NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited
condensed consolidated financial statements include the accounts of Northwest Biotherapeutics, Inc. and its subsidiaries, NW Bio
Europe S.A.R.L. and NW Bio GmBh (collectively, the “Company”, “we”, “us”, and “our”).
All material intercompany balances and transactions have been eliminated. The accompanying unaudited condensed consolidated financial
statements should be read in conjunction with the financial statements included in our Annual Report on Form 10-K for the year
ended December 31, 2011. The year-end condensed balance sheet data was derived from audited financial statements, but does not
include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”).
All normal recurring adjustments which are necessary for the fair presentation of the results for the interim periods are reflected
herein. Operating results for the three month and nine month periods ended September 30, 2012 and 2011 are not necessarily indicative
of results to be expected for a full year.
Effective September
25, 2012, all shares of the Company’s common stock issued and outstanding were combined and reclassified on a on
e-for-sixteen
basis. The effect of this reverse stock split has been retroactively applied to all periods presented.
The
Company has experienced recurring losses from operations. Net cash outflows from operations were $6.1 million for the three months
ended September 30, 2012, and $14.5 million for the nine months ended September 30, 2012.
The independent registered
public accounting firm’s report on the financial statements for the fiscal year ended December 31, 2011 states that because
of recurring operating losses, net operating cash flow deficits, and a deficit accumulated during the development stage, there
is substantial doubt about the Company’s ability to continue as a going concern. A “going concern” opinion indicates
that the financial statements have been prepared assuming the Company will continue as a going concern and do not include any adjustments
to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
2. Summary of Significant Accounting Policies
The Company implemented the following accounting
policies during the period ended September 30, 2012.
Revenue recognition
. In various
situations, the Company receives certain payments from patients. These are generally non-refundable, and are not dependent
on the Company’s ongoing future performance. The Company has adopted a policy of recognizing these payments as revenue when
received.
Accounts Receivable
. The accounts
receivable balances may include balances due from research grants and other services. We record an allowance for doubtful accounts
for our best estimate of the amount of probable credit losses in our existing accounts receivable. We determine the allowance for
doubtful accounts based primarily on historical write-off experience. Account balances that are deemed uncollectible, are charged
off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
As of September 30, the Company had a full valuation allowance on accounts receivable of $195,000.
In September 2011, the Financial Accounting
Standards Board issued ASU No. 2011-05, Comprehensive Income, or ASU 2011-05. The guidance in ASU 2011-05 revises the manner in
which entities present comprehensive income in their financial statements. An entity is required to report the components of comprehensive
income in either one or two consecutive financial statements:
|
·
|
A single, continuous statement must present the components of net income and total net income, the components of other comprehensive
income and total other comprehensive income, and a total for comprehensive income; or
|
|
·
|
In a two-statement approach, an entity must present the components of net income and total net income in the first statement.
That statement must be immediately followed by a financial statement that presents the components of other comprehensive income,
a total for other comprehensive income, and a total for comprehensive income.
|
ASU 2011-05 does not change the items that
must be reported in other comprehensive income. The amendments in ASU 2011-05 are effective for fiscal years beginning after December
15, 2011. The Company adopted this guidance, and implemented the two-statement approach.
The other significant
accounting policies used in the preparation of the Company’s condensed consolidated financial statements are disclosed in
Note 3 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2011.
3. Stock-Based Compensation
Compensation expense
for all stock-based awards is measured at the grant date based on the fair value of the award and is recognized as an expense,
on a straight-line basis, over the employee's requisite service period (generally the vesting period of the equity award). The
fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model. Stock-based compensation
expense is recognized only for those awards that are expected to vest using an estimated forfeiture rate. We estimate pre-vesting
option forfeitures at the time of grant and reflect the impact of estimated pre-vesting option forfeitures in compensation expense
recognized. For options and warrants issued to non-employees, the Company recognizes stock compensation costs utilizing the fair
value methodology over the related period of benefit.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A summary of stock options activity for
2012 is as follows (shares in thousands):
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Grant
|
|
|
Average
|
|
|
|
|
|
|
Number
|
|
|
Average
|
|
|
Date
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
of
|
|
|
Exercise
|
|
|
Fair
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Value
|
|
|
Life
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2011
|
|
|
1,574
|
|
|
$
|
10.56
|
|
|
$
|
10.56
|
|
|
|
|
|
|
|
|
|
2012 activity
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2012
|
|
|
1,574
|
|
|
$
|
10.56
|
|
|
$
|
10.56
|
|
|
|
5.8 years
|
|
|
$
|
-
|
|
Stock-based compensation
expense was as follows for the three months and nine months ended September 30, 2012 and 2011 (in thousands):
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
91
|
|
|
$
|
226
|
|
|
$
|
380
|
|
|
$
|
2,172
|
|
General and administrative
|
|
|
586
|
|
|
|
1,178
|
|
|
|
2,194
|
|
|
|
5,182
|
|
Total stock- based compensation expense
|
|
$
|
677
|
|
|
$
|
1,404
|
|
|
$
|
2,574
|
|
|
$
|
7,354
|
|
There were no options to purchase common stock granted during the three month and nine month periods ended
September 30, 2012, although certain options previously granted were vested. At September 30,
2012, the unrecognized compensation expense related to stock options was $2.6 million which is to be recognized over a weighted
average period of approximately 2.8 years.
4. Fair Value Measurements
Fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. U.S. GAAP establishes a three tier fair value hierarchy which prioritizes the inputs used in measuring fair value.
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level
1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
|
·
|
Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
|
|
·
|
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such
as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that
are not active; and
|
|
·
|
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop
its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant
value drivers are unobservable.
|
The Company's liability for reclassified
equity contracts was measured using significant unobservable (Level 3) inputs.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In 2011, as a result of
the Company entering into convertible promissory notes and issuing warrants to purchase common stock, the Company's total
potential outstanding common stock exceeded the Company’s authorized shares by approximately 6.8 million shares as of
December 31, 2011, as also discussed in Note 7. As a result, the Company was required to value a number of shares equal to
the excess issuable on exercise of warrants and options and on conversion of convertible notes and recognize the value as a
liability. Effective February 6, 2012, the Company’s stockholders approved an increase in the number of authorized
shares sufficient to cover the excess. At that time, the liability was re-measured, with changes in value included in other
income/(expense), and then reclassified to additional paid-in capital (thereby removing it from the Company’s
liabilities).
The following table represents the activity
for the Company’s liability for reclassified equity contracts for the three month and nine month periods ended September
30, 2012 and 2011:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
29,903,000
|
|
|
$
|
-
|
|
Liabilities reclassified
|
|
|
-
|
|
|
|
5,446,000
|
|
|
|
693,000
|
|
|
|
23,975,000
|
|
Change in value of reclassified liabilities
|
|
|
-
|
|
|
|
(8,875,000
|
)
|
|
|
(491,000
|
)
|
|
|
(7,413,000
|
)
|
Liabilities reclassified to equity
|
|
|
-
|
|
|
|
-
|
|
|
|
(30,105,000
|
)
|
|
|
-
|
|
Ending balance
|
|
$
|
-
|
|
|
$
|
(3,429,000
|
)
|
|
$
|
-
|
|
|
$
|
16,562,000
|
|
The Company concluded that certain conversion features and warrant
agreements included down-round provisions and were not indexed to the Company’s stock (and are therefore recorded as derivative
liabilities). The Company recognizes the derivative liabilities at their respective fair values using a binomial model adjusted
for the probability of issuance using a Monte Carlo simulation. Changes in the fair value are recorded in “Derivative valuation
gain (loss)” in the condensed consolidated statements of operations. Key assumptions for determining fair values during the
periods presented included expected terms ranging from between 3 and 15 months, volatility ranging from between 95% and 190% and
risk-free interest rate of 0.18%.
The Company's embedded
derivative liability was measured using significant unobservable (Level 3) inputs. The following table represents the Company’s
embedded derivative liability activity for the three months and nine months ended September 30, 2012 and 2011:
|
|
Three
Months Ended
September 30,
|
|
|
Nine
Months Ended
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
53,000
|
|
|
$
|
2,368,000
|
|
|
$
|
601,000
|
|
|
$
|
839,000
|
|
Reclassification to stockholders'
equity upon conversion and expiration of derivative
|
|
|
-
|
|
|
|
(212,000
|
)
|
|
|
-
|
|
|
|
(381,000
|
)
|
Embedded derivative liability recognized
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,389,000
|
|
Net change in fair value of embedded derivative
liabilities
|
|
|
(35,000
|
)
|
|
|
(338,000
|
)
|
|
|
(583,000
|
)
|
|
|
(29,000
|
)
|
Ending balance
|
|
$
|
18,000
|
|
|
$
|
1,818,000
|
|
|
$
|
18,000
|
|
|
$
|
1,818,000
|
|
5. Liquidity and Going Concern
The
Company has experienced recurring losses from operations. Net cash outflows from operations were $6.1 million for the three
months ended September 30, 2012, and $14.5 million nine months ended September 30, 2012, respectively. The Company had a working
capital deficit of $35.9 million at September 30, 2012.
The Company had a deficit
accumulated during the development stage of $288.6 million, which included $131.7 million for operating cash flows.
Since
2004, Toucan Capital Fund II, L.P. (“Toucan Capital”), Toucan Partners LLC (“Toucan Partners”), entities
controlled by Ms. Linda Powers, the managing director of Toucan Capital and managing member of Toucan Partners, and Ms. Linda Powers
(collectively “Toucan”) have provided substantial funding to the Company. During the period from 2004 to 2007, the
funding consisted of various loans and purchases of common stock. Under a Conversion Agreement during 2007, all loans payable to
Toucan outstanding at the time were converted to preferred stock and the preferred stock was subsequently converted to common stock.
As a result of additional loans, as of September 30, 2012, notes payable and accrued interest include $5.2 million convertible
notes payable to Toucan. The notes payable to Toucan outstanding as of September 30, 2012, are convertible in accordance with their
terms at $3.20.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The
Company utilizes the services of Cognate BioServices, Inc., an entity controlled by Toucan, for manufacturing DCVax product candidates,
regulatory advice, research and development preclinical activities, and managing certain aspects of clinical trials. Accounts payable
to Cognate BioServices, Inc. amounted to $4.8 million as of September 30, 2012.
The
Company received proceeds of $0.7 million in 2011 on an operational loan basis, from Artecel, Inc. Repayment terms as well as warrant
coverage were agreed in August 2012. The note carries original issue discount of ten percent, an interest rate of ten percent,
and a nine-month maturity. The note is convertible at 90% of the average of the lowest five days’ closing prices of the Company’s
common stock in the twenty trading days prior to conversion. The note carries one hundred percent warrant coverage, with an exercise
price of $6.40, and an exercise period of five years. The Company and Artecel have entered into three extensions of this note.
In consideration of the extensions, the Company agreed to issue warrants to Artecel on the same basis as warrants have been hissued
to unrelated investors for note extensions.
As of September 30,
2012, Toucan, beneficially owned (including common stock issuable upon exercise of exercisable warrants and options) approximately
4.7 million shares of common stock.
In addition to financing
obtained from Toucan and related entities, the Company has raised additional capital by issuing common stock and debt securities.
As of September 30, 2012 the Company had approximately $0.1 million of cash and cash equivalents on hand. The Company will need
to raise additional capital in the near future to continue to fund its clinical trials and other operating activities and there
can be no assurance that its efforts to seek such funding will be successful. The Company may seek funding from Toucan Capital
or Toucan Partners or their affiliates or other third parties. Such parties are under no obligation to provide the Company with
any additional funds, and any such funding may be dilutive to stockholders and may contain restrictive covenants. The Company is
currently exploring additional financings with several other parties; however, there can be no assurance that the Company will
be able to complete any such financings or that the terms of such financings will be attractive to the Company. If the Company’s
capital raising efforts are unsuccessful, its inability to obtain additional cash as needed could have a material adverse effect
on the Company’s financial position, results of operations and the Company’s ability to continue its existence.
During
October 2012, the Company signed agreements to retire $28.4 million of convertible notes, notes and other payables by entering
into Conversion Agreements with non-affiliated and affiliated note holders and creditors of the Company, including certain of directors
and executive officers. This aggregate debt amount will be converted into 8,125,494 common shares and warrants exercisable for
3,624,436 shares of common stock, effective upon the closing of a public offering which has not yet occurred prior to the date
of this report. The warrants will have an exercise period of five years from the date of issuance and an exercise price of $6.40
per share.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. Notes Payable
Notes payable consist
of the following at September 30, 2012 and December 31, 2011(in thousands):
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Notes payable - current
|
|
|
|
|
|
|
|
|
12% unsecured originally due July 2011
|
|
$
|
934
|
|
|
$
|
935
|
|
6% unsecured due May 16, 2013 (net of discount
of $0 in 2012 and $236 in 2011)
|
|
|
1,450
|
|
|
|
1,764
|
|
12% unsecured originally due March 2011
|
|
|
100
|
|
|
|
450
|
|
|
|
$
|
2,484
|
|
|
$
|
3,149
|
|
Notes payable related parties - current
|
|
|
|
|
|
|
|
|
12% unsecured due June 2012 and within six
months (net of discount of $0 in 2012 and $21 in 2011)
|
|
$
|
2,177
|
|
|
$
|
2,056
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable, net - current
|
|
|
|
|
|
|
|
|
6% unsecured due between March 2011 and February 2012 (net of discount
of $0 in 2012 $34 in 2011)
|
|
$
|
2,020
|
|
|
$
|
2,676
|
|
0% unsecured due between December 2012 and February 2013 (net of
discount of $1,463 in 2012)
|
|
|
1,323
|
|
|
|
-
|
|
10% unsecured due between April 2011 and February 2012 (net
of discount of $0 in 2012 $38 in 2011)
|
|
|
50
|
|
|
|
150
|
|
10% unsecured convertible note due November 2012 (net of discount
of $333 in 2012 and $1,833 in 2011)
|
|
|
2,667
|
|
|
|
1,167
|
|
6% unsecured due June 2012 (net of discount of $0 in 2012 and $182
in 2011)
|
|
|
-
|
|
|
|
839
|
|
8% unsecured convertible note due April 2013
(net of discount of $753 in 2012)
|
|
|
2,672
|
|
|
|
-
|
|
|
|
$
|
8,732
|
|
|
$
|
4,832
|
|
Convertible Notes payable related party, net
- current
|
|
|
|
|
|
|
|
|
10% unsecured due within 6 months (net of discount of $46 in 2012)
|
|
$
|
4,429
|
|
|
$
|
-
|
|
12% unsecured due June 2012
|
|
|
-
|
|
|
|
2,430
|
|
6% due July 2011 and November 2011 and on demand
(net of discount of $0 in 2012 and $92 in 2011)
|
|
|
1,953
|
|
|
|
1,158
|
|
|
|
$
|
6,382
|
|
|
$
|
3,588
|
|
Long term notes payable
|
|
|
|
|
|
|
|
|
6% unsecured note due October 2012
|
|
$
|
100
|
|
|
$
|
200
|
|
Long term convertible notes, net
|
|
|
|
|
|
|
|
|
4% unsecured due November 15, 2013 (net of discount of
$0 in 2012 and $42 in 2011)
|
|
$
|
-
|
|
|
$
|
402
|
|
4% unsecured due June 30, 2013 (net of discount of $9 in 2011)
|
|
|
-
|
|
|
|
67
|
|
6% due April 2014 and May 2014 (net of discount of $142 in 2012)
|
|
|
1,382
|
|
|
|
-
|
|
4% unsecured due Sept, 2014 (net of discount of $458 in 2012)
|
|
|
375
|
|
|
|
-
|
|
11% unsecured convertible note due December 2013 (net of discount
of $32 in 2012 and $321 in 2011)
|
|
|
135
|
|
|
|
964
|
|
10% unsecured convertible note due May 2015
(net of discount of $611 in 2012)
|
|
|
388
|
|
|
|
-
|
|
|
|
$
|
2,279
|
|
|
$
|
1,433
|
|
Total notes payable, net
|
|
$
|
22,155
|
|
|
$
|
15,258
|
|
The holders of notes payable with an aggregate principal balance
of $7.9 million converted the notes into approximately 2.0 million shares of common stock during the nine months ended September
30, 2012.
The holders of notes payable with an aggregate principal balance
of $1.1 million converted the notes into 0.3 million shares of common stock during the October 2012.
The Company received aggregate proceeds
of $13.2 million in connection with issuing various notes during the nine months ended September 30, 2012. Warrants for the purchase
of approximately 1.5 million shares of common stock were also issued in connection with the notes. The notes are payable on various
dates through May 2015 and have interest rates between 0% and 11%.
The conversion prices of the notes, with
fixed terms, range between $5.28 and $6.40. The Company is currently negotiating the repayment terms for notes payable which are
past due.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. Reclassified Equity Contracts
The Company accounts
for potential shares that can be converted to common stock and that if converted, will be in excess of authorized shares, as a
liability that is recorded on the balance sheet (at fair value) only until the authorized number of shares is increased (at which
time the whole liability will be re-measured, with changes in value included in other income/ (expense), and then reclassified
to additional paid-in capital). The value of the liability was computed by valuing the securities that management believed were
most likely to be converted. This liability is revalued at each reporting date with any change in value included in other income/
(expense) until such time as enough shares are authorized to cover all potentially convertible instruments.
In 2011, as a result of the Company entering into convertible promissory notes and issuing stock options,
and warrants to purchase common stock, the Company's
total potential outstanding
common stock exceeded the Company's authorized shares by approximately 6.8 million shares at December 31, 2011. During 2012, the
number of potential shares in excess of authorized shares increased to approximately 7 million. Effective February 6, 2012, the
number of authorized common shares was increased and the liability for potential shares in excess of total authorized shares was
revalued at that date. This valuation resulted in non- cash gain of approximately $0.5 million during the nine months ended September
30, 2012. The liability that was reclassified to additional paid in capital (and thereby removed from the Company’s liabilities)
during the nine months ended September 30, 2012 amounted to approximately $30 million.
8. Net Income (Loss) Per Share Applicable to Common Stockholders
For the three months ended September
30, 2011, options and warrants to purchase 0.4 million shares of common stock were included in the computation of diluted net income
(loss) per share because they were dilutive. Convertible debt having a face value of $5.4 million is also considered dilutive for
purposes of computing diluted net income (loss) per share. The conversion of the convertible debt increases the number of shares
outstanding for purposes of computing diluted net income (loss) per share by 1.3 million shares for the three month period
ended September 30, 2011. In determining the amount of net income used to compute diluted earnings per share, the Company applied
the “if converted method.” Accordingly, net income for the three months ended September 30, 2011, has been increased
by approximately $54,000, representing interest expense that would have been avoided if the debt had been converted as of July 1,
2011. Options, warrants, and convertible debt outstanding were all considered anti-dilutive for the three and nine months ended
September 30, 2012, and for the nine months ended September 30, 2011, due to net losses.
The following securities were not included
in the diluted net income (loss) per share calculation because their effect was antidilutive as of the periods presented (in thousands):
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock options
|
|
|
1,574
|
|
|
|
1,574
|
|
|
|
1,574
|
|
|
|
1,574
|
|
Common stock warrants
|
|
|
5,437
|
|
|
|
3,038
|
|
|
|
5,437
|
|
|
|
3,326
|
|
Convertible notes
|
|
|
2,627
|
|
|
|
757
|
|
|
|
2,627
|
|
|
|
1,978
|
|
Excluded potentially dilutive securities
|
|
|
9,638
|
|
|
|
5,369
|
|
|
|
9,638
|
|
|
|
6,878
|
|
9. Related Party Transactions
Cognate BioServices
In April, 2011, the Company entered into a new service agreement with Cognate Therapeutics, Inc.
(“Cognate”), a contract
manufacturing and services organization
in which Toucan Capital has a majority interest. In addition, two of the principals of Toucan Capital are members of Cognate’s
board of directors and Linda Powers who is a director of Cognate and managing director of Toucan Capital is Chairperson of the
Company’s Board of Directors and Chief Executive Officer of the Company. This agreement replaces the agreement dated May
17, 2007 between the Company and Cognate, which had expired. Under the service agreement, the Company agreed to continue to utilize
Cognate’s services, for certain consulting and manufacturing services to the Company for its ongoing DCVax®-Brain Phase
III clinical trial. The scope of services are comparable to the prior agreement, and the structure and process for payments are
simplified. Under the terms of the current agreement the Company pays Cognate a monthly facility fee and a fixed fee (in lieu of
cost-plus charges) for each patient in the study, subject to specified minimum number of patients per month, plus charges for certain
patient and product data services if such services are requested by the Company. The current service agreement will expire on March
31, 2016.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
During the three
months ended September 30, 2012 and 2011, the Company recognized approximately $3.9 million and $2.4 million, respectively,
of research and development costs related to these service agreements. During the nine months ended September 30, 2012 and
2011, the Company recognized approximately $9.9 million and $5.8 million, respectively, of research and development costs
related to these service agreements. As of September 30, 2012 and December 31 2011, the Company owed Cognate approximately
$4.8 million and $0.6 million, respectively.
During 2009, the Company
and Cognate agreed that some or most of the accounts payable owed by the Company to Cognate, will be converted into shares of common
stock instead of paid in cash. The conversion price and terms will be no less favorable than the conversion price and terms
applied to any other creditor of the Company. The Company will recognize the value of common stock issued in excess of the
amount of accounts payable converted, if any, as a charge to operations when the conversion takes place.
Toucan Capital and Toucan Partners
In
accordance with a recapitalization agreement between the Company and Toucan Capital, as amended, pursuant to which Toucan Capital
agreed to recapitalize the Company by making loans to the Company, Toucan Capital, Toucan Partners and Linda Powers paid certain
of the Company’s operating costs on the Company’s behalf. Pursuant to the terms of the Conversion Agreement discussed
above, the recapitalization agreement ended in late 2007. Subsequent to the ending of the recapitalization agreement, Toucan Capital
continued to pay certain of the Company’s operating costs, including, among others, fees and costs for the CRO (contract
research organization) managing the Company’s clinical trials, legal fees and filing fees for the Company’s patents,
equipment and supplies, rent, payroll for personnel, travel expenses and other costs for the Company’s operations, product
pipeline and international expansion efforts.
During
2009, the Company agreed with Toucan Capital, Toucan Partners and Linda Powers that some or all of the payables owed by the Company
to these parties for expense reimbursements will be converted into shares of common stock instead of paid in cash. The conversion
price and terms will be no less favorable than the conversion price and terms applied to any other creditor of the Company.
In November
2012, the Company agreed to reimburse Toucan for $4.6 million of these expenses previously incurred by Toucan for the Company.
Toucan agreed to receive such reimbursement in the form of stock rather than cash. Pursuant to the prior agreement of the parties,
Toucan was entitled to receive conversion terms no less favorable that had been provided to any non-affiliated creditor; however,
Toucan agreed instead to accept the median terms provided to non-affiliated creditors over the preceding six months. The reimbursements
are payable in approximately 1.7 million shares of common stock and 0.8 million warrants. The reimbursement and the conversion
terms were approved by the Company’s Board of Directors. The Company will recognize the fair value of the common stock and
warrants to the extent, if any that they are in excess of the $4.6 million of accrued expenses, as a charge to operations. The
reimbursements of these expenses were accrued as of September 30, 2012. Accordingly, accounts payable to Toucan amounted to $4.6
million at September 30, 2012 and $0.6 million at December 31, 2011.
In
November, 2011, Toucan provided the collateral required by an unrelated investor for a loan of $2 million to the Company. The investor
required that Toucan place in escrow, as collateral to secure repayment of the loan and accumulated interest, approximately 406,250
million shares of common stock of the Company owned by Toucan. Toucan placed such shares in escrow as required. The investor’s
loan had a maturity of six months, expiring in May, 2012. The Company did not repay the investor’s loan at its maturity,
and had not repaid the loan as of the date of this report. The investor has continued to retain Toucan’s shares of Company
stock as security for the loan. In August, 2012, the Company agreed to indemnify and compensate Toucan for providing the loan collateral
by issuing to Toucan warrants equal to fifty percent of the number of shares provided as collateral by Toucan, with an exercise
price of $6.40 and an exercise term of five years. The Company recorded additional expenses of $0.8 million and issued 203,125
warrants during the 3
rd
quarter of 2012 related to this transaction.
The
Company terminated its sub-lease of office space with Toucan Capital on December 31, 2009. Under the sub-lease, the Company was
responsible for its portion of the lease obligations with the landlord, on a straight pass-through basis. Those obligations included
rent payments to the landlord for the remaining unused term of the lease. Pursuant to an extended payment arrangement with the
landlord, those payments are to be made over a number of years. The Company's obligation will be approximately $127,000 in 2012.
Notes Payable - Related Parties
Al Rajhi converted
the note payable with a principal balance of $2,523,201 into 4,426,670 shares of common stock on February 9, 2012.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The
Company received proceeds of $1.3 million in connection with issuing a convertible note to Toucan Partners in July, 2007. The note
carried ten percent original issue discount and an interest rate of ten percent. The note is convertible at a fixed price of $3.20
per share. The note had a 2-year maturity, and was due in July 2011. The note carried one hundred percent warrant coverage, with
the warrants exercisable at the same price as the conversion price, and an exercise period of five years. The Company did not repay
the note at its maturity and the note was still outstanding as of September 30, 2012. The Company and Toucan have agreed to extensions
on the same terms as extensions have been provided to unrelated investors whose notes have not been repaid.
The
Company received proceeds of $1.5 million in connection with issuing a convertible note to Toucan Partners on February 9, 2012.
The note carried 100% warrant coverage. The exercise price of the warrants is $6.40. The note is unsecured, but will become secured
if the Company enters into any secured financing or if there is an event of default, as defined. The note is payable on demand
with 14 days written notice and carried an original issue discount of 10% and a one-time interest charge of 10%. The conversion
price of the note is 95% of the average of the lowest five days’ closing prices of the Company's common stock in the twenty
trading days prior to conversion.
The
Company received proceeds of $1.3 million in connection with issuing unsecured convertible notes to Toucan Partners on dates between
January 3, 2012 and March 6, 2012. The notes carried 100% warrant coverage. The exercise price of the warrants is $6.40. The notes
are payable on demand with between 7 and 14 days written notice and carried an original issue discount of 10% and a one-time interest
charge of 10%. The conversion prices of the notes are 95% of the average of the lowest five days’ closing prices of the Company's
common stock in the twenty trading days prior to conversion.
The
Company received proceeds of $0.7 million from an operational loan from Artecel, Inc. in 2011. Artecel is controlled by Toucan
Capital. Repayment terms as well as warrant coverage were agreed in August 2012. The note carries original issue discount of ten
percent, an interest rate of ten percent, and a nine-month maturity. The note is convertible at 90% of the average of the lowest
five days’ closing prices of the Company’s common stock in the twenty trading days prior to conversion. The note carries
100% warrant coverage. The warrants have an exercise price of $6.40, and an exercise period of five years. The Company and Artecel
have entered into three extensions of this note. In consideration of the extensions, the Company agreed to issue warrants to Artecel
on the same basis as warrants have been issued to unrelated investors for note extensions.
Other Related Parties
The
Company received proceeds of $0.2 million in connection with issuing an unsecured convertible note to an officer of the Company
on January 3, 2012. The notes carried 100% warrant coverage. The exercise price of the warrants is $6.40, and the exercise period
is 5 years. The note is payable on demand with 7 days written notice and carried an original issue discount of 10% and a one-time
interest charge of 10%. The conversion price of the note is 95% of the average of the lowest five days’ closing prices of
the Company's common stock in the twenty trading days prior to conversion.
The
Company received proceeds of $0.3 million in connection with issuing an unsecured convertible demand note to an officer of the
Company on June 29, 2012. The conversion price was $5.28 and the interest rate was 10%. The notes carried 100% warrant coverage.
The exercise price is $5.60 and the exercise period of the warrants is five years.
During 2010, 2011
and 2012 year to date, a Board member of the Company arranged multiple financings for the Company, totaling approximately $8.0
million. The Company agreed to compensate the Board member at a rate below the usual fees of investment banks for such transactions,
by paying the Board member 63 thousand shares of common stock valued at $0.3 million during the third quarter of 2012.
During
2008, 2009 and 2010, the Company received approximately $1.0 million in proceeds in connection with issuing unsecured notes.
The fixed conversion fixed prices range from $3.20 to $8.00 and interest rates range from 6% to 12%.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. Stockholders’ Equity (Deficit)
Common Stock Issuances
Issuances of common stock during 2012 were
as follows (shares and dollars in thousands):
|
|
|
|
|
|
|
|
Fair Value/
|
|
|
|
Shares
|
|
|
Purchase/Conversion
|
|
|
Proceeds/Debt
|
|
Description
|
|
Issued
|
|
|
Price
|
|
|
Conversion
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares to private investors
|
|
|
14
|
|
|
$
|
5.28
|
|
|
$
|
75
|
|
Issuance of shares to private investors
|
|
|
14
|
|
|
|
4.32
|
|
|
|
65
|
|
Conversion of notes payable
|
|
|
590
|
|
|
|
6.24
|
|
|
|
3,700
|
|
Conversion of accounts payable
|
|
|
3
|
|
|
|
5.12
|
|
|
|
15
|
|
Total 1st Quarter 2012
|
|
|
621
|
|
|
|
|
|
|
|
3,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares to private investors
|
|
|
56
|
|
|
|
3.68
|
|
|
|
207
|
|
Conversion of notes payable
|
|
|
23
|
|
|
|
2.24
|
|
|
|
66
|
|
Conversion of notes payable
|
|
|
300
|
|
|
|
2.88
|
|
|
|
866
|
|
Shares issued for consulting services
|
|
|
1
|
|
|
|
4.00
|
|
|
|
3
|
|
Total 2nd Quarter 2012
|
|
|
380
|
|
|
|
|
|
|
|
1,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares to private investors
|
|
|
222
|
|
|
|
5.11
|
|
|
|
1,135
|
|
Conversion of notes payable
|
|
|
1,080
|
|
|
|
2.94
|
|
|
|
3,172
|
|
Shares issued for consulting services
|
|
|
190
|
|
|
|
4.76
|
|
|
|
905
|
|
Total 3rd Quarter 2012
|
|
|
1,492
|
|
|
|
|
|
|
|
5,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Nine Months Ended September 30, 2012
|
|
|
2,493
|
|
|
|
|
|
|
$
|
10,209
|
|
Stock Purchase Warrants
Through September 30, 2012, the Company has
issued warrants to strategic partners, consultants and investors with exercise prices ranging from $2.40 to $51.84 and
exercise periods ranging from three to five years. The following is a summary of warrant activity for the nine months ended
September 30, 2012:
|
|
Number of
Warrants
|
|
|
Weighted Average
Exercise Price
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2011
|
|
|
3,568,308
|
|
|
$
|
8.96
|
|
Issued
|
|
|
1,868,550
|
|
|
|
7.14
|
|
Outstanding as of September 30, 2012
|
|
|
5,436,858
|
|
|
$
|
8.30
|
|
11. Subsequent Events
During
October 2012, the Company signed agreements to retire $28.4 million of convertible notes, notes and other payables by entering
into Conversion Agreements with non-affiliated and affiliated note holders and creditors of the Company, including certain of directors
and executive officers. This aggregate debt amount will be converted into 8,125,494 common shares and warrants exercisable for
3,624,436 shares of common stock, effective upon the closing of a public offering. The warrants will have an exercise period of
five years from the date of issuance and an exercise price of $6.40 per share.
During
October and November 2012, the Company issued 1.0 million shares of common stock and received $5 million in private placement transactions.
In addition, the holders of notes payable with an aggregate principal balance of $1.1 million converted the notes into 0.3 million
of common stock during October 2012.
In November
2012, the Company agreed to reimburse Toucan for $4.6 million of Company operations expenses previously incurred. Toucan agreed
to receive such reimbursement in the form of stock rather than cash. Pursuant to the prior agreement of the parties, Toucan was
entitled to receive conversion terms no less favorable that had been provided to any non-affiliated creditor. However, Toucan agreed
instead to accept the median terms provided to non-affiliated creditors over the preceding six months. The reimbursements of such
expenses are payable in approximately 1.7 million shares of common stock and 0.8 million warrants. The Company will recognize the
fair value of the common stock and warrants in excess of the $4.6 million of accrued expenses, if any, as a charge to operations.
Pursuant to the prior agreement of the parties, Toucan was entitled to receive conversion terms no less favorable that had been
provided to any non-affiliated creditor; however, Toucan agreed instead to accept the median terms provided to non-affiliated creditors
over the preceding six months. The reimbursement of such expenses and the terms were approved by the Board of Directors. These
expenses were accrued as of September 30, 2012.
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” elsewhere in 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
We are
a development stage biotechnology company focused on discovering, developing and commercializing immunotherapy products to generate
and enhance immune system responses to treat cancer. Data from our clinical trials suggest that our cancer therapies significantly
extend both the time to tumor recurrence and patient survival time, while providing a superior quality of life with no debilitating
side effects when compared with current therapies.
Our
financing activities are described below under “- Liquidity and Capital Resources”. We will need to raise additional
capital to fund our operations, including our Phase III DCVax ® -L clinical trial. If the results of our Phase III trial are
positive, we plan to seek early product approval for DCVax®-L.
The
Company has experienced recurring losses from operations. Net cash outflows from operations were $6.1 million for the three months
ended September 30, 2012, and $14.5 million for the nine months ended September 30, 2012.
We
have experienced recurring losses from operations and as of September 30, 2012 we have a deficit accumulated during the development
stage of $288.6 million, which includes $131.7 million of operating cash flows.
In addition, our independent
registered public accounting firm’s report on the financial statements for the year ended December 31, 2011, states that
because of recurring operating losses, net operating cash flow deficits, and a deficit accumulated during the development stage,
there is substantial doubt about the Company’s ability to continue as a going concern.
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, 2011. 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, 2011.
Recent Accounting Pronouncements
See Note 2 to Condensed Consolidated Financial
Statements in this Form 10-Q.
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 are especially high when we are in a phase III trial, as we now are), and general and administrative
expenses.
Research and development:
Discovery and preclinical
research and development expenses include scientific personnel-related salary and benefit expenses, 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 a development
stage 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, 2012 and 2011
We recognized
a net loss of $16.5 million for the three months ended September 30, 2012 compared to a net income of $0.5 million for the three
months ended September 30, 2011. This net loss included $6.1 million in total net cash outlays, as well as certain non-cash charges
related to financing transactions. The increase in the net loss for the three months ended September 30, 2012 over the 2011 period
was primarily attributable to the gain on valuation of reclassified equity instruments during 2011 and increased clinical development
expenses incurred during the 3
rd
quarter of 2012 due to increased number of clinical trial
sites open and recruiting across the United States in our ongoing Phase III clinical trial of DCVax®-L immune therapy for Glioblastoma
multiforme (GBM), the most lethal form of brain cancer.
Research
and Development Expense.
Research and development expense was $9.9 million for the three months ended September 30, 2012 compared
to $3.6 million for the three months ended September 30, 2011. The increase was primarily attributable to increased clinical development
expenses incurred during the 3
rd
quarter of 2012 due to increased number of clinical trial
sites open and recruiting across the United States in our ongoing Phase III clinical trial of DCVax®-L immune therapy for GBM,
as well as expansion of the trial into Europe.
As of September 30, 2012 we had 41 clinical trial sites
in operation in the U.S., compared to 16 clinical trial sites at September 30, 2011.
General and Administrative Expense.
General
and administrative expense was $3.9 million for the three months ended September 30, 2012 compared to $2.8 million for the
three months ended September 30, 2011. These G&A expenses included $1.7 million fees related to financing transactions
and $0.6 related to non-cash stock based compensation amortization. The increase was primarily due to incremental consulting
expenses related to financing transactions. Such fees were paid in common stock and warrants.
Valuation
of reclassified equity contracts.
During the three months ended September 30, 2012, we did not recognize a non-cash gain from
the valuation of reclassified equity contracts because there were no contracts required to be accounted for as liabilities during
the 3rd quarter of 2012. There was a non-cash gain of $8.9 million in reclassified equity contracts during the three months ended
September 30, 2011.
Derivative valuation gain and loss
.
During
the three months ended September 30, 2012 we recognized a gain on derivative liabilities of $0.04 million due to the decrease
in term remaining on this liability based financial instrument. We recognized a $0.4 million loss in the three months ended September
30, 2011.
Interest (Expense).
Interest expense (including amortization of debt discount) was $2.8 million for the three months ended September 30, 2012
and $2.4 million for the three months ended September 30, 2011. The increase in interest expense is related to the increase in
notes payable, net balance from $12.3 million as of September 30, 2011 to $22.2 million as of September 30, 2012.
Nine Months Ended September 30, 2012 and 2011
We recognized
a net loss of $36.8 million for the nine months ended September 30, 2012 compared to a net loss of $20.2 million for the nine months
ended September 30, 2011. This net loss included $14.5 million in total net cash outlays, as well as certain non-cash charges related
to financing transactions.
Research and Development
Expense.
Research and development expense was $20.5 million for the nine months ended September 30, 2012 compared to $11.5
million for the nine months ended September 30, 2011. The increase was primarily attributable to increased number of clinical
trial sites open and recruiting across the United States in our ongoing Phase III clinical trial of DCVax®-L immune therapy
for GBM, as well as expansion of the trial into Europe.
General and Administrative Expense.
General
and administrative expense was $8.2 million for the nine months ended September 30, 2012 compared to $10.7 million for the
nine months ended September 30, 2011. These G&A expenses included non-cash fees related to stock based compensation
amortization and fees related to financing transactions. The decrease was primarily due to an incremental $3.0 million of
stock compensation expenseprimarily related to the grant of stock options to the new management team in September 2011.
Valuation
of reclassified equity contracts.
During the nine months ended September 30, 2012, the Company recognized a non-cash gain amounting
to $0.5 million from the decrease in value of reclassified equity contracts. There was a non-cash gain of $7.4 million in reclassified
equity contracts during the nine months ended September 30, 2011.
Derivative
valuation gain and loss.
During the nine months ended September 30, 2012 we recognized a gain on derivative liabilities of
$0.6 million due to the change in value of the financial instruments. We recognized a $0.03 million gain in the nine months ended
September 30, 2011.
Interes
t
(Expense).
Interest expense (including amortization of debt
discount) increased to $9.6 million for the nine months ended September 30, 2012 from $5.4 million for the nine months ended September
30, 2011. Interest expense increased for the nine month period ended September 30, 2012 primarily related to the increase in notes
payable, net balance from $12.3 million as of September 30, 2011 to $22.2 million as of September 30, 2012.
Liquidity and Capital Resources
The
Company has experienced recurring losses from operations. Net cash outflows from operations were $6.1 million for the three months
ended September 30, 2012, and $14.5 million for the nine months ended September 30, 2012.
At September 30, 2012,
cash and cash equivalents totaled $0.1 million, compared to $0.02 million at December 31, 2011. Working capital was a deficit of
$35.9 million at September 30, 2012, compared to a deficit of $50.6 million at December 31, 2011. The working capital deficit decreased
as of September 30, 2012 as compared to December 31, 2011 primarily due to the decrease in the liability for reclassified equity
contracts in 2012.
The change in cash
for the periods presented was comprised of the following (in thousands):
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(14,505
|
)
|
|
$
|
(10,152
|
)
|
|
$
|
(4,353
|
)
|
Investing activities
|
|
|
(31
|
)
|
|
|
(31
|
)
|
|
|
-
|
|
Financing activities
|
|
|
14,663
|
|
|
|
11,717
|
|
|
|
2,946
|
|
Effect of exchange rates on cash and cash equivalents
|
|
|
(40
|
)
|
|
|
(44
|
)
|
|
|
4
|
|
Increase in cash and cash equivalents
|
|
$
|
87
|
|
|
$
|
1,490
|
|
|
$
|
(1,403
|
)
|
Operating Activities
We used $14.5 million in cash for operating activities during the nine months ended September 30, 2012.
The increase in cash used in operating activities
was primarily attributable
to increased number of clinical trial sites open and recruiting across the United States, and expansion of the trial into Europe,
in our ongoing Phase III clinical trial of DCVax®-L immune therapy for GBM.
Investing Activities
Investing activities
for the periods presented are not material.
Financing Activities
During the nine
months ended September 30, 2012, our financing activities consisted of net proceeds from notes payable amounting to $13.2
million and proceeds from the issuance of common stock amounting to $1.5 million. The increase in our financing activities
was primarily attributable to raising financing to support the increased number of clinical trial sites open and
recruiting across the U.S. in our ongoing Phase III clinical trial of DCVax®-L immune therapy for GBM.
In order to continue
with our current activities under our DCVax- ®- -L program, we will have to obtain substantial amounts of further funding.
Our ongoing funding requirements will depend on many factors, including the number of staff we employ, the pace of patient enrollment
in our brain cancer trial, the cost of establishing clinical studies and compassionate use/named patient programs in other countries,
and unanticipated developments. Without additional capital, we will not be able to continue significant enrollment in our DCVax®-L
clinical trial or move forward with compassionate use/named patients programs or with any of our other product candidates for which
investigational new drug applications have been cleared by the FDA. We will also be constrained in developing improved manufacturing
processes.
The additional funding
will be required in the near future and there can be no assurance that our efforts to seek such funding will be successful. If
our capital raising efforts are unsuccessful, our inability to obtain additional cash as needed could have a material adverse effect
on our financial position, results of operations and our ability to continue our existence. We may seek additional funds through
the issuance of additional common stock or other securities (equity or debt) convertible into shares of common stock, which could
dilute the ownership interest of our stockholders. We may seek funding from Toucan Capital or Toucan Partners or their affiliates
or other third parties. Such parties are under no obligation to provide us any additional funds, and any such funding may be dilutive
to stockholders and may contain restrictive covenants that could limit our ability to take certain actions.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under
the supervision and with the participation of our management, including our principal executive, financial and accounting officer,
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 this evaluation, our principal executive, financial and accounting
officer concluded that, as of September 30, 2012, in light of the material weaknesses identified in our management report on internal
controls and procedures contained in our Form 10-K for the fiscal year ended December 31, 2011, Item 9A filed on April 13, 2012,
our disclosure controls and procedures were not effective to ensure that the information required to be disclosed by us in the
reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to management, including
our chief executive officer, financial and accounting officer, to allow timely decisions regarding required disclosure, and that
such information is recorded, processed, summarized and reported within the time periods prescribed by the SEC.
Changes in Internal Control over Financial Reporting
There
has been no change in our internal controls over financial reporting that occurred during the fiscal quarter ended September 30,
2012, that has materially affected, or is reasonably expected to materially affect, our internal controls over financial reporting.
Part II - Other Information
Item 1. Legal Proceedings
From time to time,
we are involved in claims and suits that arise in the ordinary course of our business. Although management currently believes that
resolving any such claims against us will not have a material adverse impact on our business, financial position or results of
operations, these matters are subject to inherent uncertainties and management’s view of these matters may change in the
future.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
On July 30, 2012, we issued 82,386 shares
of common stock to a private investor at $5.28 per share for net proceeds of $435,000.
On September 5, 2012, we issued 35,714 shares of
common stock to a private investor at $5.60 per share for net proceeds of $200,000.
On September 28, 2012, we issued 104,167 shares of
common stock to a private investor at $4.80 per share for net proceeds of $500,000.
In October 2012, we issued an aggregate
833,333 shares of common stock to private investors at $4.80 per share for net proceeds of $4,000,000.
In November 2012, we issued 208,333 shares
of common stock to a private investor at $4.80 per share for net proceeds of $1,000,000.
The sales of the securities
identified above were made pursuant to privately negotiated transactions that did not involve a public offering of securities and,
accordingly, we believe that these transactions were exempt from the registration requirements of the Securities Act pursuant to
Section 4(2) of the Securities Act and Rule 506 of Regulation D. The agreements executed in connection with these sales contain
representations to support the Company’s reasonable belief that the Investors had access to information concerning the Company’s
operations and financial condition, that the Investors acquired the securities for their own account and not with a view to the
distribution thereof in the absence of an effective registration statement or an applicable exemption from registration, and that
the Investors are sophisticated within the meaning of Section 4(2) of the Securities Act and are “accredited investors”
(as defined by Rule 501 under the Securities Act). In addition, the issuances did not involve any public offering; the Company
made no solicitation in connection with the sale other than communications with the Investor; the Company obtained representations
from the Investor regarding their investment intent, experience and sophistication; and the Investor either received or had access
to adequate information about the Company in order to make an informed investment decision. All of the foregoing securities are
deemed restricted securities for purposes of the Securities Act.
Item 6. Exhibits
31.1
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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.
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32.1
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Certification of President, Chief Executive Officer and Principal Financial and Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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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.
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NORTHWEST BIOTHERAPEUTICS, INC
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Dated: November 12, 2012
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By:
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/s/ Linda M. Powers
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Name:
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Linda M. Powers
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Title:
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President and Chief Executive Officer
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Principal Executive Officer
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Principal Financial and Accounting Officer
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