31, 1997                        58,491       585      98,388     984   156,879     1,569
Exercise of stock options                               53,483       535       --         --    53,483       535
Shares issued as compensation for consulting            13,802       138       3,450      35    17,252       173
    services valued at $10.87 per share based
    on a 1996 agreement                                  2,345        23         828       8     3,173        31
Shares issued in connection with
    exercise of warrants
Sale of stock,  January 16, 1998                        21,568       216       --         --    21,568       216
Sale of stock, September 24, 1998                       34,505       345       --         --    34,505       345
Shares returned as a settlement of a dispute
    with a former director at $1.45 per
    share, the price originally paid, April 17, 1998    (3,450)      (35)      --         --    (3,450)      (35)
Exercise of stock options                                8,626        86       --         --     8,626        86
Sale of stock (including 5,218 warrants each to
    purchase one share of common
    stock at $14.87), June 30, 1999                     46,987       470       --         --    46,987       470








                                                                               Class A              Class B
                                                         Preferred Stock     preferred stock      preferred stock
                                                       ------------------  --------------------  -----------------
                                                        $.01 par value       $.01 par value       $.01 par value
                                                       ------------------  --------------------  -----------------
                                                       No. of                No. of              No. of
                                                       shares     Amount     shares    Amount    shares    Amount
                                                       ------     ------     ------    ------    ------    ------

                                                                                         
Shares issued in connection with the
    formation of the Company as of
    August 22, 1988                                       --       $ --        --      $  --      --       $ --
Sale of preferred stock,
    August 22, 1988                                       --         --    2,000,000    20,000    --         --
Shares returned due to relevant technology
    milestones not being fully achieved,
    March 8, 1990                                         --         --          --         --    --         --
Sale of stock, October 2, 1990                            --         --          --         --    --         --
Sale of stock (common stock at $7.39 per
     share and Class B preferred stock at $2.55
     per share), January 23, 1991                         --         --          --         --   416,675   4,167
Sale of stock, August 30, 1991 Sale of stock,             --         --          --         --    --         --
     December 31, 1992 Sale of stock                      --         --          --         --    --         --
(including 10,318 warrants,
    each to purchase one share of common
    stock at $10.87), July 15, 1994                       --         --          --         --    --         --
Sale of stock, December 19, 1996                          --         --          --         --    --         --
Shares issued (including 78,438 warrants each
    to purchase one share of common stock at
    $10.87) in connection with conversion of
    short-term borrowings as of December 22,
    1996                                                  --         --          --         --    --         --
Sale of stock, December 31, 1997                          --         --          --         --    --         --
Exercise of stock options                                 --         --          --         --    --         --
Shares issued as compensation for consulting
    services valued at $10.87 per share based
    on a 1996 agreement                                   --         --          --         --    --         --
Shares issued in connection with
    exercise of warrants                                  --         --          --         --    --         --
Sale of stock,  January 16, 1998                          --         --          --         --    --         --
Sale of stock, September 24, 1998                         --         --          --         --    --         --
Shares returned as a settlement of a dispute
   with a former director at $1.45 per
   share, the price originally paid,
   April 17, 1998                                         --         --          --         --    --         --
Exercise of stock options                                 --         --          --         --    --         --
Sale of stock (including 5,218 warrants each
  to purchase one share of
  stock at $14.87), June 30, 1999                         --         --          --         --    --         --








                                                                      Deficit
                                                                     accumulated
                                                       Additional     during
                                                         paid-in    development
                                                         capital       stage         Total
                                                      -----------   -----------    ----------


                                                                         

Shares issued in connection with the
    formation of the Company as of
    August 22, 1988                                   $  (5,211)     $   --       $   1,000
Sale of preferred stock,
    August 22, 1988                                     480,000          --         500,000
Shares returned due to relevant technology
    milestones not being fully achieved,
    March 8, 1990                                         4,141          --           --
Sale of stock, October 2, 1990                           24,827          --          25,000
Sale of stock (common stock at $7.39 per
     share and Class B preferred stock at $2.55
     per share), January 23, 1991                     1,401,690          --       1,406,322
Sale of stock, August 30, 1991 Sale of stock,             9,987          --          10,001
     December 31, 1992 Sale of stock                  1,013,969          --       1,015,004
(including 10,318 warrants,
    each to purchase one share of common
    stock at $10.87), July 15, 1994                   1,120,968          --       1,122,000
Sale of stock, December 19, 1996                        999,605          --       1,000,000
Shares issued (including 78,438 warrants each
    to purchase one share of common stock at
    $10.87) in connection with conversion of
    short-term borrowings as of December 22,
    1996                                              1,703,395          --       1,704,964
Sale of stock, December 31, 1997                        774,465          --         775,000
Exercise of stock options                                30,827          --          31,000
Shares issued as compensation for consulting
    services valued at $10.87 per share based
    on a 1996 agreement                                  34,454          --          34,485
Shares issued in connection with
    exercise of warrants                                234,182          --         234,398
Sale of stock,  January 16, 1998                        499,655          --         500,000
Sale of stock, September 24, 1998                        56,965          --          57,000
Shares returned as a settlement of a dispute
   with a former director at $1.45 per
   share, the price originally paid,
   April 17, 1998                                        (4,965)         --          (5,000)
Exercise of stock options                                67,414          --          67,500
Sale of stock (including 5,218 warrants each
  to purchase one share of common
  stock at $14.87), June 30, 1999                       775,722          --         776,192






                                                                   Common stock $.01 par value
                                                      ----------------------------------------------------------
                                                        Issued              In treasury       Outstanding
                                                      -------------------- -------------------------------------
                                                        No. of               No. of            No. of
                                                        shares     Amount    shares    Amount  shares    Amount
                                                      ----------   -------  --------  ------  --------   -------
                                                                                         

Shares issued in connection with
    exercise of warrants                                 2,300         23      --       --       2,300        23
Sale of stock, April 14, 2000                          230,873      2,309      --       --     230,873     2,309
Dividends paid on preferred stock                      690,910      6,909      --       --     690,910     6,909
Conversion of preferred stock                          833,873      8,339      --       --     833,873     8,339
Sale of stock (including 1,200,000 warrants
    each to purchase one share of common
    stock at $6.60), October 19, 2000                1,200,000     12,000      --       --   1,200,000    12,000
Shares issued as compensation
    for stock sale                                      85,000        850      --       --      85,000       850
1,720 stock options (including 1,720 warrants
    each to purchase one share of common
    stock at $6.00), issued as compensation               --          --       --       --        --         --
Sum of fractional common shares
    cancelled after year 2000
    stock splits                                           (36)        (1)     --       --         (36)       (1)
Stock warrants (150,000 at $7.00 and 150,000
    at $6.60) issued as compensation                      --          --       --       --        --         --
Sale of stock on April 3, 2002                         243,181      2,432      --       --     243,181     2,432
Repurchases of stock, November                                              (28,100)   (281)   (28,100)     (281)
    and December 2002
Amortization since inception of
    compensatory stock options                            --          --       --       --        --         --
Forfeiture since inception of stock
    options                                               --          --       --       --        --         --
Sale of stock (including 3,895,155 warrants
    to purchase one share of common stock at
    $0.775) on May 20, 2003 including under-
    writer's exercise of overallotment option        3,895,155     38,952      --       --   3,895,155   38,952
Proceeds from sale of unit option                         --         --        --       --        --         --
Exercise of 2003 Warrants                            1,730,580     17,305      --       --   1,730,580   17,305
Sale of stock, March, 2004                           1,197,032     11,970      --       --   1,197,032   11,970
Exercise of 2002 Warrants                               20,265        203      --       --      20,265      203
Sale of stock, April, 2004                             290,457      2,905      --       --     290,457    2,905
Stock options issued as compensation                      --          --       --       --        --         --
Sale of stock, November, 2004                        1,069,520     10,695      --       --   1,069,520   10,695
Sale of stock, December, 2004                          236,966      2,370      --       --     236,966    2,370
Exercise of 2003 Warrants                            2,160,163     21,602      --       --   2,160,163   21,602
Exercise of 2003 Representative's
    Unit Warrants                                      282,025      2,820      --       --     282,025     2,820
Exercise of Representative's Common
    Stock Warrants                                     152,025      1,520      --       --     152,025     1,520
Exercise of stock options                               62,000        620      --       --      62,000       620
Deficit accumulated from inception
    to December 31, 2004                                  --          --       --       --        --         --
Balance at December 31, 2004                         ----------   -------  --------   -----  ---------  --------
                                                     15,243,185  $152,432   (28,100) $(281) 15,215,085  %152,151






                                                                               Class A              Class B
                                                         Preferred Stock     preferred stock      preferred stock
                                                       ------------------  --------------------  -----------------
                                                        $.01 par value       $.01 par value       $.01 par value
                                                       ------------------  --------------------  -----------------
                                                       No. of                No. of              No. of
                                                       shares     Amount     shares    Amount    shares    Amount
                                                       ------     ------     ------    ------    ------    ------
                                                                                            

Shares issued in connection with
    exercise of warrants                                --         --          --        --         --        --
Sale of stock, April 14, 2000                           --         --          --        --         --        --
Dividends paid on preferred stock                       --         --          --        --         --        --
Conversion of preferred stock                           --         --    (2,000,000)  (20,000)   (416,675)  (4,167)
Sale of stock (including 1,200,000 warrants
    each to purchase one shar
    stock at $6.60), October 19, 2000                   --         --          --        --         --        --
Shares issued as compensation
    for stock sale                                      --         --          --        --         --        --
1,720 stock options (including 1,720 warrants
    each to purchase one share of common
    stock at $6.00), issued as compensation             --         --          --        --         --        --
Sum of fractional common shares
    cancelled after year 2000
    stock splits                                        --         --          --        --         --        --
Stock warrants (150,000 at $7.00 and 150,000
    at $6.60) issued as compensation                    --         --          --        --         --        --
Sale of stock on April 3, 2002                          --         --          --        --         --        --
Repurchases of stock, November                          --         --          --        --         --        --
    and December 2002
Amortization since inception of
    compensatory stock options                          --         --          --        --         --        --
Forfeiture since inception of stock
    options                                             --         --          --        --         --        --
Sale of stock (including 3,895,155 warrants
    to purchase one share of common stock at
    $0.775) on May 20, 2003 including under-
    writer's exercise of overallotment option           --         --          --        --         --        --
Proceeds from sale of unit option                       --         --          --        --         --        --
Exercise of 2003 Warrants                               --         --          --        --         --        --
Sale of stock, March, 2004                              --         --          --        --         --        --
Exercise of 2002 Warrants                               --         --          --        --         --        --
Sale of stock, April, 2004                              --         --          --        --         --        --
Stock options issued as compensation                    --         --          --        --         --        --
Sale of stock, November, 2004                           --         --          --        --         --        --
Sale of stock, December, 2004                           --         --          --        --         --        --
Exercise of 2003 Warrants                               --         --          --        --         --        --
Exercise of 2003 Representative's
    Unit  Warrants                                      --         --          --        --         --        --
Exercise of Representative's Common
    Stock Warrants                                      --         --          --        --         --        --
Exercise of stock options                               --         --          --        --         --        --
Deficit accumulated from inception
    to December 31, 2004                                --         --          --        --         --        --
Balance at December 31, 2004                           ----     ------    ----------   ------  --------   -------
                                                        --       $ --          --      $  --        --      $ --






                                                                      Deficit
                                                                     accumulated
                                                       Additional     during
                                                         paid-in    development
                                                         capital       stage         Total
                                                      -----------   -----------    ----------

                                                                         
Shares issued in connection with
    exercise of warrants                                 24,975         --         24,998
Sale of stock, April 14, 2000                           499,516         --         501,825
Dividends paid on preferred stock                       992,161     (1,498,605)   (499,535)
Conversion of preferred stock                            15,828         --            --
Sale of stock (including 1,200,000 warrants
    each to purchase one share of common
    stock at $6.60), October 19, 2000                 5,359,468         --      5,371,468
Shares issued as compensation
    for stock sale                                        (850)         --           --
1,720 stock options (including 1,720 warrants
    each to purchase one share of common
    stock at $6.00), issued as compensation              3,800          --          3,800
Sum of fractional common shares
    cancelled after year 2000
    stock splits                                             1          --            --
Stock warrants (150,000 at $7.00 and 150,000
    at $6.60) issued as compensation                   198,000          --        198,000
Sale of stock on April 3, 2002                         265,068          --        267,500
Repurchases of stock, November                         (50,822)         --        (51,103)
    and December 2002
Amortization since inception of
    compensatory stock options                       3,760,951          --      3,760,951
Forfeiture since inception of stock
    options                                         (1,240,780)         --     (1,240,780)
Sale of stock (including 3,895,155 warrants
    to purchase one share of common stock at
    $0.775) on May 20, 2003 including under-
    writer's exercise of overallotment option        1,453,696         --       1,492,648
Proceeds from sale of unit option                           68         --              68
Exercise of 2003 Warrants                            1,273,895         --       1,291,200
Sale of stock, March, 2004                           2,660,625         --       2,672,595
Exercise of 2002 Warrants                               26,547         --          26,750
Sale of stock, April, 2004                             635,130         --         638,035
Stock options issued as compensation                     5,222         --           5,222
Sale of stock, November, 2004                        1,829,305         --       1,840,000
Sale of stock, December, 2004                          497,630         --         500,000
Exercise of 2003 Warrants                            1,652,524         --       1,674,126
Exercise of 2003 Representative's
    Unit Warrants                                      284,383         --         287,203
Exercise of Representative's Common
    Stock Warrants                                     193,072         --         194,592
Exercise of stock options                               44,040         --          44,660
Deficit accumulated from inception
    to December 31, 2004                                  --     (21,471,943) (21,471,943)
Balance at December 31, 2004                      ------------  -------------  -----------
                                                  $ 29,605,543  $(22,970,543) $ 6,787,146







                                                                 Common stock $.01 par value
                                                      -------------------------------------------------------------
                                                        Issued              In treasury        Outstanding
                                                      -------------------- ----------------------------------------
                                                        No. of               No. of            No. of
                                                        shares     Amount    shares    Amount  shares       Amount
                                                      ----------   -------  --------  ------  --------      -------
                                                                                           

Exercise of 2003 Representative's
    Unit Warrants                                       42,180      422        --       --     42,180         422
Exercise of Representative's Common
    Stock Warrants                                     157,180    1,572        --       --    157,180       1,572
Exercise of stock options                              597,000    5,970        --       --    597,000       5,970
Stock options issued as compensation                     --         --         --       --       --           --
Exercise of 2004 Warrants                            1,107,313   11,073        --       --  1,107,313      11,073
Exercise of 2005 Warrants                              940,957    9,410        --       --    940,957       9,410
Sale of stock, November, 2005                          753,013    7,530        --       --    753,013       7,530
Shares issued as compensation                           36,925      369        --       --     36,925         369
Net Loss                                                 --         --         --       --       --           --
                                                    ----------   ------- --------   ----------------      -------
Balance at December 31, 2005                        18,877,753  $188,778  (28,100)   $(281)18,849,653     $188,497
Vesting of stock options                                 --       --           --      --      --            --
Stock options issued as compensation                     --       --           --      --      --            --
Exercise of 2003 Representative's
    Unit Warrants                                       6,250        62        --      --     6,250           62
Exercise of Representative's Common
    Stock Warrants                                      6,250        63        --      --     6,250           63
Exercise of 2004 Warrants                           1,165,210    11,652        --      -- 1,165,210       11,652
Exercise of 2005 Warrants                             429,218     4,292        --      --   429,218        4,292
Exercise of stock options                             104,182     1,042        --      --   104,182        1,042
Shares issued in connection with
    settlement of
    Consent Solicitation lawsuit                      100,000     1,000        --      --   100,000        1,000
Net Loss                                                 --         --         --      --       --           --
                                                  ----------   -------    --------   -----  ----------  ---------
Balance at December 31, 2006                      20,688,863  $ 206,889   (28,100)  $(281)  20,660,763  $206,608
                                                  ==========    =======   ========   ====== ==========  ========








                                                                               Class A              Class B
                                                         Preferred Stock     preferred stock      preferred stock
                                                       ------------------  --------------------  -----------------
                                                        $.01 par value       $.01 par value       $.01 par value
                                                       ------------------  --------------------  -----------------
                                                       No. of                No. of              No. of
                                                       shares     Amount     shares    Amount    shares    Amount
                                                       ------     ------     ------    ------    ------    ------
                                                                                         
Exercise of 2003 Representative's
    Unit Warrants                                        --        --         --       --        --        --
Exercise of Representative's Common
    Stock Warrants                                       --        --         --       --        --        --
Exercise of stock options                                --        --         --       --        --        --
Stock options issued as compensation                     --        --         --       --        --        --
Exercise of 2004 Warrants                                --        --         --       --        --        --
Exercise of 2005 Warrants                                --        --         --       --        --        --
Sale of stock, November, 2005                            --        --         --       --        --        --
Shares issued as compensation                            --        --         --       --        --        --
Net Loss                                                 --        --         --       --        --        --

Balance at December 31, 2005                            ----  ------ ----------   ----------------       ------
Vesting of stock options                                 --     $ --          --     $ --        --      $ --
Stock options issued as compensation                     --       --          --       --        --        --
Exercise of 2003 Representative's                        --       --          --       --        --        --
    Unit Warrants
Exercise of Representative's Common                      --       --          --       --        --        --
    Stock Warrants
Exercise of 2004 Warrants                                --       --          --       --        --        --
Exercise of 2005 Warrants                                --       --          --       --        --        --
Exercise of stock options                                --       --          --       --        --        --
Shares issued in connection with settlement of           --       --          --       --        --        --
    Consent Solicitation lawsuit
Net Loss                                                 --       --          --       --        --        --
                                                         --       --          --       --        --        --
Balance at December 31, 2006                            ----  ------ ----------   ----------------      ------







                                                                      Deficit
                                                                     accumulated
                                                       Additional     during
                                                         paid-in    development
                                                         capital       stage         Total
                                                      -----------   -----------    ----------

                                                                            

Exercise of 2003 Representative's
    Unit Warrants                                          42,686       --            43,108
Exercise of Representative's Common
    Stock Warrants                                        200,619       --           202,191
Exercise of stock options                                 525,140       --           531,110
Stock options issued as compensation                        8,270       --             8,270
Exercise of 2004 Warrants                               2,883,418       --         2,894,491
Exercise of 2005 Warrants                               2,573,363       --         2,582,773
Sale of stock, November, 2005                           2,302,471       --         2,310,001
Shares issued as compensation                             103,056       --           103,425
Net Loss                                                    --       (2,864,619)  (2,864,619)
Balance at December 31, 2005                           ----------  ------------   -----------
                                                     $ 38,244,566  $(25,835,167)  $12,597,89
Vesting of stock options                                  446,000       --           446,000
Stock options issued as compensation                      505,282       --           505,282
Exercise of 2003 Representative's
    Unit Warrants                                           7,131       --             7,193
Exercise of Representative's Common
    Stock Warrants                                          7,132       --             7,195
Exercise of 2004 Warrants                               3,306,090       --         3,317,742
Exercise of 2005 Warrants                               1,557,233       --         1,561,525
Exercise of stock options                                 295,024       --           296,066
Shares issued in connection with settlement of
    Consent Solicitation lawsuit                          305,000       --           306,000
Net Loss                                                            (10,951,605) (10,951,605)
                                                       ---------- -------------- ------------
Balance at December 31, 2006                        $ 44,673,458  $ (36,786,772)  $ 8,093,294
                                                    ============  =============   ===========



                                      F-5



               DELCATH SYSTEMS, INC.

           (A Development Stage Company)

              Statements of Cash Flows





                                                                                                       Cumulative
                                                                                                     from inception
                                                                                                    (August 5, 1988)
                                                         Year ended December 31,                           to
                                                           2006          2005           2004       December 31, 2006
                                                       ------------- -------------  ------------- ---------------------
                                                                                             
Cash flows from operating activities:
   Net loss                                          $  (10,951,605)  $ (2,864,619)  $ (3,266,332)       $  (35,288,166)
   Adjustments to reconcile net loss to
     net cash used in operating activities:
     Stock option compensation expense                    1,042,448          8,270          5,222             3,576,110
     Stock and warrant compensation expense
       issued for legal settlement and
       consulting services                                  306,000        103,425            --                645,711
     Depreciation expense                                     3,835          6,052          5,526                41,578
     Amortization of organization costs                       --              --              --                 42,165
     Rent expense attributable to lease deposit               --              --           24,000                   --
   Changes in assets and liabilities:
     (Increase) decrease  in prepaid expenses               (35,000)        20,899           (316)              (61,917)
     Decrease (increase) in interest receivable              91,574        (58,688)       (18,614)                   (0)
     Increase (decrease) in accounts payable
       and accrued expenses                                 340,297       (234,556)       304,426               670,367
                                                       -------------  -------------  ------------- ---------------------
         Net cash used in operating activities           (9,202,451)    (3,019,217)     2,946,088)          (30,374,152)
                                                       -------------  -------------  ------------- ---------------------

Cash flows from investing activities:
     Purchase of furniture and fixtures                       --             --            (5,345)              (45,298)
     Purchase of short-term investments                  (5,424,548)   (11,097,790)    (6,052,383)          (27,492,042)
     Proceeds from maturities of short-term
       investments                                       14,114,036      7,055,129      1,014,575            25,083,740
     Organization costs                                       --             --              --                 (42,165)
                                                       -------------   -------------  ------------- ---------------------
         Net cash used in investing activities           8,689,488      (4,042,661)    (5,043,153)           (2,495,765)
                                                       -------------   -------------  ------------- ---------------------

Cash flows from financing activities:
     Net proceeds from sale of stock and exercise
       of stock options and warrants                     5,098,555      8,563,674       7,877,961            38,005,314
     Repurchases of common stock                              --             --              --                 (51,103)
     Dividends paid                                           --             --              --                (499,535)
     Proceeds from short-term borrowings                      --             --              --               1,704,964
                                                       -------------   -------------  ------------- ---------------------
         Net cash provided by financing activities       5,098,555       8,563,674      7,877,961            39,159,640
                                                       -------------   -------------  ------------- ---------------------

     Increase (decrease) in cash and cash equivalents    4,585,592       1,501,796       (111,280)            6,289,723

Cash and cash equivalents at beginning of period         1,704,131         202,335        313,615                   --
                                                       -------------   -------------  ------------- ---------------------

Cash and cash equivalents at end of period           $   6,289,723   $   1,704,131   $    202,335     $       6,289,723
                                                       =============   =============  =============   ===================

Supplemental cash flow information:

   Cash paid for interest                            $        --     $       --     $        --       $         171,473
                                                       =============   =============  =============   ===================

Supplemental non-cash activities:
   Cashless exercise of stock options                $      91,166   $       --     $        --       $          91,166
                                                       =============   ============   ============    ===================
   Conversion of debt to common stock                $        --     $       --     $        --       $       1,704,964
                                                       =============   =============  =============   ===================

   Common stock issued for preferred stock dividends $        --     $       --     $        --       $         999,070
                                                       =============   =============  =============   ===================

   Conversion of preferred stock to common stock     $        --     $       --     $        --       $          24,167
                                                       =============   =============  =============   ===================

   Common stock issued as compensation
     for stock sale                                  $        --     $       --     $        --       $          510,000
                                                       =============   =============  =============   ===================



See accompanying notes to financial statements.


                                      F-6






                              DELCATH SYSTEMS, INC.
                          (A Development Stage Company)
                          Notes to Financial Statements

                        December 31, 2006, 2005 and 2004




(1) Description of Business and Summary of Significant Accounting Policies

     (a) Description of Business

          Delcath Systems, Inc. (the "Company") is a development stage company
          which was founded in 1988 for the purpose of developing and marketing
          a proprietary drug delivery system capable of introducing and removing
          high dose chemotherapy agents to a diseased organ system while greatly
          inhibiting their entry into the general circulation system. It is
          hoped that the procedure will result in a meaningful treatment for
          cancer. In November 1989, the Company was granted an IDE
          (Investigational Device Exemption) and an IND status (Investigational
          New Drug) for its product by the FDA (Food and Drug Administration).
          The Company is seeking to complete clinical trials in order to obtain
          separate FDA pre-market approvals for the use of its delivery system
          using melphalan, a chemotherapeutic agent, to treat malignant melanoma
          that has spread to the liver.

     (b) Basis of Financial Statement Presentation

          The accounting and financial reporting policies of the Company conform
          to accounting principles generally accepted in the United States of
          America (GAAP). The preparation of financial statements in conformity
          with GAAP requires management to make assumptions and estimates that
          impact the amounts reported in those statements. Such assumptions and
          estimates are subject to change in the future as additional
          information becomes available or as circumstances are modified. Actual
          results could differ from these estimates.

     (c) Property and Equipment

          Property and equipment (primarily furniture and fixtures) are recorded
          at cost and are being depreciated on a straight line basis over the
          estimated useful lives of the assets of five years. Accumulated
          depreciation totaled $41,481 at December 31, 2006 and $37,646 at
          December 31, 2005. Depreciation expense for the years ended December
          31, 2006, 2005 and 2004 was $3,835, $6,052 and $5,526, respectively.
          Maintenance and repairs are charged to operations as incurred.
          Expenditures which substantially increase the useful lives of the
          related assets are capitalized.

     (d) Income Taxes

          The Company accounts for income taxes following the asset and
          liability method in accordance with Statement of Financial Accounting
          Standards (SFAS) No. 109, "Accounting for Income Taxes." Under such
          method, deferred tax assets and liabilities are recognized for the
          future tax consequences attributable to differences between the
          financial statement carrying amounts of existing assets and
          liabilities and their respective tax bases. The Company's income tax
          returns are prepared on the cash basis of accounting. Deferred tax
          assets and liabilities are measured using enacted tax rates expected
          to apply to taxable income in the years that the asset is expected to
          be recovered or the liability settled.


                                      F-7






                              DELCATH SYSTEMS, INC.
                          (A Development Stage Company)
                          Notes to Financial Statements

                        December 31, 2006, 2005 and 2004


     (e) Stock Option Plan

          In December 2004, the Financial Accounting Standards Board (FASB)
          issued Statement of Financial Accounting Standards No. 123R,
          "Share-Based Payment" (SFAS 123R). This Statement is a revision of
          SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123),
          and supersedes Accounting Principles Board Opinion No. 25, "Accounting
          for Stock Issued to Employees" (APB 25), and its related
          implementation guidance. SFAS 123R establishes accounting for equity
          instruments exchanged for employee services. Under the provisions of
          SFAS 123R, share-based compensation is measured at the grant date,
          based upon the fair value of the award, and is recognized as an
          expense over the option holders' requisite service period (generally
          the vesting period of the equity grant). Prior to January 1, 2006, the
          Company accounted for share-based compensation to employees in
          accordance with APB 25, as permitted by SFAS No. 123, and,
          accordingly, did not recognize compensation expense for the issuance
          of options with an exercise price equal to or greater than the market
          price at the date of grant. The Company also followed the disclosure
          requirements of SFAS 123 as amended by SFAS 148, "Accounting for
          Stock-Based Compensation - Transition and Disclosure". Effective
          January 1, 2006, the Company adopted the modified prospective approach
          and, accordingly, prior period amounts have not been restated. Under
          this approach, the Company is required to record compensation cost for
          all share-based payments granted after the date of adoption based on
          the grant date fair value, estimated in accordance with the provisions
          of SFAS 123R, and for the unvested portion of all share-based payments
          previously granted that remain outstanding based on the grant date
          fair value, estimated in accordance with the original provisions of
          SFAS 123. The Company has expensed its share-based compensation for
          share-based payments granted after January 1, 2006 under the ratable
          method, which treats each vesting tranche as if it were an individual
          grant. The adoption of SFAS 123R resulted in a charge to operations of
          $446,000 for the year ended December 31, 2006 for options granted in
          November 2006.

          The Company periodically grants stock options for a fixed number of
          shares of common stock to its employees, directors and non-employee
          contractors, with an exercise price greater than or equal to the fair
          market value of our common stock at the date of the grant. The Company
          estimates the fair value of stock options using a Black-Scholes
          valuation model. Key inputs used to estimate the fair value of stock
          options include the exercise price of the award, the expected
          post-vesting option life, the expected volatility of our stock over
          the option's expected term, the risk-free interest rate over the
          option's expected term, and our expected annual dividend yield.
          Estimates of fair value are not intended to predict actual future
          events or the value ultimately realized by persons who receive equity
          awards.

          The required adoption of SFAS No. 123R as of January 1, 2006 is
          expected to significantly increase compensation expense for future
          grants. The actual impact on future years will be dependent on a
          number of factors, including our stock price and the level of future
          grants and awards. In addition, costs related to accounting and
          valuation services of stock options currently outstanding in
          accordance with SFAS No. 123R would have been cost prohibitive to the
          Company if the Company had not adopted certain measures. Based on
          these considerations and


                                      F-8





                              DELCATH SYSTEMS, INC.
                          (A Development Stage Company)
                          Notes to Financial Statements

                        December 31, 2006, 2005 and 2004


          after discussion of applicable accounting literature, the Compensation
          Committee of the Board of Directors approved accelerating the vesting
          of all unvested stock options effective January 1, 2006. Unvested
          options having exercise prices of $2.78 and $3.59 per share,
          representing the right to purchase a total of approximately 1 million
          shares, became exercisable as a result of the vesting acceleration.
          All other terms and conditions in the original grants remain
          unchanged. The acceleration of vesting resulted in the recognition of
          a non cash compensation expense of $505,282 on January 1, 2006 which
          is included in costs and expenses in the statements of operations.

          Prior to January 1, 2006, the Company accounted for stock-based
          compensation plans in accordance with the provisions of APB 25, as
          permitted by SFAS No. 123, and, accordingly, did not recognize
          compensation expense for the issuance of options with an exercise
          price equal to or greater than the market price at the date of grant.

          Under the modified prospective method, results for the years ended
          December 31, 2005 and 2004 were not restated to include stock option
          expense. The previously disclosed pro forma effects of recognizing the
          estimated fair value of stock based employee compensation for the
          years ended December 31, 2005 and 2004 are presented below.




                                                          2005              2004
                                                                
           Net loss                                $   (2,864,619)    $  (3,266,332)
           Stock-based employee   compensation
               expense included in net loss, net
               of related tax effects                          0                  0
           Stock-based employee compensation
               expense determined under the fair
               value based method, net of
               related tax effects                       (133,194)           (93,793)
           Pro forma net loss                       $  (2,997,813)     $  (3,360,125)
                                                     ============       ============
           Loss per share (basic and diluted):

           As reported                              $       (0.18)     $      (0.28)
           Pro forma                                        (0.19)            (0.29)


          The per share weighted average fair value of five-year stock options
          granted in July 2005 was $.58 estimated on the date of grant using the
          Black-Scholes option-pricing model. The weighted-average assumption of
          a risk free interest rate of 3.77% was based on the implied yield
          available on a U.S. Treasury note with a term equal to the term of the
          underlying options. The expected volatility of 41% was estimated based
          upon the historical volatility of the Company's share price. The
          Company used a dividend yield percentage of zero based on the fact
          that the Company has not paid dividends in the past nor does it expect
          to pay dividends in the future. The per share weighted average fair
          value of five-year stock options granted in November 2005 was $.66


                                      F-9





                             DELCATH SYSTEMS, INC.
                          (A Development Stage Company)
                          Notes to Financial Statements

                        December 31, 2006, 2005 and 2004


          estimated on the date of grant using the Black-Scholes option-pricing
          model. The weighted-average assumption of a risk free interest rate of
          4.45% was based on the implied yield available on a U.S. Treasury note
          with a term equal to the term of the underlying options. The expected
          volatility of 35% was estimated based upon the historical volatility
          of the Company's share price. The Company used a dividend yield
          percentage of zero based on the fact that the Company has not paid
          dividends in the past nor does it expect to pay dividends in the
          future. There were no stock option grants in 2004.

          The per share weighted average fair value of five-year stock options
          granted in Novermber 2006 was $1.31 estimated on the date of grant
          using the Black-Scholes option-pricing model. The expected term was
          estimated using a midpoint between the date of grant and the
          expiration date. The weighted-average assumption of a risk free
          interest rate of 4.69% was based on the implied yield available on a
          U.S. Treasury note with a term equal to the estimated term of the
          underlying options as indicated above. The expected volatility of 60%
          was estimated based upon the historical volatility of the Company's
          share price. The Company used a dividend yield percentage of zero
          based on the fact that the Company has not paid dividends in the past
          nor does it expect to pay dividends in the future.

     (f) Net Loss Per Common Share

          For the years ended December 31, 2006, 2005 and 2004 potential common
          shares from the exercise of options and warrants were excluded from
          the computation of diluted earnings per share (EPS) because their
          effects would be antidilutive. In addition, common stock purchase
          rights issuable only in the event that a non-affiliated person or
          group acquires 15% of the Company's then outstanding common stock have
          been excluded from the EPS computation.

     (g) Recent Accounting Pronouncements

          In September, 2006, the FASB issued SFAS No. 157 "Fair Value
          Measurements," which provides a definition of fair value, establishes
          a framework for measuring fair value and requires expanded disclosures
          about fair value measurements. The measurement and disclosure
          requirements, which are applied prospectively, are effective for the
          Company beginning in the first quarter of 2008. Management is
          assessing the potential impact on the Company's financial condition
          and results of operations.

          In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting
          for Uncertainty in Income Taxes - an interpretation of FASB Statement
          No. 109" (SFAS No. 109). The interpretation contains a two step
          approach to recognizing and measuring uncertain tax positions
          accounted for in accordance with SFAS No. 109. The first step is to
          evaluate the tax position for recognition by determining if the weight
          of available evidence indicates it is more likely than not that the
          position will be sustained on audit, including resolution of related
          appeals or litigation processes, if any. The second step is to measure
          the tax benefit as the largest amount which is more than 50% likely of
          being realized upon ultimate settlement. The provisions are effective
          for the Company beginning in the first quarter of fiscal 2007. The
          Company does not anticipate that adoption of this statement will have
          any material impact on its financial statements.


                                      F-10






                             DELCATH SYSTEMS, INC.
                          (A Development Stage Company)
                          Notes to Financial Statements

                        December 31, 2006, 2005 and 2004

     (h) Research and Development Costs

          Research and development costs include the costs of materials,
          personnel, outside services and applicable indirect costs incurred in
          development of the Company's proprietary drug delivery system. All
          such costs are charged to expense when incurred.


     (i) Cash Equivalents

          The Company considers highly liquid debt instruments with maturities
          of three months or less at date of acquisition to be cash equivalents.

     (j) Reclassification

          Certain prior year amounts have been reclassified to conform to the
          current year presentation.


(2) Stockholders' Equity

     (a) Stock Issuances

          On October 30, 2001, the Company entered into a Rights Agreement with
          American Stock Transfer & Trust Company (the "Rights Agreement") in
          connection with the implementation of the Company's stockholder rights
          plan (the "Rights Plan"). The purposes of the Rights Plan are to
          deter, and protect the Company's shareholders from, certain coercive
          and otherwise unfair takeover tactics and to enable the Board of
          Directors to represent effectively the interests of shareholders in
          the event of a takeover attempt. The Rights Plan does not deter
          negotiated mergers or business combinations that the Board of
          Directors determines to be in the best interests of the Company and
          its shareholders. To implement the Rights Plan, the Board of Directors
          declared a dividend of one Common Stock purchase right (a "Right") for
          each share of Common Stock of the Company, par value $0.01 per share
          (the "Common Stock") outstanding at the close of business on November
          14, 2001 (the "Record Date") or issued by the Company on or after such
          date and prior to the earlier of the Distribution Date, the Redemption
          Date or the Final Expiration Date (as such terms are defined in the
          Rights Agreement). The rights expire October 30, 2011. Each Right
          entitles the registered holder, under specified circumstances, to
          purchase from the Company for $5.00, subject to adjustment (the
          "Purchase Price"), a number of shares determined by dividing the then
          applicable Purchase Price by 50% of the then current market price per
          share in the event that a person or group announces that it has
          acquired, or intends to acquire, 15% or more of the Company's
          outstanding Common Stock.

          In March 2004, the Company completed the sale of 1,197,032 shares of
          its common stock and the issuance of warrants to purchase 299,258
          common shares in a private placement to institutional and accredited
          investors. The Company received proceeds net of issuance costs of
          $2,672,595 in this transaction and agreed to register the shares of
          common stock and the shares issuable upon exercise of the warrants
          under the Securities Act of 1933.


                                      F-11





                             DELCATH SYSTEMS, INC.
                          (A Development Stage Company)
                          Notes to Financial Statements

                        December 31, 2006, 2005 and 2004

          In March 2004, proceeds of $26,750 were received as 20,265 warrants
          the Company issued in a private placement in 2002 were exercised.

          In April 2004, the Company completed an additional private placement
          of 290,457 shares of common stock and an aggregate of 72,614 warrants
          to purchase shares of its common stock, under the same terms and
          conditions as those sold in March 2004 for which it received net
          proceeds of $638,035.

          In June 2004, the stockholders approved an amendment to the Company's
          certificate of incorporation to increase the authorized number of
          shares of Common Stock from 35 million to 70 million.

          In November 2004, the Company completed the sale of 1,069,520 shares
          of its common stock and the issuance of warrants to purchase 1,996,635
          common shares in a private placement to institutional and accredited
          investors. The Company received net proceeds of $1,840,000 in this
          transaction and agreed to register the shares of common stock and the
          shares issuable upon exercise of the warrants under the Securities Act
          of 1933.

          In December 2004, the Company completed the sale of 236,966 shares of
          its common stock and the issuance of warrants to purchase 94,787
          common shares in a private placement to an institutional and
          accredited investor. The Company received net proceeds of $500,000 in
          this transaction and agreed to register the shares of common stock and
          the shares issuable upon exercise of the warrants under the Securities
          Act of 1933.

          During 2004, the Company received net proceeds of $1,674,126 as
          2,160,163 of the 2003 Warrants were exercised and for which it has
          issued shares of its common stock. 1,893,658 warrants were exercised
          following a notice of redemption issued on October 1, 2004 in
          accordance with the terms of the warrant and as all such warrants have
          now been redeemed.

          During 2004, the Company received net proceeds of $287,203 upon the
          exercise of 56,405 of the Representative Unit Purchase Warrants that
          were issued to underwriters as part of the Company's 2003 public
          offering. This resulted in the issuance of 282,025 shares of common
          stock together with an equal number of Representative's Common Stock
          Warrants. 152,025 Representative's Common Stock Warrants were
          exercised with an equal number of shares of common stock being issued
          for which the Company received net proceeds of $194,592.

          The Company received a net amount of $44,660 upon the exercise of
          62,000 in stock options during the last quarter of 2004. 60,000
          options were exercised at a price of $0.71 per share and 2,000 were
          exercised at a price of $1.03 per share.

          In November 2005, the Company completed the sale of 753,013 shares of
          its common stock and the issuance of warrants to purchase 711,600
          common shares in a private placement to institutional and accredited
          investors. The Company received net proceeds of $2,310,001 in this
          transaction and agreed to register the shares of common stock and the
          shares issuable upon exercise of the warrants under the Securites Act
          of 1933.


                                      F-12




                             DELCATH SYSTEMS, INC.
                          (A Development Stage Company)
                          Notes to Financial Statements

                        December 31, 2006, 2005 and 2004

          During 2005, the Company received net proceeds of $43,108 upon the
          exercise of 8,436 of the Representative Unit Purchase Warrants that
          were issued to underwriters as part of the 2003 public offering. This
          resulted in the issuance of 42,180 shares of common stock together
          with an equal number of Representative's Common Stock Warrants.
          157,180 Representative's Common Stock Warrants were exercised with an
          equal number of shares of common stock being issued and receipt of net
          proceeds of $202,191.

          The Company received a net amount of $531,110 upon the exercise of
          597,000 in stock options during 2005. 100,000 options were exercised
          at a price of $0.60 per share; 60,000 were exercised at a price of
          $0.71 per share; 120,000 were exercised at a price of $0.85 per share;
          and 317,000 were exercised at a price of $1.03 per share.

          In 2003, the Company issued stock options as compensation to three
          non-employees. The cost of these options, which is based on an annual
          fair value calculation based on the vesting period of each option, is
          being recognized annually. The cost for the years 2005 and 2004 was
          $8,270 and $5,222, respectively. The balance of the cost was
          recognized in 2006 in accordance with the acceleration of vesting as
          discussed in Note 1(e) of these Notes to Financial Statements.

          During 2005, the Company received net proceeds of $2,894,491 when
          1,069,526 of the November 2004 Warrants were exercised and 37,787 of
          the March 2004 Warrants were exercised for which the Company has
          issued shares of its common stock.

          During 2005, the Company issued notice to the holders of 1,200,000
          Redeemable Common Stock Purchase Warrants issued in 2000 (the "2000
          Warrants") that the Company would offer to exchange on a one-for-one
          basis any outstanding 2000 Warrants for new warrants. The new warrants
          were called the 2005 Redeemable Common Stock Purchase Warrants -
          Series A (Expiring December 31, 2005) (the "Exchange Warrants").
          989,554 of the 2000 Warrants were exchanged for Exchange Warrants.
          During 2005, the Company received net proceeds of $2,582,773 as
          940,957 of the Exchange Warrants were exercised following a notice of
          redemption issued on November 15, 2005 in accordance with the terms of
          the Exchange Warrants. The holders of 48,597 Exchange Warrants that
          remained outstanding following the redemption received the redemption
          price of $0.10 per Exchange Warrant. All such warrants have now been
          redeemed.

          During 2005, the Company issued common stock to Directors and certain
          consultants that totaled 36,925 shares that had issuance values of
          between $2.78 and $2.95.

          During 2006, the Company received net proceeds of $6,388 upon the
          exercise of 1,250 of the Representative Unit Purchase Warrants that
          were issued to underwriters as part of the 2003 public offering. This
          resulted in the issuance of 6,250 shares of common stock together with
          an equal number of Representative's Common Stock Warrants. 6,250
          Representative's Common Stock Warrants were exercised with an equal
          number of shares of common stock being issued and receipt of net
          proceeds of $8,000.

          During 2006, the Company received net proceeds of $3,317,742 as
          927,115 of the November 2004 Warrants were exercised, 94,787 of the
          December 2004 Warrants were exercised, and


                                      F-13




                             DELCATH SYSTEMS, INC.
                          (A Development Stage Company)
                          Notes to Financial Statements

                        December 31, 2006, 2005 and 2004


          143,308 of the March 2004 Warrants were exercised for which it has
          issued shares of its common stock.

          During 2006, the Company received net proceeds of $1,561,525 as
          429,218 of the November 2005 Warrants were exercised for which it has
          issued shares of its common stock.

          The Company received a net amount of $204,900 upon the exercise of
          220,000 in stock options during 2006. 70,000 options were exercised at
          a price of $2.78 per share; 10,000 were exercised at a price of $1.03
          per share; and a cashless exercise of 70,000 options with an exercise
          price of $2.78 per share and 70,000 options with an exercise price of
          $3.59 per share collectively resulting in the issuance of 24,182
          shares of common stock.

          During 2006, the Company issued 100,000 shares of common stock having
          a value of $3.06 per share on the date of issuance to Laddcap Value
          Partners LP as partial reimbursement for its expenses associated with
          the settlement of a lawsuit relating to its solicitation of written
          consents from the Company's stockholders.

     (b) Common Stock Repurchases

          Pursuant to a stock repurchase plan approved in 2002 by the Company's
          Board of Directors, the Company repurchased 28,100 shares of common
          stock for $51,103 during 2002. The Company has been authorized by the
          Board of Directors to purchase up to seven percent of its then
          outstanding common stock (290,289).

     (c) Stock Option Plans

          The Company established the 2000 Stock Option Plan, the 2001 Stock
          Option Plan and the 2004 Stock Incentive Plan (collectively, the
          "Plans") under which stock options, stock appreciation rights,
          restricted stock, and stock grants may be awarded. A stock option
          grant allows the holder of the option to purchase a share of the
          Company's Common Stock in the future at a stated price. The Plans are
          administered by the Compensation Committee of the Board of Directors
          which determines the individuals to whom awards shall be granted as
          well as the terms and conditions of each award, the option price and
          the duration of each award.

          During 2000, 2001 and 2004, respectively, the 2000 and 2001 Stock
          Option Plans and the 2004 Stock Incentive Plan, became effective.
          Options granted under the Plans vest as determined by the Company and
          expire over varying terms, but not more than five years from the date
          of grant. Stock option activity for 2006, 2005, and 2004 is as
          follows:


                                                                 The Plans
                                                        -------------------------------
                                                               Exercise        Weighted      Weighted
                                                                Price          Average       Average
                                              Stock              Per           Exercise    Remaining Life
                                              Options           Share           Price         (Years)
                                              -------      --------------   -----------   --------------

                                                                         
     Outstanding at December 31, 2003       1,520,684       $0.60 - $4.93       $2.09         2.92

     Exercised                                (62,000)      $0.71 - $1.03         .72
     Expired                                 (441,664)      $2.90 - $4.93        4.14



                                      F-14




                             DELCATH SYSTEMS, INC.
                          (A Development Stage Company)
                          Notes to Financial Statements

                        December 31, 2006, 2005 and 2004




                                                                 The Plans
                                                        -------------------------------
                                                               Exercise        Weighted      Weighted
                                                                Price          Average       Average
                                              Stock              Per           Exercise    Remaining Life
                                              Options           Share           Price         (Years)
                                              -------      --------------   -----------   --------------


                                                                                
     Outstanding at December 31, 2004          1,017,020     $0.60 - $3.31     $1.28            2.72

              Granted                            967,500     $2.78 - $3.59      3.20
              Expired                             (1,720)    $3.31              3.31
              Exercised                         (597,000)    $0.60 - $1.03       .89
                                               ---------

     Outstanding at December 31, 2005          1,385,800     $0.71 - $3.59     $2.51            4.17

             Granted                             340,000         $3.28          3.28

              Expired                            (40,150)    $2.78 - $3.59      3.33
              Exercised                         (220,000)    $1.03 - $3.59      2.96
                                               ---------

     Outstanding at December 31, 2006          1,465,650     $.71 - $3.59      $2.87           3.57
                                               =========


          At December 31, 2006, 2005 and 2004, options for 1,465,650, 394,300,
          and 737,520 shares, respectively, were exercisable at a weighted
          average exercise price of $2.87, $1.89 and $1.30 per share,
          respectively. The aggregate intrinsic value of options outstanding and
          exercisable at December 31, 2006 is $1,218,453. The aggregate
          intrinsic value represents the total pretax intrinsic value, based on
          options with an exercise price less than the Company's closing stock
          price of $3.70 as of December 31, 2006, which would have been received
          by the option holders had those option holders exercised their options
          as of that date.

     (d) Warrants

          A summary of warrant activity is as follows:




                                                               Exercise        Weighted      Weighted
                                                                Price          Average       Average
                                                                 Per           Exercise    Remaining Life
                                              Warrants         Warrant           Price         (Years)
                                              --------     --------------   -----------   --------------


                                                                             
          Outstanding at
             December 31, 2003               4,628,970       $0.775 - 10.50    $3.17        3.35

          Issued                             2,537,668       $2.60 - 3.01       2.76
          Exercised                         (2,614,478)      $0.775 -1.32       0.84
          Expired                              (19,412)      $0.775 - 1.28      1.17
                                           -------------
          Outstanding at
             December 31, 2004               4,532,748       $1.02 - 10.50     $4.30        2.12

         Issued                                711,600       $3.60 - 3.91      $ 3.75



                                      F-15





                             DELCATH SYSTEMS, INC.
                          (A Development Stage Company)
                          Notes to Financial Statements

                        December 31, 2006, 2005 and 2004





                                                               Exercise        Weighted      Weighted
                                                                Price          Average       Average
                                                                 Per           Exercise    Remaining Life
                                              Warrants         Warrant           Price       (Years)
                                              --------     --------------   -----------   --------------


                                                                    

              Exercised                      (2,247,624)     $1.02 - 3.01      $2.55
              Expired                          (825,763)     $2.75 - 10.50     $7.01
                                             ----------
              Outstanding at
                 December 31, 2005            2,170,961      $1.02 - 3.91      $3.14          3.27

              Issued                              -
              Exercised                      (1,606,928)     $1.02 - 3.91      $3.05
              Expired                             -
                                             ----------
              Outstanding at
                 December 31, 2006              564,033      $1.02 - 3.91      $3.41          3.04
                                              =========


(3) Income Taxes

The provision for income taxes differs from the amount computed by applying the
statutory rate as follows:



                                                    Year Ended      Year Ended    Year Ended
                                                    ----------      ----------    ----------
                                                       2006          2005           2004
                                                       ----          ----           ----
                                                                        
 Income taxes using U.S. federal statutory
   rate                                           $(3,723,546)      (973,970)    (1,110,553)
 State income taxes, net of federal benefit          (789,599)      (143,644)      (107,452)
 Valuation allowance                                4,483,576      1,072,032      1,151,549
 Expiration of net operating losses                    96,959         58,257         64,919
 Other                                                (67,390)       (12,675)         1,537
                                                  ------------    ----------      ----------
                                                   $        0              0              0
                                                  ===========     ==========      =========



                                      F-16





                             DELCATH SYSTEMS, INC.
                          (A Development Stage Company)
                          Notes to Financial Statements

                        December 31, 2006, 2005 and 2004


Significant components of the Company's deferred tax assets are as follows:

                                                    2006            2005
                                                    ----            ----

        Deferred tax assets:
          Employee compensation accruals........   $379,543             $0
          Accrual to cash                           243,015         82,410
          Net operating losses..................  7,923,698      3,980,270
                                                  ---------      ---------
          Total deferred tax assets.............  8,546,256      4,062,680

          Valuation allowance                     8,546,256      4,062,680
                                                  ---------      ---------
          Net deferred tax assets...............         $0             $0
                                                  =========      =========

          As of December 31, 2006 and December 31, 2005, the Company had net
          operating loss carryforwards for federal income tax purposes of
          approximately $30,223,000 and $20,705,000, respectively. A portion of
          the federal amount, $13,249,000, is subject to an annual limitation of
          approximately $123,000 as a result of a change in the Company's
          ownership through May 2003, as defined by federal income tax
          regulations (Section 382). The balance of $16,974,000 is available to
          offset future federal taxable income which expires through 2026. As of
          December 31, 2006 and December 31, 2005, the Company had net operating
          loss carryforwards for state income tax purposes of approximately
          $22,450,000 and $12,647,000, respectively, which expire through 2026.

          Management does not expect the Company to have taxable income in the
          near future and established a 100% valuation allowance against the
          deferred tax assets as management does not believe it is more likely
          than not that these assets will be realized. The Company's valuation
          allowance increased by approximately $4.5 million, $1.1 million and
          $1.1 million in 2006, 2005 and 2004, respectively.

(4) Rents

     The Company currently occupies its office space on a month-to-month basis.
     Rent expense totaled $87,376 for each of the years ended December 31, 2006,
     2005 and 2004.

(5) Contingencies

     The Company is involved in certain legal proceedings and is subject to
     certain lawsuits, claims and regulations in the ordinary course of its
     business. Although the ultimate effect of these matters is often difficult
     to predict, management believes that their resolution will not have a
     material adverse effect on the Company's financial statements.

(5) Quarterly Financial Data (Unaudited)

     Set forth below is selected quarterly financial data for each of the
     quarters in the years ended December 31, 2006 and 2005.

                                          2006
                   Quarters  Ended  (in  thousands  except  per share amounts)
                   ----------------------------------------------------------
                     March 31     June 30    September 30     December 31
     Net sales        $    0       $    0       $   0            $   0
     Gross Profit          0            0           0                0
     Net loss          1,184        1,566       4,689            3,513
     Loss per share     0.06         0.08        0.23             0.18


                                      F-17





                             DELCATH SYSTEMS, INC.
                          (A Development Stage Company)
                          Notes to Financial Statements

                        December 31, 2006, 2005 and 2004


                                          2005
                   Quarters  Ended  (in  thousands  except  per share amounts)
                   ----------------------------------------------------------
                     March 31     June 30    September 30     December 31
   Net sales           $   0       $  0         $   0            $   0
   Gross Profit            0          0             0                0
   Net loss              915        625           645              680
   Loss per share       0.06       0.04          0.04             0.04


                                      F-18







                                 EXHIBIT INDEX


     Exhibit No.                      Description

     3.1  Amended and Restated Certificate of Incorporation of Delcath Systems,
          Inc., as amended to June 30, 2005. (incorporated by reference to
          Exhibit 3.1 to Registrant's Current Report on Form 8-K dated June 5,
          2006 (Commission File No. 001-16133)).

     3.2  Amended and Restated By-Laws of Delcath Systems, Inc. (incorporated by
          reference to Exhibit 3.2 to Amendment No. 1 to Registrant's
          Registration Statement on Form SB-2 (Registration No. 333-39470)).

     4.1  Rights Agreement, dated October 30, 2001, by and between Delcath
          Systems, Inc. and American Stock Transfer & Trust Company, as Rights
          Agent (incorporated by reference to Exhibit 4.7 to Registrant's Form
          8-A dated November 12, 2001 (Commission File No. 001-16133)).

     4.2  Form of Underwriter's Unit Warrant Agreement between Delcath Systems,
          Inc. and Roan/Meyers Associates L.P. (incorporated by reference to
          Exhibit 4.1 to Amendment No. 1 to Registrant's Registration Statement
          on Form SB-2 (Registration No. 333-101661)).

     4.3  Form of Warrant to Purchase Shares of Common Stock issued pursuant to
          the Common Stock Purchase Agreement dated as of March 19, 2004
          (incorporated by reference to Exhibit 4 to Registrant's Current Report
          on Form 8-K dated March 19, 2004 (Commission File No,. 001-16133)).

     4.4  Form of 2005 Series A Warrant to Purchase Shares of Common Stock
          issued pursuant to the Common Stock Purchase Agreement dated as of
          November 27, 2005 (incorporated by reference to Exhibit 4.1 to
          Registrant's Current Report on Form 8-K dated November 28, 2005
          (Commission File No. 011-16133)).

     4.5  Form of 2005 Series C Warrant to Purchase Shares of Common Stock
          issued pursuant to the Common Stock Purchase Agreement dated as of
          November 27, 2005 (incorporated by reference to Exhibit 4.3 to
          Registrant's Current Report on Form 8-K dated November 28, 2005
          (Commission File No. 011-16133)).

     10.1 2000 Stock Option Plan (incorporated by reference to Exhibit 10.3 to
          Registrant's Registration Statement on Form SB-2 (Registration No.
          333-39470)).

     10.2 2001 Stock Option Plan (incorporated by reference to Exhibit 10.12 to
          Amendment No. 1 to Registrant's Annual Report on Form 10-KSB for the
          year ended December 31, 2001 (Commission File No. 001-16133)). 10.3
          2004 Stock Incentive Plan (incorporated by reference to Appendix B to
          Registrant's definitive Proxy Statement dated April 29, 2004
          (Commission File No. 001-16133)).

     10.4 Common Stock Purchase Agreement dated as of March 19, 2004 by and
          among Delcath Systems, Inc. and the Purchasers Listed on Exhibit A
          thereto (incorporated by reference to Exhibit 10.1 to Registrant's
          Current Report on Form 8-K dated March 19, 2004 (Commission File No.
          001-16133)).

     10.5 Registration Rights Agr eement dated as of March 19, 2004 by and among
          Delcath Systems, Inc. and the Purchasers Listed on Schedule I thereto
          (incorporated by reference to Exhibit 10.2 to Registrant's Current
          Report on Form 8-K dated March 19, 2004 (Commission File No.
          001-16133)).

     10.6 Common Stock Purchase Agreement dated as of November 27, 2005 by and
          among Delcath Systems, Inc. and the Purchasers Listed on the Schedule
          I thereto (incorporated by reference to Exhibit 10.1 to Registrant's
          Current Report on Form 8-K dated November 28, 2005 (Commission File
          No. 001-16133)).

     10.7 Registration Rights Agreement dated as of November 27, 2005 by and
          among Delcath Systems, Inc. and the Purchasers Listed on the Schedule
          I thereto (incorporated by reference to Exhibit 10.2 to Registrant's
          Current Report on Form 8-K dated November 28, 2005 (Commission File
          No. 001-16133)).

     10.8 Form of Incentive Stock Option Agreement under the Company's 2004
          Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to
          Registrant's Quarterly Report on Form 10-QSB for the quarter ended
          June 30, 2005)).

     10.9 Form of Nonqualified Stock Option Agreement under the Company's 2004
          Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to
          Registrant's Quarterly Report on Form 10-QSB for the quarter ended
          June 30, 2005)).

     10.10 Form of Stock Grant Agreement under the Company's 2004 Stock
          Incentive Plan (incorporated by reference to Exhibit 10.3 to
          Registrant's Quarterly Report on Form 10-QSB for the quarter ended
          June 30, 2005 (Commission File No. 001-16133)).

     10.11 Settlement Agreement, dated as of October 8, 2006, by and between
          Delcath Systems, Inc., Laddcap Value Partners LP, Laddcap Value
          Advisors LLC, Laddcap Value Associates LLC, any affiliate of the
          foregoing, and Robert B. Ladd (incorporated by reference to Exhibit
          10.1 to Registrant's Current Report on Form 8-K dated October 8, 2006
          (Commission File No. 001-16133)).

     10.12 Settlement Agreement, dated as of December 15, 2006 between Delcath
          Systems, Inc. and M. S. Koly (incorporated by reference to Exhibit
          10.1 to Registrant's Current Report on Form 8-K dated December 21,
          2006 (Commission File No. 001-16133)).


     14   Code of Business Conduct (incorporated by reference to Exhibit 14 to
          Registrant's Annual Report on Form 10-KSB for the year ended December
          31, 2003 (Commission File No. 001-16133)).

     23   Consent of Carlin, Charron & Rosen, LLP

     24   Power of Attorney (included on the signature page hereto).

EX-23

                                   Exhibit 23
                                   ----------



            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (Nos. 333-114600, 333-121681 and 333-130872) and the
Registration Statements on Form S-8 (No. 333-119898) of Delcath Systems, Inc. of
our report dated March 15, 2007, relating to the financial statements and the
financial statement schedule which appear in this Annual Report on Form 10-K. We
also consent to the reference to us under the heading "Selected Financial Data"
in such Annual Report on Form 10-K.



/s/ Carlin, Charron & Rosen, LLP


Glastonbury, Connecticut
March 16, 2007

EX-31

                                                                    EXHIBIT 31.1


        CERTIFICATION BY CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a-14


     I, Richard Taney, certify that:

     1. I have reviewed this annual report on Form 10-K of DELCATH SYSTEMS,
INC.;

     2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

     4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:

     (a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;

     (b) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;

     (c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation;






                                                                               2


     (d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and

     5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):

     (a) All significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

     (b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.


Date: March 16, 2007

                                           /s/ RICHARD TANEY
                                       -------------------------------
                                       Richard Taney
                                       Chief Executive Officer
                                       (Principal executive officer)

EX-31

                                                                    EXHIBIT 31.2


        CERTIFICATION BY CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13a-14


     I, Paul M. Feinstein, certify that:

     1. I have reviewed this annual report on Form 10-K of DELCATH SYSTEMS,
INC.;

     2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

     4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15d-15(f) for the
registrant and have:

     (a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;

     (b) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles.

     (c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and





                                                                               2


     (d) Disclosed in this report any change in the registrant's internal
control over financial reorting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reorting;
and

     5. The registrants's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrants's auditors and the audit committee of the
registrants 's board of directors (or persons performing the equivalent
functions):

     (a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrants's ability to record, process,
summarize and report financial information; and

     (b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants's internal
control over financial reporting.


Date: March 16, 2007


                                              /s/ PAUL M. FEINSTEIN
                                           -------------------------------
                                           Paul M.  Feinstein
                                           Chief Financial Officer
                                           (Principal financial officer)

EX-32

                                                                    EXHIBIT 32.1


    CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
                 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


     In connection with the Annual Report of DELCATH SYSTEMS, INC. (the
"Company") on Form 10-K for the year ended December 31, 2006 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Richard
Taney, the Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of
2002, that:

     (1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

     (2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.


                                                 /s/ RICHARD TANEY
                                               -------------------------------
                                               Richard Taney
                                               Chief Executive Officer

March 16, 2007

EX-32

                                                                    EXHIBIT 32.2


    CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
                             SECTION 906 OF THE SA


     In connection with the Annual Report of DELCATH SYSTEMS, INC. (the
"Company") on Form 10-K for the year ended December 31, 2006 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Paul M.
Feinstein, the Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of
2002, that:

     (1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

     (2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.


                                            /s/ PAUL M. FEINSTEIN
                                         -------------------------------
                                          Paul M. Feinstein
                                          Chief Financial Officer

March 16, 2007