NORTHWEST BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share and per share
amounts)
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,835
|
|
|
$
|
6,186
|
|
Restricted cash - interest payments held in escrow
|
|
|
397
|
|
|
|
685
|
|
Prepaid expenses and other current assets
|
|
|
923
|
|
|
|
1,013
|
|
Total current assets
|
|
|
3,155
|
|
|
|
7,884
|
|
|
|
|
|
|
|
|
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
261
|
|
|
|
315
|
|
Construction in progress (property in the United Kingdom)
|
|
|
44,766
|
|
|
|
44,559
|
|
Other assets
|
|
|
130
|
|
|
|
148
|
|
Total non-current assets
|
|
|
45,157
|
|
|
|
45,022
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
48,312
|
|
|
$
|
52,906
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
12,860
|
|
|
$
|
12,378
|
|
Accounts payable to related party
|
|
|
22,541
|
|
|
|
23,353
|
|
Accrued expenses (includes related party of
$40 as of December 31, 2016)
|
|
|
933
|
|
|
|
901
|
|
Convertible notes (net of deferred financing cost of $0 and $175 as of March 31, 2017 and December 31, 2016, respectively)
|
|
|
10,135
|
|
|
|
10,960
|
|
Share settled debt, at fair value (in default)
|
|
|
5,200
|
|
|
|
5,200
|
|
Notes payable (net of debt discount of $172 and $0 as of March 31, 2017 and December 31, 2016, respectively)
|
|
|
5,103
|
|
|
|
2,450
|
|
Notes payable to related party
|
|
|
-
|
|
|
|
310
|
|
Mortgage loan (net of deferred financing cost of $250 and $365 as of March 31, 2017 and December 31, 2016, respectively)
|
|
|
10,030
|
|
|
|
9,791
|
|
Environmental remediation liability
|
|
|
6,200
|
|
|
|
6,200
|
|
Warrant liability
|
|
|
8,904
|
|
|
|
4,862
|
|
Total current liabilities
|
|
|
81,906
|
|
|
|
76,405
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
Note payable, net of current portion (net of debt discount of $263 and $310 as of March 31, 2017 and December 31, 2016, respectively)
|
|
|
3,047
|
|
|
|
3,000
|
|
Total non-current liabilities
|
|
|
3,047
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
84,953
|
|
|
|
79,405
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity (deficit):
|
|
|
|
|
|
|
|
|
Preferred stock ($0.001 par value); 40,000,000 shares authorized; 0 shares issued and outstanding as of March 31, 2017 and December 31, 2016, respectively
|
|
|
-
|
|
|
|
-
|
|
Common stock ($0.001 par value); 450,000,000 shares authorized; 185,511,822 and 157,028,270 shares issued and outstanding as of March 31, 2017 and December 31, 2016, respectively
|
|
|
185
|
|
|
|
157
|
|
Additional paid-in capital
|
|
|
689,736
|
|
|
|
686,972
|
|
Accumulated deficit
|
|
|
(728,096
|
)
|
|
|
(715,476
|
)
|
Accumulated other comprehensive gain
|
|
|
1,534
|
|
|
|
1,848
|
|
Total stockholders' equity (deficit)
|
|
|
(36,641
|
)
|
|
|
(26,499
|
)
|
Total liabilities and stockholders' equity (deficit)
|
|
$
|
48,312
|
|
|
$
|
52,906
|
|
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
NORTHWEST BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
|
|
For the three months ended
|
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Revenues:
|
|
|
|
|
|
|
Research and other
|
|
$
|
68
|
|
|
$
|
236
|
|
Total revenues
|
|
|
68
|
|
|
|
236
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
5,035
|
|
|
|
13,440
|
|
General and administrative
|
|
|
3,005
|
|
|
|
3,335
|
|
Legal expenses
|
|
|
3,932
|
|
|
|
940
|
|
Total operating costs and expenses
|
|
|
11,972
|
|
|
|
17,715
|
|
Loss from operations
|
|
|
(11,904
|
)
|
|
|
(17,479
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Change in fair value of derivative liability
|
|
|
1,439
|
|
|
|
13,525
|
|
Loss from extinguishment of debt
|
|
|
(1,535
|
)
|
|
|
-
|
|
Interest expense
|
|
|
(1,194
|
)
|
|
|
(718
|
)
|
Foreign currency transaction gain (loss)
|
|
|
574
|
|
|
|
(1,434
|
)
|
Net loss
|
|
$
|
(12,620
|
)
|
|
$
|
(6,106
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share applicable to common stockholders - basic and diluted
|
|
$
|
(0.08
|
)
|
|
$
|
(0.06
|
)
|
Weighted average shares used in computing basic and diluted loss per share
|
|
|
161,498
|
|
|
|
97,688
|
|
The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements.
NORTHWEST BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands)
|
|
For the three months ended
|
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Net loss
|
|
$
|
(12,620
|
)
|
|
$
|
(6,106
|
)
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
(314
|
)
|
|
|
500
|
|
Total comprehensive loss
|
|
$
|
(12,934
|
)
|
|
$
|
(5,606
|
)
|
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
NORTHWEST BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’
EQUITY (DEFICIT)
(Unaudited)
(in thousands)
|
|
Common Stock
|
|
|
Additional Paid-in
|
|
|
Accumulated
|
|
|
Cumulative Translation
|
|
|
Total Stockholders'
Equity
|
|
|
|
Shares
|
|
|
Par value
|
|
|
Capital
|
|
|
Deficit
|
|
|
Adjustment
|
|
|
(Deficit)
|
|
Balance at January 1, 2017
|
|
|
157,027
|
|
|
$
|
157
|
|
|
$
|
686,972
|
|
|
$
|
(715,476
|
)
|
|
$
|
1,848
|
|
|
$
|
(26,499
|
)
|
Issuance
of common stock and warrants for cash in a registered direct offering (net of $6.2 million warrant liability)
|
|
|
18,844
|
|
|
|
19
|
|
|
|
1,187
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,206
|
|
Offering cost related to registered direct offering
|
|
|
-
|
|
|
|
-
|
|
|
|
(693
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(693
|
)
|
Warrants exercised for cash
|
|
|
3,100
|
|
|
|
3
|
|
|
|
28
|
|
|
|
-
|
|
|
|
-
|
|
|
|
31
|
|
Reclassification of warrant liabilities related to warrants exercised for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
713
|
|
|
|
-
|
|
|
|
-
|
|
|
|
713
|
|
Issuance
of common stock prior to conversion of share settled debt
|
|
|
2,500
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common stock issued for debt extinguishment
|
|
|
4,040
|
|
|
|
4
|
|
|
|
1,531
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,535
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(12,620
|
)
|
|
|
-
|
|
|
|
(12,620
|
)
|
Cumulative translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(314
|
)
|
|
|
(314
|
)
|
Balance at March 31, 2017
|
|
|
185,511
|
|
|
$
|
185
|
|
|
$
|
689,736
|
|
|
$
|
(728,096
|
)
|
|
$
|
1,534
|
|
|
$
|
(36,641
|
)
|
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
NORTHWEST BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Unaudited)
(in thousands)
|
|
For the three months ended
|
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(12,620
|
)
|
|
$
|
(6,106
|
)
|
Reconciliation of net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
56
|
|
|
|
13
|
|
Amortization of debt discount
|
|
|
373
|
|
|
|
209
|
|
Change in fair value of derivatives
|
|
|
(1,439
|
)
|
|
|
(13,525
|
)
|
Loss from extinguishment of debt
|
|
|
1,535
|
|
|
|
|
|
Stock issued to Cognate BioServices under Cognate Agreements
|
|
|
-
|
|
|
|
3,644
|
|
Subtotal of non-cash charges
|
|
|
525
|
|
|
|
(9,659
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
92
|
|
|
|
337
|
|
Accounts payable and accrued expenses
|
|
|
514
|
|
|
|
(3,116
|
)
|
Related party accounts payable and accrued expenses
|
|
|
(812
|
)
|
|
|
912
|
|
Other non-current assets
|
|
|
18
|
|
|
|
37
|
|
Net cash used in operating activities
|
|
|
(12,283
|
)
|
|
|
(17,595
|
)
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
-
|
|
|
|
(2,683
|
)
|
Refund of leasehold improvement related to UK construction
|
|
|
218
|
|
|
|
-
|
|
Net cash provided by (used in) investing activities
|
|
|
218
|
|
|
|
(2,683
|
)
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock and warrants in a registered direct offering
|
|
|
7,400
|
|
|
|
10,000
|
|
Offering cost related to registered direct offering
|
|
|
(693
|
)
|
|
|
(756
|
)
|
Proceeds from exercise of warrants
|
|
|
31
|
|
|
|
-
|
|
Proceeds from issuance of notes payable
|
|
|
2,620
|
|
|
|
-
|
|
Proceeds from issuance of notes payable to related party
|
|
|
420
|
|
|
|
-
|
|
Repayment of convertible notes payable
|
|
|
(1,000
|
)
|
|
|
-
|
|
Repayment of notes payable to related parties
|
|
|
(730
|
)
|
|
|
-
|
|
Net cash provided by financing activities
|
|
|
8,048
|
|
|
|
9,244
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(622
|
)
|
|
|
634
|
|
Net decrease in cash, cash equivalents and restricted cash
|
|
|
(4,639
|
)
|
|
|
(10,400
|
)
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash, beginning of the period
|
|
|
6,871
|
|
|
|
23,048
|
|
Cash, cash equivalents and restricted cash, end of the period
|
|
$
|
2,232
|
|
|
$
|
12,648
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Interest payments on mortgage loan
|
|
$
|
(290
|
)
|
|
$
|
(334
|
)
|
Interest payments on senior convertible note
|
|
$
|
(310
|
)
|
|
$
|
(275
|
)
|
Interest payments on notes payable to related party
|
|
$
|
(47
|
)
|
|
$
|
-
|
|
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
NORTHWEST BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Unaudited)
(in thousands)
|
|
For the three months ended
|
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Supplemental schedule of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Issuance of debt with original issue debt discount
|
|
$
|
205
|
|
|
$
|
-
|
|
Issuance of common stock prior to conversion of share settled debt
|
|
$
|
2
|
|
|
$
|
-
|
|
Reclassification of warrant liabilities related to warrants exercised for cash
|
|
$
|
713
|
|
|
$
|
-
|
|
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
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, and Aracaris Capital, Ltd (collectively, the “Company”, “we”, “us”
and “our”) were organized to discover and develop innovative immunotherapies for cancer.
The Company is developing an experimental
dendritic cell vaccine using its platform technology known as DCVax. DCVax is currently being tested for use in the treatment of
certain types of cancers.
Cognate BioServices, Inc. (“Cognate
BioServices”), which is a company related by common ownership (Note 8), provides the Company with mission critical contract
manufacturing services, research and development services, distribution and logistics, and related services, in compliance with
the Company’s specifications and the applicable regulatory requirements for clinical grade cellular products. The Company
and Cognate BioServices are currently parties to a series of contracts providing for these services as more fully described below.
The Company is dependent on Cognate BioServices to provide the manufacturing services, and any interruption of such services could
potentially have a material adverse effect on the Company’s ability to proceed with its clinical trials. Cognate BioServices’
manufacturing facility for clinical-grade cellular products is located in Memphis, Tennessee. In addition, a Cognate affiliate
in Germany works with the Fraunhofer Institute to produce DCVax-L products there, and Cognate affiliates in the UK and Israel are
preparing for production of DCVax-L products in those locations.
Although there are many contract manufacturers
for small molecule drugs and for biologics, there are only a few contract manufacturers in the U.S., and even fewer in Europe,
that specialize in producing living cell products and that have a track record of success with regulatory authorities. The manufacturing
of living cell products is highly specialized and entirely different than production of biologics: the physical facilities and
equipment are different, the types of personnel and skill sets are different, and the processes are different. The regulatory requirements
relating to manufacturing and cellular products are especially challenging and are one of the most frequent reasons for the development
of a company’s cellular products to be put on clinical hold (i.e., stopped by regulatory authorities).
In addition, the Company’s programs
require a large amount of capacity in these specialized manufacturing facilities, and require that the large capacity be dedicated
exclusively to the Company’s programs. Most medical products, including cellular products, are made in standardized batches:
the same manufacturing suites are used for a number of companies’ products, at designated times scheduled in advance. In
contrast, the Company’s products are fully personalized and not made in standardized batches: the Company’s products
are made on demand, patient by patient, on an as needed basis.
2. Liquidity, Financial Condition and Management Plans
The Company used approximately $12.3 million
of cash in its operating activities for the three months ended March 31, 2017, which included substantial payments for expenses
previously incurred in connection with the Phase III clinical trial of DCVax-L. The Company incurred a $12.6 million net loss for
the three months ended March 31, 2017, including $1.3 million of net aggregate charges for the interest associated with the accretion
of convertible notes discount, fair value change in derivative financial instruments and loss from extinguishment of debt. 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 had current assets of $3.2
million as of March 31, 2017, and a working capital deficit of approximately $78.8 million at March 31, 2017. The Company owed
an aggregate of $22.5 million of trade liabilities to related parties as of March 31, 2017. The Company has not yet generated any
material revenue from the sale of its products and is subject to all of the risks and uncertainties that are typically faced by
biotechnology companies that devote substantially all of their efforts to R&D and clinical trials and do not yet have commercial
products. The Company expects to continue incurring losses for the foreseeable future. The Company’s existing liquidity is
not sufficient to fund its operations, anticipated capital expenditures, working capital and other financing requirements until
the Company reaches significant revenues. Until that time, the Company will need to obtain additional equity and/or
debt financing, especially if the Company experiences downturns in its business that are more severe or longer than anticipated,
or if the Company experiences significant increases in expense levels resulting from being a publicly-traded company or from expansion
of operations. If the Company attempts to obtain additional equity or debt financing, the Company cannot assume that
such financing will be available to the Company on favorable terms, or at all.
Because of recurring operating losses,
net operating cash flow deficits, and an accumulated deficit, there is substantial doubt about the Company’s ability
to continue as a going concern. The 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.
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 March 31, 2017, condensed
consolidated statements of operations for the three months ended March 31, 2017 and 2016, condensed consolidated statements of
comprehensive loss for the three months ended March 31, 2017 and 2016, condensed consolidated statement of stockholders’
equity (deficit) for the three months ended March 31, 2017, and the condensed consolidated statements of cash flows for the three
months ended March 31, 2017 and 2016 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, 2017 are not necessarily indicative of results to be expected
for the year ending December 31, 2017 or for any future interim period. The condensed consolidated balance sheet at December 31,
2016 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, 2016, and notes thereto included
in the Company’s annual report on Form 10-K, which was filed with the SEC on April 17, 2017.
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,
valuing environmental liabilities, estimating the fair value of financial instruments recorded as derivative liabilities, and estimating
the useful lives of depreciable assets and whether impairment charges may apply.
Warrant Liability
The Company accounts for certain common
stock warrants outstanding as a liability at fair value and adjusts the instruments to fair value at each reporting period. This
liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in
the Company's statements of operations. The fair value of the warrants issued by the Company has been estimated using Monte Carlo
simulation and Black Scholes model.
Sequencing
As of October 13, 2016, the Company adopted
a sequencing policy whereby all future instruments may be classified as a derivative liability with the exception of instruments
related to share-based compensation issued to employees or directors.
Environmental Remediation Liabilities
The Company records environmental remediation
liabilities for properties acquired. The environmental remediation liabilities are initially recorded at fair value. The liability
is reduced for actual costs incurred in connection with the clean-up activities for each property. Upon completion of the clean-up,
the environmental remediation liability is adjusted to equal the fair value of the remaining operation, maintenance and monitoring
activities to be performed for the property. The amount of the additional liability resulting from the completion of the clean-up,
if any, would be included in other income (expense). As of March 31, 2017, the Company estimated that the total environmental remediation
costs associated with the purchase of the UK Facility will be approximately $6.2 million. This is a projected potential future
cost. No such environmental costs have been incurred to date and none are currently pending. Contamination clean-up costs that
improve the property from its original acquisition state will be capitalized as part of the property’s overall development
costs. The Company engaged a third-party specialist to conduct certain surveys of the condition of the property which included,
among other things, a preliminary analysis of potential environmental remediation exposures. The Company determined, based on information
contained in the specialist’s report, that it would be required to estimate the fair value of an unconditional obligation
to remediate specific ground contamination at an estimated fair value of approximately $6.2 million. The Company computed the fair
value of this obligation using a probability weighted approach that measures the likelihood of the following two potential outcomes:
(i) a higher probability requirement of erecting a protective barrier around the affected area at an estimated cost of approximately
$4.5 million, and (ii) a lower probability requirement of having to excavate the affected area at an estimated cost of approximately
$32.0 million. The Company’s estimate is preliminary and therefore subject to change as further studies are conducted, and
as additional facts come to the Company’s attention. Environmental remediation efforts are complex, technical and subject
to various uncertainties. Accordingly, it is at least reasonably possible that any changes in the Company’s estimate could
materially differ from the management’s preliminary assessment discussed herein.
NORTHWEST BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
Comprehensive Loss
The Company reports comprehensive loss
and its components in its condensed consolidated financial statements. Comprehensive loss consists of net loss and foreign currency
translation adjustments, affecting stockholders’ equity (deficit) that, under U.S, GAAP, are excluded from net loss.
Research and Development Costs
Research and development costs are charged
to operations as incurred and consist primarily of clinical trial costs, related party manufacturing costs, consulting costs, contract
research and development costs, clinical site costs and compensation costs.
Significant Accounting Policies
There have been no material changes in
the Company’s significant accounting policies to those previously disclosed in the 2016 Annual Report.
Adoption of Recent Accounting Pronouncements
Compensation-Stock Compensation
In March 2016, the FASB issued ASU No.
2016-09,
Compensation-Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting
. Under ASU
No. 2016-09, companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital (“APIC”).
Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement
and the APIC pools will be eliminated. In addition, ASU No. 2016-09 eliminates the requirement that excess tax benefits be realized
before companies can recognize them. ASU No. 2016-09 also requires companies to present excess tax benefits as an operating activity
on the statement of cash flows rather than as a financing activity. Furthermore, ASU No. 2016-09 will increase the amount an employer
can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to
satisfy the employer’s statutory income tax withholding obligation. An employer with a statutory income tax withholding obligation
will now be allowed to withhold shares with a fair value up to the amount of taxes owed using the maximum statutory tax rate in
the employee’s applicable jurisdiction(s). ASU No. 2016-09 requires a company to classify the cash paid to a tax authority
when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on the statement of
cash flows. Under current U.S. GAAP, it was not specified how these cash flows should be classified. In addition, companies will
now have to elect whether to account for forfeitures on share-based payments by (1) recognizing forfeitures of awards as they occur
or (2) estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change, as is currently
required. These aspects of ASU 2016-09 are effective for reporting periods beginning after December 15, 2016, with early adoption
permitted provided that all of the guidance is adopted in the same period. The Company’s adoption of ASU No. 2016-09 on January
1, 2017 did not have a material impact on its condensed consolidated financial statements and related disclosures.
Recent Issued Accounting Pronouncements
Statement of Cash Flows
In August 2016, the FASB issued ASU No.
2016-15 Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments, which addresses specific
cash flow classification issues where there is currently diversity in practice including debt prepayment and proceeds from the
settlement of insurance claims. ASU 2016-15 is effective for annual periods beginning after December 15, 2017, with early adoption
permitted. The Company is currently assessing the impact that ASU No. 2016-15 will have on its condensed consolidated financial
statements.
Revenue from Contracts with Customer
In May 2014, the FASB issued ASU No. 2014-09, “Revenue
from Contracts with Customers”, an updated standard on revenue recognition. ASU No. 2014-09 provides enhancements
to the quality and consistency of how revenue is reported by companies while also improving comparability in the financial statements
of companies reporting using International Financial Reporting Standards or U.S. GAAP. The main purpose of the new standard
is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration
to which a company expects to be entitled in exchange for those goods or services. The new standard also will result in enhanced
disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively and improve guidance
for multiple-element arrangements. In July 2015, the FASB voted to approve a one-year deferral of the effective date of ASU
No. 2014-09, which will be effective for the Company in the first quarter of fiscal year 2018 and may be applied on a full retrospective
or modified retrospective approach. The Company is currently evaluating the pending adoption of ASU 2014-09 and
its impact on the Company's consolidated financial statements and has not yet identified which transition method will be applied
upon adoption.
NORTHWEST BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
In April 2016, the FASB issued ASU No.
2016-10,
Revenue from Contracts with Customer
. The new guidance is an update to ASC 606 and provides clarity on:
identifying performance obligations and licensing implementation. For public companies, ASU No. 2016-10 is effective for annual
periods, including interim periods within those annual periods, beginning after December 15, 2017, including interim periods within
that reporting period. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including
interim periods within that reporting period. The Company is currently evaluating the impact of this guidance on its consolidated
financial position, results of operations and cash flows.
Recognition and Measurement of Financial
Assets and Financial Liabilities
In January 2016, FASB issued ASU 2016-01,
Recognition and Measurement of Financial Assets and Financial Liabilities
. ASU 2016-01 requires equity investments to be
measured at fair value with changes in fair value recognized in net income; simplifies the impairment assessment of equity investments
without readily determinable fair values by requiring a qualitative assessment to identify impairment; eliminates the requirement
for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required
to be disclosed for financial instruments measured at amortized cost on the balance sheet; requires public business entities to
use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requires an entity to
present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from
a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance
with the fair value option for financial instruments; requires separate presentation of financial assets and financial liabilities
by measurement category and form of financial assets on the balance sheet or the accompanying notes to the financial statements;
and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale
securities in combination with the entity’s other deferred tax assets. ASU 2016-01 will be effective for financial statements
issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently
evaluating the impact that ASU 2016-01 will have on its consolidated financial statements and related disclosures.
Leases
In February 2016, FASB issued ASU No. 2016-02,
Leases (Topic 842)
which supersedes FASB ASC Topic 840,
Leases (Topic 840)
and provides principles for the recognition,
measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual
approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively
a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective
interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use
asset and a lease liability for all leases with a term of greater than twelve months regardless of classification. Leases with
a term of twelve months or less will be accounted for similar to existing guidance for operating leases. The standard will be effective
for annual and interim periods beginning after December 15, 2018, with early adoption permitted upon issuance. The Company is currently
evaluating the impact that ASU 2016-02 will have on its consolidated financial statements and related disclosures.
4. Fair Value Measurements
Derivative Warrants Granted in 2017
Public Offering
During the quarter ended March 31, 2017,
the Company issued 53,265,538 warrants (the “Warrants”) to multiple investors (the “Holders”). Since the
Company’s adopted sequencing policy (see Note 3), the warrants were classified as liabilities and measured at fair value
on the grant date, with changes in fair value recognized as other income on the statement of operation and disclosed in the financial
statements as long as the contracts remain classified as liabilities.
A summary of weighted average (in aggregate)
significant unobservable inputs (Level 3 inputs) used in measuring warrant granted during the quarter ended March 31, 2017 is as
follows:
|
|
2017 Warrants Granted
|
|
Strike price
|
|
$
|
0.51
|
|
Contractual term (years)
|
|
|
2.2
|
|
Volatility (annual)
|
|
|
107
|
%
|
Risk-free rate
|
|
|
1
|
%
|
Dividend yield (per share)
|
|
|
0
|
%
|
NORTHWEST BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
Extinguishment of Warrant Liabilities
Related to Cash Exercise
During the quarter ended March 31, 2017
approximately 3,100,000 warrants classified as derivative liabilities were exercised for cash. A summary of weighted average (in
aggregate) significant unobservable inputs (Level 3 inputs) used in measuring warrant exercises (originally recorded as liabilities)
during the quarter ended March 31, 2017 is as follows:
|
|
2017 Warrants Exercised
|
|
Strike price
|
|
$
|
0.01
|
|
Contractual term (years)
|
|
|
0.2
|
|
Volatility (annual)
|
|
|
113
|
%
|
Risk-free rate
|
|
|
1
|
%
|
Dividend yield (per share)
|
|
|
0
|
%
|
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, 2017 and December 31, 2016
(in thousands):
|
|
Fair value measured at March 31, 2017
|
|
|
|
|
|
|
Quoted prices in active
|
|
|
Significant other
|
|
|
Significant
|
|
|
|
Fair value at
|
|
|
markets
|
|
|
observable inputs
|
|
|
unobservable inputs
|
|
|
|
March 31, 2017
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Warrant liability
|
|
$
|
8,904
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,904
|
|
Share-settled debt (in default)
|
|
|
5,200
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,200
|
|
Total fair value
|
|
$
|
14,104
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
14,104
|
|
|
|
Fair value measured at December 31, 2016
|
|
|
|
|
|
|
Quoted prices in active
|
|
|
Significant other
|
|
|
Significant
|
|
|
|
Fair value at
|
|
|
markets
|
|
|
observable inputs
|
|
|
unobservable inputs
|
|
|
|
December 31, 2016
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Warrant liability
|
|
$
|
4,862
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,862
|
|
Share-settled debt (in default)
|
|
|
5,200
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,200
|
|
Total fair value
|
|
$
|
10,062
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,062
|
|
There were no transfers between Level 1, 2 or 3 during the three-month
period ended March 31, 2017.
The development and determination of the
unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s
management.
The following table presents changes in
Level 3 liabilities measured at fair value for the three-month period ended March 31, 2017. 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
|
|
|
Share-settled
|
|
|
|
|
|
|
Liability
|
|
|
Debt (in Default)
|
|
|
Total
|
|
Balance – January 1, 2017
|
|
$
|
4,862
|
|
|
$
|
5,200
|
|
|
$
|
10,062
|
|
Warrants granted
|
|
|
6,194
|
|
|
|
-
|
|
|
|
6,194
|
|
Extinguishment of warrant liabilities related to warrants exercised for cash
|
|
|
(713
|
)
|
|
|
-
|
|
|
|
(713
|
)
|
Change in fair value
|
|
|
(1,439
|
)
|
|
|
-
|
|
|
|
(1,439
|
)
|
Balance – March 31, 2017
|
|
$
|
8,904
|
|
|
$
|
5,200
|
|
|
$
|
14,104
|
|
NORTHWEST BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
A summary of the weighted average (in aggregate)
significant unobservable inputs (Level 3 inputs) used in measuring the Company’s warrant liabilities that are categorized
within Level 3 of the fair value hierarchy as of March 31, 2017 and December 31, 2016 is as follows:
Date of valuation
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Strike price
|
|
$
|
0.56
|
|
|
$
|
0.60
|
|
Contractual term (years)
|
|
|
2.9
|
|
|
|
4.7
|
|
Volatility (annual)
|
|
|
105
|
%
|
|
|
98
|
%
|
Risk-free rate
|
|
|
1
|
%
|
|
|
2
|
%
|
Dividend yield (per share)
|
|
|
0
|
%
|
|
|
0
|
%
|
5. Property and Equipment
Property and equipment consist of the following at March 31,
2017 and December 31, 2016 (in thousands):
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Leasehold improvements
|
|
$
|
69
|
|
|
$
|
69
|
|
Office furniture and equipment
|
|
|
25
|
|
|
|
25
|
|
Computer equipment and software
|
|
|
628
|
|
|
|
626
|
|
|
|
|
722
|
|
|
|
720
|
|
Less: accumulated depreciation
|
|
|
(461
|
)
|
|
|
(405
|
)
|
Total property, plant and equipment, net
|
|
|
261
|
|
|
|
315
|
|
Construction in progress (property in the United Kingdom)
|
|
|
44,766
|
|
|
|
44,559
|
|
|
|
$
|
45,027
|
|
|
$
|
44,874
|
|
* Construction in progress includes both
the land acquisition costs and the building costs.
Depreciation expense was approximately
$56,000 and $13,000 for the three months ended March 31, 2017 and 2016.
6. Outstanding Debt
The following table summarizes outstanding
debt as of March 31, 2017 and December 31, 2016, respectively (amount in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
Stated
|
|
|
Conversion
|
|
|
|
|
|
Remaining
|
|
|
Deferred
|
|
|
Carrying
|
|
|
|
Maturity Date
|
|
Interest Rate
|
|
|
Price
|
|
|
Face Value
|
|
|
Debt Discount
|
|
|
Financing Cost
|
|
|
Value
|
|
6% unsecured (1)
|
|
Due
|
|
|
6
|
%
|
|
$
|
3.09
|
|
|
$
|
135
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
135
|
|
2014 Senior convertible notes (2)
|
|
6/20/2017
|
|
|
7
|
%
|
|
$
|
6.60
|
|
|
|
10,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,000
|
|
10% unsecured
|
|
11/4/2017
|
|
|
10
|
%
|
|
|
N/A
|
|
|
|
2,450
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,450
|
|
8% unsecured note (3)
|
|
9/3/2017 & 6/30/2018
|
|
|
8
|
%
|
|
|
N/A
|
|
|
|
4,465
|
|
|
|
(394
|
)
|
|
|
-
|
|
|
|
4,071
|
|
0% unsecured OID note (4)
|
|
9/1/2017 & 9/3/2017
|
|
|
0
|
%
|
|
|
N/A
|
|
|
|
1,670
|
|
|
|
(41
|
)
|
|
|
-
|
|
|
|
1,629
|
|
Share-settled debt, at fair value (5)
|
|
In Default
|
|
|
18
|
%
|
|
$
|
0.25
|
|
|
|
5,200
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,200
|
|
Mortgage loan (6)
|
|
11/16/2017 & 8/16/2017
|
|
|
12
|
%
|
|
|
N/A
|
|
|
|
10,280
|
|
|
|
-
|
|
|
|
(250
|
)
|
|
|
10,030
|
|
Ending balance as of March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
$
|
34,200
|
|
|
$
|
(435
|
)
|
|
$
|
(250
|
)
|
|
$
|
33,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
Stated
|
|
|
Conversion
|
|
|
|
|
|
Remaining
|
|
|
Deferred
|
|
|
Carrying
|
|
|
|
Maturity Date
|
|
Interest
Rate
|
|
|
Price
|
|
|
Face
Value
|
|
|
Debt
Discount
|
|
|
Financing
Cost
|
|
|
Value
|
|
6% unsecured
|
|
Due
|
|
|
6
|
%
|
|
$
|
3.09
|
|
|
$
|
135
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
135
|
|
10% unsecured note to related party
|
|
On Demand
|
|
|
10
|
%
|
|
|
N/A
|
|
|
|
50
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50
|
|
12% unsecured note to related party
|
|
On Demand
|
|
|
12
|
%
|
|
|
N/A
|
|
|
|
260
|
|
|
|
-
|
|
|
|
-
|
|
|
|
260
|
|
2014 Senior convertible notes
|
|
8/15/2017
|
|
|
5
|
%
|
|
$
|
6.60
|
|
|
|
11,000
|
|
|
|
-
|
|
|
|
(175
|
)
|
|
|
10,825
|
|
10% unsecured note
|
|
11/4/2017
|
|
|
10
|
%
|
|
|
N/A
|
|
|
|
2,450
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,450
|
|
8% unsecured note
|
|
6/30/2018
|
|
|
8
|
%
|
|
|
N/A
|
|
|
|
3,310
|
|
|
|
(310
|
)
|
|
|
-
|
|
|
|
3,000
|
|
Share-settled debt, at fair value
|
|
In Default
|
|
|
18
|
%
|
|
$
|
0.35
|
|
|
|
5,200
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,200
|
|
Mortgage loan
|
|
11/16/2017 & 8/16/2017
|
|
|
12
|
%
|
|
|
N/A
|
|
|
|
10,156
|
|
|
|
-
|
|
|
|
(365
|
)
|
|
|
9,791
|
|
Ending
balance as of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
$
|
32,561
|
|
|
$
|
(310
|
)
|
|
$
|
(540
|
)
|
|
$
|
31,711
|
|
NORTHWEST BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
(1)
|
This $135,000 note as of March 31, 2017 and December 31, 2016 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)
|
Due to the Nasdaq delisting on December
19, 2016, the term of the Convertible Senior Notes (the “Notes”) indenture required the Company to offer to repurchase
the entire principal and all remaining interest through the Notes original maturity date. The debt holders accepted the offer,
and NWBO was required to repurchase the entire Notes on March 10, 2017.
On March 9, 2017, the Company entered into
a Note Repurchase Agreement with the debt holders (the “Holders”). The Agreement provided for an installment payment
plan for the next 4 months, with the last payment due on June 20, 2017. The contractual interest rate was also modified from 5%
per annum to 7% per annum.
As an additional consideration to the Holders
to delay the Notes repayment, the Company issued the Holders 4,039,860 common stock. The fair value of the common stock was approximately
$1.5 million on the grant date, and was recorded as debt extinguishment.
During the quarter ended March 31,
2017, the Company made principal repayment of $1.0 million and interest payment of approximately $0.3 million. On
April 19, 2017, the Company made a principal repayment of $2.0 million and an interest payment of $0.1 million.
|
(3)
|
On March 3, 2017, the Company entered into a note purchase agreement (the “Note”) with an individual investor for an aggregate principal amount of $1,155,000. The Note bore interest at 8% per annum with a 6 month term. The Note carries an original issue discount of $150,000 and $5,000 legal cost that was reimbursable to the investor.
|
(4)
|
On March 3, 2017, the Company entered into a series of six promissory notes with unrelated third parties (the “OID Notes”) in the original principal amount of $1,670,000 with an original issuance discount of 3% for aggregate net proceeds of $1,620,000 with no stated interest rate. The OID Notes have a six-month maturity, may be prepaid without penalty by the Company prior to maturity and the lenders maintain an option to require payment prior to maturity upon the Company’s raising a minimum of $15 million.
|
(5)
|
During the quarter ended March 31, 2016, the Company issued 2,500,000 shares of common stock to the holder of the Company’s share-settled debt (the “Holder”) as advance payment for future debt conversion. Such common shares were not sold by the Holder as of March 31, 2017. Therefore the Company didn’t reduce the share-settled debt balance upon issuance of such shares.
|
The following table summarizes total interest
expenses related to senior convertible notes, other notes and mortgage loan for the three months ended March 31, 2017 and 2016,
respectively (in thousands):
|
|
For the three months ended
|
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Interest expenses related to senior convertible notes:
|
|
|
|
|
|
|
|
|
Contractual interest
|
|
$
|
385
|
|
|
$
|
137
|
|
Amortization of debt issuance costs
|
|
|
175
|
|
|
|
70
|
|
Total interest expenses related to senior convertible notes
|
|
|
560
|
|
|
|
207
|
|
Interest expenses related to other notes:
|
|
|
|
|
|
|
|
|
Contractual interest
|
|
|
144
|
|
|
|
38
|
|
Amortization of debt discount
|
|
|
80
|
|
|
|
-
|
|
Total interest expenses related to other notes
|
|
|
224
|
|
|
|
38
|
|
Interest expenses related to mortgage loan:
|
|
|
|
|
|
|
|
|
Contractual interest
|
|
|
288
|
|
|
|
333
|
|
Amortization of debt issuance costs
|
|
|
118
|
|
|
|
139
|
|
Total interest expenses on the mortgage loan
|
|
|
406
|
|
|
|
472
|
|
Other interest expenses
|
|
|
4
|
|
|
|
1
|
|
Total interest expense
|
|
$
|
1,194
|
|
|
$
|
718
|
|
7. Net Loss per Share Applicable to
Common Stockholders
Basic loss per common share is computed
by dividing net loss by the weighted average number of common shares outstanding during the reporting period. Diluted loss per
common share is computed similar to basic loss per common share except that it reflects the potential dilution that could occur
if dilutive securities or other obligations to issue common stock were exercised or converted into common stock.
NORTHWEST BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
The following table sets forth the computation
of loss per share for the three months ended March 31, 2017 and 2016, respectively:
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,
|
|
|
|
2017
|
|
|
2016
|
|
Common stock options
|
|
|
1,551
|
|
|
|
1,551
|
|
Common stock warrants - equity treatment
|
|
|
37,682
|
|
|
|
28,876
|
|
Common stock warrants - liability treatment
|
|
|
63,841
|
|
|
|
15,839
|
|
Share-settled debt and accrued interest, at fair value
|
|
|
21,600
|
|
|
|
-
|
|
Convertible notes and accrued interest
|
|
|
1,625
|
|
|
|
1,743
|
|
Potentially dilutive securities
|
|
|
126,299
|
|
|
|
48,009
|
|
8. Related Party Transactions
Cognate BioServices, Inc.
Cognate Expenses and Accounts Payable
At March 31, 2017 and December 31, 2016,
the Company owed Cognate $22.5 million and $23.4 million, respectively, for unpaid invoices for manufacturing and related services.
NORTHWEST BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
Overall, for the three months ended March
31, 2017 and 2016, the Company incurred research and development costs related to Cognate BioServices of $2.6
million and $11.2 million, respectively, relating to the DCVax-L and DCVax-Direct programs, product and process development work
and preparations for upcoming Phase II trials.
Cognate Organization
Pursuant to an institutional financing
of Cognate in October 2016, Cognate’s operations outside the US were separated from its operations in the US. The operations
outside the US include Cognate BioServices GmbH in Germany, Cognate BioServices Ltd. in the UK, and Cognate Israel in Israel. Both
Cognate BioServices, Inc. in the US and the Cognate affiliates outside the US are owned by Toucan Fund III. The Cognate affiliate
in Germany works with the Fraunhofer Institute to produce DCVax-L products there, and Cognate affiliates in the UK and Israel are
preparing for production of DCVax-L products in those locations. Approximately $0.8 million of the total research and development
cost related to Cognate entities outside the US are included in the overall amounts reported with respect to Cognate for the three
months ended March 31, 2017.
Other Related Parties
Leslie J. Goldman - Demand Loans
During the quarter ended March 31, 2017,
Leslie J. Goldman, an officer of the Company, loaned the Company $420,000 pursuant to two Demand Promissory Note Agreements (the
“Goldman Notes”). The Goldman Notes bore interest at the rate of 12% per annum.
On March 27, 2017, the Company made an
aggregate principal payment of $730,000 to settle all of Mr. Goldman’s outstanding demand notes and an aggregate of $47,000
interest payment associated with these demand notes.
Various Related Parties – Demand
Loans
On April 19, 2017, the Company entered into a financing in an
aggregate principal amount of $2,250,000 in the form of promissory notes with Toucan Capital Fund III, LP, an officer of the Company,
Leslie Goldman, certain directors of the Company, Jerry Jasinowski, Robert Farmer and Cofer Black, and an unaffiliated investor.
The notes bear interest at 10.0% per annum and are payable on demand with seven days’ advance notice by the applicable holder.
NORTHWEST BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
9. Stockholders’ Equity (Deficit)
Common Stock Issuances
First Quarter of 2017
On March 17, 2017, the Company entered
into definitive agreements with institutional investors for a registered direct offering with gross proceeds of $7.5 million. The
Company issued 18.8 million shares of common stock at a purchase price of $0.26 per share, or pre-funded warrants in lieu of shares.
Additionally, the investors received 5 year Class A warrants to purchase up to approximately 21.6 million shares of common stock
with an exercise price of $0.26 per share, 3 month Class B warrants to purchase up to approximately 21.6 million shares of common
stock with an exercise price of $1.00 per share, and 3 month Class C warrant to purchase up to approximately 10.0 million shares
of common stock with an exercise price of $0.01 per share. The full exercise price of these Class C warrants will also be
$0.26 per share, with $0.25 per share pre-funded at the time of closing and another $0.01 per share payable upon exercise of each
Class C Warrant. Total warrants issued in March 2017 have value of approximately $6.2 million.
During the quarter ended March 31, 2017,
the Company issued an aggregate of 3,100,000 shares of common stock from the exercise of warrants that were issued in March 2017
for total proceeds of $31,000. All of these 3,100,000 shares of common stock were related to extinguishment of warrant liabilities.
The fair value of the warrant liabilities was $713,000 on the date of exercise, which were recorded as a component of additional
paid-in-capital, see Note 4 for more details regarding valuation.
On March 10, 2017, the Company issued 4,039,860
shares of common stock to the holders of the Company’s senior convertible note as additional consideration to extend the
debt payment. The fair value of the common stock on the grant date was approximately $1.5 million.
On March 30, 2017, the Company issued 2,500,000
shares of common stock to the holder of the Company’s share-settled debt (the “Holder”) as advance payment for
future debt conversion. The fair value of the share-settled debt will be reduced when the Company is notified by the Holder that
such shares have been sold at market price. Such common shares were not sold by the Holder as of March 31, 2017. Therefore the
Company didn’t reduce the share-settled debt balance upon issuance of such shares.
Stock Purchase Warrants
The following is a summary of warrant activity
for the three months ended March 31, 2017 (in thousands, except per share data):
|
|
Number of
|
|
|
Weighted Average
|
|
|
Remaining
|
|
|
|
Warrants
|
|
|
Exercise Price
|
|
|
Contractual Term
|
|
Outstanding as of January 1, 2017
|
|
|
58,278
|
|
|
$
|
1.78
|
|
|
|
3.86
|
|
Warrants granted
|
|
|
53,803
|
|
|
|
0.53
|
|
|
|
|
|
Warrants exercised for cash
|
|
|
(3,100
|
)
|
|
|
0.01
|
|
|
|
|
|
Warrants expired and cancellation
|
|
|
(558
|
)
|
|
|
9.28
|
|
|
|
|
|
Outstanding as of March 31, 2017
|
|
|
108,423
|
|
|
$
|
1.16
|
|
|
|
3.00
|
|
The Company’s adoption of a sequencing policy in
the fourth quarter of 2016 requires that all financial instruments issued subsequent to such adoption be treated as a
derivative liability. As such, warrants issued in the current period report have been classified as liabilities.
10. Variable Interest
Entities
Variable Interest Entities (“VIEs”)
are entities in which equity investors lack the characteristics of a controlling financial interest. VIEs are consolidated
by the primary beneficiary. The primary beneficiary is the party who has both the power to direct the activities of a VIE
that most significantly impact the entity’s economic performance and an obligation to absorb losses of the entity or a right
to receive benefits from the entity that could potentially be significant to the entity.
NORTHWEST BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
After the assumption of $5.7 million in
debt originally incurred by Cognate in October 2016 and if, in the future, the Company reverses $3.75 of Cognate invoices that
were previously paid in common stock and warrants in October 2016, the Company has an implicit variable interest in Cognate to
potentially fund Cognate’s losses (if Cognate incurs losses). The Company determines whether it is the primary beneficiary
of Cognate upon its initial involvement and the Company reassess whether it is the primary beneficiary of Cognate on an ongoing
basis. The determination of whether the Company is the primary beneficiary of Cognate is based upon the facts and circumstances
and requires significant judgment. The Company’s considerations in determining Cognate’s most significant activities
and whether the Company has power to direct those activities include, but are not limited to, Cognate’s purpose and design
and the risks passed through to investors, the voting interests of Cognate, management, service and/or other agreements of Cognate,
involvement in Cognate’s initial design and the existence of explicit or implicit financial guarantees. As of March
31, 2017, the Company does not have the power over the most significant activities (control of operating decisions) and therefore
does not meet the "power" criteria of the primary beneficiary.
The maximum exposure to loss is limited
to the notional amounts of the implicit variable interest in Cognate. The Company has no current plans to provide any support
additional to that which is noted above. Therefore, the maximum exposure to loss from its implicit interest is limited to
$4.5 million as of March 31, 2017; which is the shutdown fee the Company must pay to terminate their relationship with Cognate.
11. Commitments and Contingencies
Contingent Payment to Cognate BioServices
Under the January 17, 2014 DCVax®-L
Manufacturing Services Agreement and the DCVax-Direct Agreement, a new set of provisions apply going forward to any shut down or
suspension. Under these provisions, the Company will be contingently obligated to pay certain fees to Cognate BioServices
(in addition to any other remedies) if the Company shuts down or suspends its DCVax-L program or DCVax-Direct program. For
a shut down or suspension of the DCVax-L program, the fees will be as fol
l
ows:
·
|
Prior to the last dose of the last patient enrolled in the Phase III trial for DCVax®-L or After the last dose of the last patient enrolled in the Phase III clinical trial for DCVax®-L but before any submission for product approval in any jurisdiction or after the submission of any application for market authorization but prior to receiving a marketing authorization approval: in any of these cases, the fee shall be $3 million.
|
·
|
At any time after receiving the equivalent of a marketing authorization for DCVax®-L in any jurisdiction, the fee shall be $5 million.
|
For a shut down or suspension of the DCVax-Direct
program, the fees will be as follows:
·
|
Prior to the last dose of the last patient enrolled in the Phase I/II trial for DCVax®-Direct, the fee shall be $1.5 million.
|
·
|
After the last dose of the last patient enrolled in the Phase I/II clinical trial for DCVax®-Direct but before the initiation of a Phase III trial the fee shall be $2.0 million.
|
·
|
After initiation of a phase III trial but before submission of an application for market authorization in any jurisdiction or after the submission of an application for market authorization but prior to receiving a market authorization approval: in each of these cases, the fee shall be $3.0 million.
|
·
|
At any time after receiving the equivalent of a marketing authorization for DCVax®-Direct in any jurisdiction the fee shall be $5.0 million.
|
While our DCVax programs are ongoing, the
Company is 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.
Derivative and Class Action Litigation
On June 19, 2015, two purported shareholders
filed a lawsuit in the Delaware Court of Chancery, captioned
Tharp, et al. v. Cognate, et al.
, C.A. 11179-VCG (Del. Ch.
filed June 19, 2015), purportedly suing on behalf of a class of similarly situated shareholders and derivatively on behalf of the
Company. The lawsuit names Cognate BioServices, Inc., Toucan Partners, Toucan Capital Fund III, our CEO Linda Powers and the individuals
who then served on the Company’s Board of Directors as defendants, and names the Company as a “nominal defendant”
with respect to the derivative claims. The complaint generally challenges certain transactions between the Company and Cognate
and the Toucan entities, in which Cognate and the Toucan entities provided services and financing to the Company, or agreed to
the conversion of debts owed to them by the Company into equity. The complaint seeks unspecified monetary relief for the Company
and the plaintiffs, and various forms of equitable relief, including disgorgement of allegedly improper benefits, rescission of
the challenged transactions, and an order forbidding similar transactions in the future. The plaintiffs filed an amended complaint
on November 6, 2015. The Company and the other named defendants filed motions to dismiss the amended complaint on January 19, 2016,
which are now fully briefed. The Company intends to vigorously defend the case.
NORTHWEST BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
On November 19, 2015, a third purported
shareholder filed a lawsuit in the U.S. District Court for the District of Maryland, captioned
Yonemura v. Powers, et al.
,
No. 15-03526 (D. Md. filed Nov. 19, 2015), claiming to sue derivatively on behalf of the Company. The complaint names the individuals
who then served on the Company’s Board of Directors, Toucan Capital Fund III, L.P., Toucan General II, LLC, Toucan Partners,
LLC, and Cognate as defendants, and names the Company as a nominal defendant. The complaint generally challenges the same transactions
disputed in the Delaware case, claiming that the Company purportedly overcompensated Cognate and Toucan for certain services and
loans in payments of stock, and that the Company’s CEO, Ms. Powers, benefited from these transactions with Cognate and Toucan,
which she allegedly owns or controls. The complaint asserts that the alleged overpayments unjustly enriched Ms. Powers, Toucan,
and Cognate; that the Company’s directors breached their fiduciary duties of loyalty and good faith to the Company by authorizing
the payments to Cognate; and that Ms. Powers, Cognate, and Toucan aided and abetted the directors’ breaches of fiduciary
duties. The plaintiff seeks an award of unspecified damages to the Company and seeks equitable remedies, including disgorgement
by Ms. Powers, Toucan, and Cognate of the allegedly improper benefits received as a result of the disputed transactions. The plaintiff
also seeks costs and disbursements associated with bringing suit, including attorneys' fees and expert fees. The Company intends
to vigorously defend the case. The case is currently stayed pending the parties’ progress toward an acceptable resolution
of the litigation.
On November 28, 2016, a purported shareholder
filed a lawsuit in the Circuit Court for Montgomery County, Maryland, captioned
Wells v. Powers, et al.
, Case No. 427353-V
(Md. Cir. Ct., Mont. Cnty. filed Nov. 28, 2016), claiming to sue derivatively on behalf of the Company. The complaint names six
current and former members of the Company’s Board of Directors, Toucan Partners, LLC, Toucan Capital Fund III, L.P., Toucan
Partners, LP (a non-existent entity), Toucan General II, LLC, and Cognate as defendants, and names the Company as a nominal defendant.
The complaint largely challenges the same transactions disputed in the two cases discussed above, claiming that the Company overcompensated
Cognate and Toucan for certain services and loans. It asserts that, by authorizing those transactions, the individual defendants
breached their fiduciary duties to the Company, abused their ability to control and influence the Company, and engaged in gross
mismanagement of the Company’s business and assets. In addition, the complaint claims that the individual defendants are
liable to the Company for misleading its investors and financiers. The complaint claims that the individual defendants were unjustly
enriched by receiving compensation while the Company’s stock price was allegedly artificially inflated; that Ms. Powers,
Toucan, and Cognate are “controlling” stockholders of the Company who breached their fiduciary duties to minority stockholders;
that Ms. Powers, Toucan, and Cognate, benefited from these transactions due to their alleged “control”; that the alleged
overpayments unjustly enriched Ms. Powers, Toucan, and Cognate; and that Toucan and Cognate aided and abetted the individual defendants
in breaching their fiduciary duties. The complaint seeks the award of unspecified damages to the Company; an order from the court
directing the Company to reform its corporate governance and internal procedures; and equitable remedies, including restitution
and disgorgement from defendants. The plaintiff also seeks the costs and disbursements associated with bringing suit, including
attorneys’ fees, costs, and expenses. The plaintiff filed an amended complaint on March 1, 2017. The Company and the other
named defendants filed motions to dismiss the amended complaint on April 17, 2017. The Company intends to vigorously defend the
case.
Class Action Securities Litigation
On August 26, 2015, a purported shareholder
of the Company filed a putative class action lawsuit in the U.S. District Court for the District of Maryland, captioned
Lerner
v. Northwest Biotherapeutics, Inc., et al.
, No. 15-02532 (D. Md. filed Aug. 26, 2015). The lawsuit named the Company and Ms.
Powers as defendants. On December 14, 2015, the court appointed two lead plaintiffs. The Lead Plaintiffs filed an amended complaint
on February 12, 2016, purportedly on behalf of all of those who purchased common stock in the Company between January 13, 2014
and August 21, 2015. The amended complaint generally claimed that the defendants violated Section 10(b) and Section 20(a) of the
Securities Exchange Act of 1934 by making misleading statements and/or omissions on a variety of subjects, including the status
and results of the Company’s DCVax trials. The amended complaint sought unspecified damages, attorneys’ fees, and costs.
The Company and Ms. Powers filed a motion to dismiss the amended complaint. On March 21, 2017, the court entered an order dismissing
the case, and on April 12, 2017, the Lead Plaintiffs submitted a letter advising the court that they do not intend to file an amended
complaint.
Shareholder Books and Record Demand
On December 7, 2015, the Company received
a letter on behalf of shareholders demanding to inspect certain corporate books and records pursuant to Section 220 of the Delaware
General Corporation Law. The demand letter claimed that its purpose was to investigate: (1) allegedly improper transactions, misconduct,
and mismanagement by directors and an officer of the Company; (2) the possible breach of fiduciary duty by certain directors and
officers of the Company; and (3) the independence and disinterestedness of the Company’s board, to determine whether a pre-suit
demand would be necessary before commencing any derivative action on behalf of the Company.
U.S. Securities and Exchange Commission
As previously reported, the Company received
a formal information request (subpoena) from the SEC on December 13, 2017, and follow-on formal information requests thereafter,
regarding several broad topics that have been previously disclosed, including the Company’s membership on Nasdaq and delisting,
related party matters, internal controls and the Company’s Special Litigation Committee. The period covered is January 1,
2013 to the present. The investigation is ongoing and the Company is cooperating fully.
NORTHWEST BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
Special Litigation Committee
As previously reported, the Company appointed
a Special Litigation Committee, and Committee has undertaken an inquiry into the allegations of various lawsuits filed against
the Company, and an anonymous internet report raising a number of criticisms of the Company and its Board and management, including
with respect to the reasonableness of the transactions with Cognate. The Committee has retained experts to analyze some of these
issues.
12. Subsequent Events
On April 14, 2017, the Company entered
into Stock Purchase Agreement with multiple investors. The Company issued 1,384,615 shares of common stock at a price of $0.26
per share. The Company also offered Class A Common Stock Purchase Warrants to purchase up to 1,038,461 shares of Common Stock at
an exercise price of $0.26 per share (the “Class A Warrants”) and Class B Common Stock Purchase Warrants to purchase
up to 1,038,461 shares of Common Stock at an exercise price of $1.00 per share (the “Class B Warrants”). Both the Class
A Warrants and the Class B Warrants are exercisable immediately. The Class A Warrants are exercisable for five years and the Class
B Warrants are exercisable for three months. The Company received gross proceeds of $360,000 from this offering.
On April 19, 2017, the Company entered
into a financing in an aggregate principal amount of $2,250,000 in the form of promissory notes with Toucan Capital Fund III, LP,
an officer of the Company, Leslie Goldman, certain directors of the Company, Jerry Jasinowski, Robert Farmer and Cofer Black, and
an unaffiliated investor. The notes bear interest at 10.0% per annum and are payable on demand with seven days’ advance notice
by the applicable holder.
On May 5, 2017, the Company entered into
a loan agreement (the “Note”) with an individual investor (the “Holder”) for an aggregate principal amount
of $1,000,000. The Note bore interest at 10% per annum and will be due by June 30, 2017.
During April 2017 and May 2017, certain
existing Class C warrants holders exercised an aggregate amount of 4,900,000 warrants at an exercise price of $0.01 for cash.