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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 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)

(240497-9024

(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       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       No 

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

Large accelerated filer

 

Accelerated filer

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

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 

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 August 6, 2020, the total number of shares of common stock, par value $0.001 per share, outstanding was 731,499,352.

NORTHWEST BIOTHERAPEUTICS, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

3

Item 1.

Condensed Consolidated Interim Financial Statements (Unaudited)

3

 

Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019

3

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2020 and 2019

4

 

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the three and six months ended June 30, 2020 and 2019

5

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019

7

 

Notes to Condensed Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

27

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

 

 

Item 4.

Controls and Procedures

34

PART II - OTHER INFORMATION

35

Item 1.

Legal Proceedings

35

 

 

Item 1A.

Risk Factors

35

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

35

 

 

Item 3.

Defaults Upon Senior Securities

36

 

 

Item 4.

Mine Safety Disclosures

36

 

Item 5.

Other Information

36

 

 

Item 6.

Exhibits

36

SIGNATURES

37

2

PART I - FINANCIAL INFORMATION

NORTHWEST BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(Unaudited)

June 30, 

December 31, 

    

2020

    

2019

ASSETS

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

5,955

$

372

Prepaid expenses and other current assets

 

2,262

 

2,828

Total current assets

 

8,217

 

3,200

Non-current assets:

 

  

 

  

Property, plant and equipment, net

 

157

 

281

Construction in progress

1,541

171

Right-of-use asset, net

 

4,236

 

4,679

Other assets

 

755

 

798

Total non-current assets

 

6,689

 

5,929

TOTAL ASSETS

$

14,906

$

9,129

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable and accrued expenses

$

7,774

$

6,348

Accounts payable and accrued expenses to related parties and affiliates

 

416

 

842

Convertible notes, net

 

4,044

 

568

Convertible notes to related party, net

 

631

 

Notes payable, net

 

8,204

 

5,501

Notes payable to related party

 

 

66

Contingent payable derivative liability

7,524

7,261

Warrant liability

 

59,666

 

20,213

Lease liabilities

 

311

 

395

Total current liabilities

 

88,570

 

41,194

Non-current liabilities:

 

  

 

  

Note payable, net of current portion, net

 

3,173

 

6,588

Lease liabilities, net of current portion

 

4,480

 

4,914

Total non-current liabilities

 

7,653

 

11,502

Total liabilities

 

96,223

 

52,696

COMMITMENTS AND CONTINGENCIES (Note 11)

 

  

 

  

Stockholders’ deficit:

 

  

 

  

Preferred stock ($0.001 par value); 100,000,000 shares authorized as of June 30, 2020 and December 31, 2019, respectively

 

 

Common stock ($0.001 par value); 1,200,000,000 shares authorized; 722.2 million and 614.3 million shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively

 

722

 

614

Additional paid-in capital

 

811,526

 

794,900

Stock subscription receivable

 

(31)

 

(10)

Accumulated deficit

 

(895,133)

 

(839,907)

Accumulated other comprehensive income

 

1,599

 

836

Total stockholders’ deficit

 

(81,317)

 

(43,567)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

$

14,906

$

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

For the six months ended

June 30, 

June 30, 

    

2020

    

2019

    

2020

    

2019

Revenues:

 

  

 

  

 

  

 

  

Research and other

$

2

$

581

$

572

$

920

Total revenues

 

2

 

581

 

572

 

920

Operating costs and expenses:

 

  

 

  

 

  

 

  

Research and development

 

3,120

 

3,291

 

6,877

 

6,295

General and administrative

 

3,330

 

3,013

 

7,501

 

6,575

Legal expenses

 

988

 

914

 

1,363

 

2,453

Total operating costs and expenses

 

7,438

 

7,218

 

15,741

 

15,323

Loss from operations

 

(7,436)

 

(6,637)

 

(15,169)

 

(14,403)

Other income (expense):

 

  

 

  

 

  

 

  

Change in fair value of derivative liabilities

 

(49,128)

 

7,201

 

(36,201)

 

(4,820)

Gain (loss) from extinguishment of debt

 

(551)

 

784

 

(1,266)

 

(4)

Interest expense

 

(1,059)

 

(787)

 

(1,684)

 

(1,543)

Foreign currency transaction gain (loss)

 

222

 

(342)

 

(906)

 

43

Total other income (expense)

 

(50,516)

 

6,856

 

(40,057)

 

(6,324)

Net income (loss)

$

(57,952)

$

219

$

(55,226)

$

(20,727)

Other comprehensive income (loss)

 

  

 

  

 

  

 

  

Foreign currency translation adjustment

 

(278)

 

75

 

763

 

131

Total comprehensive income (loss)

$

(58,230)

$

294

$

(54,463)

$

(20,596)

Net earnings (loss) per share applicable to common stockholders

Basic

$

(0.08)

$

0.00

$

(0.08)

$

(0.04)

Diluted

$

(0.08)

$

0.00

$

(0.08)

$

(0.04)

Weighted average shares used in computing basic earnings (loss) per share

697,555

550,214

668,972

539,732

Weighted average shares used in computing diluted earnings (loss) per share

 

697,555

 

597,375

 

668,972

 

539,732

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)

For the Three Months Ended June 30, 2020

Additional

Accumulated

Total

Common Stock

Paid-in

Subscription

Accumulated

Other Comprehensive

Stockholders’

    

Shares

    

Par value

    

Capital

    

Receivable

    

Deficit

    

Income

    

Equity (Deficit)

Balance at April 1, 2020

 

662,148

$

662

 

$

799,660

 

$

(10)

$

(837,181)

 

$

1,877

$

(34,992)

Issuance of common stock and warrants for cash in a registered direct offering (net of $3.0 million warrant liability)

34,113

34

2,890

(21)

2,903

Issuance of common stock and warrants for conversion of debt and accrued interest

 

10,201

10

 

2,239

 

 

2,249

Warrants exercised for cash

 

15,696

16

3,981

3,997

Reclassification of warrant liabilities related to warrants exercised for cash

 

2,721

2,721

Stock-based compensation

 

 

35

 

 

35

Net loss

 

 

 

(57,952)

 

(57,952)

Cumulative translation adjustment

 

 

 

 

(278)

(278)

Balance at June 30, 2020

 

722,158

$

722

$

811,526

$

(31)

$

(895,133)

$

1,599

$

(81,317)

For the Three Months Ended June 30, 2019

Additional

Accumulated

Total

Common Stock

Paid-in

Subscription

Accumulated

Other Comprehensive

Stockholders’

    

Shares

    

Par value

    

Capital

    

Receivable

    

Deficit

    

Income

    

Equity (Deficit)

Balance at April 1, 2019

537,091

$

537

$

780,478

$

(10)

$

(840,557)

$

1,056

$

(58,496)

Warrants exercised for cash

 

6,546

 

6

 

1,525

 

 

 

 

1,531

Reclassification of warrant liabilities related to warrants exercised for cash

 

 

 

1,250

 

 

 

 

1,250

Issuance of common stock and warrants for conversion of debt and accrued interest

 

6,625

 

7

 

1,969

 

 

 

 

1,976

Stock-based compensation

 

200

 

 

438

 

 

 

 

438

Issuance of common shares in connection with a settlement agreement

12,000

12

(12)

Net income

 

 

 

 

 

219

 

 

219

Cumulative translation adjustment

 

 

 

 

 

 

75

 

75

Balance at June 30, 2019

 

562,462

$

562

$

785,648

$

(10)

$

(840,338)

$

1,131

$

(53,007)

5

NORTHWEST BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands)

(Unaudited)

For the Six Months Ended June 30, 2020

Additional

Accumulated

Total

Common Stock

Paid-in

Subscription

Accumulated

Other 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 $6.6 million warrant liability and $0.4 million cash offering cost)

68,579

68

4,901

(21)

4,948

Issuance of common stock and warrants for conversion of debt and accrued interest

 

22,618

 

23

 

4,625

 

 

 

 

4,648

Warrants exercised for cash

 

15,696

 

16

 

3,981

 

 

 

 

3,997

Reclassification of warrant liabilities related to warrants exercised for cash

 

 

 

2,721

 

 

 

 

2,721

Stock-based compensation

 

973

 

1

 

398

 

 

 

 

399

Net loss

 

 

 

 

 

(55,226)

 

 

(55,226)

Cumulative translation adjustment

 

 

 

 

 

 

763

 

763

Balance at June 30, 2020

 

722,158

$

722

$

811,526

$

(31)

$

(895,133)

$

1,599

$

(81,317)

For the Six Months Ended June 30, 2019

Additional  

Accumulated

Total

Common Stock

Paid-in

Subscription

Accumulated

Other 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

 

9,532

 

9

 

2,210

 

 

 

 

2,219

Reclassification of warrant liabilities related to warrants exercised for cash

 

 

 

1,759

 

 

 

 

1,759

Issuance of common stock and warrants for conversion of debt and accrued interest

 

17,498

 

18

 

4,959

 

 

 

 

4,977

Stock-based compensation

 

200

 

 

991

 

 

 

 

991

Cumulative effect of adopting new accounting standard

4,802

4,802

Issuance of common shares in connection with a settlement agreement

12,000

12

(12)

Net loss

 

 

 

 

 

(20,727)

 

 

(20,727)

Cumulative translation adjustment

 

 

 

 

 

 

131

 

131

Balance at June 30, 2019

 

562,462

$

562

$

785,648

$

(10)

$

(840,338)

$

1,131

$

(53,007)

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 six months ended

June 30, 

    

2020

    

2019

Cash Flows from Operating Activities:

 

  

 

  

Net loss

$

(55,226)

$

(20,727)

Reconciliation of net loss to net cash used in operating activities:

 

 

Depreciation and amortization

 

16

 

8

Amortization of debt discount

 

1,073

 

663

Change in fair value of derivatives

 

36,201

 

4,820

Loss from extinguishment of debt

 

1,266

 

4

Amortization of operating lease right-of-use asset

 

163

 

222

Stock-based compensation for services

 

399

 

991

Subtotal of non-cash charges

 

39,118

 

6,708

Changes in operating assets and liabilities:

 

 

Prepaid expenses and other current assets

 

500

 

(664)

Other non-current assets

 

(3)

 

(44)

Accounts payable and accrued expenses

 

2,075

 

(742)

Related party accounts payable and accrued expenses

 

(426)

 

(4,040)

Lease liabilities

 

94

 

80

Net cash used in operating activities

 

(13,868)

 

(19,429)

Cash Flows from Investing Activities:

 

 

Purchase of equipment and construction in progress

 

(1,306)

 

(225)

Net cash used in investing activities

 

(1,306)

 

(225)

Cash Flows from Financing Activities:

 

 

Proceeds from issuance of common stock and warrants in a registered direct offering, net

11,567

Proceeds from exercise of warrants

 

3,997

 

2,219

Proceeds from issuance of notes payable, net

 

3,557

 

6,500

Proceeds from issuance of convertible notes payable, net

 

2,189

 

Proceeds from issuance of convertible notes payable to related party

 

315

 

Repayment of notes payable

 

(1,363)

 

(420)

Repayment of notes payable to related parties

 

(64)

 

(329)

Repayment of convertible notes payable to related parties

(4,002)

Net cash provided by financing activities

 

20,198

 

3,968

Effect of exchange rate changes on cash and cash equivalents

 

559

 

138

Net increase (decrease) in cash and cash equivalents

 

5,583

 

(15,548)

Cash and cash equivalents, beginning of the period

 

372

 

22,224

Cash and cash equivalents, end of the period

$

5,955

$

6,676

Supplemental disclosure of cash flow information

 

 

Interest payments on notes payable

$

$

(43)

Interest payments on notes payable to related party

$

(9)

$

(177)

Interest payments on convertible notes payable to related party

$

$

(748)

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

7

NORTHWEST BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

For the six months ended

June 30, 

    

2020

    

2019

Supplemental schedule of non-cash investing and financing activities:

 

  

 

  

Reclassification of warrant liabilities related to warrants exercised for cash

$

2,721

$

1,759

Issuance of common stock and warrants for conversion of debt and accrued interest

$

3,558

$

3,994

Offering cost related to warrant liability

$

3,842

$

Issuance of warrants in conjunction with convertible note payable

$

153

$

Issuance of warrants in connection with debt modification

$

395

$

Warrant modification in connection with debt amendment

$

51

$

Conversion of outstanding accounts payables to note payable and contingent payable

$

$

8,560

Issuance of common shares in connection with a settlement agreement

$

$

12

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

8

Table of Contents

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.

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, the Company is continuing to make progress in its programs despite these difficulties, with a primary focus on reaching data lock, unblinding and reporting the results of the Company’s Phase 3 clinical trial of DCVax-L for Glioblastoma brain cancer.  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 limited availability or capacity of independent service firms responsible for collecting and confirming the data, by the inability to perform in-person monitoring and other visits to trial sites, 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 was delayed in starting due to the construction sector shutdown and restrictions, and the duration of the work will be substantially longer due to the contractors having to operate under social distancing arrangements. The Company anticipates that such effects of the COVID-19 situation may continue for an extended period of time.  However, the Company has been able to mitigate some of these effects. For example, for the Sawston facility buildout the Company is paying increased costs to have the contractors operate on two shifts daily rather than the normal one shift.

9

Table of Contents

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

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.

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 June 30, 2020, condensed consolidated statements of operations and comprehensive loss, condensed consolidated statement of stockholders’ equity (deficit) for the three and six months ended June 30, 2020 and 2019, and the condensed consolidated statements of cash flows for the six months ended June 30, 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 and six months ended June 30, 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 June 30, 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 and Form 10-K/A filed on June 24, 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.

10

Table of Contents

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

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 June 30, 2020 and December 31, 2019 (in thousands):

Fair value measured at June 30, 2020

Quoted prices

Significant

in active

other

Significant

Fair value at

markets

observable inputs

unobservable inputs

    

June 30, 2020

    

(Level 1)

    

(Level 2)

    

(Level 3)

Warrant liability

$

59,666

$

$

$

59,666

Embedded conversion option

2,115

2,115

Contingent payable derivative liability

 

7,524

 

 

 

7,524

Total fair value

$

69,305

$

$

$

69,305

Fair value measured at December 31, 2019

Quoted prices

Significant

  

in active

other

Significant

Fair value at

markets

observable inputs

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 six-month period ended June 30, 2020.

The following table presents changes in Level 3 liabilities measured at fair value for the six-month period ended June 30, 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

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NOTES TO CONDENSED CONSOLIDATED STATEMENTS

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

Embedded

Contingent Payable

    

Liability

    

Conversion Option

Derivative Liability

Total

Balance – January 1, 2020

$

20,213

$

$

7,261

$

27,474

Grant of warrants

7,460

7,460

Reclassification of warrant liabilities related to warrants exercised for cash

(2,721)

(2,721)

Issuance of new convertible notes

891

891

Change in fair value

 

34,714

 

1,224

 

263

 

36,201

Balance – June 30, 2020

$

59,666

$

2,115

$

7,524

$

69,305

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 June 30, 2020 and December 31, 2019 is as follows:

As of June 30, 2020

Warrant

Embedded

Contingent Payable

    

Liability

    

Conversion Option

Derivative Liability

    

Strike price

$

0.25

$

0.21

$

0.34

*

Contractual term (years)

 

1.8

 

1.0

1.3

 

Volatility (annual)

 

86

%  

83

%

85

%  

Risk-free rate

 

0.2

%  

0.2

%

0.2

%  

Dividend yield (per share)

 

0

%  

0

%

0

%  

As of December 31 2019

 

    

Warrant

    

Contingent Payable

 

Liability

Derivative Liability

 

Strike price

$

0.21

$

0.21

*

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 June 30, 2020 and December 31, 2019

5. Stock-based Compensation

During the six months ended June 30, 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.

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NOTES TO CONDENSED CONSOLIDATED STATEMENTS

The following table summarizes stock option activity for the Company’s option plans during the six months ended June 30, 2020 (amount in thousands, except per share number):

    

    

    

Weighted Average

    

Remaining

Weighted Average

Contractual Life

Total Intrinsic

Number of Shares

Exercise Price 

(in years)

Value

Outstanding as of January 1, 2020

 

104,659

$

0.24

 

8.4

$

Forfeited/expired

 

(2,500)

0.22

 

Outstanding as of June 30, 2020

 

102,159

$

0.24

 

8.0

$

11,026

Options vested (1)

 

100,056

$

0.24

 

8.0

$

10,782

(1) 39.2 million vested options are not exercisable until November 1, 2020.

The following table summarizes total stock-based compensation expense related to stock options for the three and six months ended June 30, 2020 and 2019 (in thousands):

For the three months ended

For the six months ended

June 30, 

June 30, 

    

2020

    

2019

    

2020

    

2019

Research and development

$

8

$

69

$

(15)

$

173

General and administrative (1)

 

27

 

369

 

414

 

818

Total stock-based compensation expense

$

35

$

438

$

399

$

991

(1) The general and administrative expense during the three and six months ended June 30, 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 $0.1 million as of June 30, 2020, and will be recognized over the next 2.5 years.

Stock Options Modification

As previously reported, on April 30, 2020, the Company's CEO, Linda Powers agreed to not exercise approximately 39.2 million existing options held by her for 6 months, until November 1, 2020 and correspondingly extended the contractual term for 6 months. The Company recognized approximately $78,000 of incremental stock-based compensation for this modification during the six months ended June 30, 2020, based on the following weighted average assumptions:

    

Post Modification

    

Pre Modification

 

Exercise price

$

0.23

$

0.23

Expected term (years)

 

4.3

 

4.0

Expected stock price volatility

 

97

%  

 

97

%

Risk-free rate of interest

 

%  

 

%

Equity Compensation Plan

As previously reported, on May 29, 2020, the Board of Directors of the Company approved establishing a new equity compensation plan (the “Plan”). The Company’s prior plan was adopted in 2007, was updated in amended and restated plans that were approved by shareholders in 2012 and 2013, and expired in 2017 (the “Prior Plan”).

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The Plan is substantially similar to the Prior Plan. The Plan will have a 10-year life, and allows for awards to employees, directors and consultants of the Company, as did the Prior Plan. The Plan allows for any type of equity security to be awarded, as did the Prior Plan. The awards and their terms (including vesting) will be determined by the Board and applicable Committees, as was the case under the Prior Plan. The Plan establishes a pool of potential equity compensation equal to twenty percent of the outstanding securities of the Company, which is on an evergreen basis as under the Prior Plan.

6. Property, Equipment & Construction in Progress

Property and equipment consist of the following at June 30, 2020 and December 31, 2019 (in thousands):

June 30, 

December 31, 

Estimated

    

2020

    

2019

    

Useful Life

Leasehold improvements

$

81

$

186

 

Lesser of lease term or estimated useful life

Office furniture and equipment

 

62

 

59

 

3-5 years

Computer equipment and software

 

609

 

611

 

3-5 years

Land in the United Kingdom

 

84

 

90

 

NA

 

836

 

946

Less: accumulated depreciation

 

(679)

 

(665)

 

  

Total property, plant and equipment, net

$

157

$

281

 

  

Construction in progress

$

1,541

$

171

Depreciation expenses were approximately $2,000 and $6,000 for the three months ended June 30, 2020 and 2019 and were approximately $16,000 and $8,000 for the six months ended June 30, 2020 and 2019.

Construction in Progress

In connection with the Company’s manufacturing facility in U.K, the Company has incurred and is incurring costs with certain vendors to design and build out the initial stage of the facility. Additionally, the Company purchased certain manufacturing equipment that will be installed in connection with the buildout. These costs were all capitalized and recorded as part of construction in progress as of June 30, 2020.  Upon completion of the buildout, all costs associated with the buildout will be recorded as manufacturing equipment or leasehold improvement and amortized over the estimated useful life of the facility.

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7. Outstanding Debt

The following two tables summarize outstanding debt as of June 30, 2020 and December 31, 2019, respectively (amount in thousands):

Stated

Embedded

 

Interest

Conversion

Remaining

Conversion

Carrying

  

Maturity Date

  

Rate

  

Price

  

Face Value

  

Debt Discount

  

Option

  

Value

Short term convertible notes payable

6% unsecured (1)

 

Due

 

6

%  

$

3.09

$

135

$

$

$

135

10% unsecured (2)

 

Various</