See accompanying notes to the unaudited
condensed consolidated financial statements
See accompanying notes to the unaudited
condensed consolidated financial statements
See accompanying notes to the unaudited
condensed consolidated financial statements
See accompanying notes to the unaudited
condensed consolidated financial statements
See accompanying notes to the unaudited
condensed consolidated financial statements
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
1.
Organization and Description of Business and Recent Developments
Northwest Biotherapeutics, Inc. and its
wholly owned subsidiaries NW Bio Europe S.A.R.L and NW Bio Gmbh (collectively, the “Company”, “we”, “us”
and “our”) were organized to discover and develop innovative immunotherapies for cancer.
The Company’s platform technology,
DCVax, is currently being tested for the treatment of certain types of cancers through clinical trials in the United States and
Europe that are in various phases.
Recent Developments
On January 17, 2014, the Company entered
into the following agreements (collectively, the “Cognate Agreements” or the “Agreements”) with Cognate
BioServices, Inc. (“Cognate”) for manufacturing and related services for our DCVax® products:
|
·
|
a DCVax®-L Manufacturing and Services Agreement;
|
|
·
|
a DCVax®-Direct Manufacturing and Services Agreement;
|
|
·
|
an Ancillary Services Agreement; and
|
|
·
|
a Manufacturing Expansion Services Agreement.
|
Together, these Agreements provide for
substantial expansion of manufacturing capacity for the Company’s programs, in multiple regions, as well as development of
the necessary systems and logistics, and other near-term and long-term preparations, for large scale scale-up of the Company’s
programs. These Agreements include most favored nation treatment with respect to the terms provided to any other investors or creditors
(including with respect to any warrants), including share issuances upon the exercise of previously issued derivative securities.
The Company also entered into a Lock-Up
Agreement with Cognate on January 17, 2014, under which Cognate agreed to have all of the shares that are issued as part of the
milestone and initiation payments and the invoice conversions under the Cognate Agreements (collectively, the “Lock-Up Shares”)
locked up for up to 36 months, in return for 15% warrant coverage for each 6-month period of lock-up, on the same terms as the
warrants in the Cognate Agreements. During the lock-up, the Lock-Up Shares may not be sold or traded on the market. These lock-up
terms are subject to the same most favored nation treatment as provided in the Cognate Agreements as described above.
2.
Liquidity and Financial Condition
During the six months ended June 30,
2014, the Company used approximately $25.2 million of cash in its operating activities including one-time
expenditures relating to the clinical trials and to certain initial costs for new manufacturing capacity in Europe (net of
$2.3 million in cash received from Cognate in return for common stock and warrants). The Company incurred an aggregate
combined cash and non-cash loss of $71.9 million for the six months ended June 30, 2014, including $44.4 million of net cash
and aggregate non-cash charges associated with stock based compensation, a mark to market charge for the change in the fair
value of its derivative liability, and inducement expenses related to the exchange of Cognate BioServices, Inc.
(“Cognate”) accounts payable for common stock and warrants.
The Company had current assets of $12.4
million as of June 30, 2014, and current assets less accounts payable and accrued expenses and notes payable of approximately $1.1
million at June 30, 2014. The accounts payable and notes payable include an aggregate of $2.8 million of trade liabilities and
convertible notes owed by the Company to related parties.
On April 9, 2014, the Company entered into
a Securities Purchase Agreement with a single institutional investor for the sale of 2,272,727 shares of common stock at a purchase
price of $6.60 per share, for a total purchase price of $15.0 million. Additionally, from the date of the closing until one year
after the closing date, the investor has a non-transferable Over-allotment Right to purchase up to 2,272,727 additional shares
of common stock at a price per share of $7.50, for an additional subscription amount of up to $17.05 million. See Note 11.
Because of recurring operating
losses, net operating cash flow deficits, and an accumulated deficit there is substantial doubt about the Company’s
ability to continue as a going concern. The financial statements have been prepared assuming the Company will continue as a
going concern and do not include any adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that might become necessary should the Company be
able to continue as a going concern.
3.
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated
interim financial statements include the accounts of the Company and its subsidiaries. All material intercompany balances and transactions
have been eliminated.
The accompanying unaudited condensed financial
statements as of June 30, 2014 and for the three and six months then ended have been prepared in accordance with the accounting
principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant
to the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”)
and on the same basis as the Company prepares its annual audited consolidated financial statements. The condensed consolidated
balance sheet as of June 30, 2014, condensed consolidated statements of operations for the three and six months ended June 30,
2014 and 2013, condensed consolidated statement of stockholders’ equity (deficit) for the six months ended June 30, 2014,
and the condensed consolidated statements of cash flows for the six months ended June 30, 2014 and 2013 are unaudited, but include
all adjustments, consisting only of normal recurring adjustments, which the Company considers necessary for a fair presentation
of the financial position, operating results and cash flows for the periods presented. The results for the three and six months
ended June 30, 2014 are not necessarily indicative of results to be expected for the year ending December 31, 2014 or for any future
interim period. The condensed balance sheet at December 31, 2013 has been derived from audited financial statements; however, it
does not include all of the information and notes required by U.S. GAAP for complete financial statements. The accompanying condensed
financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2013,
and notes thereto included in the Company’s annual report on Form 10-K, which was filed with the SEC on April 1, 2014.
Recently
Issued Accounting Standards
In June 2014, the FASB issued Accounting
Standard Update No. 2014-10, Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest
Entities Guidance in Topic 810, Consolidation. The amendments in this update remove the definition of a development
stage entity from the Master Glossary of the Accounting Standards Codification, thereby removing the financial reporting distinction
between development stage entities and other reporting entities from U.S. GAAP. In addition, the amendments eliminate the
requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows
and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of
the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer
a development stage entity that in prior years it had been in the development stage. A public entity is required to apply
the amendments for annual reporting periods beginning after December 15, 2014, and interim periods therein. An entity should
apply the amendments retrospectively for all comparative periods presented. Early adoption is permitted. The Company
adopted the guidance during the second quarter of 2014. Adoption of this standard did not have a material impact on the Company’s
financial position, results of operations, or cash flows.
The Financial Accounting Standards Board (“FASB”)
has issued Accounting Standards Update (“ASU”) No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting
for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service
Period. This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service
period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant
date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which
it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the
period(s) for which the requisite service has already been rendered. The amendments in this ASU are effective for annual periods
and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The adoption
of this standard is not expected to have a material impact on the Company’s condensed consolidated financial position and
results of operations.
Use of Estimates
In preparing financial statements in conformity
with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of
expenses during the reporting period. Due to inherent uncertainty involved in making estimates, actual results reported in future
periods may be affected by changes in these estimates. On an ongoing basis, the Company evaluates its estimates and assumptions.
These estimates and assumptions include valuing equity securities in share-based payment arrangements, estimating the fair value
of equity instruments recorded as derivative liabilities, and estimating the useful lives of depreciable assets and whether impairment
charges may apply.
Research and Development Costs
Research and development costs are charged
to operations as incurred and consist primarily of clinical trial costs for the Company’s Phase III and Phase I/II clinical
trials, related party manufacturing costs, consulting costs, contract research and development costs, and compensation costs. For
the three and six months ended June 30, 2014, the Company recognized aggregate cash and non-cash research and developments costs
of $21.5 million and $41.5 million, respectively. For
the three and six months ended June 30, 2013, the Company recognized cash and non-cash research and developments costs
of $8.4 million and $20.0 million, respectively.
For the six months
ended June 30, 2014 and June 30, 2013, the Company recorded $28.5 million and $10.7 million, respectively, of cash and
non-cash expenses related to services performed by Cognate (including manufacturing for both the Phase III and Phase I/II
clinical trials, ongoing product and process development, and expansion of several company programs).
Comprehensive Loss
The Company’s comprehensive loss
is equal to its net loss for all periods presented.
Significant Accounting Policies
There have been no material changes in
the Company’s significant accounting policies to those previously disclosed in the 2013 Annual Report.
4. Fair Value Measurements
The Company is required under U.S. GAAP
to measure certain of its assets and liabilities at fair value based upon a fair value hierarchy that requires the Company to maximize
use of observable inputs (Level 1 and 2 inputs) and minimize use of unobservable inputs (Level 3 inputs). The Company is further
required to classify each asset of liability measured at fair value into Level 1, 2, or 3 based on the significance of inputs used
to measure fair value of the asset or liability in its entirety.
The following table classifies the Company’s
liabilities measured at fair value on a recurring basis into the fair value hierarchy as of June 30, 2014 and December 31, 2013
(in thousands):
|
|
Fair value measured at June 30, 2014
|
|
|
|
|
|
|
Quoted prices in active
|
|
|
Significant other
|
|
|
Significant
|
|
|
|
Fair value at
|
|
|
markets
|
|
|
observable inputs
|
|
|
unobservable inputs
|
|
|
|
June 30, 2014
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Warrant liability
|
|
$
|
31,078
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
31,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measured at December 31, 2013
|
|
|
|
|
|
|
Quoted prices in active
|
|
|
Significant other
|
|
|
Significant
|
|
|
|
Fair value at
|
|
|
markets
|
|
|
observable inputs
|
|
|
unobservable inputs
|
|
|
|
December 31, 2013
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Warrant liability
|
|
$
|
8,688
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,688
|
|
There were no transfers between Level 1,
2 or 3 during the three and six month periods ended June 30, 2014.
The following table presents changes in
Level 3 liabilities measured at fair value for the three and six month periods ended June 30, 2014. Both observable and unobservable
inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category.
Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair
value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable
long-dated volatilities) inputs.
Balance – December 31, 2013
|
|
$
|
8,688
|
|
3,174,835 warrants issued during 1st quarter
|
|
|
7,952
|
|
Change in fair value of warrant liability
|
|
|
16,984
|
|
Balance – March 31, 2014
|
|
|
33,624
|
|
644,896 warrants issued during 2nd quarter
|
|
|
2,138
|
|
Change in fair value of warrant liability
|
|
|
(4,684
|
)
|
Balance – June 30, 2014
|
|
$
|
31,078
|
|
The Company’s warrant liabilities
are measured at fair value using the Monte Carlo simulation valuation methodology. A summary of quantitative information about
significant unobservable inputs (Level 3 inputs) used in measuring the Company’s warrant liabilities that are categorized
within Level 3 of the fair value hierarchy for the three months ended June 30, 2014 is as follows (
dollars and shares in thousands
):
Warrants issuance date
|
|
January 6, 2014
|
|
|
January 17, 2014
|
|
|
January 31, 2014
|
|
|
February 3, 2014
|
|
|
February 28, 2014
|
|
|
March 31, 2014
|
|
|
Total
|
|
Number of warrants issued
|
|
|
139
|
|
|
|
2,434
|
|
|
|
143
|
|
|
|
119
|
|
|
|
195
|
|
|
|
145
|
|
|
|
3,175
|
|
Fair value of warrants at issuance date
|
|
$
|
308
|
|
|
$
|
5,501
|
|
|
$
|
383
|
|
|
$
|
327
|
|
|
$
|
844
|
|
|
$
|
589
|
|
|
$
|
7,952
|
|
Warrants issuance date
|
|
April 30, 2014
|
|
|
May 30, 2014
|
|
|
June 30, 2014
|
|
|
Total
|
|
Number of warrants issued
|
|
|
171
|
|
|
|
193
|
|
|
|
281
|
|
|
|
645
|
|
Fair value of warrants at issuance date
|
|
$
|
527
|
|
|
$
|
621
|
|
|
$
|
990
|
|
|
$
|
2,138
|
|
Date of valuation
|
|
January 6, 2014
|
|
|
January 17, 2014
|
|
|
January 31, 2014
|
|
|
February 3, 2014
|
|
|
February 28, 2014
|
|
|
March 31, 2014
|
|
Dividend yield (per share)
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Strike price
|
|
$
|
4.00
|
|
|
$
|
4.00
|
|
|
$
|
4.00
|
|
|
$
|
4.00
|
|
|
$
|
4.00
|
|
|
|
$2.40-$6.00
|
|
Volatility (annual)
|
|
|
92.13
|
%
|
|
|
93.12
|
%
|
|
|
96.72
|
%
|
|
|
91.79
|
%
|
|
|
105.03
|
%
|
|
|
74.43%-88.03%
|
|
Risk-free rate
|
|
|
1.73
|
%
|
|
|
1.66
|
%
|
|
|
1.55
|
%
|
|
|
1.49
|
%
|
|
|
1.49
|
%
|
|
|
1.73
|
%
|
Contractual term (years)
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
5.00
|
|
|
|
5.00
|
|
|
|
5.00
|
|
|
|
4.33-4.85
|
|
Date of valuation
|
|
April 30, 2014
|
|
|
May 30, 2014
|
|
|
June 30, 2014
|
|
Dividend yield (per share)
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Strike price
|
|
$
|
4.00
|
|
|
$
|
4.00
|
|
|
$
|
4.00
|
|
Volatility (annual)
|
|
|
84.18
|
%
|
|
|
83.48
|
%
|
|
|
79.79%-82.90%
|
|
Risk-free rate
|
|
|
1.74
|
%
|
|
|
1.52
|
%
|
|
|
1.62%-1.64%
|
|
Contractual term (years)
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
5.00
|
|
The development and determination of the
unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s
Management.
5. Cash in Custody Account
During the six months ended June 30, 2014,
the Company continued its efforts to obtain large new manufacturing capacity for its DCVax products in Europe. This capacity will
be developed and managed by Cognate BioServices pursuant to the Manufacturing Expansion Services Agreement entered into by the
Company and Cognate in January, 2014. Under that Agreement, the Company is responsible for the costs of developing and maintaining
manufacturing facilities or capacity that is dedicated exclusively to production of NWBT’s DCVax products.
The Company found a suitable site
and facility in Europe. Negotiations with the Seller for purchase of the property and facility continued for months. At
the Seller’s direction, the purchase terms and transaction documents were expected to be finalized by June 30, 2014.
On June 25, 2014, in preparation for the anticipated completion of the transaction, and due to the uncertain timing
of international wires, the Company wired to the law firm handling the transaction $3.4 million for the payment at closing.
The law firm held the $3.4 million in its client account. On June 30, 2014, in anticipation of a closing occurring that
evening, the law firm sent $2.6 million to the Seller’s law firm to hold in trust, pending the closing of the
purchase transaction. However, the transaction terms and documents were not finalized by June 30, 2014, and the Seller was
not prepared to proceed with the transaction at that time. The funds continued to be kept in the two law firms’
trust accounts ($2.6 million in the Seller’s law firm and $0.8 million in the Purchaser’s law firm), and the
Company was free to decide not to proceed and take the funds back. As of August 14, 2014, deal terms to the Company have not
been finalized.
6.
Stock-based Compensation
Stock Based Compensation to Non-employees
Stock-based
compensation awards granted to non-employees are recognized over the related service period. The Company believes that the fair
value of the stock-based awards is more
reliably measurable than the fair value of
the services received. The fair value of these awards are calculated at each
reporting date.
On January 17, 2014, in connection with the four Cognate Agreements, the Company issued one-time initiation payments
of 5,101,366 shares of common stock. The common stock will vest over thirty six months from the closing date.
Stock-based compensation expense related to Cognate was $2.7 million and $5.1 million for the three
and six months ended June 30, 2014. Approximately $2.8 million in compensation costs per calendar quarter may be
recognized over the next 2.80 years based on the fair market value of stock of $6.71.
7.
Notes Payable
During the six months ended June 30, 2014,
the Company converted notes and relevant accrued interest of $0.1 million into approximately 0.07 million shares of common stock.
During the six months ended June 30, 2013, $0.9 million of notes were converted into 0.4 million shares of common stock.
Notes payable consist of the following at June 30, 2014 and
December 31, 2013:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
Notes payable - current
|
|
|
|
|
|
|
|
|
12% unsecured orginally due July 2011 - in dispute (1)
|
|
|
934
|
|
|
|
934
|
|
|
|
|
934
|
|
|
|
934
|
|
Convertible notes payable, net - current
|
|
|
|
|
|
|
|
|
6% unsecured (2)
|
|
|
135
|
|
|
|
160
|
|
8% unsecured note due 2014 (3)
|
|
|
53
|
|
|
|
53
|
|
|
|
|
188
|
|
|
|
213
|
|
Convertible Notes payable related party, net - current
|
|
|
|
|
|
|
|
|
6% due on demand (4)
|
|
|
50
|
|
|
|
75
|
|
|
|
|
50
|
|
|
|
75
|
|
Total notes payable, net
|
|
$
|
1,172
|
|
|
$
|
1,222
|
|
(1) This $0.934 million note, which was
originally due in July 2011 is currently under dispute with the creditor as to the validity of the note payable balance, which
the Company believes has already been paid in full and is not outstanding.
(2) This $0.135 million note as of June
30, 2014 consists of two separate 6% notes in the amounts of $0.110 million and $0.025 million. In regards to the $0.110 million
note, the Company has made ongoing attempts to locate the creditor to repay or convert this note, but has been unable to locate
the creditor to date. In regards to the $0.025 million note, the holder has elected to convert these notes into equity, the Company
has delivered the applicable conversion documents to the holder, and the Company is waiting for the holder to execute and return
the documents.
(3) This $0.530 million note was due May
25, 2014, and is currently past due.
(4) This $0.050 million demand note as
of June 30, 2014 is held by an officer of the Company. The holder has made no demand for payment, but reserves the right to make
a demand at any time.
8. Net Loss per Share Applicable to
Common Stockholders
Options, warrants, and convertible
debt outstanding were all considered anti-dilutive for three and the six month periods ended June 30, 2014, and 2013, due to
net losses. The following securities were not included in the diluted net loss per share calculation because their effect was
anti-dilutive as of the periods presented (in thousands):
|
|
For the six months ended
|
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Common stock options
|
|
|
1,551
|
|
|
|
1,574
|
|
Over-allotment rights
|
|
|
2,273
|
|
|
|
-
|
|
Common stock warrants - equity treatment
|
|
|
14,200
|
|
|
|
12,214
|
|
Common stock warrants - liability treatment
|
|
|
9,108
|
|
|
|
-
|
|
Convertible notes
|
|
|
81
|
|
|
|
2,709
|
|
Excluded potentially dilutive securities
|
|
|
27,213
|
|
|
|
16,497
|
|
9. Related Party Transactions
Cognate BioServices
Under the January 17, 2014 DCVax®-L
Manufacturing Services Agreement and the DCVax-Direct Agreement, a modified set of provisions applies going forward to any shut
down or suspension. Such shut down provisions have been included in all of the agreements with Cognate since 2005. Under
the modified provisions, if the Company shuts down or suspends its DCVax-L program or DCVax-Direct program with Cognate in breach
of the Agreement, the Company will be liable for certain fees in addition to any other remedies. The fees are based on the stage
at which the shut down or suspension occurs:
|
•
|
Prior to the last dose of the last patient enrolled in the Phase III trial for DCVax®-L or
after the last dose of the last patient enrolled in the Phase III clinical trial for DCVax®-L but before any submission for
product approval in any jurisdiction or after the submission of any application for market authorization but prior to receiving
a marketing authorization approval: in any of these cases, the fee shall be $3 million.
|
|
•
|
At any time after receiving the equivalent of a marketing authorization for DCVax®-L in any
jurisdiction, the fee shall be $5 million.
|
For the three months ended June 30,
2014, the Company made net disbursements to Cognate of approximately $4.0 million, including charges relating to
manufacturing for both the Phase III and Phase I/II clinical trials, ongoing product and process development, and expansion
of several Company programs under these service agreements.
As of June 30, 2014 and December 31, 2013,
the Company owed Cognate (including third party sub-contract amounts) approximately $2.7 million and $3.6 million, respectively.
Cognate Accounts Payable Conversions
and inducement charge –Six months ended June 30, 2014
Under the July 2013 Conversion
and Lock-up Agreement, $8.8 million in accounts payable due to Cognate was converted into common stock and warrants. 2.2
million shares of common stock were issued based on an above-market $4.00 per share conversion price while the closing market
price was $3.55. 50% warrant coverage of the common stock issued, resulting in 1.1 million warrants issued with an initial
exercise price of $4.00. The shares and warrants are subject to most favored nation treatment with respect to the terms
(including in regards to warrants) provided to any other investors or creditors, including share issuances upon the exercise
of previously issued derivative securities.
The fair value of the shares
was based upon the closing stock price of the stock on the date of conversion and in aggregate was approximately $13.1
million ($5.95 per share) without factoring in a discount in value for the 36-month lock-up. The fair value of the warrants
was based on the Monte Carlo simulation model, the inputs of which are disclosed in Note 4 and was approximately $3.6
million. The Company recorded a $7.8 million of inducement expense in connection with these transactions.
The conversion shares are subject to a lock-up period of 36
months from the date of their issuance. Under the lock-up, the shares cannot be sold or traded on the market. The fair value of
the shares does not include a liquidity discount related to the 36 month lock-up period as such liquidity discount.
The Company classified the warrants as
liabilities measured at fair value and re-measured the instruments at fair value each reporting period.
Cognate common stock purchase and inducement
charge –Six months ended June 30, 2014
On June 30, 2014, the Company
issued Cognate 562,500 shares of common stock and 281,250 warrants, in return for a payment of $2.3 million received from Cognate. The shares and warrants are subject to most favored nation treatment with respect to
the terms (including in regards to warrants) provided to any other investors or creditors, including share issuances upon the
exercise of previously issued derivative securities.
The fair value of the shares was based upon the closing stock
price of the stock on the date of conversion and in aggregate was approximately $3.8 million ($6.71 per share) without factoring
in a discount in value for the 36-month lock-up. The fair value of the warrants was based on the Monte Carlo simulation model,
the inputs of which are disclosed in Note 4 and was approximately $1.0 million at inception. The Company recorded a $2.5 million
of inducement expense in connection with these transactions. The fair value of the shares does not include a liquidity discount
related to the 36 month lock-up period.
10. Redeemable Common Stock
During the first quarter of 2014, the
redemption provision on all 1.4 million redeemable shares outstanding as of December 31, 2013 lapsed and $8.9 million was transferred
from redeemable common stock to stockholders’ equity (deficit).
11. Stockholders’ Deficit
Common Stock Issuances
First Quarter 2014
During the quarter ended March
31, 2014, the Company issued in aggregate 238,496 shares of common stock in exchange for consulting services for which
performance was complete. The fair value of the common stock recognized was $1.6 million.
During the quarter ended March 31, 2014,
the Company issued 5,101,366 shares of common stock to Cognate as stock based compensation. The fair value of the common stock
recognized was $2.5 million.
During the quarter ended March 31, 2014,
the Company issued in aggregate 32,000 shares of common stock for cash. The fair value of the common stock recognized was $0.2
million.
During the quarter ended March 31, 2014,
the Company converted accounts payable due to Cognate of approximately $5.9 million into 1,481,644 shares. The Company recorded
$2.8 million of inducement expense associated with the issuance of the common shares. In addition, the Company issued warrants
that were valued at $2.5 million at the date of issuance related to the conversion of accounts payable. Total inducement charge
was $5.3 million.
During the quarter ended March 31, 2014,
the Company converted notes and relevant accrued interest of $0.2 million into approximately 0.07 million shares of common stock.
During the quarter ended March 31, 2014,
the Company issued an aggregate of 721,827 shares of common stock from the exercise of warrants previously issued. The Company
received proceeds of approximately $2.7 million from the exercise of these warrants.
During the quarter ended March 31, 2014,
1,444,788 redeemable shares with a carrying value of $8.9 million were no longer redeemable and were reclassed to stockholders’
equity.
Second Quarter 2014
On April 9, 2014, the Company entered into
a Securities Purchase Agreement with a single institutional investor for the sale of 2,272,727 shares of common stock at a purchase
price of $6.60 per share, for a total purchase price of $15.0 million. Additionally, from the date of the closing until one year
after the closing date, the investor has a non-transferable Over-allotment Right to purchase up to 2,272,727 additional shares
of common stock at a price per share of $7.50, for an additional subscription amount of up to $17.05 million.
On June 30, 2014, the Company issued Cognate
562,500 shares of common stock and 281,250 warrants for proceeds of $2.3 million. The shares and warrants are subject to most favored
nation treatment with respect to the terms (including in regards to warrants) provided to any other investors or creditors, including share issuances upon the
exercise of previously issued derivative securities.
During the quarter ended June 30, 2014, the
Company issued 200,000 shares of common stock to an individual investor at $7.00 per share. The total proceeds of $1.4 million
were received by the Company during the first quarter in 2014, and were recorded as shares payable on the balance sheet as of March
31, 2014. The $1.4 million shares payable were re-classed to stockholders’ deficit during the second quarter in 2014.
During the quarter ended June 30, 2014, the
Company issued 58,614 shares of common stock for cash to an individual investor for proceeds of $435,540.
During the quarter ended June 30, 2014, the
Company issued 16,200 shares of common stock for cash to an individual investor, but the proceeds were not received until
July 2014. The Company recorded $125,550 as a subscription receivable and to offset an addition-paid-in-capital on the balance
sheet as of June 30, 2014.
During the quarter ended June 30, 2014,
the Company issued an aggregate of 92,100 shares of common stock from the exercise of warrants previously issued. The Company received
proceeds of $394,925 from the exercise of these warrants.
During the quarter ended June 30, 2014,
the Company issued an aggregate of 12,533 shares of common stock from the cashless exercise of warrants previously issued.
During the quarter ended June 30, 2014,
the Company issued in aggregate 24,924 shares of common stock in exchange for consulting services. The fair value of the common
stock recognized was $155,607.
During the quarter ended June 30, 2014,
the Company converted accounts payable due to Cognate of approximately $2.9 million into 727,291 shares of common stock and 363,646
warrants. The Company recorded $1.4 million of inducement expense associated with the issuance of the common shares. In addition,
as noted in Note 4 the Company issued warrants that were valued at $1.1 million at the date of issuance related to the conversion
of accounts payable. Total inducement charge was $2.5 million.
Stock Purchase Warrants
The following is a summary of warrant activity
for the six months ended June 30, 2014:
|
|
Number of
|
|
|
Weighted Average
|
|
|
|
Warrants
|
|
|
Exercise Price
|
|
Outstanding as of December 31, 2013
|
|
|
20,116
|
|
|
$
|
5.23
|
|
Warrants issued in connection with conversion of Cognate accounts payable*
|
|
|
741
|
|
|
|
4.00
|
|
Warrants issued in exchange for services
|
|
|
2,434
|
|
|
|
4.00
|
|
Warrants issued in connection with common stock issued
|
|
|
150
|
|
|
|
5.00
|
|
Warrants exercised on a cashless basis
|
|
|
(73
|
)
|
|
|
-
|
|
Warrants exercised for cash
|
|
|
(722
|
)
|
|
|
3.66
|
|
Expired in first quarter of 2014
|
|
|
(6
|
)
|
|
|
9.54
|
|
Outstanding as of March 31, 2014
|
|
|
22,640
|
|
|
|
5.12
|
|
Warrants issued in connection with conversion of Cognate accounts payable*
|
|
|
364
|
|
|
|
4.00
|
|
Warrants issued to Cognate in connection with common stock issued for cash*
|
|
|
281
|
|
|
|
4.00
|
|
Warrants exercised for cash
|
|
|
(90
|
)
|
|
|
4.25
|
|
Over-allotment rights issued in connection with registered direct offering
|
|
|
2,273
|
|
|
|
7.50
|
|
Warrants issued to placement agent in connection with registered direct offering
|
|
|
113
|
|
|
|
8.25
|
|
Outstanding as of June 30, 2014 **
|
|
|
25,581
|
|
|
$
|
5.32
|
|
*The warrants contain “down round protection”
and the Company classifies these warrant instruments as liabilities measured at fair value and remeasures these instruments at
fair value each reporting period.
** Approximately 6,176,000 warrants issued
to Cognate, during the six year period from 2008 through 2014, with a weighted average exercise price and remaining
contractual term of $2.80 and 4.5 years, respectively. The weighted average exercise price gives effect to adjustments
related to the most favored nation clause that occurred during the period.
12. Subsequent Events
On August 14, 2014, the Company announced the
pricing of $17.5 million aggregate principal amount of its unsecured convertible notes (the “Notes”) in a private placement.
The Notes are initially convertible at $7.30 per share, a 10% premium above the closing market price of $6.64 per share on
August 13, 2014. The Company plans to use the offering proceeds to fund new manufacturing capacity in Europe and for
general corporate purposes. The Notes will bear interest at a rate of 5.00% per year, and mature in three years unless
earlier converted. The Notes will be subject to certain adjustments as provided in the Indenture.
The investors in the Notes will have the right,
exercisable for three months, to purchase up to an additional 30% of the aggregate principal amount of the Notes on the same terms
and conditions.
The sale of the Notes to the initial purchasers
is expected to settle on August 19, 2014, subject to customary closing conditions, and is expected to result in approximately $16.15
million net proceeds to NW Bio, after deducting fees and estimated offering expenses payable by NW Bio. Neither the Notes
nor the shares of the Company’s common stock issuable upon conversion of the Notes, if any, have been registered under the
Securities Act of 1933, as amended (the “Act”) or the securities laws of any other jurisdiction, and may not be offered
or sold in the United States absent registration or an applicable exemption from such registration requirements.