Quarterly Report (10-q)

Date : 11/16/2018 @ 10:38PM
Source : Edgar (US Regulatory)
Stock : Northwest Biotherapeutics, Inc. (QB) (NWBO)
Quote : 0.2165  0.0099 (4.79%) @ 9:30PM

Quarterly Report (10-q)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended September 30, 2018

 

OR

 

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______to _______

 

Commission File Number: 001-35737

 

NORTHWEST BIOTHERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware 94-3306718  
 (State or Other Jurisdiction of Incorporation or Organization)  (I.R.S. Employer Identification No.)

 

4800 Montgomery Lane, Suite 800, Bethesda, MD 20814

(Address of principal executive offices) (Zip Code)

 

(240) 497-9024

(Registrant's telephone number)

 

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 whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  x      No  ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨ Accelerated filer   ¨
Non-accelerated filer   ¨ Smaller reporting company   x
      Emerging growth company   ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.         ¨

 

As of November 14, 2018, the total number of shares of common stock, par value $0.001 per share, outstanding was 513,359,936.

 

 

 

 

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

 

FORM 10-Q

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION 3
     
Item 1. Condensed Consolidated Interim Financial Statements (Unaudited)  
     
  Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017 3
     
  Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017 4
     
  Condensed Consolidated Statements of Comprehensive Loss for three and nine months ended September 30, 2018 and 2017 5
     
  Condensed Consolidated Statement of Stockholders’ Equity (Deficit) for the nine months ended September 30, 2018 6
     
  Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017 7
     
  Notes to Condensed Consolidated Financial Statements 9
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 27
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 32
     
Item 4. Controls and Procedures 33
     
PART II - OTHER INFORMATION 33
     
Item 1. Legal Proceedings 33
     
Item 1A. Risk Factors 34
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 34
     
Item 3. Defaults Upon Senior Securities 34
     
Item 4. Mine Safety Disclosures 34
     
Item 5. Other Information 34
     
Item 6. Exhibits 34
   
SIGNATURES 35

 

 

 

PART I - FINANCIAL INFORMATION

 

NORTHWEST BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share and per share amounts)

 

    September 30,     December 31,  
    2018     2017  
ASSETS                
Current assets:                
Cash and cash equivalents   $ 248     $ 117  
Prepaid expenses and other current assets     870       1,285  
Total current assets     1,118       1,402  
                 
Non-current assets:                
Property, plant and equipment, net     45,149       47,488  
Other assets     67       17  
Total non-current assets     45,216       47,505  
                 
TOTAL ASSETS   $ 46,334     $ 48,907  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                
Current liabilities:                
Accounts payable and accrued expenses   $ 21,958     $ 13,015  
Accounts payable and accrued expenses to related parties and affiliates     3,750       5,385  
Convertible notes, net     135       135  
Convertible notes to related party     5,400       -  
Notes payable, net     4,130       7,122  
Notes payable to related party     434       1,121  
Share settled debt, at fair value (in default)     855       3,308  
Environmental remediation liability     6,200       6,200  
Shares payable     138       -  
Warrant liability     29,552       40,171  
Mortgage loan, net of current portion, net     4,724       11,226  
Total current liabilities     77,276       87,683  
                 
Non-current liabilities:                
Convertible notes payable, net of current portion, net     5,188       6,010  
Note payable, net of current portion, net     4,519       2,507  
Mortgage loan, net of current portion, net     6,490       -  
Total non-current liabilities     16,197       8,517  
                 
Total liabilities     93,473       96,200  
                 
Preferred stock ($0.001 par value); 100,000,000 shares authorized as of September 30, 2018 and December 31, 2017, respectively                
Convertible Series A, 15,000,000 shares designated - 0 and 9.7 million shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively     -       7,439  
Convertible Series B, 15,000,000 shares designated - 0 and 5.6 million shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively     -       12,601  
                 
COMMITMENTS AND CONTINGENCIES                
                 
Stockholders' equity (deficit):                
Common stock ($0.001 par value); 1,200,000,000 shares authorized; 510.1 million and 328.9 million shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively     510       329  
Additional paid-in capital     770,739       721,554  
Stock subscription receivable     (10 )     -  
Accumulated deficit     (818,763 )     (788,619 )
Accumulated other comprehensive loss     385       (597 )
Total stockholders' equity (deficit)     (47,139 )     (67,333 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) AND TEMPORARY EQUITY   $ 46,334     $ 48,907  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share amounts)

 

    For the three months ended     For the nine months ended  
    September 30,     September 30,  
    2018     2017     2018     2017  
Revenues:                        
Research and other   $ 453     $ 148     $ 863     $ 304  
Total revenues     453       148       863       304  
Operating costs and expenses:                                
Research and development     4,296       9,721       14,311       20,222  
General and administrative     3,531       2,965       20,985       9,254  
Legal expenses     1,945       1,595       4,056       7,530  
Total operating costs and expenses     9,772       14,281       39,352       37,006  
Loss from operations     (9,319 )     (14,133 )     (38,489 )     (36,702 )
Other income (expense):                                
Inducement loss     -       (2,297 )     -       (2,297 )
Change in fair value of derivative liabilities     24,358       (4,933 )     19,220       2,963  
Net loss from extinguishment of debt     (229 )     (1,975 )     (830 )     (10,517 )
Interest expense     (1,596 )     (1,193 )     (8,222 )     (3,695 )
Foreign currency transaction gain     (636 )     1,260       (1,823 )     4,104  
Net income (loss)   $ 12,578     $ (23,271 )   $ (30,144 )   $ (46,144 )
Deemed dividend on convertible preferred stock     (4,175 )     -       (17,765 )     -  
Net income (loss) applicable to common stockholders   $ 8,403     $ (23,271 )   $ (47,909 )   $ (46,144 )
                                 
Net earnings (loss) per share applicable to common stockholders                                
Basic   $ 0.02     $ (0.08 )   $ (0.12 )   $ (0.21 )
Diluted   $ 0.02     $ (0.08 )   $ (0.12 )   $ (0.21 )
Weighted average shares used in computing basic earnings (loss) per share     461,040       281,486       414,426       217,587  
Weighted average shares used in computing diluted earnings (loss) per share     516,300       281,486       414,426       217,587  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

4

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(in thousands)

 

    For the three months ended     For the nine months ended  
    September 30,     September 30,  
    2018     2017     2018     2017  
Net income (loss)   $ 12,578     $ (23,271 )   $ (30,144 )   $ (46,144 )
Other comprehensive loss                                
Foreign currency translation adjustment     301       (561 )     982       (2,201 )
Total comprehensive loss   $ 12,879     $ (23,832 )   $ (29,162 )   $ (48,345 )

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

5

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

(in thousands)

 

                                        Total  
                Additional                 Cumulative     Stockholders'  
    Common Stock     Paid-in     Subscription     Accumulated     Translation     Equity  
    Shares     Par value     Capital     Receivable     Deficit     Adjustment     (Deficit)  
Balance at January 1, 2018     328,857     $ 329     $ 721,554     $ -     $ (788,619 )   $ (597 )   $ (67,333 )
Issuance of common stock and warrants for cash in a registered direct offering     4,000       4       696       -       -       -       700  
Issuance of common stock for conversion of Series A convertible preferred stock     100,141       100       18,938       (109 )     -       -       18,929  
Deemed dividend on conversion of Series A convertible preferred stock to common stock     -       -       (10,892 )     -       -       -       (10,892 )
Beneficial conversion feature of Series B convertible preferred stock     -       -       2,086       -       -       -       2,086  
Deemed dividend related to immediate accretion of beneficial conversion feature of Series B convertible preferred stock     -       -       (2,086 )     -       -       -       (2,086 )
Issuance of common stock for conversion of Series B convertible preferred stock     32,491       33       19,674       (10 )     -       -       19,697  
Deemed dividend on conversion of Series B convertible preferred stock to common stock     -       -       (4,787 )     -       -       -       (4,787 )
Warrants exercised for cash     8,957       9       2,110       -       -       -       2,119  
Reclassification of warrant liabilities related to warrants exercised for cash     -       -       2,177       -       -       -       2,177  
Conversion of share settled debt into common stock     13,300       13       2,440       -       -       -       2,453  
Issuance of common stock and warrants for conversion of debt and accrued interest     22,268       22       5,500       -       -       -       5,522  
Reclass between accrued interest and subscription receivable     -       -       -       9       -       -       9  
Proceeds from investor to offset subscription receivable     -       -       -       100       -       -       100  
Stock-based compensation     100       -       13,329       -       -       -       13,329  
Net loss     -       -       -       -       (30,144 )     -       (30,144 )
Cumulative translation adjustment     -       -       -       -       -       982       982  
Balance at September 30, 2018     510,114     $ 510       770,739     $ (10 )   $ (818,763 )   $ 385     $ (47,139 )

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

6

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

`   For the nine months ended  
    September 30,  
    2018     2017  
Cash Flows from Operating Activities:                
Net Loss   $ (30,144 )   $ (46,144 )
Reconciliation of net loss to net cash used in operating activities:                
Depreciation and amortization     1,063       141  
Amortization of debt discount     5,882       1,158  
Amortization of debt premium     (319 )     407  
Inducement loss     -       2,297  
Change in fair value of derivatives     (19,220 )     (2,963 )
Loss from extinguishment of debt     830       10,067  
Stock-based compensation related to warrant modification     141       -  
Stock-based compensation for services     13,329       729  
Subtotal of non-cash charges     1,706       11,836  
Changes in operating assets and liabilities:                
Prepaid expenses and other current assets     428       (72 )
Other non-current assets     (55 )     38  
Accounts payable and accrued expenses     4,493       4,368  
Related party accounts payable and accrued expenses     3,164       8,273  
Net cash used in operating activities     (20,408 )     (21,701 )
Cash Flows from Investing Activities:                
Refund of leasehold improvement related to UK construction     -       220  
Purchase of property, plant and equipment     -       (14 )
Net cash provided by investing activities     -       206  
Cash Flows from Financing Activities:                
Proceeds from issuance of Series A convertible preferred stock and warrants     527       -  
Proceeds from issuance of Series B convertible preferred stock and warrants, net     6,594       -  
Proceeds from issuance of common stock and warrants in a registered direct offering, net     1,000       8,653  
Proceeds from issuance of common stock and warrants in a private offering     -       1,616  
Proceeds from private offering (shares payable)     138       2,550  
Proceeds from investor to offset subscription receivable     100       -  
Proceeds from exercise of warrants     2,119       2,805  
Proceeds from issuance of notes payable, net     5,701       4,864  
Proceeds from issuance of notes payable to related party     95       2,805  
Proceeds from issuance of convertible notes payable, net     -       1,604  
Proceeds from issuance of convertible notes payable to related party     5,400       -  
Repayment of notes payable     (2,200 )     -  
Repayment of notes payable to related parties     (782 )     (1,644 )
Repayment of convertible notes payable     -       (3,258 )
Net cash provided by financing activities     18,692       19,995  
Effect of exchange rate changes on cash and cash equivalents     1,847       (4,320 )
Net increase (decrease) in cash and cash equivalents     131       (5,820 )
                 
Cash and cash equivalents, beginning of the year     117       6,871  
Cash and cash equivalents, end of the year   $ 248     $ 1,051  
                 
Supplemental disclosure of cash flow information                
Interest payments on mortgage loan   $ (935 )   $ (969 )
Interest payments on senior convertible note   $ -     $ (485 )
Interest payments on notes payable to related party   $ (27 )   $ (47 )

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

7

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

    For the nine months ended  
    September 30,  
    2018     2017  
Supplemental schedule of non-cash investing and financing activities:            
Issuance of common stock for conversion of Series A convertible preferred stock   $ 18,929     $ -  
Deemed dividend on conversion of Series A convertible preferred stock to common stock   $ 10,892     $ -  
Beneficial conversion feature of Series B convertible preferred stock   $ 2,086     $ -  
Deemed dividend related to immediate accretion of beneficial conversion feature of Series B convertible preferred stock   $ 2,086     $ -  
Issuance of common stock for conversion of Series B convertible preferred stock   $ 19,697     $ -  
Deemed dividend on conversion of Series B convertible preferred stock to common stock   $ 4,787     $ -  
Reclassification of warrant liabilities related to warrants exercised for cash   $ 2,177     $ 2,117  
Reclassification of warrant liabilities related to cashless warrants exercise   $ -     $ 3,054  
Cashless warrants exercise   $ -     $ 7  
Conversion of share settled debt into common stock   $ 2,453     $ 1,187  
Issuance of common stock and warrants for conversion of debt and accrued interest   $ 4,692     $ 10,975  
Exchange 2014 Senior Convertible Notes and accrued interest for secured convertible note   $ -     $ 5,175  
Forgiveness of certain payables to Cognate BioServices, Inc.   $ -     $ 3,750  
Embedded conversion features with issuance of secured convertible notes   $ -     $ 1,826  
Beneficial conversion feature associated with convertible note issued to related party   $ -     $ -  
Warrants and contingently issuable warrants associated with convertible notes payable to related party   $ 4,217     $ -  
Issuance of warrants in conjunction with note payable   $ 67     $ 139  
Conversion of note payable to offset Series A convertible preferred stock subscription receivable   $ 500     $ -  
Conversion of interest payable to offset Series A convertible preferred stock subscription receivable   $ 71     $ -  
Accrued renewal fee incurred from mortgage loan   $ 212     $ 218  
Reclass between accrued interest and subscription receivable   $ 9     $ -  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

8

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

 

1. Organization and Description of Business

 

Northwest Biotherapeutics, Inc. and its wholly owned subsidiaries NW Bio Gmbh, Aracaris Ltd and Aracaris Capital, Ltd (collectively, the “Company”, “we”, “us” and “our”) were organized to discover and develop innovative immunotherapies for cancer.

 

The Company is developing experimental dendritic cell vaccines using its platform technology known as DCVax®. DCVax is being tested in clinical trials for use in the treatment of certain types of cancers.

 

Cognate BioServices, Inc. (“Cognate BioServices”), a company which was related by common ownership until a management buyout of Cognate occurred on February 6, 2018, provides the Company with mission critical contract manufacturing services, research and development services, distribution and logistics, and related services, in compliance with the Company’s specifications and the applicable regulatory requirements for clinical grade cellular products for North America. Advent BioServices, Ltd (“Advent”) provides such services for the UK and Europe. Advent was formerly the UK branch of Cognate BioServices. Advent is a related party owned by Toucan Capital Fund III, who also owned Cognate BioServices prior to the management buyout. The Company and Cognate BioServices, and the Company and Advent BioServices, are currently parties to a series of contracts providing for these services as more fully described below. The Company is currently dependent on Cognate BioServices and Advent BioServcies to provide the manufacturing services, and any interruption of such services could potentially have a material adverse effect on the Company’s ability to proceed with its clinical trials.

 

2. Liquidity, Financial Condition and Management Plans

 

During the nine months ended September 30, 2018 the Company used approximately $20.4 million of cash in its operating activities. Management believes that the Company will be able to continue accessing capital resources through the sale of equity and debt financing arrangements. However, the Company has no assurance that such capital will be available at the times needed and/or on the terms desired.

 

During the nine months ended September 30, 2018, the Company raised approximately $21.7 million in equity and debt securities to fund its operations. The Company had current assets of $1.1 million and a working capital deficit of approximately $76.2 million at September 30, 2018. The Company owed an aggregate of $3.8 million of trade liabilities and accrued expenses to certain related parties as of September 30, 2018, of which $3.3 million was payable to Advent BioServices and Cognate Israel.

 

The Company has not yet generated any material revenue from the sale of its products and is subject to all of the risks and uncertainties that are typically faced by biotechnology companies that devote substantially all of their efforts to R&D and clinical trials and do not yet have commercial products. The Company expects to continue incurring losses for the foreseeable future. The Company’s existing liquidity is not sufficient to fund its operations, anticipated capital expenditures, working capital and other financing requirements until the Company reaches significant revenues.  Until that time, the Company will need to obtain additional equity and/or debt financing, especially if the Company experiences downturns in its business that are more severe or longer than anticipated, or if the Company experiences significant increases in expense levels resulting from being a publicly-traded company or from expansion of operations.  If the Company attempts to obtain additional equity or debt financing, the Company cannot assume that such financing will be available to the Company on favorable terms, or at all.

 

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 within one year from the date of this filing. The condensed consolidated financial statements have been prepared assuming that 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 may result from the outcome of this uncertainty.

 

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. Certain immaterial reclassifications have been made to prior period amounts to conform to the current period presentation.

 

9

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

 

The accompanying unaudited condensed consolidated financial statements of the Company 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 September 30, 2018, condensed consolidated statements of operations for the three and nine months ended September 30, 2018 and 2017, condensed consolidated statements of comprehensive loss for the three and nine months ended September 30, 2018 and 2017, condensed consolidated statement of stockholders’ equity (deficit) for the nine months ended September 30, 2018, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2018 and 2017 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 nine months ended September 30, 2018 are not necessarily indicative of results to be expected for the year ending December 31, 2018 or for any future interim period. The condensed consolidated balance sheet at December 31, 2017 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 unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2017 and notes thereto included in the Company’s annual report on Form 10-K, which was filed with the SEC on April 17, 2018.

 

Use of Estimates

 

In preparing condensed consolidated 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 financial instruments recorded as derivative liabilities, useful lives of depreciable assets and whether impairment charges may apply, and the fair value of environmental remediation liabilities.

         

Significant Accounting Policies

 

There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 2017 Annual Report.

 

Adoption of Recent Accounting Standards  

 

Revenue from Contracts with Customer

 

In April 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-10 to clarify the implementation guidance on licensing and the identification of performance obligations consideration included in ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which is also known as ASC 606, was issued in May 2014 and outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. In March 2016, the FASB issued ASU 2016-08 to provide amendments to clarify the implementation guidance on principal versus agent considerations. The Company implemented the standard on the effective date of January 1, 2018 on a modified retrospective basis to contracts which were not completed as of this date. Adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements as we did not have any unrecognized transaction price, or any remaining performance obligations under the Company’s patient service contracts. Payments from patients are non-refundable, and are not dependent on the Company’s ongoing future performance. Due to potential collectability issues with patients, the Company has adopted a policy of recognizing these payments as revenue when received.

 

Recognition and Measurement of Financial Assets and Financial Liabilities

 

In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities . ASU 2016-01 requires equity investments to be measured at fair value with changes in fair value recognized in net income; simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; requires separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the accompanying notes to the financial statements; and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU 2016-01 will be effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company has adopted this guidance during the quarter ended March 31, 2018. The adoption of this update did not impact the Company’s condensed consolidated financial statements and related disclosures.

 

10

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

 

Statement of Cash Flows

 

In August 2016, the FASB issued ASU No. 2016-15 Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments, which addresses specific cash flow classification issues where there is currently diversity in practice including debt prepayment and proceeds from the settlement of insurance claims. ASU 2016-15 is effective for annual periods beginning after December 15, 2017, with early adoption permitted. The Company adopted ASU No. 2016-15 as of January 1, 2018. The adoption of this update did not impact the Company’s condensed consolidated financial statements and related disclosures.

 

Recent Issued Accounting Pronouncements

 

Leases

 

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”) which supersedes ASC Topic 840, Leases. ASU 2016-02 requires lessees to recognize a right-of-use asset and a lease liability on their balance sheets for all the leases with terms greater than twelve months. Based on certain criteria, leases will be classified as either financing or operating, with classification affecting the pattern of expense recognition in the income statement. For leases with a term of twelve months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements” that allows entities to apply the provisions of the new standard at the effective date (e.g. January 1, 2019), as opposed to the earliest period presented under the modified retrospective transition approach (January 1, 2017) and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The modified retrospective approach includes a number of optional practical expedients primarily focused on leases that commenced before the effective date of Topic 842, including continuing to account for leases that commence before the effective date in accordance with previous guidance, unless the lease is modified. The Company currently expects that most of its operating lease commitments will be subject to the new standard and recognized as operating lease liabilities and right-of-use assets upon its adoption of Topic 842, which will increase the total assets and total liabilities that the Company reports relative to such amounts prior to adoption.

 

Compensation-Stock Compensation

 

In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting , which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. It is effective prospectively for the annual period ending December 31, 2018 and interim periods within that annual period. Early adoption is permitted. The Company is currently evaluating the impact of adopting this standard on the condensed consolidated financial statements and disclosures, but does not expect it to have a significant impact.

  

Accounting for Certain Financial Instruments with Down Round Features

 

In July 2017, the FASB has issued a two-part ASU No. 2017-11, (i). Accounting for Certain Financial Instruments with Down Round Features and (ii) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception which simplifies the accounting for certain financial instruments with down round features, a provision in an equity-linked financial instrument (or embedded feature) that provides a downward adjustment of the current exercise price based on the price of future equity offerings. It is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company will be evaluating the impact of adopting this standard on its condensed consolidated financial statements and disclosures.

 

Improvements to Nonemployee Share-Based Payment Accounting

 

In June 2018, the FASB issued ASU 2018-07 “Improvements to Nonemployee Share-Based Payment Accounting”, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The Company is currently evaluating the impact of the new standard on its condensed consolidated financial statements.

 

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NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

 

SEC Disclosure Update and Simplification

 

In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. This final rule was effective on November 5, 2018. The Company is evaluating the impact of this guidance on its condensed consolidated financial statements.

 

4. Fair Value Measurements

 

Derivative Warrants Granted in 2018

 

During the nine months ended September 30, 2018, the Company granted approximately 69.1 million warrants (the “Warrants”) to multiple investors (the “Holders”), including 11.7 million contingently issuable warrants to Linda F. Powers, the Company’s Chief Executive Officer. Since the Company’s adoption of a sequencing policy, the warrants were classified as liabilities and measured at fair value on the grant date, with changes in fair value recognized as other income on the statements of operations and disclosed in the financial statements.

 

A summary of weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring warrants granted during the nine months ended September 30, 2018 is as follows:

 

    2018 Warrants Granted Associated with  
    Series A Convertible     Series B Convertible           Issuance of     Modification of  
    Preferred Stock     Preferred Stock     Common Stock     Debt     Warrant Liabilities  
Strike price   $ 0.22     $ 0.30     $ 0.30     $ 0.31     $ 0.26  
Contractual term (years)     2.0       2.0       2.0       4.9       3.8  
Volatility (annual)     116 %     115 %     114 %     94 %     99 %
Risk-free rate     2 %     2 %     3 %     3 %     3 %
Dividend yield (per share)     0 %     0 %     0 %     0 %     0 %

 

The following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy as of September 30, 2018 and December 31, 2017 (in thousands):

 

    Fair value measured at September 30, 2018  
         

Quoted prices

in active

    Significant other     Significant  
    Fair value at     markets     observable inputs     unobservable inputs  
    September 30, 2018     (Level 1)     (Level 2)     (Level 3)  
Warrant liability   $ 29,552     $            -     $           -     $ 29,552  
Embedded conversion feature     1,690       -       -       1,690  
Share-settled debt (in default)     855       -       -       855  
Total fair value   $ 32,097     $ -     $ -     $ 32,097  

 

    Fair value measured at December 31, 2017  
         

Quoted prices

in active

    Significant other     Significant  
    Fair value at     markets     observable inputs     unobservable inputs  
    December 31, 2017     (Level 1)     (Level 2)     (Level 3)  
Warrant liability   $ 40,171     $        -     $          -     $ 40,171  
Embedded conversion feature     2,608       -       -       2,608  
Share-settled debt (in default)     3,308       -       -       3,308  
Total fair value   $ 46,087     $ -     $ -     $ 46,087  

 

There were no transfers between Level 1, 2 or 3 during the nine-month period ended September 30, 2018.

 

The following table presents changes in Level 3 liabilities measured at fair value for the nine-month period ended September 30, 2018. 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 (in thousands).   

 

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NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

 

          Embedded     Share-settled        
    Warrant     Conversion     Debt        
    Liability     Feature     (in Default)     Total  
Balance – January 1, 2018   $ 40,171     $ 2,608     $ 3,308     $ 46,087  
Warrants granted     9,509       -       -       9,509  
Bifurcated embedded derivative liability     -       351       -       351  
Extinguishment of warrant liabilities related to warrants exercised for cash     (2,177 )     -       -       (2,177 )
Conversion of share-settled debt     -       -       (2,453 )     (2,453 )
Change in fair value     (17,951 )     (1,269 )     -       (19,220 )
Balance – September 30, 2018   $ 29,552     $ 1,690     $ 855     $ 32,097  

 

A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the Company’s warrant liabilities and embedded conversion feature that are categorized within Level 3 of the fair value hierarchy as of September 30, 2018 is as follows:

 

    As of September 30, 2018     As of December 31, 2017  
          Embedded           Embedded  
    Warrant
Liability
    Conversion
Feature
    Warrant
Liability
    Conversion
Feature
 
Strike price   $ 0.19     $ 0.44     $ 0.31     $ 0.50  
Contractual term (years)     2.2       1.5       2.6       2.5  
Volatility (annual)     92 %     85 %     110 %     102 %
Risk-free rate     3 %     3 %     2 %     2 %
Dividend yield (per share)     0 %     0 %     0 %     0 %

 

5. Property & Equipment

 

Property and equipment consist of the following at September 30, 2018 and December 31, 2017 (in thousands):

 

    September 30,     December 31,     Estimated
    2018     2017     Useful Life
Leasehold improvements   $ 81     $ 81     Lesser of lease term or estimated useful life
Office furniture and equipment     25       25     3 years
Computer equipment and software     602       622     3 years
      708       728      
Less: accumulated depreciation     (652 )     (559 )    
Total property, plant and equipment, net   $ 56     $ 169      
                     
Land in the United Kingdom   $ 29,003     $ 29,003     NA
Buildings in the United Kingdom     17,284       18,601     15 years
Less: accumulated depreciation     (1,194 )     (285 )    
Total facilities in the United Kingdom, net   $ 45,093     $ 47,319      

 

Depreciation expenses were approximately $341,000 and $41,000 for the three months ended September 30, 2018 and 2017 and were approximately $1,063,000 and $141,000 for the nine months ended September 30, 2018 and 2017.

 

6. Stock-based Compensation

  

During nine months ended September 30, 2018, the Company issued options thereunder to certain directors, officers and consultants, most of which options were previously approved by the Board (collectively, the “Options”).

 

The Options included 71,576,000 options for officers, 15,680,000 options to independent directors, and 1,500,000 to an individual consultant. The Options are subject to vesting requirements. 50% of the Options are vested on the grant date, and the remaining 50% of the Options are vesting monthly over a period of 24 months following the Board approvals of the Options, subject to acceleration upon the occurrence of certain achievement milestones as reported in an 8-K filed on June 1, 2018. A performance milestone was achieved and the Company accelerated vesting on 25% of these outstanding Options.  As a result, the Company recorded an additional charge to stock-based compensation of $1.0 million during the nine months ended September 30, 2018.

 

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NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

 

Modification of Stock Options

 

In January 2018, the Board also approved extension of the term of options that were granted to Dr. Alton Boyton and Dr. Marnix Bosch on June 13, 2017, from 5 years to 10 years to conform to the term of other employee options. The Company accounted for the modification as a Type I (probable-to-probable) modification and the incremental cost was approximately $0.3 million.

 

The following table summarizes stock option activities for the Company’s option plans for the nine months ended September 30, 2018 (amount in thousands, except per share number):

 

    Number of
Shares
    Weighted
Average
Exercise
Price
    Weighted
Average
Remaining
Contractual Life
(in years)
    Total Intrinsic
Value
 
Outstanding as of December 31, 2017     12,656     $ 10.56       1.9     $ -  
Granted     100,090       0.23       9.6       -  
Forfeited/expired     (12,587 )     -       -       -  
Outstanding as of September 30, 2018     100,159     $ 0.24       9.6     $ -  
Options vested and exercisable     78,267     $ 0.24       9.5     $ -  

 

The following weighted average assumptions were used to compute the fair value of stock options granted during the nine months ended September 30, 2018:

 

    For the Nine Months  
    Ended  
    September 30, 2018  
Exercise price   $ 0.23  
Expected term (years)     5.2  
Expected stock price volatility     96 %
Risk-free rate of interest     3 %

 

The following table summarizes stock-based compensation expense related to stock options for the three and nine months ended September 30, 2018 and 2017 (in thousands):

 

    For the three months ended     For the nine months ended  
    September 30,     September 30,  
    2018     2017     2018     2017  
Research and development   $ 451     $ 119     $ 1,575     $ 492  
General and administrative     1,004       -       11,718       -  
Total stock-based compensation expense   $ 1,455     $ 119     $ 13,293     $ 492  

 

The weighted average grant date fair value was approximately $16.3 million, including the incremental fair value of $0.3 million resulting from the modification of Dr. Alton Boyton’s and Dr. Marnix Bosch’s options, which is being recognized over the new vesting period of 1.5 years. The total unrecognized compensation cost was approximately $2.4 million as of September 30, 2018 and will be recognized over the next 2.0 years.

 

14

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

 

7. Outstanding Debt

 

The following table summarizes outstanding debt as of September 30, 2018 and December 31, 2017, respectively (amount in thousands, except per share data): 

 

        Stated                 Remaining     Fair Value of        
        Interest     Conversion           Debt (Discount)/     Embedded     Carrying  
    Maturity Date   Rate     Price     Face Value     Premium     Conversion Option     Value  
Short term convertible notes payable                                                    
6% unsecured (1)   Due     6 %   $ 3.09     $ 135     $ -     $ -     $ 135  
                                                     
Short term convertible notes payable - related party                                                    
10% unsecured (2)   On Demand     10 %   $ 0.23       5,400       -       -       5,400  
                                                     
Short term notes payable                                                    
6% unsecured (3)   In Default     18 %     N/A       1,389       (145 )     338       1,582  
8% unsecured (4)   Various     8 %     N/A       2,119       (161 )     -       1,958  
10% unsecured (6)   On Demand     10 %     N/A       150       -       -       150  
12% unsecured (7)   On Demand     12 %     N/A       440       -       -       440  
                          4,098       (306 )     338       4,130  
Short term notes payable - related parties                                                    
10% unsecured - Related Parties (9)   On Demand     10 %     N/A       300       -       -       300  
12% unsecured - Related Parties (9)   On Demand     12 %     N/A       69       -       -       69  
10% unsecured - Related Parties (9)   On Demand     10 %     N/A       65       -       -       65  
                          434       -       -       434  
                                                     
Share-settled debt, at fair value (10)   In Default     18 %   $ 0.24       855       -       -       855  
                                                     
Short term mortgage loan (11)   8/17/2019     12 %     N/A       4,910       (186 )     -       4,724  
                                                     
Long term convertible notes payable                                                    
12% secured convertible notes (12)   6/21/2020     12 %   $ 0.50       5,350       (1,514 )     1,352       5,188  
                                                     
Long term notes payable                                                    
8% unsecured (13)   Various     8 %     N/A       4,035       (455 )     -       3,580  
5% unsecured (14)   2/13/2020     5 %     N/A       1,000       (61 )     -       939  
                          5,035       (516 )     -       4,519  
                                                     
Long term mortgage loan (11)   11/16/2019     12 %     N/A       6,529       (39 )     -       6,490  
                                                     
Ending balance as of September 30, 2018                       $ 32,746     $ (2,561 )   $ 1,690     $ 31,875  

 

15

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

 

        Stated                 Remaining     Fair Value of        
        Interest     Conversion           Debt (Discount)/     Embedded     Carrying  
    Maturity Date   Rate     Price     Face Value     Premium     Conversion Option     Value  
Short term convertible notes payable                                                    
6% unsecured (1)   Due     6 %   $ 3.09     $ 135     $ -     $ -     $ 135  
                                                     
Short term notes payable                                                    
8% unsecured (4)   9/3/2018 and 12/5/2018     8 %     N/A       2,007       355       -       2,362  
8% unsecured (5)    6/30/2018     8 %     N/A       1,655       (103 )     -       1,552  
10% unsecured (6)   On Demand     10 %     N/A       650       -       -       650  
12% unsecured (7)   On Demand     12 %     N/A       440       (82 )     -       358  
8% unsecured (8)   On Demand     8 %     N/A       2,200       -       -       2,200  
                          6,952       170       -       7,122  
Short term notes payable - related parties                                                    
10% unsecured - Related Parties (9)   On Demand     10 %     N/A       1,071       -       -       1,071  
12% unsecured - Related Parties (9)   On Demand     12 %     N/A       50       -       -       50  
                          1,121       -       -       1,121  
                                                     
Share-settled debt, at fair value (10)   In Default     18 %   $ 0.24       3,308       -       -       3,308  
                                                     
Short term mortgage loan (11)   8/16/2018 & 11/16/18     12 %     N/A       11,629       (403 )     -       11,226  
                                                     
Long term convertible notes payable                                                    
12% secured convertible notes (12)   06/21/20     12 %   $ 0.50       5,350       (1,948 )     2,608       6,010  
                                                     
Long term notes payable                                                    
8% unsecured (4)   06/20/19     8 %     N/A       2,880       (373 )     -       2,507  
                                                     
Ending balance as of December 31, 2017                       $ 31,375     $ (2,554 )   $ 2,608     $ 31,429  

 

(1) This $135,000 note as of September 30, 2018 and December 31, 2017 consists of two separate 6% notes in the amounts of $110,000 and $25,000. In regard to the $110,000 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 regard to the $25,000 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.

 

(2) Between February 2018 and April 2018, the Company’s Chief Executive Officer, Linda Powers, loaned the Company an aggregate principal amount of $5.4 million, and the Company entered into convertible note agreements for this amount (the “Convertible Notes”). The Convertible Notes bear interest rate at 10% per annum, and are repayable upon 15 days' notice from the holder (and no later than five years from the date of the Convertible Notes).

 

The principal and interest of the Convertible Notes are convertible into Series B Preferred Stock at conversion price of $2.30 per share, and each share of Series B Preferred Stock is convertible into 10 shares of common stock. Additionally, the Convertible Notes carry Class D-2 Warrants, with half of the Class D-2 Warrants due and issuable when the loan was provided, and half of the Class D-2 Warrants due on a proportional basis in the event of conversion of some or all of the Note. The Class D-2 Warrants have five-year term.

 

The Company issued 23.5 million Class D-2 Warrants with an exercise price of $0.30, including 11.7 million contingently issuable warrants. The fair value of the warrants was approximately $4.2 million, which was recorded as debt discount at the issuance date.

 

The Company recorded $4.2 million interest expense as amortization on the debt discount immediately due to the term of the Convertible Notes, which are on demand.

 

The accrued interest associated with the Convertible Notes were approximately $314,000 as of September 30, 2018.

 

(3) On May 1, 2018, the Company entered into a Convertible Secured Full Recourse Redeemable Note Agreement (the “Secured Note”) of $1.4 million with an existing investor, who is currently holding certain share-settled debt of the Company. The Secured Note included an original issue discount of $0.1 million and $50,000 legal cost that was reimbursable to the investor. The Secured Note was due on August 25, 2018 and is currently in default. The Secured Note currently bears default interest rate at 18%.

 

Due to the events of default, the holder is entitled to convert all or any amount of the outstanding principal amount and interest into shares of the common stock of the Company without restrictive legend of any nature. The Company recorded $351,000 interest expenses related to embedded derivative liabilities as of the maturity date of the Secured Note and revalued at $338,000 as of September 30, 2018.

 

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NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

 

The accrued interest associated with the Secured Note was approximately $53,000 as of September 30, 2018.

 

(4) This $2.1 million note as of September 30, 2018 consists of two separate 8% notes in the amounts of $0.2 million and $1.9 million.

 

During the nine months ended September 30, 2018, the Company converted approximately $2.7 million principal and $0.2 million accrued interest into approximately 15.5 million shares of common stock at fair value of $3.7 million. The Company recorded an approximate $1.0 million debt extinguishment loss from this conversion.

 

(5) On December 30, 2016, the Company entered into a note purchase agreement (the “Note”) with an individual investor for an aggregate principal amount of $3.3 million. The Note bore interest at 8% per annum with 18 months term. The Note carries an original issue discount of $0.3 million and $10,000 legal cost that was reimbursable to the investor.

 

During the nine months ended September 30, 2018, the Company entered into multiple exchange agreement with the Note holder to convert approximately $1.7 million principal and $33,000 accrued interest into approximately 6.8 million shares of common stock at fair value of $1.8 million. The Company recorded an approximate $0.1 million debt extinguishment loss from this conversion.

 

(6) In 2017, the Company entered two promissory note agreements (the “Notes”) with certain investors for an aggregate principal amount of $650,000. The Notes bore interest at 10% per annum, and were payable upon demand.

  

During the nine months ended September 30, 2018, the Company agreed to take the proceeds from the $500,000 note and $12,000 accrued interest to offset certain Series A convertible preferred stock subscription receivable.

 

(7) In 2017, the Company entered two promissory note agreements (the “Notes”) with the same investor for an aggregate principal amount of $0.4 million. The Notes bore interest at 12% per annum, and is payable upon demand. The Company also issued approximately 1.2 million warrants with a weighted average strike price of $0.19 in conjunction the Note. The Company recorded $0.1 million debt discount at the issuance date, which is the fair value of the warrants.

 

(8) On December 29, 2017, the Company entered a promissory note agreement (the “Note”) with a third party for principal amount of $2.2 million. The Note bore interest at 8% per annum, and is payable upon demand.

 

During the nine months ended September 30, 2018, the Company made full repayment to the Note holder in the amount of $2.2 million, including $9,000 related to accrued interest.

 

(9) Related Party Notes

 

Goldman Notes

 

In 2017, Leslie J. Goldman, an officer of the Company, loaned the Company an aggregate amount of $1.3 million pursuant to certain Demand Promissory Note Agreements. On January 3, 2018, Mr. Leslie loaned the Company an additional $30,000 (collectively the “Goldman Notes”). Approximately $0.5 million of the Goldman Notes bear interest at the rate of 12% per annum, and $0.8 million of the Goldman Notes bear interest at the rate of 10% per annum.

 

During the year ended December 31, 2017, the Company made an aggregate principal payment of $1.2 million to settle some of Mr. Goldman’s outstanding demand notes, and an aggregate of $47,000 interest payment associated with these demand notes. Such payment included repayment of $0.3 million outstanding debt incurred during the year ended December 31, 2016. 

 

During the nine months ended September 30, 2018, the Company made an aggregate principal payment of $0.4 million to the Goldman Notes.

 

The outstanding principal amount for the Goldman Notes was approximately $69,000 and $0.4 million as of September 30, 2018 and December 31, 2017, respectively.

 

There was approximately $71,000 accrued interest associated with the Goldman Notes which remained due as of September 30, 2018.

 

17

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

 

Toucan Notes

 

In 2017, Toucan Capital Fund III loaned the Company an aggregate amount of $1.2 million pursuant to multiple Demand Promissory Notes (the “Toucan Notes”). The Toucan Notes bear interest at 10% per annum, and are payable upon demand, with 7 days’ prior written notice to the Company.

 

During the year ended December 31, 2017, the Company made an aggregate principal payment of approximately $0.8 million on the Toucan Notes.

 

During the nine months ended September 30, 2018, the Company made an aggregate principal payment of approximately $0.4 million to the Toucan Notes. In addition, the Company also made a partial interest payment of $18,000.

 

All principal was repaid as of September 30, 2018. There was approximately $50,000 remaining of unpaid interest as of September 30, 2018.

 

Board of Directors Notes

 

In 2017, Jerry Jasinowski, Robert Farmer and Cofer Black, members of the Company’s Board of Directors, loaned the Company an aggregate amount of $300,000 pursuant to multiple Demand Promissory Notes (the “Notes”). The Notes bear interest at 10% per annum, and are payable upon demand, with 7 days’ prior written notice to the Company.

 

No repayments have been made on any of these notes. The full principal and interest amounts remained outstanding as of September 30, 2018.

 

Advent BioServices Note

 

On September 26, 2018, Advent BioServices, a related party which was formerly part of Cognate BioServices and was spun off separately as part of an institutional financing of Cognate, provided a short-term loan to the Company in the amount of $65,000 (50,000 GBP). The loan bears interest at 10% per annum, and is payable upon demand, with 7 days’ prior written notice to the Company.

 

(10) During the nine months ended September 30, 2018, the holder of the Company’s share-settled debt converted approximately $2.5 million of outstanding share-settled debt.

 

(11) The two mortgage loans will be due on August 16, 2019 and November 16, 2019. During the nine months ended September 30, 2018, the Company made $935,000 of interest payments.

 

(12) These long-term secured convertible notes (the “Notes”) have a 3-year maturity and bear interest at 12% per annum. No interest will be payable during the term, but interest will accrue and be payable at maturity. The Notes are secured by the property owned by the Company in the U.K., and not by any other assets of the Company. The Notes and accrued interest will be convertible at any time during the term at fixed conversion prices: 50% of the principal and accrued interest will be convertible at $0.25 per share, 25% of the principal and accrued interest will be convertible at $0.50 per share and 25% of the principal and accrued interest will be convertible at $1.00 per share.

 

The Notes contained an embedded conversion feature which had been revalued as of September 30, 2018 to approximately $1.4 million (see note 4).

 

(13) On June 12, 2018, the Company entered into a note purchase agreement (the “June Note”) with an individual investor for an aggregate principal amount of $2,880,000. On August 13, 2018, the Company entered into another note purchase agreement (the “August Note”) with the same individual investor for an aggregate principal amount of $1,155,000. The June Note and the August Note (collectively the “Notes”) both bear interest at 8% per annum with a 2-year term. The Notes carry an aggregated original issue discount of $525,000 and $10,000 for legal cost that was reimbursable to the investor.

 

No repayments have been made on the Note. The remaining debt discount and accrued interest associated with the Note as of September 30, 2018 was $455,000 and $82,000, respectively.

 

(14) On August 13, 2018, the Company entered into an 18 month Note with an institutional investor at a 5% annual interest rate for $1.0 million with principal and interest payable on the maturity date of January 13, 2020. Upon issuance of the Note, the investor received a 2-year, 50% warrant containing 833,333 exercise shares (the “Warrants”) at an exercise price of $0.60 per share. The Warrants had fair value of approximately $67,000 on the grant date, which was recorded as debt discount. The Note also includes a prepayment provision.

 

18

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

 

The following table summarizes total interest expenses related to senior convertible notes, other notes and mortgage loan for the three and nine months ended September 30, 2018 and 2017, respectively (in thousands):

 

    For the three months ended     For the nine months ended  
    September 30,     September 30,  
    2018     2017     2018     2017  
Interest expenses related to 2014 Senior convertible notes:                        
Contractual interest   $ -     $ -     $ -     $ 424  
Amortization of debt issuance costs     -       -       -       175  
Total interest expenses related to senior convertible notes     -       -       -       599  
Interest expenses related to other notes:                                
Contractual interest     570       354       1,644       743  
Amortization on debt premium     (79 )     59       (319 )     407  
Amortization of debt discount     673       345       5,492       615  
Total interest expenses related to other notes     1,164       758       6,817       1,765  
Interest expenses related to mortgage loan:                                
Contractual interest     303       304       942       953  
Amortization of debt issuance costs     127       126       390       368  
Total interest expenses on the mortgage loan     430       430       1,332       1,321  
Interest expenses related to Series A convertible preferred stock     -       -       68       -  
Other interest expenses     2       5       5       10  
Total interest expense   $ 1,596     $ 1,193     $ 8,222     $ 3,695  

 

8. Net Loss per Share Applicable to Common Stockholders

 

Basic loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the reporting period. Diluted loss per common share is computed similar to basic loss per common share except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock. Diluted weighted average common shares include common stock potentially issuable under the Company’s convertible notes, vested and unvested stock options.

 

The following table sets forth the computation of earnings (loss) per share (amounts in thousands except per share data): 

 

    For the three months ended     For the nine months ended  
    September 30,     September 30,  
    2018     2017     2018     2017  
Net earnings (loss) - basic   $ 8,403     $ (23,271 )   $ (47,909 )   $ (46,144 )
Interest on convertible senior notes     2,617       -       -       -  
Net earnings (loss) - diluted   $ 11,020     $ (23,271 )   $ (47,909 )   $ (46,144 )
                                 
Weighted average shares outstanding - basic     461,040       281,486       414,426       217,587  
Warrants     1,533       -       -       -  
Convertible notes and accrued interest     41,960       -       -       -  
Share-settled debt and accrued interest     11,767       -       -       -  
Weighted average shares outstanding - diluted     516,300       281,486       414,426       217,587  

 

19

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

 

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 nine months ended  
    June 30,  
    2018     2017  
Common stock options     100,159       12,656  
Common stock warrants - equity treatment     -       37,499  
Common stock warrants - liability treatment     357,192       141,468  
Contingently issuable warrants     11,739       -  
Share-settled debt and accrued interest, at fair value     11,767       23,406  
Convertible notes and accrued interest     41,960       15,293  
Potentially dilutive securities     522,817       230,322  

 

9. Related Party Transactions

 

Cognate & Advent Expenses and Accounts Payable

 

The following table summarizes expenses incurred to related parties during the three and nine months ended September 30, 2018 and 2017 (amount in thousands) (some of which remain unpaid as noted below):

 

    For the three months ended     For the nine months ended  
    September 30,     September 30,  
    2018     2017     2018     2017  
Cognate BioServices, Inc. (no longer related party since Q2 2018)   $ -     $ 6,579     $ 873     $ 9,457  
Cognate BioServices GmbH     -       565       66       1,330  
Cognate Israel     35       265       133       954  
Advent BioServices     1,373       438       5,039       1,294  
Total   $ 1,408     $ 7,847     $ 6,111     $ 13,035  

 

 

The following table summarizes outstanding accounts payable held by related parties as of September 30, 2018 and December 31, 2017 (amount in thousands). These unpaid amounts include part of the expenses reported in the table above and also certain expenses incurred in prior periods. The unpaid amounts to Cognate BioServices, Inc. also include certain amounts that the Company disputes and that are under discussion with Cognate.

 

    September 30,
2018
    December 31,
2017
 
Cognate BioServices, Inc. (no longer related party in Q2 2018)*   $ 8,192     $ 4,520  
Cognate BioServices GmbH     323       279  
Cognate Israel     35       239  
Advent BioServices     3,235       165  
Total   $ 11,785     $ 5,203  

 

* Including certain disputed amounts that the Company is in the process of discussing with Cognate.

 

Advent BioServices Agreement

 

On May 14, 2018, the Company entered into a DCVax®-L Manufacturing and Services Agreement with Advent BioServices, a related party which was formerly part of Cognate BioServices and was spun off separately as part of an institutional financing of Cognate. The Advent Agreement provides for manufacturing of DCVax-L products for the European region. The Agreement is structured in the same manner as the Company’s existing Agreements with Cognate BioServices. The Advent Agreement provides for a program initiation payment of approximately $1.0 million (£0.7 million), in connection with technology transfer to the UK, development of new Standard Operating Procedures (SOPs), training of personnel, selection of new suppliers and auditing for GMP compliance, and other preparatory activities. Such initiation payment was fully paid by the Company as of September 30, 2018. The Advent Agreement provides for certain payments for achievement of milestones and, as is the case under the existing agreement with Cognate BioServices, the Company is required to pay certain fees for dedicated production capacity reserved exclusively for DCVax production, and pay for a certain minimum number of patients, whether or not the Company fully utilizes the dedicated capacity and number of patients.

 

20

 

  

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

 

Other Related Parties Loans

  

Linda F. Powers - Demand Loans

  

Between February 2018 and April 2018, the Company’s Chief Executive Officer, Linda Powers, loaned the Company aggregate principal amounts of $5.4 million, and the Company entered into convertible note agreements for these amounts (the “Convertible Notes”). The Convertible Notes bear interest at a rate of 10% per annum, and are repayable upon 15 days' notice from the holder (and no later than five years from the date of the Convertible Notes).

 

The Convertible Notes are convertible into Series B Preferred Stock at a conversion price of $2.30 per share, and each share of Series B Preferred Stock is convertible into 10 shares of common stock. Additionally, the Convertible Notes carry Class D-2 Warrants, with half of the Class D-2 Warrants due and issuable when the loan was provided, and half of the Class D-2 Warrants due on a proportional basis in the event of conversion of some or all of the Note. The Class D-2 Warrants have five-year term.

 

The Company issued 23.5 million Class D-2 Warrants with an exercise price of $0.30, including 11.7 million contingently issuable warrants. The fair value of the warrants was approximately $4.2 million, which were recorded as debt discount at the issuance date. 

 

The Company recorded $4.2 million of interest expenses as amortization on the debt discount immediately due to the term of the Convertible Notes, which are on demand.

 

The accrued interest associated with the Convertible Notes was approximately $314,000 as of September 30, 2018.

 

Leslie J. Goldman - Demand Loans

  

In 2017, Leslie J. Goldman, an officer of the Company, loaned the Company an aggregate amount of $1.3 million pursuant to multiple Demand Promissory Note Agreements. On January 3, 2018, Mr. Goldman loaned the Company an additional $30,000 (collectively the “Goldman Notes”). Approximately $0.5 million of the Goldman Notes bear interest at the rate of 12% per annum, and $0.8 million of the Goldman Notes bear interest at the rate of 10% per annum.

 

During the year ended December 31, 2017, the Company made an aggregate principal payment of $1.2 million to settle some of Mr. Goldman’s outstanding demand notes, and an aggregate of $47,000 interest payment associated with these demand notes. Such payment included repayment of $0.3 million outstanding debt incurred during the year ended December 31, 2016. 

 

During the nine months ended September 30, 2018, the Company made an aggregate principal payment of $0.4 million to the Goldman Notes.

 

The outstanding principal amount for the Goldman Notes was approximately $69,000 and $0.4 million as of September 30, 2018 and December 31, 2017, respectively.

 

There was approximately $71,000 accrued interest associated with the Goldman Notes as of September 30, 2018.

 

Toucan Capital III Fund - Demand Loans

  

In April, 2017, Toucan Capital Fund III loaned the Company an aggregate amount of $1.2 million pursuant to multiple Demand Promissory Notes (the “Toucan Notes”). The Toucan Notes bear interest at 10% per annum, and are payable upon demand, with 7 days’ prior written notice to the Company.

 

During the year ended December 31, 2017, the Company made an aggregate principal payment of approximately $0.8 million to the Toucan Notes.

 

During the nine months ended September 30, 2018, the Company made an aggregate principal payment of approximately $0.4 million to the Toucan Notes. In addition, the Company also made a partial interest payment of $18,000.

 

All principal was repaid as of September 30, 2018. There was approximately $50,000 of remaining unpaid interest as of September 30, 2018.

 

Board of Directors - Demand Loans

 

In April, 2017, Jerry Jasinowski, Robert Farmer and Cofer Black, members of the Company’s Board of Directors, loaned the Company an aggregate amount of $0.3 million pursuant to multiple Demand Promissory Notes (the “Notes”). The Notes bear interest at 10% per annum, and are payable upon demand, with 7 days’ prior written notice to the Company.

 

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NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

 

No repayments have been made on any of these notes. The full principal amounts remained outstanding as of September 30, 2018.

 

There was approximately $43,000 accrued interest associated with the Notes as of September 30, 2018.

 

Advent BioServices Note

 

On September 26, 2018, Advent BioServices, a related party which was formerly part of Cognate BioServices and was spun off separately as part of an institutional financing of Cognate, provided a short-term loan to the Company in the amount of $65,000 (50,000 GBP). The loan bears interest at 10% per annum, and is payable upon demand, with 7 days’ prior written notice to the Company.

 

10. Temporary Equity

 

Series A Convertible Preferred Stock

 

The following table summarizes the Company’s Series A Convertible Preferred Stock activities for the nine months ended September 30, 2018 (amount in thousands):

 

    Series A Convertible
Preferred Stock
 
    Shares     Amount  
Balance as of January 1, 2018     9,720     $ 7,439  
Issuance of Series A convertible preferred stock and warrants for cash (net of $0.5 million warrant liability)     294       27  
Conversion of note payable to offset Series A convertible preferred stock subscription receivable     -       500  
Conversion of interest payable to offset Series A convertible preferred stock subscription receivable     -       71  
Issuance of common stock for conversion of Series A convertible preferred stock     (10,014 )     (18,929 )
Deemed dividends on conversion of Series A convertible preferred stock to common stock     -       10,892  
Balance as of September 30, 2018     -     $ -  

 

The Company determined that the Series A Shares contain liquidation preference provisions allowing liquidation by the holder upon certain defined events (“deemed liquidation events”). As the event that may trigger the liquidation of the Series A Shares is not solely within the Company’s control, the Series A Shares are classified as mezzanine equity (temporary equity) in the Company’s consolidated balance sheets.

 

If a liquidation or deemed liquidation event occurs, and the Series A preferred stock has not yet been converted by election of the holder or by mandatory conversion at the election of the Company, the holder will be entitled to a liquidation preference of either (a) an amount equal to the amount the holder paid for their preferred stock, or (b) the proportionate proceeds applicable to their shares on an as converted basis.

 

2018 Grant

 

During the nine months ended September 30, 2018, the Company issued 294,118 shares of the Series A Convertible Preferred Stock, par value $0.001 per share (the “Series A Shares”), at a purchase price of $1.70 per share, and 2-year Class D-1 Common Stock Purchase Warrants (the “Class D-1 Warrants”) to purchase up to 2.9 million shares of common stock at an exercise price of $0.22 per share. The Company received $0.5 million cash.

 

Due to the Sequencing Policy, the Class D-1 Warrants were classified as warrant liabilities. On the issuance date, the Company estimated the fair value of the Class D-1 Warrants at approximately $500,000 under the Black-Scholes option pricing model using the following primary assumptions:

 

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NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

 

Exercise price   $ 0.22  
Expected term (years)     2.0  
Expected stock price volatility     116 %
Risk-free rate of interest     2 %
Dividend yield (per share)     0 %

 

The fair value of the Class D-1 Warrants was allocated to the $500,000 proceeds, creating a corresponding preferred stock discount in the same amount.

 

2018 Conversion

 

On September 7, 2018, the Company delivered notice of its exercise of the right to cause the mandatory conversion of all outstanding Series A Shares of the Company’s common stock, par value $0.001 per share, pursuant to the Amended and Restated Certificate of Designations of Series A Convertible Preferred Stock (the “Mandatory Conversion”). The issuance of shares of common stock upon consummation of the Mandatory Conversion eliminated all outstanding shares of preferred stock, replacing them with common stock.

 

Pursuant to this Mandatory Conversion during the nine months ended September 30, 2018, approximately 10.0 million shares of Series A Shares were converted into 100.0 million shares of common stock in accordance with their terms. The Company recognized approximately $10.9 million of deemed dividends upon such conversion.

 

During the nine months ended September 30, 2018, one of the Series A Shareholders converted his $500,000 note and $71,000 accrued interest with the Company to offset his current subscription due amount to the Company.

 

Series B Convertible Preferred Stock

 

The following table summarizes the Company’s Series B Convertible Preferred Stock activities for the nine months ended September 30, 2018 (amount in thousands):

 

    Series B Convertible
Preferred Stock
 
    Shares     Amount  
Balance as of January 1, 2018     5,582     $ 12,601  
Issuance of Series B convertible preferred stock and warrants for cash (net of $4.3 million warrant liability and $10,000 subscription receivable)     2,868       2,309  
Beneficial conversion feature of Series B convertible preferred stock     -       (2,086 )
Deemed dividends related to immediate accretion of beneficial conversion feature of Series B convertible preferred stock     -       2,086  
Issuance of common stock for conversion of Series B convertible preferred stock     (8,450 )     (19,697 )
Deemed dividends on conversion of Series B convertible preferred stock to common stock     -       4,787  
Balance as of September 30, 2018     -     $ -  

 

The Company determined that the Series B Shares contain contingent liquidation provisions allowing liquidation by the holder upon certain defined events (“deemed liquidation events”). As the event that may trigger the liquidation of the Series B Shares is not solely within the Company’s control, the Series B Shares are classified as mezzanine equity (temporary equity) in the Company’s consolidated balance sheets.

 

If a liquidation or deemed liquidation event occurs, and the Series B preferred stock has not yet been converted by election of the holder or by mandatory conversion at the election of the Company, the holder will be entitled to a liquidation preference of either (a) an amount equal to the amount the holder paid for their preferred stock, or (b) the proportionate proceeds applicable to their shares on an as converted basis.

 

2018 Grant

 

During the nine months ended September 30, 2018, the Company issued 2.9 million shares of the Series B Convertible Preferred Stock, par value $0.001 per share (the “Series B Shares”), at a purchase price of $2.30 per share, and 2-year Class D-2 Common Stock Purchase Warrants (the “Class D-2 Warrants”) to purchase up to 28.7 million shares of common stock at an exercise price of $0.30 per share. The Company received $6.6 million cash.

 

Due to the Sequencing Policy, the Class D-2 Warrants were classified as warrant liabilities. On the issuance date, the Company estimated the fair value of the Class D-2 Warrants at approximately $4.3 million under the Black-Scholes option pricing model using the following primary assumptions:

 

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NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

 

Exercise price   $ 0.30  
Expected term (years)     2.0  
Expected stock price volatility     115 %
Risk-free rate of interest     2 %
Dividend yield (per share)     0 %

 

The entire fair value of the Class D-2 Warrants was allocated to the $6.6 million net proceeds, creating a corresponding preferred stock discount in the same amount.

 

The initial fair value of the warrants of approximately $4.3 million was deducted from the gross proceeds from the Series B Investors to arrive at the initial discounted carrying value of the Series B Shares. The initial discounted carrying value resulted in recognition of a beneficial conversion feature of $2.1 million, further reducing the initial carrying value of the Series B Shares. The resulting discount to the aggregate stated value of the Series B Shares, resulting from recognition of the beneficial conversion feature, was immediately accreted as a reduction of additional paid-in capital and an increase in the carrying value of the Series B Shares. The accretion is presented in the Consolidated Statement of Operations as a deemed dividend, increasing net loss to arrive at net loss attributable to common stockholders.

 

2018 Conversion

 

On September 7, 2018, the Company delivered notice of its exercise of the right to cause the mandatory conversion of all outstanding Series A Shares of the Company’s common stock, par value $0.001 per share, pursuant to the Amended and Restated Certificate of Designations of Series B Convertible Preferred Stock (the “Mandatory Conversion”). The issuance of shares of common stock upon consummation of the Mandatory Conversion eliminated all outstanding shares of preferred stock, replacing them with common stock.

 

Pursuant to this Mandatory Conversion, during the nine months ended September 30, 2018, approximately 8.5 million shares of Series B Shares were converted into 85 million shares of common stock based on original term. The Company recognized approximately $4.8 million of deemed dividends upon such conversion.

 

11. Stockholders’ Equity (Deficit)

   

Increase of Authorized Shares

 

On April 27, 2018, the Company held a Special Meeting of Shareholders to vote on several matters, including increasing the number of authorized shares of common stock from 450,000,000 to 1,200,000,000, par value $0.001 per share, and increasing the number of authorized shares of preferred stock from 40,000,000 to 100,000,000, par value $0.001 per share. The shareholders approved both increases, with 87% of the votes cast in favor of the increase in common stock and 86% of the votes cast in favor of the increase in preferred stock. On May 2, 2018, the Company filed a Certificate of Amendment of its Seventh Amended and Restated Certificate of Incorporation with the Secretary of the State of Delaware, which effected the increase in authorized shares of common stock and the increase in authorized shares of preferred stock. 

 

Equity Financing

 

On June 22, 2018, the Company entered into agreements with institutional investors for a registered direct offering with proceeds of $1.0 million. The Company issued 4,000,000 shares of common stock at a purchase price of $0.25 per share. Additionally, the investors received 2-year Class D-3 warrants to purchase up to 2,000,000 million shares of common stock with an exercise price of $0.30 per share.

  

Debt Conversion

 

During the nine months ended September 30, 2018, the Company converted approximately $4.4 million principal and $0.3 million accrued interest into approximately 22.3 million shares of common stock at fair value of $5.5 million. The Company recorded an approximate $0.8 million debt extinguishment loss from the conversion.

 

Warrants Exercised for Cash

 

During the nine months ended September 30, 2018, the Company issued approximately 9.0 million shares of common stock from the exercise of warrants with an exercise price from $0.22 to $0.26 for aggregate proceeds of $2.1 million.

 

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NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

 

Share-settled Debt

 

During the nine months ended September 30, 2018, the Company issued 13.3 million shares of common stock to the holder of the Company’s share-settled debt as advance payment for future debt conversion. The fair value of the remaining share-settled debt will be reduced when the Company is notified by the Holder of the value at which the shares have been sold.

 

As of September 30, 2018, and December 31, 2017, the outstanding share-settled debt was approximately $0.9 million and $3.3 million, respectively. 

 

Common Stock Purchase Warrants

  

During the nine months ended September 30, 2018, the Company modified approximately 124 million warrants, with new expiration dates ranging between 2018 and 2023, and new exercise prices ranging between $0.24 and $2.50. These warrants, pursuant to the sequencing policy, were reclassified as liabilities.

 

The following is a summary of warrant activity for the nine months ended September 30, 2018 (in thousands, except per share data):

 

                   
    Number of     Weighted Average     Remaining  
    Warrants     Exercise Price     Contractual Term  
Outstanding as of January 1, 2018     320,406     $ 0.50       2.62  
Warrants granted     69,134       0.50          
Warrants exercised for cash     (8,957 )     0.23          
Warrants expired and cancellation     (11,652 )     1.22          
Outstanding as of September 30, 2018     368,931     $ 0.29       2.21  

  

12. Variable Interest Entities

 

Variable Interest Entities (“VIEs”) are entities in which equity investors lack the characteristics of a controlling financial interest.  VIEs are consolidated by the primary beneficiary.  The primary beneficiary is the party who has both the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity.  

 

Advent

 

On May 14, 2018, the Company entered into a DCVax-L Manufacturing and Services Agreement with Advent BioServices, a related party which was formerly part of Cognate and was spun off separately as part of an institutional financing of Cognate. The Advent Agreement provides for manufacturing of DCVax-L products for the European region. See Note 9 for more detail. Similar to Cognate, the Company has an implicit variable interest in Advent to potentially fund Advent’s losses (if Advent incurs losses).  As of September 30, 2018, the Company did not have the power over the most significant activities (control of operating decisions) and therefore did not meet the "power" criteria of the primary beneficiary. 

 

The maximum exposure to loss is limited to the notional amounts of the implicit variable interest in Advent.  Under the Advent Agreement, either party may terminate at any time upon twelve months’ notice, providing a transition period for technology transfer.  Accordingly, the maximum exposure to loss from the Company’s implicit variable interest in Advent is $5 million as of September 30, 2018, which is the minimum twelve-monthly payments the Company must pay to terminate their relationship with Advent.

  

13. Commitments and Contingencies

 

U.S. Securities and Exchange Commission

 

As previously reported, the Company has received a number of formal information requests (subpoenas) from the SEC regarding several broad topics that have been previously disclosed, including the Company’s membership on Nasdaq and delisting, related party matters, the Company’s programs, internal controls, the Company’s Special Litigation Committee, disclosures and the publication of interim clinical trial data. Testimony of certain officers and third parties has been taken as well. The Company has been cooperating with the SEC investigation.  As hoped, the investigation is winding to a conclusion.  After investigation of a broad array of issues over the past two-plus years, the SEC Staff has informed us preliminarily that they have concerns in regard to two issues, relating to the Company’s internal controls over financial reporting and the adequacy of certain disclosures made in the past.  We have previously disclosed material weaknesses in our internal controls.  As for disclosures, we believe our disclosures complied with applicable law.  Despite our belief that the Staff should close the investigation, there can be no assurance that the Staff will not recommend some action involving the Company and/or individuals. Given the stage of the process, the Company is unable to provide a current assessment of the potential outcome or potential liability, if any.

 

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NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

 

Chardan Capital Markets v. Northwest Biotherapeutics, Inc.

 

On June 22, 2017, Chardan Capital Markets, LLC filed a lawsuit against the Company in the United District Court for the Southern District of New York, captioned Chardan Capital Markets v. Northwest Biotherapeutics, Inc., 1:17-cv-04727-PKC. Chardan alleges that it provided capital placement agent services to the Company in December 2016 under a contract and that it has not been fully compensated for those services. Chardan further alleges that it provided additional services to the Company in March 2017 in anticipation of entering into a contract and that it received no compensation. The operative complaint asserted claims sounding in unjust enrichment, quantum meruit, and breach of contract, and sought recovery in the amount of $496,000, plus interest and attorneys’ fees and costs. The Company filed a motion to dismiss the complaint on December 1, 2017. On August 6, 2018, the District Court granted the Company’s motion to dismiss in its entirety and entered a Judgment dismissing Chardan’s Amended Complaint.  On September 5, 2018, Chardan filed a notice of appeal seeking review of the District Court’s ruling.  Chardan’s brief on appeal was originally due to be filed on or before October 30, 2018, but Chardan did not file its brief on that day.  On October 31, 2018, the Clerk of Court of the United States Court of Appeals for the Second Circuit entered an order stating that the “case is deemed in default” and ordering “that the appeal is dismissed effective November 14, 2018 if the brief and any required appendix are not filed by that date.”  Chardan did not file its brief and appendix on or before November 14, 2018.  Accordingly, Chardan’s appeal has been dismissed by force of the October 31, 2018 order of the Court of Appeals. 

   

14. Subsequent Events

 

On November 7, 2018, the Company completed an aggregate of $5 million of debt financing pursuant to Notes with a number of individual investors. The Company already received $1.0 million in August 2018. The Notes bear an interest rate of 10% per annum, and Original Issue Discount of 5%. The Notes also carry 50% warrant coverage. The warrants are exercisable at $0.35 per share, and have an exercise period of 2 years. The Notes have a maturity of one year, although the holder may require pre-payment after four months.

 

As previously disclosed, in February, March and April of 2018, the Company and its Chief Executive Officer, Linda F. Powers, entered into demand notes for short-term bridge loans of $5.4 million from Ms. Powers to the Company. The notes have remained outstanding to date. On November 11, 2018, the Company and Ms. Powers agreed to extend the notes to a maturity of one year following the respective funding dates. In consideration of the continuing forbearance, the Company will issue warrants representing 50% of the amounts due under the loans from Ms. Powers. The warrants will have the same exercise price and exercise period as the warrants issued to the investors who loaned the Company $5 million.

 

Between October 2, 2018 and November 1, 2018, approximately $439,000 principal and $17,000 of accrued interest on certain notes were converted into approximately 3.1 million shares of common stock.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes to those statements included with this report. In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. The words “believe,” “expect,” “intend,” “anticipate,” and similar expressions are used to identify forward-looking statements, but some forward-looking statements are expressed differently. Many factors could affect our actual results, including those factors described under “Risk Factors” in our Form 10-K for the year ended December 31, 2017 and in Part II Item 1A of this report. These factors, among others, could cause results to differ materially from those presently anticipated by us. You should not place undue reliance on these forward-looking statements.

 

Overview

 

The Company is focused on developing personalized immune therapies for cancer. We have developed a platform technology, DCVax®, which uses activated dendritic cells to mobilize a patient's own immune system to attack their cancer.

 

The Company’s lead product, DCVax®-L, is designed to treat solid tumor cancers in which the tumor can be surgically removed. This product is in an ongoing Phase III trial for newly diagnosed Glioblastome multiforme (GBM). 331 patients have been enrolled in the trial, and enrollment is closed. The trial is ongoing as the data continue to mature. The Company, the physicians and the patients remain blinded. On May 29, 2018, interim blinded data from the Phase III trial collected in 2017 were published in a peer reviewed scientific journal. As the Company noted in its announcement of the publication and in subsequent reports, the data could get either better or worse as it continues to mature. The Company is consulting with its Scientific Advisory Board, the Steering Committee of the trial and other independent experts about the ongoing handling of the trial.

 

As resources permit, the Company is also working on preparations for Phase II trials of DCVax-L for other indications.

 

The Company’s second product, DCVax®-Direct, is designed to treat inoperable solid tumors. A 40-patient Phase I trial has been completed, and included treatment of a diverse range of cancers. As resources permit, the Company is working on preparations for Phase II trials of DCVax-Direct.

 

Critical Accounting Policies and Estimates

 

Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect our reported amounts of assets, liabilities, revenues and expenses.

 

On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and stock-based compensation. We based our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources. Actual results may differ from these estimates.

 

Our critical accounting policies and significant estimates are detailed in our Annual Report on Form 10-K for the year ended December 31, 2017. Our critical accounting policies and significant estimates have not changed substantially from those previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017.

      

Results of Operations

 

Operating costs:

 

Operating costs and expenses consist primarily of research and development expenses, including clinical trial expenses which increase when we are actively participating in clinical trials and especially when we are in a large ongoing international phase III trial. The associated administrative expenses also increase as such operating activities grow.

 

In addition to clinical trial related costs, our operating costs may include ongoing work relating to our DCVax products, including R&D, product characterization, and related matters. Going forward, we will also have to undertake process validation work and other work associated with moving towards data lock for the clinical trial data, and analyses of the data.

 

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Our operating costs also include the costs of preparations for the launch of new or expanded clinical trial programs, such as our planned Phase II clinical trials. The preparation costs include payments to regulatory consultants, lawyers, statisticians, sites and others, evaluation of potential investigators, the clinical trial sites and the CROs managing the trials and other service providers, and expenses related to institutional approvals, clinical trial agreements (business contracts with sites), training of medical and other site personnel, trial supplies and other. Additional substantial costs relate to the maintenance of manufacturing capacity, in both the US and Europe.

 

Our operating costs also include significant legal and accounting costs in operating the Company.

 

Research and development:

 

Discovery and preclinical research and development expenses include costs for substantial external scientific personnel, technical and regulatory advisers, and others, costs of laboratory supplies used in our internal research and development projects, travel, regulatory compliance, and expenditures for preclinical and clinical trial operation and management when we are actively engaged in clinical trials.

 

Because we are pre-revenue company, we do not allocate research and development costs on a project basis. We adopted this policy, in part, due to the unreasonable cost burden associated with accounting at such a level of detail and our limited number of financial and personnel resources.

 

General and administrative:

 

General and administrative expenses include administrative personnel related salary and benefit expenses, cost of facilities, insurance, travel, legal support, property and equipment and amortization of stock options and warrants.

 

Three Months Ended September 30, 2018 and 2017

 

We recognized a net income of $12.6 million and net loss of $23.3 million for the three months ended September 30, 2018 and 2017, respectively. The increase in our net earnings was primarily due to decreased costs in research and development, and gain from change in fair value of outstanding derivative liabilities during the three months ended September 30, 2018.

  

Research and Development Expense

 

Research and development expenses were $4.3 million and $9.7 million for the three months ended September 30, 2018 and 2017, respectively. The decrease compared to last year was primarily due to decreased costs for Cognate services provided during the period. At September 30, 2018, we owed Advent BioServices and Cognate Israel an aggregate of $3.3 million.

 

The following table summarizes expenses incurred to related parties during the three months ended September 30, 2018 and 2017 (amount in thousands), which include amounts that remained outstanding and unpaid:

 

    For the three months ended  
    September 30,  
    2018     2017  
Cognate BioServices, Inc. (no longer related party since Q2 2018)   $ -     $ 6,579  
Cognate BioServices GmbH     -       565  
Cognate Israel     35       265  
Advent BioServices     1,373       438  
Total   $ 1,408     $ 7,847  

 

General and Administrative Expense

 

General and administrative expenses were $3.5 million and $3.0 million for the three months ended September 30, 2018 and 2017, respectively. We recorded approximately $1.0 million of stock-based compensation under general and administrative expenses during the three months ended September 30, 2018.

 

Legal Expenses

 

Legal costs were $1.9 million and $1.6 million for the three months ended September 30, 2018 and 2017, respectively. The increase during this quarter in 2018 was primarily due to additional work towards resolving open matters during this quarter in 2018 compared with same period in 2017. Legal costs for the nine months ended September 30, 2018 decreased compared with this nine-month period in 2017, as described below.

   

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Change in fair value of derivatives

 

During the three months ended September 30, 2018, we recognized a non-cash gain of $24.4 million as compared to a non-cash loss of approximately $4.9 million for the three months ended September 30, 2017.

 

The non-cash gain during the quarter ended September 30, 2018 was primarily due to the decrease in stock price as of September 30, 2018 compared with June 30, 2018.

 

Interest Expense

 

During the quarter ended September 30, 2018 and 2017, we recorded interest expense of $1.6 million and $1.2 million, respectively.

 

Nine Months Ended September 30, 2018 and 2017

 

For the nine months ended September 30, 2018 and 2017, net cash used in operations was $20.4 million and $21.7 million, respectively. We recognized a net loss of $30.1 million and $46.1 million for the nine months ended September 30, 2018 and 2017, respectively.

  

Research and Development Expense

 

For the nine months ended September 30, 2018 and 2017, research and development expense was $14.3 million and $20.2 million, respectively. At September 30, 2018, we owed Advent BioServices and Cognate Israel $3.3 million for unpaid invoices.

 

The following table summarizes expenses incurred to related parties during the nine months ended September 30, 2018 and 2017 (amount in thousands):

 

    For the nine months ended  
    September 30,  
    2018     2017  
Cognate BioServices, Inc. (no longer related party since Q2 2018)   $ 873     $ 9,457  
Cognate BioServices GmbH     66       1,330  
Cognate Israel     133       954  
Advent BioServices     5,039       1,294  
Total   $ 6,111     $ 13,035  

 

 

General and Administrative Expense

 

General and administrative expense were $21.0 million and $9.3 million for the nine months ended September 30, 2018 and 2017, respectively. The increase compared with 2017 was primarily due to stock-based compensation from issuance of stock options to our officers and directors. We recorded approximately $11.7 million of stock-based compensation under general and administrative during the nine months ended September 30, 2018.

 

Legal Expenses

 

Legal costs were $4.1 million and $7.5 million for the nine months ended September 30, 2018 and 2017, respectively. The decrease in 2018 was primarily due to a decrease in litigation matters in 2018 compared with 2017.

   

Change in fair value of derivatives

 

During the nine months ended September 30, 2018 we recognized non-cash gain of $19.2 million as compared to a non-cash gain of approximately $3.0 million for the nine months ended September 30, 2017.

 

The non-cash gain during the nine months ended September 30, 2018 was primarily due to the decrease in stock price as of September 30, 2018 compared with December 31, 2017.

  

Interest Expense

 

During the nine months ended September 30, 2018 and 2017, we recorded interest expense of $8.2 million and $3.7 million, respectively. Interest expense increased in 2018 as compared to 2017 primarily due to the increase from amortization on debt discount. Although repayments of Ms. Powers’ Notes have not been made, we recorded approximately $4.2 million of debt amortization cost on Ms. Powers’ $5.4 million convertible notes.  

 

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Liquidity and Capital Resources

 

We have experienced recurring losses from operations since inception. During the nine months ended September 30, 2018, net cash outflows from operations were $20.4 million for the Company’s ongoing programs as well as preparations (as resources permit) for new clinical programs and for manufacturing capacity in Europe.

 

Our condensed consolidated financial statements indicate there is substantial doubt about our ability to continue as a going concern as we are dependent on our ability to obtain short term financing and ultimately to generate sufficient cash flow to meet our obligations on a timely basis, as well as successfully obtain financing on favorable terms to fund our long-term plans.  We can give no assurance that our plans and efforts to achieve the above steps will be successful.

  

At September 30, 2018, current assets totaled $1.1 million, compared to $1.4 million at December 31, 2017. Current assets less current liabilities produced a working capital deficit in the amount of $76.2 million and $86.3 million at September 30, 2018 and December 31, 2017, respectively.

 

We engaged a third-party specialist to conduct certain surveys of the condition of the property in the U.K. (“UK Facility”) which included, among other things, a preliminary analysis of potential environmental remediation exposures. We determined, based on information contained in the specialists’ report, that we would be required to estimate the fair value of an unconditional obligation to remediate specific ground contamination at an estimated fair value of approximately $6.2 million. We computed our preliminary estimate of the fair value of this obligation using a probability approach that measures likelihood of the following two potential outcomes: (i) a higher probability (>95%) requirement of erecting a protective barrier around the affected area at an estimated cost of approximately $4.6 million, or (ii) lower probability (<5%) requirement of having to excavate the affected area at an estimated cost of approximately $33.4 million. Our estimate is preliminary and therefore subject to change as further studies are conducted, and as additional facts come to our attention. Environmental remediation obligations are complex and technical. Accordingly, it is at least reasonably possible that any changes in our estimates could materially differ from management’s preliminary estimates.

  

Contingent Contractual Payment

 

The following table summarizes our contractual obligations as of September 30, 2018 (amount in thousands):

 

    Payment Due by Period  
          Less than     1 to 2  
    Total     1 Year     Years  
Short term convertible notes payable - related party (1)                        
10% unsecured   $ 5,714     $ 5,714     $ -  
Short term notes payable (2)                        
18% unsecured     1,441       1,441       -  
8% unsecured     2,246       2,246       -  
10% unsecured     168       168          
12% unsecured     505       505       -  
Short term notes payable - related parties (3)                        
10% unsecured - (on demand)     456       456       -  
12% unsecured - (on demand)     78       78       -  
10% unsecured - (on demand)     65       65       -  
Long term convertible notes payable (4)                        
12% secured convertible notes and interest     7,323       -       7,323  
Long term notes payable (5)                        
8% unsecured     4,522       4,439       83  
5% unsecured     1,072       1,057       15  
Share-settled debt, at fair value (6)     2,236       2,236       -  
Mortgage loan and interest (7)     12,674       12,674       -  
Operating leases (8)     6,354       1,331       5,023  
Purchase obligation (9)                        
Total   $ 44,854     $ 32,410     $ 12,444  

 

(1) The obligations related to short term convertible notes to Linda Powers were approximately $5.7 million as of September 30, 2018, which included contractual unpaid interest of $0.3 million

 

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(2) The obligations related to short term notes were approximately $4.4 million as of September 30, 2018, which included remaining contractual unpaid interest of $0.3 million.

 

(3) The obligations related to short term notes to related parties were approximately $0.6 million as of September 30, 2018, which included unpaid interest of $0.2 million. The obligations included loans of $50,000 from Cofer Black, a Company Director; $125,000 from Jerry Jasinowski, a Company Director; $125,000 from Robert Farmer, a Company Director; $69,000 remaining balance owed to Leslie Goldman, an officer of the Company, and $65,000 from Advent BioServices.

 

(4) The obligations related to long term convertible notes were approximately $7.5 million as of September 30, 2018, which included unpaid interest of $2.0 million. The convertible notes will be due in June 2020.

 

(5) The obligations related to long term notes were approximately $5.6 million as of September 30, 2018, which included unpaid interest of $0.6 million. The notes will be due in December 2019 and February 2020.

 

(6) The obligations related to share settled debt were approximately $2.2 million as of September 30, 2018, which included $1.3 million accrued interest.

 

(7) The obligations related to the mortgage loan were approximately $12.7 million as of September 30, 2018, which included $1.2 million renewal fee and exit fee which will be due at end of the loan term, and $1.3 million of remaining interest payments. 

 

(8) The operating lease obligations during the next 2 years included $162,000, $33,000 and $5,000 to our office in Maryland, U.K. and Germany. We also assumed Cognate Bioservices, GmbH’s lease agreement for the facility that was to manufacture DCVax®-L products in Germany, and we agreed to pay $479,000 (400,000 Euros) settlement fee to the lessor in 2018. During the nine months ended September 30, 2018, we have made full repayment. We also included approximately $1.2 million and $4.9 million of minimum lease payments in 2018 and 2019, respectively, for a facility where DCVax-L products are being manufactured in the U.K. The facility is leased by the institution to Advent, and Advent, in turn, is charging us for this lease on a monthly basis. Therefore, we are including the minimum lease payments in this table.

 

(9) We have possible contingent obligations to pay certain fees to Cognate BioServices (in addition to any other remedies) if we shut down or suspend its DCVax-L program or DCVax-Direct program.  These obligations are not reflected in the accompanying balance sheets. For a shut down or suspension of the DCVax-L program, the fees will be as follows:

 

· 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 a shut down or suspension of the DCVax-Direct program, the fees will be as follows:

 

· Prior to the last dose of the last patient enrolled in the Phase I trial for DCVax®-Direct, the fee shall be $1.5 million.

 

· After the last dose of the last patient enrolled in the Phase I clinical trial for DCVax®-Direct but before the initiation of a Phase III trial the fee shall be $2.0 million.

 

· After initiation of a phase III trial but before submission of an application for market authorization in any jurisdiction or after the submission of an application for market authorization but prior to receiving a market authorization approval: in each of these cases, the fee shall be $3.0 million.

 

· At any time after receiving the equivalent of a marketing authorization for DCVax®-Direct in any jurisdiction the fee shall be $5.0 million.

 

As of September 30, 2018, there were not any shut-down or suspension fees triggered.

 

While our DCVax programs are ongoing, we are required to pay certain fees for dedicated production suites or capacity reserved exclusively for DCVax production, and pay for a certain minimum number of patients, whether or not we fully utilize the dedicated capacity and number of patients. We have disputed certain amounts, and we are in the process of discussing the amounts with Cognate.

  

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Operating Activities

 

During the nine months ended September 30, 2018 and 2017, net cash outflows from operations were $20.4 million and $21.7 million, respectively.

   

Investing Activities

 

During the nine months ended September 30, 2017, we received $220,000 cash refund from certain vendors regarding UK facility leasehold improvement.

 

Financing Activities

 

We received approximately $8.1 million and $10.3 million cash proceeds from issuance of preferred stock, common stock and warrants in a public offering during the nine months ended September 30, 2018 and 2017, respectively.

 

We received approximately $0.2 million and $2.6 million in cash proceeds from the issuance of common stock and warrants in private offerings during the nine months ended September 30, 2017.

 

We received approximately $2.1 million and $2.8 million cash proceeds from the exercise of warrants during the nine months ended September 30, 2018 and 2017, respectively.

 

We received approximately $11.2 million and $9.3 million cash proceeds from issuance of multiple debt to third parties and related parties during the nine months ended September 30, 2018 and 2017, respectively.

 

We made an aggregate debt payment of $3.0 million and $4.9 million during the nine months ended September 30, 2018 and 2017, respectively.

 

Our financial statements indicate there is substantial doubt about our ability to continue as a going concern as we are dependent on our ability to obtain ongoing financing and ultimately to generate sufficient cash flow to meet our obligations on a timely basis.  We can give no assurance that our plans and efforts to achieve the above steps will be successful.

 

Other factors affecting our ongoing funding requirements include the number of staff we employ, the number of sites and number of patients still active in our Phase III brain cancer trial, the costs of further product and process development work relating to our DCVax products, the costs of preparations for Phase II trials, the costs of expansion of manufacturing, and unanticipated developments. The extent of resources available to us will determine which programs can move forward and at what pace.

  

Off-Balance Sheet Arrangements

 

Since our inception, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Market risk represents the risk of loss that may result from the change in value of financial instruments due to fluctuations in its market price. Market risk is inherent in all financial instruments. Market risk may be exacerbated in times of trading illiquidity when market participants refrain from transacting in normal quantities and/or at normal bid-offer spreads. Our exposure to market risk is directly related to derivatives, debt and equity linked instruments related to our financing activities.

 

Our assets and liabilities are overwhelmingly denominated in U.S. dollars. We do not use foreign currency contracts or other derivative instruments to manage changes in currency rates. We do not now, nor do we plan to, use derivative financial instruments for speculative or trading purposes. However, these circumstances might change.

 

The primary quantifiable market risk associated with our financial instruments is sensitivity to changes in interest rates. Interest rate risk represents the potential loss from adverse changes in market interest rates. We use an interest rate sensitivity simulation to assess our interest rate risk exposure. For purposes of presenting the possible earnings effect of a hypothetical, adverse change in interest rates over the 12-month period from our reporting date, we assume that all interest rate sensitive financial instruments will be impacted by a hypothetical, immediate 100 basis point increase in interest rates as of the beginning of the period. The sensitivity is based upon the hypothetical assumption that all relevant types of interest rates that affect our results would increase instantaneously, simultaneously and to the same degree. We do not believe that our cash and equivalents have significant risk of default or illiquidity.

 

The sensitivity analyses of the interest rate sensitive financial instruments are hypothetical and should be used with caution. Changes in fair value based on a 1% or 2% variation in an estimate generally cannot be extrapolated because the relationship of the change in the estimate to the change in fair value may not be linear. Also, the effect of a variation in a particular estimate on the fair value of financial instruments is calculated independent of changes in any other estimate; in practice, changes in one factor may result in changes in another factor, which might magnify or counteract the sensitivities. In addition, the sensitivity analyses do not consider any action that we may take to mitigate the impact of any adverse changes in the key estimates.

 

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Based on our analysis, as of September 30, 2018, the effect of a 100+/- basis point change in interest rates on the value of our financial instruments and the resultant effect on our net loss are considered immaterial.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Certain of our Company’s finance and accounting functions are performed by an external firm on a contract services basis. This firm specializes in providing finance and accounting functions for biotech companies, and the founders and senior managers are highly experienced former partners of national accounting firms. Further, the Company is engaged with a second external firm: one that specializes in Sarbanes-Oxley matters and helping public companies improve their controls and procedures. Together with these two external firms, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on the evaluation of our disclosure controls and procedures, our principal executive, financial and accounting officer concluded that during the period covered by this report, our Company’s processes for internally reporting material information in a systematic manner to allow for timely filing of material information were not effective, due to inherent limitations from being a small company, and the three material weaknesses described in our December 31, 2017 Form 10-K remain as of the filing of this Form 10-Q.  We continue to implement the enhanced procedures and controls developed during 2016, 2017, and 2018. We continue to work together with the two external firms to further strengthen our disclosure controls and procedures, and further mitigate the remaining weaknesses.

  

Changes in Internal Control over Financial Reporting

 

We continue to make further improvements to our internal controls over financial reporting, in addition to the improvements developed in 2016, 2017, and 2018. These enhanced procedures did not result in identifying any related party transactions other than the ones already known and disclosed, or any misstatements to the financial statements. We will continue to take steps to improve our internal control system and to address the remaining deficiencies, but the timing of such steps is uncertain and our ability to retain or attract qualified individuals to undertake these functions is also uncertain.  There were no changes in our internal control over financial reporting during the quarter ended September 30, 2018 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Part II - Other Information

 

Item 1. Legal Proceedings

 

U.S. Securities and Exchange Commission

 

As previously reported, the Company has received a number of formal information requests (subpoenas) from the SEC regarding several broad topics that have been previously disclosed, including the Company’s membership on Nasdaq and delisting, related party matters, the Company’s programs, internal controls, the Company’s Special Litigation Committee, disclosures and the publication of interim clinical trial data. Testimony of certain officers and third parties has been taken as well. The Company has been cooperating with the SEC investigation.  As hoped, the investigation is winding to a conclusion.  After investigation of a broad array of issues over the past two-plus years, the SEC Staff has informed us preliminarily that they have concerns in regard to two issues, relating to the Company’s internal controls over financial reporting and the adequacy of certain disclosures made in the past.  We have previously disclosed material weaknesses in our internal controls.  As for disclosures, we believe our disclosures complied with applicable law.  Despite our belief that the Staff should close the investigation, there can be no assurance that the Staff will not recommend some action involving the Company and/or individuals. Given the stage of the process, the Company is unable to provide a current assessment of the potential outcome or potential liability, if any.

 

Chardan Capital Markets v. Northwest Biotherapeutics, Inc.

 

On June 22, 2017, Chardan Capital Markets, LLC filed a lawsuit against the Company in the United District Court for the Southern District of New York, captioned Chardan Capital Markets v. Northwest Biotherapeutics, Inc., 1:17-cv-04727-PKC. Chardan alleges that it provided capital placement agent services to the Company in December 2016 under a contract and that it has not been fully compensated for those services. Chardan further alleges that it provided additional services to the Company in March 2017 in anticipation of entering into a contract and that it received no compensation. The operative complaint asserted claims sounding in unjust enrichment, quantum meruit, and breach of contract, and sought recovery in the amount of $496,000, plus interest and attorneys’ fees and costs. The Company filed a motion to dismiss the complaint on December 1, 2017. On August 6, 2018, the District Court granted the Company’s motion to dismiss in its entirety and entered a Judgment dismissing Chardan’s Amended Complaint.  On September 5, 2018, Chardan filed a notice of appeal seeking review of the District Court’s ruling.  Chardan’s brief on appeal was originally due to be filed on or before October 30, 2018, but Chardan did not file its brief on that day.  On October 31, 2018, the Clerk of Court of the United States Court of Appeals for the Second Circuit entered an order stating that the “case is deemed in default” and ordering “that the appeal is dismissed effective November 14, 2018 if the brief and any required appendix are not filed by that date.”  Chardan did not file its brief and appendix on or before November 14, 2018.  Accordingly, Chardan’s appeal has been dismissed by force of the October 31, 2018 order of the Court of Appeals. 

 

33

 

 

Item 1A. Risk Factors

 

See risk factors described in our most recent Annual Report on Form 10-K.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults Upon Senior Securities

 

Not Applicable.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

   

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

31.1   Certification of President (Principal Executive Officer and Principal Financial and Accounting Officer), Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
     
32.1   Certification of President, Chief Executive Officer and Principal Financial and Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** 
     
101.INS   XBRL Instance Document.
101.SCH   XBRL Schema Document.
101.CAL   XBRL Calculation Linkbase Document.
101.DEF   XBRL Definition Linkbase Document.
101.LAB   XBRL Label Linkbase Document.
101.PRE   XBRL Presentation Linkbase Document.

 

* Filed herewith

 

** Furnished herewith

 

34

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  NORTHWEST BIOTHERAPEUTICS, INC
     
Dated: November 16, 2018 By:   /s/ Linda F. Powers
    Name:   Linda F. Powers
       
    Title: President and Chief Executive Officer
      Principal Executive Officer
      Principal Financial and Accounting Officer

 

35

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