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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 September 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 January 10, 2021, the total number of shares of common stock, par value $0.001 per share, outstanding was 822,716,397.

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 September 30, 2020 and December 31, 2019

3

 

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

4

 

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

5

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 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

33

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

40

 

 

Item 4.

Controls and Procedures

41

PART II - OTHER INFORMATION

41

Item 1.

Legal Proceedings

41

 

 

Item 1A.

Risk Factors

41

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

42

 

 

Item 3.

Defaults Upon Senior Securities

42

 

 

Item 4.

Mine Safety Disclosures

42

 

Item 5.

Other Information

42

 

 

Item 6.

Exhibits

42

SIGNATURES

43

2

PART I - FINANCIAL INFORMATION

NORTHWEST BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(Unaudited)

    

September 30, 

    

December 31, 

2020

2019

(As Revised) (Note 13)

ASSETS

 

  

 

Current assets:

 

  

 

  

Cash and cash equivalents

$

9,250

$

372

Prepaid expenses and other current assets

 

2,933

 

2,828

Total current assets

 

12,183

 

3,200

Non-current assets:

 

 

  

Property, plant and equipment, net

 

819

 

281

Construction in progress

7,135

1,685

Right-of-use asset, net

4,327

4,679

Indefinite-lived intangible asset

1,292

Goodwill

654

Other assets

 

803

 

798

Total non-current assets

 

15,030

 

7,443

TOTAL ASSETS

$

27,213

$

10,643

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

  

Current liabilities:

 

 

  

Accounts payable and accrued expenses

$

9,171

$

6,348

Accounts payable and accrued expenses to related parties and affiliates

 

4,924

 

3,844

Convertible notes, net

 

5,144

 

568

Convertible notes to related party, net

 

1,470

 

Notes payable, net

 

3,552

 

5,501

Notes payable to related party

 

 

66

Contingent payable derivative liability

7,384

7,261

Warrant liability

 

194,391

 

20,213

Lease liabilities

240

395

Total current liabilities

 

226,276

 

44,196

Non-current liabilities:

 

  

 

  

Note payable, net of current portion, net

 

8,708

 

6,588

Lease liabilities, net of current portion

4,657

4,914

Total non-current liabilities

 

13,365

 

11,502

Total liabilities

 

239,641

 

55,698

COMMITMENTS AND CONTINGENCIES (Note 11)

 

  

 

  

Stockholders’ deficit:

 

  

 

  

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

Common stock ($0.001 par value); 1,200,000,000 shares authorized; 779.7 million and 614.3 million shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

 

780

 

614

Additional paid-in capital

 

877,376

 

794,900

Stock subscription receivable

 

(26)

 

(10)

Accumulated deficit

 

(1,090,917)

 

(841,395)

Accumulated other comprehensive income

 

359

 

836

Total stockholders’ deficit

 

(212,428)

 

(45,055)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

$

27,213

$

10,643

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 nine months ended

September 30, 

September 30, 

    

2020

    

2019

    

2020

    

2019

(As Revised) (Note 13)

(As Revised) (Note 13)

Revenues:

 

  

 

  

 

  

 

  

Research and other

$

216

$

593

$

788

$

1,513

Total revenues

 

216

 

593

 

788

 

1,513

Operating costs and expenses:

 

 

 

 

Research and development

 

17,660

 

3,538

 

24,737

 

10,092

General and administrative

 

29,321

 

2,838

 

36,822

 

9,413

Legal expenses

 

1,112

 

802

 

2,475

 

3,255

Total operating costs and expenses

 

48,093

 

7,178

 

64,034

 

22,760

Loss from operations

 

(47,877)

 

(6,585)

 

(63,246)

 

(21,247)

Other income (expense):

 

  

 

  

 

  

 

  

Change in fair value of derivative liabilities

 

(138,969)

 

2,460

 

(175,170)

 

(2,360)

Loss from extinguishment of debt

 

(2,994)

 

(504)

 

(4,260)

 

(508)

Interest expense

 

(5,540)

 

(724)

 

(7,224)

 

(2,267)

Foreign currency transaction gain (loss)

 

1,284

 

(1,018)

 

378

 

(975)

Total other income (expense)

 

(146,219)

 

214

 

(186,276)

 

(6,110)

Net loss

$

(194,096)

$

(6,371)

$

(249,522)

$

(27,357)

Other comprehensive income (loss)

Foreign currency translation adjustment

 

(1,240)

 

892

 

(477)

 

1,023

Total comprehensive loss

$

(195,336)

$

(5,479)

$

(249,999)

$

(26,334)

Net loss per share applicable to common stockholders - basic and diluted

$

(0.26)

$

(0.01)

$

(0.36)

$

(0.05)

Weighted average shares used in computing basic and diluted loss per share

747,749

577,130

695,423

552,335

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 September 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 July 1, 2020

 

722,158

$

722

 

$

811,526

 

$

(31)

$

(896,821)

 

$

1,599

$

(83,005)

Issuance of common stock and warrants for cash in a registered direct offering (net of $1.4 million warrant liability, and $0.2 million cash offering cost)

17,177

18

3,891

3,909

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

 

20,146

20

 

8,758

 

 

8,778

Warrants exercised for cash

 

19,050

19

5,610

5,629

Reclassification of warrant liabilities related to warrants exercised for cash

 

8,507

8,507

Cashless warrants exercise

222

Reclassification of warrant liabilities related to cashless warrants exercise

133

133

Beneficial conversion feature related to amended convertible note

44

44

Proceeds from investor to offset subscription receivable

5

5

Stock-based compensation

 

950

1

 

38,907

 

 

38,908

Net loss

 

 

 

(194,096)

 

(194,096)

Cumulative translation adjustment

 

 

 

 

(1,240)

(1,240)

Balance at September 30, 2020

 

779,703

$

780

$

877,376

$

(26)

$

(1,090,917)

$

359

$

(212,428)

For the Three Months Ended September 30, 2019

(As Revised) (Note 13)

Additional

Accumulated

Total

Common Stock

Paid-in

Subscription

Accumulated

Other Comprehensive

Stockholders’

    

Shares

    

Par value

    

Capital

    

Receivable

    

Deficit

    

Income

    

Deficit

Balance at July 1, 2019

562,462

$

562

$

785,648

$

(10)

$

(841,569)

$

1,131

$

(54,238)

Issuance of common stock and warrants for cash in a registered direct offering (net of $1.0 million warrant liability and $0.2 million cash offering cost)

10,450

11

1,199

1,210

Warrants exercised for cash

 

 

 

 

 

 

 

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

 

8,736

 

9

 

2,034

 

 

 

 

2,043

Stock-based compensation

 

1,140

 

1

 

568

 

 

 

 

569

Net loss

 

 

 

 

 

(6,371)

 

 

(6,371)

Cumulative translation adjustment

 

 

 

 

 

 

892

 

892

Balance at September 30, 2019

 

582,788

$

583

$

789,449

$

(10)

$

(847,940)

$

2,023

$

(55,895)

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

5

NORTHWEST BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands)

(Unaudited)

For the Nine Months Ended September 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)

$

(841,395)

$

836

$

(45,055)

Issuance of common stock and warrants for cash in a registered direct offering (net of $8.0 million warrant liability and $0.6 million cash offering cost)

85,756

86

8,792

(16)

8,862

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

 

42,764

 

43

 

13,383

 

 

 

 

13,426

Warrants exercised for cash

 

34,746

 

35

 

9,591

 

 

 

 

9,626

Reclassification of warrant liabilities related to warrants exercised for cash

 

 

 

11,228

 

 

 

 

11,228

Cashless warrants exercise

222

Reclassification of warrant liabilities related to cashless warrants exercise

133

133

Beneficial conversion feature related to amended convertible note

44

44

Stock-based compensation

 

1,923

 

2

 

39,305

 

 

 

 

39,307

Net loss

 

 

 

 

 

(249,522)

 

 

(249,522)

Cumulative translation adjustment

 

 

 

 

 

 

(477)

 

(477)

Balance at September 30, 2020

 

779,703

$

780

$

877,376

$

(26)

$

(1,090,917)

$

359

$

(212,428)

For the Nine Months Ended September 30, 2019

(As Revised) (Note 13)

Additional  

Accumulated

Total

Common Stock

Paid-in

Subscription

Accumulated

Other Comprehensive

Stockholders’

    

Shares

    

Par value

    

Capital

    

Receivable

    

Deficit

    

Income

    

Deficit

Balance at January 1, 2019

523,232

$

523

$

775,741

$

(10)

$

(825,385)

$

1,000

$

(48,131)

Issuance of common stock and warrants for cash in a registered direct offering (net of $1.0 million warrant liability and $0.2 million cash offering cost)

10,450

11

1,199

1,210

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

 

26,234

 

27

 

6,993

 

 

 

 

7,020

Stock-based compensation

 

1,340

 

1

 

1,559

 

 

 

 

1,560

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

 

 

 

 

 

(27,357)

 

 

(27,357)

Cumulative translation adjustment

 

 

 

 

 

 

1,023

 

1,023

Balance at September 30, 2019

 

582,788

$

583

$

789,449

$

(10)

$

(847,940)

$

2,023

$

(55,895)

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 nine months ended

September 30, 

    

2020

    

2019

(As Revised) (Note 13)

Cash Flows from Operating Activities:

 

  

 

Net loss

$

(249,522)

$

(27,357)

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

 

 

Depreciation and amortization

 

33

 

16

Amortization of debt discount

 

1,991

 

1,020

Change in fair value of derivatives

 

175,170

 

2,360

Loss from extinguishment of debt

 

4,260

 

508

Amortization of operating lease right-of-use asset

249

435

Stock-based compensation related to warrants modification

 

 

3

Stock-based compensation for services

 

39,307

 

1,560

Non-cash interest expense

4,270

Subtotal of non-cash charges

 

225,280

 

5,902

Changes in operating assets and liabilities:

 

  

 

  

Prepaid expenses and other current assets

 

146

 

(1,059)

Other non-current assets

 

(12)

 

(23)

Accounts payable and accrued expenses

 

986

 

62

Related party accounts payable and accrued expenses

 

1,080

 

(3,412)

Lease liabilities

152

6

Net cash used in operating activities

 

(21,890)

 

(25,881)

Cash Flows from Investing Activities:

 

  

 

  

Purchase of equipment and construction in progress

 

(3,548)

 

(246)

Acquisition of Flaskworks, net of cash

(1,560)

Net cash used in investing activities

 

(5,108)

 

(246)

Cash Flows from Financing Activities:

 

  

 

  

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

 

16,893

 

2,241

Proceeds from exercise of warrants

 

9,626

 

2,219

Proceeds from warrants modification

4

7

Proceeds from issuance of notes payable, net

 

8,557

 

6,500

Proceeds from issuance of convertible notes payable, net

 

3,190

 

Proceeds from issuance of convertible notes payable to related party

 

315

 

Repayment of notes payable

 

(1,556)

 

(420)

Repayment of notes payable to related parties

 

(64)

 

(329)

Repayment of convertible notes payable

 

(89)

 

Repayment of convertible notes payable to related parties

(5,400)

Net cash provided by financing activities

 

36,876

 

4,818

Effect of exchange rate changes on cash and cash equivalents

 

(1,000)

 

1,055

Net increase (decrease) in cash and cash equivalents

 

8,878

 

(20,254)

Cash and cash equivalents, beginning of the period

 

372

 

22,224

Cash and cash equivalents, end of the period

$

9,250

$

1,970

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

$

(11)

$

Interest payments on convertible notes payable to related party

$

$

(795)

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 nine months ended

September 30, 

    

2020

    

2019

(As Revised) (Note 13)

Supplemental schedule of non-cash investing and financing activities:

 

  

 

Unpaid consideration related to Flaskworks acquisition

$

465

$

Reclassification of warrant liabilities related to warrants exercised for cash

$

11,228

$

1,759

Reclassification of warrant liabilities related to cashless warrants exercise

$

133

$

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

$

6,850

$

5,533

Offering cost related to warrant liability

$

3,749

$

1,031

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

$

91

$

Beneficial conversion feature related to amended convertible note

$

44

$

Capital expenditures included in accounts payable and accrued expenses to related parties and affiliates

$

1,294

$

710

Capital expenditures included in accounts payable

$

954

$

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.

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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.

On August 28, 2020, the Company acquired Flaskworks, LLC (“Flaskworks”), a company that has developed a system to close and automate the manufacturing of cell therapy products such as DCVax®.

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.  With the incidence of COVID-19 now rising significantly in both the US and Europe, and expected to continue at a high level through the rest of the fall and the winter, the adverse effects on the Company’s programs may increase and may continue at an increased level throughout this period. The Company has been continuing to make progress in its programs despite these difficulties, so that it can reach data lock, unblind and report the results of the its Phase 3 clinical trial of DCVax-L for Glioblastoma brain cancer, and the Company plans to continue these efforts. 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 was 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 very limited since then, due to lockdowns, travel restrictions and hospitals focusing on COVID-19 patients. In addition, manufacturing of DCVax products is impeded by personnel being under lockdown. The buildout of the Sawston facility was delayed in starting due to the construction sector shutdown and restrictions, and was substantially slowed

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NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

down due to the contractors having to operate under social distancing arrangements. The Company incurred substantially increased costs to have the contractors operate on two shifts daily rather than the normal one shift in order to try to stay in line with planned timelines to the extent feasible.  The Company relies upon a large number of independent service firms to carry out most aspects of its programs, particularly the Phase 3 trial of DCVax-L for Glioblastoma and its completion and analyses.  These service firms have been substantially impacted by COVID-19 restrictions and limitations, too, with personnel working remotely and having limited availability.

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 September 30, 2020, condensed consolidated statements of operations and comprehensive loss, condensed consolidated statement of stockholders’ equity (deficit) for the three and nine months ended September 30, 2020 and 2019, and the condensed consolidated statements of cash flows for the nine months ended September 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 nine months ended September 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 September 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 recoverability and useful lives (indefinite) of intangible asset, assessment of impairment of goodwill, 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 other than the additions below.

Goodwill and Intangible Assets

Goodwill is the excess of purchase price over the fair value of identified net assets of businesses acquired. The Company’s intangible asset with an indefinite life are related to in-process research and development ("IPR&D") programs acquired

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NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

in the Flaskworks Acquisition, as the Company expects future research and development on these programs to provide the Company with substantial benefit for a period that extends beyond the foreseeable horizon. Intangible assets with indefinite useful lives are measured at their respective fair values as of the acquisition date. The Company does not amortize goodwill and intangible assets with indefinite useful lives. Intangible assets related to IPR&D projects are considered to be indefinite lived until the completion or abandonment of the associated R&D efforts. If and when development is complete, which generally occurs if and when regulatory approval to market a product is obtained, the associated assets would be deemed finite lived and would then be amortized based on their respective estimated useful lives at that point in time.

The Company reviews goodwill and indefinite-lived intangible assets at least annually for possible impairment. Goodwill and indefinite-lived intangible assets are reviewed for possible impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit or the indefinite-lived intangible assets below their carrying values. Goodwill will be tested annually for impairment on October 1.

Stock-Based Compensation

The Company measures stock-based compensation to employees, consultants, and Board members at fair value on the grant date of the award. Compensation cost is recognized as expense on a straight-line basis over the requisite service period of the award. For awards that have a performance condition, compensation cost is measured based on the fair value of the award on the grant date, the date performance targets are established, and is expensed over the requisite service period for each separately vesting tranche when achievement of the performance condition becomes probable. The Company assess the probability of the performance conditions being met on a continuous basis. Forfeitures are recognized when they occur.

The Company estimates the fair value of stock option grants that do not contain market-based vesting conditions using the Black-Scholes option pricing model. The assumptions used in estimating the fair value of these awards, such as expected term, expected dividend yield, volatility and risk-free interest rate, represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. The Company is also required to make estimates as to the probability of achieving the specific performance conditions. If actual results are not consistent with the Company’s assumptions and judgments used in making these estimates, the Company may be required to increase or decrease compensation expense, which could be material to the Company’s consolidated results of operations.

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.

Debt

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. This ASU is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. This update permits the use of either the modified retrospective or fully retrospective method of

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NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

transition. The Company is currently evaluating the impact this ASU will have on the 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 September 30, 2020 and December 31, 2019 (in thousands):

Fair value measured at September 30, 2020

    

    

Quoted prices in active

    

Significant other

    

Significant

Fair value at

markets

observable inputs

unobservable inputs

September 30, 2020

(Level 1)

(Level 2)

(Level 3)

Warrant liability

$

194,391

$

$

$

194,391

Embedded conversion option

2,857

2,857

Contingent payable derivative liability

 

7,384

 

 

 

7,384

Total fair value

$

204,632

$

$

$

204,632

Fair value measured at December 31, 2019

    

    

Quoted prices in active

    

Significant 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 nine-month period ended September 30, 2020.

The following table presents changes in Level 3 liabilities measured at fair value for the nine-month period ended September 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

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NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

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).

Contingent

Embedded

Payable

Warrant

Conversion

Derivative

    

Liability

    

Option

    

Liability

    

Total

Balance - January 1, 2020

$

20,213

$

$

7,261

$

27,474

Additional warrant liability

15,744

15,744

Reclassification of warrant liabilities related to warrants exercised for cash and cashless exercise

(11,361)

(11,361)

Extinguishement of embedded conversion option due to debt conversion

(3,838)

(3,838)

Additional embedded conversion option

1,443

1,443

Change in fair value

169,795

5,252

123

175,170

Balance - September 30, 2020

$

194,391

$

2,857

$

7,384

$

204,632

A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the Company’s warrant liabilities and embedded conversion feature that are categorized within Level 3 of the fair value hierarchy as of September 30, 2020 and December 31, 2019 is as follows:

As of September 30, 2020

Warrant

Embedded

Contingent Payable

    

Liability

    

Conversion Option

Derivative Liability

    

Strike price

$

0.25

$

0.25

$

0.77

*

Contractual term (years)

 

1.8

 

1.1

1.5

 

Volatility (annual)

 

92

%  

92

%

95

%  

Risk-free rate

 

0.1

%  

0.1

%

0.1

%  

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 September 30, 2020 and December 31, 2019

5. Flaskworks Acquisition

On August 28, 2020, the Company completed the acquisition of Flaskworks (the “Acquisition”), whereby Flaskworks became a wholly-owned subsidiary of the Company.

The Unit Purchase Agreement was executed and closed on August 28, 2020. The Company acquired 100% of the ownership units of Flaskworks. Flaskworks was previously owned by its technical founders and Corning Inc. The technical team from Flaskworks has joined the Company as part of the Acquisition. It is anticipated that the Flaskworks system will enable substantial scale-up of production volumes of DCVax products and substantial reduction of production costs. The Company’s buildout of the Sawston, UK facility has been designed to proceed in phases, as modules, both for efficiency

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NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

in the timing of capital costs and to allow flexibility in operations and usage. The Company anticipates that implementation of the Flaskworks system will enable certain phases of the buildout to be simplified and streamlined.

The total purchase price was approximately $4.3 million, of which $1.7 million was paid in cash at closing, up to $2.01 million will be paid in stock subject to milestone-based vesting (see Note 6), and $0.7 million is to be paid in either cash or stock, or a combination thereof, within 120 days after the closing. On December 16, 2020, $0.1 million was paid in cash upon the seller’s election.

Based on the Company's preliminary valuation, the total estimated consideration of $2.2 million has been allocated to assets acquired and liabilities assumed as of the acquisition date as follows (amount in thousands):

Cash

    

$

146

Current assets

 

135

Fixed assets, net

 

188

Indefinite-lived intangible asset

 

1,292

Security deposits

 

8

Total assets acquired

 

1,769

Accounts payable

 

(12)

Accrued expenses

 

(240)

Total liabilities assumed

 

(252)

Net identifiable assets acquired

 

1,517

Goodwill

 

654

Total estimated consideration (1)

$

2,171

Less unpaid consideration as of September 30, 2020

$

(465)

Less cash acquired

 

(146)

Total consideraion paid, net of cash acquired

$

1,560

(1) The purchase price allocation excludes $2.01 million stock consideration, which was recorded as stock-based compensation for accounting purposes, although the treatment for tax purposes is anticipated to be different (see Note 6), and $0.2 million payable for services not related to the Acquisition in either cash or stock within 120 days after the closing.

The Acquisition was accounted for under the acquisition method of accounting in accordance with US GAAP. As such, results of operations for Flaskworks are included in the accompanying condensed consolidated statements of operations since the Acquisition date, and the assets acquired and liabilities assumed were recorded at their fair value as of the Acquisition date.

Accordingly, goodwill has been measured as the excess of the total consideration over the amounts assigned to the identifiable assets acquired and liabilities assumed. Based on the Company's preliminary valuation, the Company recorded goodwill of approximately $0.7 million, which was primarily related to the acquisition of the assembled workforce and other indefinite-lived intangible asset of approximate $1.3 million in connection with the Acquisition. The $0.7 million of goodwill is expected to be deductible for tax purposes.

The acquired Licensed IP Agreement was identified as an intangible asset and valued separate and apart from goodwill. Specifically, the Company used the Relief-from-Royalty Method, a form of the Income Approach, to estimate the fair value of the License