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 March 31, 2020

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      ¨       No       x

 

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.         ¨

 

Title of each class   Trading Symbol   Name of each exchange on which registered
Common Stock, par value $0.001 per share   NWBO   OTCQB

 

As of June 12, 2020, the total number of shares of common stock, par value $0.001 per share, outstanding was 710,282,469.

 

 

 

 

 

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 March 31, 2020 and December 31, 2019 3
     
  Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2020 and 2019 4
     
  Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the three months ended March 31, 2020 and 2019 5
     
  Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 6
     
  Notes to Condensed Consolidated Financial Statements 8
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 20
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 24
     
Item 4. Controls and Procedures 25
     
PART II - OTHER INFORMATION 25
     
Item 1. Legal Proceedings 25
     
Item 1A. Risk Factors 26
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 26
     
Item 3. Defaults Upon Senior Securities 26
     
Item 4. Mine Safety Disclosures 26
     
Item 5. Other Information 26
     
Item 6. Exhibits 26
     
SIGNATURES 27

 

 

 

 

PART I - FINANCIAL INFORMATION

 

NORTHWEST BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(Unaudited)  

 

    March 31,     December 31,  
    2020     2019  
ASSETS                
Current assets:                
Cash and cash equivalents   $ 764     $ 372  
Prepaid expenses and other current assets     2,844       2,828  
Total current assets     3,608       3,200  
                 
Non-current assets:                
Property, plant and equipment, net     317       281  
Construction in progress     171       171  
Right-of-use asset, net     4,334       4,679  
Other assets     753       798  
Total non-current assets     5,575       5,929  
                 
TOTAL ASSETS   $ 9,183     $ 9,129  
                 
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT                
Current liabilities:                
Accounts payable and accrued expenses   $ 7,173     $ 6,348  
Accounts payable and accrued expenses to related parties and affiliates     823       842  
Convertible notes, net     1,563       568  
Convertible notes to related party, net     252       -  
Notes payable, net     10,501       5,501  
Notes payable to related party     -       66  
Contingent payable derivative liability     6,679       7,261  
Warrant liability     12,106       20,213  
Shares payable     178       -  
Lease liabilities     384       395  
Total current liabilities     39,659       41,194  
                 
Non-current liabilities:            
Note payable, net of current portion, net     -       6,588  
Lease liabilities, net of current portion     4,516       4,914  
Total non-current liabilities     4,516       11,502  
                 
Total liabilities     44,175       52,696  
                 
COMMITMENTS AND CONTINGENCIES (Note 11)                
                 
Stockholders' deficit:                
Preferred stock ($0.001 par value); 100,000,000 shares authorized as of March 31, 2020 and December 31, 2019, respectively     -       -  
Common stock ($0.001 par value); 1,200,000,000 shares authorized; 662.1 million and 614.3 million shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively     662       614  
Additional paid-in capital     799,660       794,900  
Stock subscription receivable     (10 )     (10 )
Accumulated deficit     (837,181 )     (839,907 )
Accumulated other comprehensive income     1,877       836  
Total stockholders' deficit     (34,992 )     (43,567 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT   $ 9,183     $ 9,129  

 

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

 

  3  

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except per share amounts)

(Unaudited)

 

    For the three months ended  
    March 31,  
    2020     2019  
Revenues:            
Research and other   $ 570     $ 339  
Total revenues     570       339  
Operating costs and expenses:                
Research and development     3,757       3,004  
General and administrative     4,171       3,562  
Legal expenses     375       1,539  
Total operating costs and expenses     8,303       8,105  
Loss from operations     (7,733 )     (7,766 )
Other income (expense):                
Change in fair value of derivative liabilities     12,927       (12,021 )
Loss from extinguishment of debt     (715 )     (788 )
Interest expense     (625 )     (756 )
Foreign currency transaction gain (loss)     (1,128 )     385  
Total other income (expense)     10,459       (13,180 )
Net income (loss)   $ 2,726     $ (20,946 )
                 
Other comprehensive income (loss)                
Foreign currency translation adjustment     1,041       56  
Total comprehensive income (loss)   $ 3,767     $ (20,890 )
                 
Net earnings (loss) per share applicable to common stockholders                
Basic   $ 0.00     $ (0.04 )
Diluted   $ 0.00     $ (0.04 )
                 
Weighted average shares used in computing basic earnings (loss) per share     640,390       529,133  
Weighted average shares used in computing diluted earnings (loss) per share     648,858       529,133  

 

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

 

  4  

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands)

(Unaudited)

 

                                  Accumulated        
                Additional                 Other     Total  
    Common Stock     Paid-in     Subscription     Accumulated     Comprehensive     Stockholders'  
    Shares     Par value     Capital     Receivable     Deficit     Income     Equity (Deficit)  
Balance at January 1, 2020     614,292     $ 614     $ 794,900     $ (10 )   $ (839,907 )   $ 836     $ (43,567 )
Issuance of common stock and warrants for cash in a registered direct
offering (net of $3.6 million warrant liability and $0.4 million cash
offering cost)
    34,466       34       2,011       -       -       -       2,045  
Issuance of common stock and warrants for conversion of debt and
accrued interest
    12,417       13       2,386       -       -       -       2,399  
Stock-based compensation     973       1       363       -       -       -       364  
Net income     -       -       -       -       2,726       -       2,726  
Cumulative translation adjustment     -       -       -       -       -       1,041       1,041  
Balance at March 31, 2020     662,148     $ 662     $ 799,660     $ (10 )   $ (837,181 )   $ 1,877     $ (34,992 )

  

                                  Accumulated        
                Additional                 Other     Total  
    Common Stock     Paid-in     Subscription     Accumulated     Comprehensive     Stockholders'  
      Shares       Par value       Capital        Receivable       Deficit       Income       Equity (Deficit)    
Balance at January 1, 2019     523,232     $ 523     $ 775,741     $ (10 )   $ (824,413 )   $ 1,000     $ (47,159 )
Warrants exercised for cash     2,986       3       685       -       -       -       688  
Reclassification of warrant liabilities related to warrants exercised for
cash
    -       -       509       -       -       -       509  
Issuance of common stock and warrants for conversion of debt and
accrued interest
    10,873       11       2,990       -       -       -       3,001  
Stock-based compensation     -       -       553       -       -       -       553  
Cumulative effect of adopting new accounting standard     -       -       -       -       4,802       -       4,802  
Net loss     -       -       -       -       (20,946 )     -       (20,946 )
Cumulative translation adjustment     -       -       -       -       -       56       56  
Balance at March 31, 2019     537,091     $ 537     $ 780,478     $ (10 )   $ (840,557 )   $ 1,056     $ (58,496 )

 

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

 

  5  

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

`   For the three months ended  
    March 31,  
    2020     2019  
Cash Flows from Operating Activities:                 
Net income (loss)   $ 2,726     $ (20,946 )
Reconciliation of net loss to net cash used in operating activities:                
Depreciation and amortization     14       2  
Amortization of debt discount     343       296  
Change in fair value of derivatives     (12,927 )     12,021  
Loss from extinguishment of debt     715       788  
Amortization of operating lease right-of-use asset     80       26  
Stock-based compensation for services     364       553  
Subtotal of non-cash charges     (11,411 )     13,686  
Changes in operating assets and liabilities:                
Prepaid expenses and other current assets     (78 )     (705 )
Other non-current assets     -       9  
Accounts payable and accrued expenses     1,208       (65 )
Related party accounts payable and accrued expenses     (19 )     (1,859 )
Lease liabilities     35       129  
Net cash used in operating activities     (7,539 )     (9,751 )
Cash Flows from Investing Activities:                
Additional cost of leasehold improvement related to UK construction     -       (164 )
Purchase of equipment     (62 )     -  
Net cash used in investing activities     (62 )     (164 )
Cash Flows from Financing Activities:                
Proceeds from issuance of common stock and warrants in a registered direct offering, net     5,671       -  
Proceeds from exercise of warrants     -       688  
Proceeds from issuance of notes payable, net     -       4,000  
Proceeds from issuance of convertible notes payable, net     1,000       -  
Proceeds from issuance of convertible notes payable to related party     240       -  
Proceeds from investor advance     178       -  
Repayment of notes payable     -       (420 )
Repayment of notes payable to related parties     (64 )     (329 )
Net cash provided by financing activities     7,025       3,939  
Effect of exchange rate changes on cash and cash equivalents     968       40  
Net increase (decrease) in cash and cash equivalents     392       (5,936 )
                 
Cash and cash equivalents, beginning of the year     372       22,224  
Cash and cash equivalents, end of the year   $ 764     $ 16,288  
                 
Supplemental disclosure of cash flow information                
Interest payments on notes payable   $ -     $ (43 )
Interest payments on notes payable to related party   $ (9 )   $ (131 )

 

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

 

  6  

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

    For the three months ended  
    March 31,  
    2020     2019  
Supplemental schedule of non-cash investing and financing activities:                
Reclassification of warrant liabilities related to warrants exercised for cash   $ -     $ 509  
Issuance of common stock and warrants for conversion of debt and accrued interest   $ 1,789     $ 2,213  
Offering cost related to warrant liability   $ 2,606     $ -  
Issuance of warrants in conjunction with convertible note payable   $ 79     $ -  
Issuance of warrants in conjunction with convertible note payable to related party   $ -     $ -  
Issuance of warrants in connection with debt modification   $ 315     $ -  
                 

 

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

 

  7  

 

 

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, Aracaris Capital, Ltd, and Northwest Biotherapeutics B.V. (collectively, the “Company”, “we”, “us” and “our”) were organized to discover and develop innovative immunotherapies for cancer. The Company has developed DCVax® platform technologies for both operable and inoperable solid tumor cancers.

 

The Company relies upon contract manufacturers for production of its DCVax products, research and development services, distribution and logistics, and related services, in compliance with the Company’s specifications and the applicable regulatory requirements. The companies are Cognate BioServices in the U.S. and Advent BioServices (a related party) in the U.K. Both of these companies specialize in the production of living cell products.

 

2. Financial Condition, Going Concern and Management Plans

 

The Company has incurred annual net operating losses since its inception. Management believes that the Company has access to capital resources through the sale of equity and debt financing arrangements. However, the Company has not secured any commitments for new financing for this specific purpose at this time.

 

The Company does not expect to generate material revenue in the near future from the sale of 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 annual 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 and operating cash flow deficits, 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.

 

The COVID-19 situation, and related restrictions and lockdowns, have adversely affected the Company’s programs and may continue to adversely affect them. However, despite these difficulties, the Company believes that it is still substantially on track with the milestone timelines announced at the Annual Meeting. Examples of effects of the COVID-19 situation include the following:  the process for completion of the final data collection from trial sites for the Phase 3 trial has been materially slowed by the inability to perform in-person monitoring visits by the contract research organization, by very limited availability of investigators and staff at trial sites (many of whom have been reassigned to treating COVID-19 patients), and substantially longer timeframes for Institutional Review Board or Ethics Committee meetings and regulatory processes for matters other than COVID-19. The Company has been unable to undertake compassionate use cases during part of March and during Q2, due to lockdowns, travel restrictions and hospitals focusing most of their personnel and resources on COVID-19 patients. In addition, manufacturing of DCVax products is impeded by personnel being under lockdown, and the buildout of the Sawston facility has been delayed by the construction sector shutdown and restrictions. The Company anticipates that such effects of the COVID-19 situation may continue for an extended period of time.  However, the Company is exploring possible ways of mitigating these effects, such as employing double shifts for some of the Sawston facility buildout.

 

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.

 

  8  

 

 

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 March 31, 2020, condensed consolidated statements of operations and comprehensive loss, condensed consolidated statement of stockholders’ equity (deficit), and the condensed consolidated statements of cash flows for the three months ended March 31, 2020 and 2019 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 months ended March 31, 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2020 or for any future interim period. The condensed consolidated balance sheet at March 31, 2020 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, 2019 and notes thereto included in the Company’s annual report on Form 10-K, which was filed with the SEC on March 16, 2020.

 

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.

 

Significant Accounting Policies

 

There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 2019 Annual Report.

 

Recent Accounting Standards Not Yet Adopted

 

Income Taxes 

 

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard on its condensed consolidated financial statements and related disclosures   

 

4. Fair Value Measurements

 

In accordance with ASC 820 (Fair Value Measurements and Disclosures), the Company uses various inputs to measure the outstanding warrants and certain embedded conversion feature associated with convertible debt on a recurring basis to determine the fair value of the liability. ASC 820 also establishes a hierarchy categorizing inputs into three levels used to measure and disclose fair value. The hierarchy gives the highest priority to quoted prices available in active markets and the lowest priority to unobservable inputs. An explanation of each level in the hierarchy is described below:

  

Level 1 - Unadjusted quoted prices in active markets for identical instruments that are accessible by the Company on the measurement date

 

Level 2 - Quoted prices in markets that are not active or inputs which are either directly or indirectly observable

 

Level 3 - Unobservable inputs for the instrument requiring the development of assumptions by the Company

 

The following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy as of March 31, 2020 and December 31, 2019 (in thousands):

 

    Fair value measured at March 31, 2020  
    Fair value at    

Quoted prices in

active markets

    Significant other
observable inputs
    Significant
unobservable inputs
 
    March 31, 2020     (Level 1)     (Level 2)     (Level 3)  
Warrant liability   $ 12,106     $         -     $           -     $ 12,106  
Embedded conversion option     12       -       -       12  
Contingent payable derivative liability     6,679       -       -       6,679  
Total fair value   $ 18,797     $ -     $ -     $ 18,797  

 

  9  

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

 

    Fair value measured at December 31, 2019  
    Fair value at    

Quoted prices in

active markets

    Significant other
observable inputs
    Significant
unobservable inputs
 
    December 31, 2019     (Level 1)     (Level 2)     (Level 3)  
Warrant liability   $ 20,213     $            -     $             -     $ 20,213  
Contingent payable derivative liability     7,261       -       -       7,261  
Total fair value   $ 27,474     $ -     $ -     $ 27,474  

 

There were no transfers between Level 1, 2 or 3 during the three-month period ended March 31, 2020.

 

The following table presents changes in Level 3 liabilities measured at fair value for the three-month period ended March 31, 2020. 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).   

 

    Warrant
Liability
    Embedded
Conversion Option
    Contingent Payable
Derivative Liability
    Total  
Balance – January 1, 2020   $ 20,213     $ -     $ 7,261     $ 27,474  
Additional warrant liability     4,239       -       -       4,239  
Additional embedded conversion option     -       11       -       11  
Change in fair value     (12,346 )     1       (582 )     (12,927 )
Balance – March 31, 2020   $ 12,106     $ 12     $ 6,679     $ 18,797  

 

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 March 31, 2020 and December 31, 2019 is as follows:

 

    As of March 31, 2020  
    Warrant
Liability
    Embedded
Conversion Option
    Contingent Payable
Derivative Liability
 
Strike price   $ 0.26     $ 0.25     $ 0.16 *
Remaining contractual term (years)     1.3       5.0       1.5  
Volatility (annual)     81 %     95 %     73 %
Risk-free rate     0 %     0 %     0 %
Dividend yield (per share)     0 %     0 %     0 %

 

    As of December 31 2019  
    Warrant
Liability
    Contingent Payable
Derivative Liability
 
Strike price   $ 0.21     $ 0.21 *
Remaining contractual term (years)     1.4       1.0  
Volatility (annual)     74 %     62 %
Risk-free rate     2 %     2 %
Dividend yield (per share)     0 %     0 %

 

* contingent payable derivative liability based on stock price as of March 31, 2020 and December 31, 2019

 

  10  

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS 

 

5. Stock-based Compensation

 

During the three months ended March 31, 2020, the Company issued approximately 1.0 million shares of its common stock to a third-party consultant performing media and investor relations services. The Company recorded approximately $0.2 million of stock-based compensation expense based on the fair value on the grant date.

 

The following table summarizes stock option activity for the Company’s option plans during the three months ended March 31, 2020 (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 January 1, 2020     104,659     $ 0.24       8.4     $ -  
Forfeited/expired     (1,250 )     0.21       -       -  
Outstanding as of March 31, 2020     103,409     $ 0.24       8.1     $ -  
Options vested and exercisable     99,167     $ 0.24       8.1     $ -  

 

The following table summarizes stock-based compensation expense related to stock options for the three months ended March 31, 2020 and 2019 (in thousands):

 

    For the three months ended  
    March 31,  
    2020     2019  
Research and development   $ (23 )   $ 104  
General and administrative (1)     387       449  
Total stock-based compensation expense   $ 364     $ 553  

 

  (1) The general and administrative expense during the three months ended March 31, 2020 and 2019 is related to the applicable vesting portion of stock options awards made in the past to directors and employees.

 

The total unrecognized compensation cost was approximately $0.3 million as of March 31, 2020, and will be recognized over the next 2.8 years.

 

6. Property & Equipment

 

Property and equipment consist of the following at March 31, 2020 and December 31, 2019 (in thousands):

 

    March 31,     December 31,     Estimated
    2020     2019     Useful Life
Leasehold improvements   $ 230     $ 186      Lesser of lease term or estimated useful life
Office furniture and equipment     63       59      3 years
Computer equipment and software     610       611      3 years
Land in the United Kingdom     84       90      NA
      987       946      
Less: accumulated depreciation     (670 )     (665 )    
Total property, plant and equipment, net   $ 317     $ 281      
                     
Construction in progress   $ 171     $ 171      

 

 Depreciation expenses were approximately $14,000 and $2,000 for the three months ended March 31, 2020 and 2019.

 

  11  

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

 

7. Outstanding Debt

 

The following two tables summarize outstanding debt as of March 31, 2020 and December 31, 2019, respectively (amount in thousands):

 

 

 
 
 
 
 
 
Maturity Date  
 
 
Stated
Interest
Rate
 
 
 
 
 
 
 
Conversion
Price
 
 
 
 
 
 
 
 
Face Value
 
 
 
 
 
 
 
Remaining
Debt Discount
 
 
 
 
 
 
Embedded
Conversion
Option
 
 
 
 
 
 
 
Carrying
Value5
 
 
 
Short term convertible notes payable                                                    
6% unsecured (1)   Due     6 %   $ 3.09     $ 135     $ -     $ -     $ 135  
10% unsecured (2)   Various     10 %   $ 0.21       1,500       (72 )     -       1,428  
                          1,635       (72 )     -       1,563  
Short term convertible notes payable - related parties                                                    
10% unsecured - Related Parties (3)   On Demand     10 %      N/A       240       -       12       252  
                          240       -       12       252  
Short term notes payable                                                    
8% unsecured (4)   Various     8 %      N/A       6,146       (357 )     -       5,789  
10% unsecured (5)   Various     10 %      N/A       3,551       (386 )     -       3,165  
12% unsecured (6)   On Demand     12 %      N/A       440       -       -       440  
0% unsecured (7)   8/1/2020     0 %      N/A       1,156       (49 )     -       1,107  
                          11,293       (792 )     -       10,501  
                                                     
Ending balance as of March 31, 2020                       $ 13,168     $ (864 )   $ 12     $ 12,316  

 

   
Maturity Date
  Stated
Interest   
Rate
     
Conversion
Price
     
 
Face Value
    Remaining
Debt Discount
     
Carrying
Value
 
Short term convertible notes payable                                            
6% unsecured (1)   Due     6 %   $ 3.09     $ 135     $ -     $ 135  
10% unsecured (2)   4/18/2020     10 %   $ 0.22       500       (67 )     433  
                          635       (67 )     568  
Short term notes payable                                            
8% unsecured (4)   Various     8 %      N/A       555       (43 )     512  
10% unsecured (5)   Various     10 %      N/A       3,551       (73 )     3,478  
12% unsecured (6)   On Demand     12 %      N/A       440       -       440  
0% unsecured (7)   8/1/2020     0 %      N/A       1,156       (85 )     1,071  
                          5,702       (201 )     5,501  
Short term notes payable - related parties                                            
10% unsecured - Related Parties (8)   On Demand     10 %      N/A       66       -       66  
                          66       -       66  
Long term notes payable                                            
8% unsecured (4)   Various     8 %      N/A       7,008       (420 )     6,588  
                          7,008       (420 )     6,588  
                                             
Ending balance as of December 31, 2019                       $ 13,411     $ (688 )   $ 12,723  

 

(1) This $135,000 note as of March 31, 2020 and December 31, 2019 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) In February 2020, the Company entered into multiple one-year convertible notes (the “Notes”) with multiple holders (the “Holders”) for an aggregate principal amount of $1.0 million. The Notes are convertible at $0.21 and bear interest at the rate of 10% per annum. Upon issuance of the Notes, the Holders also received a 2-year warrant to purchase a total of 1.4 million common shares at an exercise price of $0.35 per share. The fair value of the warrants was approximately $79,000 on the grant date.

   

(3)

On February 13, 2020, the Company’s Senior Vice President, General Counsel, Leslie Goldman, loaned the Company $240,000, and the Company entered into a convertible note agreement for this amount (the “Goldman Note”). The Goldman Note bears interest rate at 10% per annum, and is repayable upon 15 days' notice from the holder.

 

The principal and interest of the Goldman Note is convertible at $0.25 per share. Additionally, the Company agreed to issue 0.5 million warrants (the “Warrants”) in conjunction with the Goldman Note. The Goldman Note also contains 50% warrants coverage upon conversion. The warrants have five-year term and have an exercise price of $0.25.

 

  12  

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

 

The fair value of the Warrants was approximately $48,000, which were recorded as debt discount at the issuance date. Additionally, the Goldman Note contains embedded conversion options, that were determined to require bifurcation. The fair value of the conversion option was approximately $11,000 on the issuance date, which was recorded as additional debt discount. The Company recorded $59,000 interest expenses as amortization of this debt discount immediately as the term is on demand.

 

(4) During the three months ended March 31, 2020, the Company converted approximately $1.4 million of principal and $0.4 million of accrued interest into approximately 12.4 million shares of the Company’s common stock at a fair value of $2.4 million. The Company recorded approximately $0.6 million in debt extinguishment loss from this conversion.
   
(5)

The approximate $3.6 million as of March 31, 2020 and December 31, 2019 consists of various promissory notes that were issued between October 1, 2018 and November 7, 2018.

 

On March 30, 2020, the Company entered into a Note Extension Agreement (the “Agreement”) with multiple holders with the following major adjustments:

 

-      Extended existing $3.0 million promissory notes’ maturity dates to November 24, 2020;

-      Issued a new 2-year warrant for up to 9.7 million shares of the Company’s common stock at an exercise price of $0.20 per share valued at $487,000 on the amendment date;

 

The amended promissory note Agreements total were approximately $3.0 million. Approximately $2.0 million in notes were treated as a debt modification and the remaining $1.0 million note was treated as a debt extinguishment for accounting purposes. The Company recorded approximately $0.1 million loss on debt extinguishment.

   
(6) The $440,000 balance as of March 31, 2020 and December 31, 2019 consists of two separate 12% demand notes in the amounts of $300,000 and $140,000.
   
(7)

On May 28, 2019, the Company issued a deferred note to a third-party vendor pursuant to a settlement agreement resolving past matters and providing for the restart of DCVax®-Direct Production.

 

As of March 31, 2020, the deferred note had $1.2 million principal outstanding.

   
(8) On September 26, 2018, Advent BioServices (“Advent”), a related party of the Company, provided a short-term loan in the amount of $65,000. The loan bears interest at 10% per annum, and is payable upon demand, with 7 days’ prior written notice to the Company. During the three months ended March 31, 2020, the Company made full repayment to Advent, including all outstanding interest.

 

The following table summarizes total interest expenses related to outstanding notes for the three months ended March 31, 2020 and 2019, respectively (in thousands):

   

    For the three months ended  
    March 31,  
    2020     2019  
Interest expenses related to outstanding notes:                
Contractual interest   $ 275     $ 268  
Amortization of debt discount     284       296  
Total interest expenses related to outstanding notes     559       564  
Interest expenses related to outstanding notes to related parties:                
Contractual interest     4       191  
Amortization of debt discount     59       -  
Total interest expenses related to outstanding notes to related parties     63       191  
Other interest expenses     3       1  
Total interest expense   $ 625     $ 756  

  

8. Net Earnings (Loss) per Share Applicable to Common Stockholders

 

Basic earnings (loss) per common share is computed by dividing net earnings (loss) by the weighted average number of common shares outstanding during the reporting period. Diluted earnings (loss) per common share is computed similar to basic earnings (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, warrants and vested and unvested stock options.

  13  

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

 

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

 

    For the three months ended  
    March 31,  
    2020     2019  
Net earnings (loss) - basic   $ 2,726     $ (20,946 )
Interest on convertible notes     173       -  
Net earnings (loss) - diluted   $ 2,899     $ (20,946 )
                 
Weighted average shares outstanding - basic     640,390       529,133  
Convertible notes and accrued interest     8,468       -  
Weighted average shares outstanding - diluted     648,858       529,133  

 

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 three months ended  
    March 31,  
    2020     2019  
Common stock options     103,409       100,159  
Common stock warrants     365,706       357,428  
Contingently issuable warrants     11,739       11,739  
Convertible notes and accrued interest     -       29,516  
Potentially dilutive securities     480,854       498,842  

 

9. Related Party Transactions

 

Advent BioServices Agreement

 

The Company has a Manufacturing Services Agreement with Advent BioServices for manufacture of DCVax-L products at an existing facility in London, as previously reported.  The Company also has an Ancillary Services Agreement with Advent, which establishes a structure under which Advent will submit Statements of Work (“SOWs”) for activities related to the development of the Sawston facility and the compassionate use activities in the UK, as previously reported.  To date, Advent has not yet submitted SOWs and the Company has not yet made any payments.

 

Related Party Expenses and Accounts Payable

 

The following table summarizes expenses incurred to related parties (i.e., amounts invoiced) during the three months ended March 31, 2020 and 2019 (amount in thousands) (some of which remain unpaid as noted in the second table below):

 

    For the three months ended  
    March 31,  
    2020     2019  
Advent BioServices   $ 1,324     $ 1,450  

  

The following table summarizes outstanding unpaid accounts payable held by related parties as of March 31, 2020 and December 31, 2019 (amount in thousands). These unpaid amounts include part of the expenses reported in the table above and also certain expenses incurred in prior periods.

  

    March 31,     December 31,  
    2020     2019  
Advent BioServices   $ 820     $ 834  

 

  14  

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

 

Related Parties Loans

  

Advent BioServices Note

 

Advent BioServices provided a short-term loan to the Company in the amount of $65,000 on September 26, 2018. The loan bears interest at 10% per annum, and is payable upon demand, with 7 days’ prior written notice to the Company.

 

During the three months ended March 31, 2020, the Company made full repayment of $73,000 to Advent, including all outstanding interest.

 

Leslie Goldman - Demand Loan

 

During the three months ended March 31, 2020, the Company’s Senior Vice President, General Counsel, Leslie Goldman, loaned the Company $240,000 pursuant to a convertible note. The note bears interest rate at 10% per annum and fifty percent warrant coverage, and is repayable upon 15 days' notice from the holder. The note is convertible, in whole or in part, into stock together with warrants. This note is still outstanding as of March 31, 2020.

 

The following table summarizes total interest expenses related to outstanding notes to related parties for the three months ended March 31, 2020 and 2019, respectively (in thousands):

 

    For the three months ended  
    March 31,  
    2020     2019  
Interest expenses related to outstanding notes to related parties:                
Contractual interest   $ 4     $ 191  
Amortization of debt discount     59       -  
Total interest expense   $ 63     $ 191  

 

10. Stockholders’ Deficit

 

Common Stock

 

Registered Direct Offering

 

During the three months ended March 31, 2020, the Company issued an aggregate of 34.5 million shares of its common stock in a registered direct offering (the “Offering”). The net proceeds from the Offering were approximately $5.7 million, after deducting offering costs of $0.4 million paid by the Company.

 

In connection with the Offering, the Company also issued approximately 8.5 million 2-year term warrants with an exercise price of $0.25 per share to the investors and approximately 0.8 million 2-year term warrants with an exercise price between $0.17 and $0.21 per share to placement agent in this direct offering. The fair value of these new issued warrants was approximately $1.0 million. Additionally, the Company agreed to extend by twelve months the maturity date of certain existing warrants already held by some of those investors. The Company recorded an incremental change of approximately $2.5 million on the fair value of warrants due to the modifications, which was recorded as part of offering cost during the three months ended March 31, 2020.

 

Debt Conversion

 

During the three months ended March 31, 2020, the Company converted approximately $1.8 million outstanding debt and interest into 12.4 million shares of common stock.

 

  15  

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

 

Stock Purchase Warrants

 

The following is a summary of warrant activity for the three months ended March 31, 2020 (dollars in thousands, except per share data):

 

 
 
 
 
Number of
Warrants
 
 
 
 
Weighted Average
Exercise Price
 
 
 
 
Remaining
Contractual Term
 
 
Outstanding as of January 1, 2020     359,473     $ 0.27       1.42  
Warrants granted     20,965       0.23          
Warrants expired and cancellation     (2,993 )     -          
Outstanding as of March 31, 2020     377,445     $ 0.26       1.32  

 

11. Commitments and Contingencies

 

Operating Lease

 

The Company adopted ASC Topic 842 - Leases as of January 1, 2019, using the transition method wherein entities were allowed to initially apply the new leases standard at adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

 

The Company has operating leases for corporate offices in the U.S., U.K., Germany and the Netherlands, and for manufacturing facilities in the U.K. Leases with an initial term of 12 months or less are not recorded in the balance sheet. The Company has elected the practical expedient to account for each separate lease component of a contract and its associated non-lease components as a single lease component, thus causing all fixed payments to be capitalized. The Company also elected the package of practical expedients permitted within the new standard, which among other things, allows the Company to carry forward historical lease classification. The renewal options have not been included in the calculation of the lease liabilities and right-of-use (“ROU”) assets as the Company is not reasonably certain to exercise the options. Variable lease payment amounts that cannot be determined at the commencement of the lease such as increases in lease payments based on changes in index rates or usage, are not included in the ROU assets or liabilities. These are expensed as incurred and recorded as variable lease expense.

 

At March 31, 2020, the Company had operating lease liabilities of approximately $4.9 million for both the 20-year lease of the building for the manufacturing facility in Sawston, U.K., and the current office lease in the U.S. ROU assets of approximately $4.3 million for the Sawston lease and US office lease were included in the consolidated balance sheet.

 

The following summarizes quantitative information about the Company’s operating leases:

 

    For the Three Months ended  
    March 31, 2020  
    U.K     U.S     Total  
Lease cost                        
Operating lease cost   $ 152     $ 82     $ 234  
Short-term lease cost     12       -       12  
Variable lease cost     45       4       49  
Total   $ 209     $ 86     $ 295  
                         
Other information                        
Operating cash flows from operating leases   $ -     $ (244 )   $ (244 )
Weighted-average remaining lease term – operating leases     10.0       0.9          
Weighted-average discount rate – operating leases     12 %     12 %        

 

  16  

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

 

    For the Three Months Ended  
    March 31, 2019  
    U.K     U.S     Total  
Lease cost                        
Operating lease cost   $ 155     $ -     $ 155  
Short-term lease cost     14       81       95  
Variable lease cost     -       2       2  
Total   $ 169     $ 83     $ 252  
                         
Other information                        
Operating cash flows from operating leases   $ -     $ -     $ -  
Weighted-average remaining lease term – operating leases     10.7       1.4          
Weighted-average discount rate – operating leases     12 %     12 %        

 

The Company recorded lease costs as a component of general and administrative expense during the three months ended March 31, 2020 and 2019, respectively.

 

Maturities of the operating leases, excluding short-term leases, are as follows:

 

    U.K     U.S     Total  
Remaining nine months ended December 31, 2020   $ 464     $ 251     $ 715  
Year ended December 31, 2021     619       84       703  
Year ended December 31, 2022     619       -       619  
Year ended December 31, 2023     619       -       619  
Year ended December 31, 2024     619       -       619  
Thereafter     8,642       -       8,642  
Total     11,582       335       11,917  
Less present value discount     (6,996 )     (21 )     (7,017 )
Operating lease liabilities included in the Condensed Consolidated Balance Sheet at March 31, 2020   $ 4,586     $ 314     $ 4,900  

 

German Tax Authorities

 

The German Tax authorities have contacted our subsidiary, NW Bio GmbH, and have asserted that funding provided by NW Bio, Inc., to its wholly owned subsidiary in Germany, NW Bio GmbH, during 2013 through 2015 may be deemed to be a “profit distribution” even though neither NW Bio, Inc. nor NW Bio GmbH made any profit during the period in question, and even though the funds provided by NW Bio, Inc. were used by NW Bio GmbH entirely for operating expenses and clinical trial costs. The German Tax authorities are seeking to tax this deemed “profit distribution.” We are in the process of working to resolve this matter and it is too early at this point to determine the outcome.  There can be no assurance that the German tax authority will agree with our position, even if they appear to be open to discussions and approaches taken under the German-US tax treaty and OECD Transfer pricing that would result in our calculations that there is no tax liability.  The Company currently anticipates that the amount that NW Bio GmbH may ultimately have to pay for this matter is estimated to be between $0 to $800,000 after further proceedings (including application of the US-German tax treaty), however, under ASC 740 it is in the view of the Company that it is not more likely than not that the resolution of these tax matters will result in a net material charge.  

 

  17  

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

 

12. Subsequent Events

 

Registered Offering

 

On April 8, 2020, the Company entered into financings totaling $3.8 million. The financings were comprised of $3.1 million from the offering of 19.9 million shares of common stock and 11.3 million new issued warrants, and $750,000 from a convertible note (the “April Note”). The common stock was offered at a price of $0.153 per share. The April Note is convertible at $0.17 per share and carries 50% warrant coverage of the number of conversion shares issued. The warrants are exercisable at $0.20 per share.

 

During May 2020, the Company entered into financings totaling $3.3 million (the “May Financings”). The financings were comprised of $3.1 million from the offering of 15.7 million shares of common stock and 5.6 million warrants. The common stock was offered at a price between $0.17 and $0.225 per share. The warrants have an exercise price between $0.22 and $0.23 per share and an exercise period between 1.5-2.5 years.

 

All of the warrants issued in these financings are suspended until November 1, 2020. In addition, as part of these agreements, the investors who have existing outstanding warrants that have not already been suspended until November 1 are suspending approximately 14.6 million existing warrants until November 1, 2020.

 

Cambridge Loan

 

On March 26, 2020, the Company entered into a Loan Agreement (the “Loan Agreement”) with Cambridge & Peterborough Combined Authority (the “Lender”) for a loan of £1.35 million (approximately $1.7 million) (the “Loan”) for the next phase of buildout of the Sawston facility.  The Company received funds on April 6, 2020. The Lender provides funding for selected economic development projects in the Cambridge region through a competitive selection process.

  

Under the Loan Agreement, there will be no repayments during the first year of the Loan term, although interest will accrue. Following the first anniversary, repayment of the Loan principal and interest will take place over 4 years, for a total term of 5 years.  The interest rate on the Loan is 6.25% per annum.

 

In conjunction with the Loan, the Company entered into a Security Agreement with the Lender granting a security interest in the Company’s 17-acre property in Sawston, U.K. to secure the Loan.  No other tangible or intangible assets of the Company or its subsidiaries are subject to any security interest.  The security interest on the 17-acre property will be released upon completion of repayment. 

 

Debt Offering

 

On May 20, 2020, the Company entered into a note purchase agreement (the “Note”) with an individual investor for an aggregate principal amount of $1,655,000. The Note bears interest at 8% per annum with a 21-month term. There are no repayments during the first 7 months of the term. The note is amortized in 14 installments starting in month 8. The note carries an original issue discount of $150,000 and $5,000 legal costs that were reimbursable to the investor.

 

The May Financings also included $500,000 from a convertible note (the “May Note”). The May Note is convertible at $0.25 per share and contains 40% warrant coverage of the number of conversion shares issued. The warrants are exercisable at $0.25 per share and an exercise period of 2.5 years.

 

Debt Conversion

 

During April and May, 2020, the Company converted approximately $0.9 million outstanding debt and interest into 7.1 million shares of common stock.

 

  18  

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

 

Warrant Adjustments and Expirations

 

During May and June, 2020, approximately 62 million warrants have expired or are scheduled to expire, in addition to the warrants suspended under the arrangements described below.  

 

During April and May 2020, the Company has been undertaking negotiations related to certain warrant adjustments, including suspending certain warrants, making them unexercisable for a defined period, and extensions of the warrants suspended.

 

As previously reported, on May 10, 2020, for a number of unrelated warrant holders, the Company agreed to issue 17.5% new warrants and extend the investors’ current warrant terms by six months, in consideration of the investor’s suspension of the current and newly issued warrants until November 1, 2020. The unrelated investors suspended a total of approximately 81 million warrants.  The Company agreed to issue 14.2 million new warrants to these investors under the suspension agreements, and these additional warrants were also suspended until November 1, 2020.

 

As also previously reported, on April 30, 2020, the Company’ entered into an agreement with its CEO, Linda Powers, in regard to approximately 90 million warrants and options held by Ms.Powers. She agreed to suspend approximately 60 million existing warrants and options held or due to her until November 1, 2020, making them unexercisable during this period.  In consideration, the Company extended the exercise period of a separate 29 million existing warrants held by Ms. Powers (not part of the 60 million warrants and options), and Ms. Powers also agreed to suspend those 29 million warrants until November 1, 2020.  The extension of the 29 million warrants provides an exercise period of 2-1/2 years after the suspension period. 

 

Total expirations and suspensions through the end of June, 2020, equal approximately 268 million exercise shares. Of this total, approximately 248 million represent existing warrants or options and approximately 20 million were newly issued warrant shares.

 

Warrants Exercised for Cash

 

During May 2020, the Company received aggregate proceeds of $2.3 million from the exercise of warrants with an exercise price between $0.24 and $0.27. The Company issued approximately 9.4 million shares of common stock upon these warrant exercises.

 

Equity Compensation Plan

 

On May 29, 2020 the Company approved establishing a new equity compensation plan. 

 

  19  

 

 

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, 2019 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.

 

Our lead product, DCVax®-L, is designed to treat solid tumor cancers that can be surgically removed. We are in the process of reaching completion on our 331-patient international Phase III trial of DCVax-L for newly diagnosed Glioblastome multiforme (GBM).

 

As previously reported, the Company is working with the contract research organization (CRO) who has managed the trial and a number of independent service firms to complete the data collection and confirmation, and reach data lock for the Phase III trial. All of the data collection and confirmation is done by the independent firms, with the Company in an oversight role.

 

As also previously reported, coronavirus-related difficulties have impacted most aspects of the process. Trial site personnel have been unavailable due to being reassigned to COVID-19 patient treatments or otherwise, and the limited site personnel have had to work under restrictions. Committee processes such as Institutional Review Boards and Ethics Committees have been, and continue to be, focused mainly on COVID-19 matters, with other matters significantly delayed. Regulatory processes have been similarly focused on COVID-19 matters and delayed on other matters. Firms such as the ones storing the Phase III trial tissue samples needed for certain final data, and the firms conducting the analytics for that final data (such as IDH mutation status), continue to have only limited operations. Even logistical matters such as the shipping of tissue slides have been, and continue to be, subjected to substantial restrictions and delays.

 

Despite these difficulties, the CRO has completed the final monitoring visits to the trial sites (including a number of them virtually), and has completed the collection of Case Report Form (CRF) data for all patients in the trial. The CRFs contain most, though not all, of the data required for analyzing the trial.

 

Since the Company’s prior updates, the CRO has also completed the Source Data Verification (SDV) for all of the data contained in the CRFs. Further, the CRO has completed the resolution of the many queries.

 

The independent service firms have also collected most of the additional data that is not contained in the CRFs, such as additional MRI scans and certain genetic information. The Company is consulting with its advisers to obtain their support for proceeding with initial data lock without waiting for these additional data, and then to include these additional data in the database when they are available.

 

The primary focus for reaching data lock now is obtaining the trial sites’ data locks. In order to reach overall data lock for the trial, each site’s data must be locked. Preparatory steps must be completed at each site so that the site is ready for sign-off, and then the lead investigator at the site must personally sign off on the data from that site. To that end, the lead investigator must undergo a brief training on the system, review the site data/CRFs and personally complete the confirmation and submit it.

 

Since the Company’s prior updates, the CRO and service firms have completed the preparatory steps for all but about ten of the sites to be ready for the investigator’s sign-off. Among the sites who had reached readiness for sign-off, about 33 sites are in varying stages of accomplishing their sign-offs and the rest of the sites have completed theirs.

 

The independent service firms are pressing to obtain the rest of the site completions and investigator sign-offs. The Company hopes they will be completed by approximately the end of next week. Accordingly, the Company is aiming to proceed with data lock at approximately the end of next week.

 

As previously reported, upon data lock the independent statisticians will be given access to the clinical trial database containing the raw data, and will undertake the applicable calculations and analyses. As previously reported, the Company will remain blinded until the statisticians have completed these calculations and analyses. That process is expected to take several weeks. The Company will then receive the initial results from the statisticians and become unblinded. Then the Company will consult with its Scientific Advisory Board, trial Steering Committee and expert advisors about the data, and address their questions and/or comments to prepare for announcement of the data.

 

The Company’s primary focus at present is on its DCVax-L program and completion of the Phase 3 trial of DCVax-L for Glioblastoma brain cancer. Our 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 including discussions with key institutions in regard to trial design and trial preparations. The Company has stopped the DCVax-Direct contract manufacturing preparation activities at present, while the trial design activities and preparations with the trial sites continue.

 

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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, 2019 and Note 13 Leases to the condensed consolidated financial statements in this accompanying Form 10-Q. Other than the changes related to adoption of ASC 842, 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, 2019.

  

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 completing a large international trial, and undertaking substantial one-time expenses such as for final site visits, query resolutions, statistical work for the Statistical Analysis Plan, preparations for data analyses and other activities related to completion and assessment of the trial. The operating costs also include administrative expenses associated with trials, and 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 are also incurring large amounts of costs to carry out and complete statistical analyses, process validation work, final data collection and validation, and other work associated with moving towards preparing for locking, unblinding and analyzing the trial results. We are also incurring substantial expenses to prepare for manufacturing validation and scale-up.

 

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 and substantial expansion 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 personnel related salary and benefit expenses, cost of facilities, insurance, travel, legal services, property and equipment and amortization of stock options and warrants.

 

Three Months Ended March 31, 2020 and 2019

 

We recognized a net income of $2.7 million and net loss of $20.9 million for the three months ended March 31, 2020 and 2019, respectively. Net cash used in operations was $7.5 million and $9.8 million for the three months ended March 31, 2020 and 2019, respectively, including payment of substantial amounts of accumulated payables in the three months ended March 31, 2019.  

 

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Research and Development Expense

 

For the three months ended March 31, 2020 and 2019, research and development expense was $3.8 million and $3.0 million, respectively. The increase is due to an increase in activities and involvement of external consultants as the Phase 3 trial moves through final data collection and query resolution, independent data validation, and other preparations for data lock and analyses.

 

The following table summarizes expenses incurred (i.e., amounts invoiced, which have only been partly paid) to related parties during the three months ended March 31, 2020 and 2019 (amount in thousands):

 

    For the three months ended  
    March 31,  
    2020     2019  
Advent BioServices   $ 1,324     $ 1,450  

 

General and Administrative Expense

 

General and administrative expenses were $4.2 million and $3.6 million for three months ended March 31, 2020 and 2019, respectively. We had increased cost in salaries and wages and D&O insurance premium compared to last year.

 

Legal Expenses

 

Legal costs were $0.4 million for the three months ended March 31, 2020 versus $1.5 million for the three months ended March 31, 2019. The decrease in legal costs reflects a reduction in the need for legal services.

 

Change in fair value of derivatives

 

During the three months ended March 31, 2020 and 2019, we recognized a non-cash gain of $12.9 million and non-cash loss of $12.0 million, respectively. The gain was primarily due to the decrease of stock price as of March 31, 2020 ($0.16 per share) compared to December 31, 2019 ($0.21 per share).

 

Loss from extinguishment of debt

  

During the three months ended March 31, 2020, we converted debt of approximately $1.4 million principal and $0.4 million accrued interest into approximately 12.4 million shares of common stock at fair value of $2.4 million. We recorded an approximate $0.6 million debt extinguishment loss from the conversion.

 

During the three months ended March 31, 2020, we also recognized approximately $0.1 million debt extinguishment loss from certain debt amendment.

 

Interest Expense

 

During the three months ended March 31, 2020 and 2019, we recorded interest expense of $0.6 million and $0.8 million, respectively.

 

Foreign currency transaction gain (loss)

 

During the three months ended March 31, 2020 and 2019, we recognized foreign currency transaction loss of $1.1 million and gain $0.4 million, respectively. The loss was due to the strengthening of the U.S. dollar relative to the British pound sterling. The gain was due to the strengthening of the British pound sterling relative to the U.S. dollar.

 

Liquidity and Capital Resources

 

We have experienced recurring losses from operations since inception. We have not yet established an ongoing source of revenues and must cover our operating expenses through debt and equity financings to allow us to continue as a going concern. Our ability to continue as a going concern depends on the ability to obtain adequate capital to fund operating losses until we generate adequate cash flows from operations to fund our operating costs and obligations. If we are unable to obtain adequate capital, we could be forced to cease operations.

 

We depend upon our ability, and will continue to attempt, to secure equity and/or debt financing. We cannot be certain that additional funding will be available on acceptable terms, or at all. Our management determined that there was substantial doubt about our ability to continue as a going concern within one year after the condensed consolidated financial statements were issued, and management’s concerns about our ability to continue as a going concern within the year following this report persist.

 

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Contingent Contractual Payment

 

The following table summarizes our contractual obligations as of March 31, 2020 (amount in thousands):

 

    Payment Due by Period  
          Less than     1 to 2  
    Total     1 Year     Years  
Short term convertible notes payable (1)                        
6% unsecured   $ 220     $ 220     $ -  
10% unsecured     1,585       1,585       -  
Short term convertible notes payable to related party (2)                        
10% unsecured     243       243       -  
Short term notes payable (3)                        
8% unsecured     6,196       6,196       -  
10% unsecured     3,906       3,906       -  
12% unsecured     546       546       -  
0% unsecured     1,156       1,156       -  
Operating leases (4)     11,031       5,628       5,403  
Purchase obligation (5)                        
Total   $ 24,883     $ 19,480     $ 5,403  

 

(1) The obligations related to short term convertible notes were approximately $1.8 million as of March 31, 2020, which included remaining contractual unpaid interest of $0.2 million.

 

(2) The obligations related to a short term convertible note to related party was approximately $0.2 million as of March 31, 2020, which included remaining contractual unpaid interest of $3,000.

 

(3) The obligations related to short term notes were approximately $11.8 million as of March 31, 2020, which included unpaid interest of $0.5 million.

 

(4) The operating lease obligations during the next year included $335,000, $12,000, $5,000 and $2,000 for our offices in Maryland, Germany, London and Netherlands, respectively. Approximately £1 million ($1.3 million) in lease obligations during the next 2 years related to the Vision Centre in the U.K. that we leased back in December 2018. We also included approximately $9.4 million of anticipated payments to Advent BioServices, which represents the next 2 years’ obligation. The remaining contract term as of March 31, 2020 was approximately 2.8 years under the Manufacturing Services Agreement with Advent.

 

(5) We have possible contingent obligations to pay certain fees to contracted manufacturers if we shut down or suspend programs. For Cognate BioServices (in addition to any other remedies) if we shut down or suspend its DCVax-L program or DCVax-Direct program, the following obligations exist are not reflected in the accompanying balance sheets.

 

For a shut down or suspension of the DCVax-Direct program at Cognate, the Company must give 3 months’ advance notice.

 

For a shut down or suspension of the DCVax-L program at Cognate, the fee will be as follows:

 

· The fee shall be $3 million in any of the following cases: 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.

 

· At any time after receiving product approval for DCVax®-L in any jurisdiction, the fee shall be $5 million.

 

While our DCVax programs are ongoing, under our agreements with Cognate 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. The same is the case under our agreement with Advent. On May 21, 2019, we settled certain disputed amounts that had been invoiced to us by Cognate.

 

For a shut down or suspension of the DCVax-L program at Advent, the Company must give 12 months’ advance notice. During the notice period services would still be performed, to provide a transition period. Minimum required payments for this notice period total approximately £3.8 million ($5 million).

 

As of March 31, 2020, no shut-down or suspension fees were triggered.

 

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Cash Flow

 

Operating Activities

 

During the three months ended March 31, 2020 and March 31, 2019, net cash outflows from operations were $7.5 million and $9.8 million, respectively. The decrease in cash used in operating activities was primarily attributable to decrease in clinical trial related expenditures during the follow-up period while the data were maturing.

  

Financing Activities

 

During the three months ended March 31, 2020, we received approximately $5.7 million cash from issuance of 34.4 million shares of common stock. During the three months ended March 31, 2019, we did not issue any new preferred stock, common stock or warrants. 

 

We received approximately $1.0 million and $4.0 million cash proceeds from issuances of debt to third parties during the three months ended March 31, 2020 and 2019, respectively.

 

We received approximately $240,000 in cash proceeds from issuances of debt to a related party during the three months ended March 31, 2020.

 

We made an aggregate debt payment of $64,000 to related parties during the three months ended March 31, 2020.

 

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, number of patients and amount of activity in our clinical trial programs, 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.

 

Based on our analysis, as of March 31, 2020, 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.

 

  24  

 

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Our management evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15€ and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q. In designing and evaluating the controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures.

 

Based on our evaluation, management concluded that, because of a material weakness identified in regard to foreign taxes, our internal control over financial reporting was not effective as of March 31, 2020.

 

This oversight was in connection with a tax issue between our German subsidiary and German tax authorities relating to the tax years 2013-2015, as explained above. The matter is also described in the Company’s Form 10-K Amended, filed contemporaneously with this Form 10-Q.

 

The material weakness in internal control over financial reporting resulted from a deficiency in our disclosure controls as we did not formally document our evaluation of a potential foreign tax contingency related to potential assessments on our German subsidiary under ASC-740 to support the evaluation and determination for disclosure. The Company identified and disclosed this contingency in this reporting period rather than in the preceding reporting period.

 

The Company is in the process of improving its procedures and communication, including translating significant documents itself rather than relying upon the Company’s German tax experts and advisors, and performing more formal analysis of its contingencies. The material weakness will not be considered remediated until the applicable remedial control operates for a sufficient period of time and management has concluded, through testing, that this control is operating effectively. We expect that the remediation of this material weakness will be completed prior to the end of the year 2020.

  

Changes in Internal Control over Financial Reporting

 

Other than discussed above, there were no changes in our internal control over financial reporting during the fiscal quarter ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.  Jean Davis, who has been serving as Northwest Biotherapeutics, Inc.’s (the “Company”) Chief Financial Officer (“CFO”), Chief Accounting Officer (“CAO”), as well as the interim Chief Information Officer (“CIO”), has been appointed the CIO and relinquished her duties as CFO and CAO, to focus on CIO duties and special projects such as the design of Sarbanes-Oxley controls. Linda Powers will resume acting as CFO and CAO, with accounting and financial reporting functions performed by an external firm and the Company’s Controller as has been the case historically, until a new CFO is hired. 

 

Part II - Other Information

 

Item 1. Legal Proceedings

 

Not Applicable.

 

  25  

 

 

Item 1A. Risk Factors

 

There have been no material changes from the risk factors previously disclosed in our 2019 Annual Report, except for the risk factors updated below:

 

A pandemic, epidemic or outbreak of an infectious disease in the United States, United Kingdom, Europe or elsewhere may adversely affect our business.

 

The COVID-19 situation, and related restrictions and lockdowns, have adversely affected the Company’s programs and may continue to adversely affect them. For example, the process for completion of the final data collection from trial sites for the Phase 3 trial has been materially slowed by the inability to perform in-person monitoring visits by the contract research organization by very limited availability of investigators and staff at trial sites, and substantially longer timeframes for Institutional Review Board or Ethics Committee meetings and regulatory processes for matters other than COVID-19. The Company has been unable to undertake compassionate use cases during part of March and during Q2, due to lockdowns, travel restrictions and hospitals focusing most of their personnel and resources on COVID-19 patients. In addition, manufacturing of DCVax products is impeded by personnel being under lockdown, and the buildout of the Sawston facility has been delayed by the construction sector shutdown and restrictions. The Company anticipates that such effects of the COVID-19 situation may continue for an extended period of time.  However, the Company is exploring possible ways of mitigating these effects, such as employing double shifts for some of the Sawston facility buildout.

 

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

 

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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.

 

  NORTHWEST BIOTHERAPEUTICS, INC
     
Dated: June 23, 2020 By: /s/ Linda F. Powers
    Name: Linda F. Powers
       
       
    Title: President and Chief Executive Officer
       
      Principal Executive Officer
       
      Principal Financial and Accounting Officer

 

 

  27  

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