NORTHWEST BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share
amounts)
(Unaudited)
|
|
March 31,
2019
|
|
|
|
December 31,
2018
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
16,288
|
|
|
$
|
22,224
|
|
Prepaid expenses and other current assets
|
|
|
2,293
|
|
|
|
1,574
|
|
Total current assets
|
|
|
18,581
|
|
|
|
23,798
|
|
|
|
|
|
|
|
|
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
277
|
|
|
|
108
|
|
Right-of-use asset, net
|
|
|
4,864
|
|
|
|
-
|
|
Other assets
|
|
|
748
|
|
|
|
761
|
|
Total non-current assets
|
|
|
5,889
|
|
|
|
869
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
24,470
|
|
|
$
|
24,667
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
15,316
|
|
|
$
|
15,506
|
|
Accounts payable and accrued expenses to related parties and affiliates
|
|
|
2,729
|
|
|
|
4,588
|
|
Convertible notes, net
|
|
|
852
|
|
|
|
1,863
|
|
Convertible notes to related party
|
|
|
5,400
|
|
|
|
5,400
|
|
Notes payable, net
|
|
|
7,729
|
|
|
|
7,155
|
|
Notes payable to related party
|
|
|
65
|
|
|
|
393
|
|
Shares payable
|
|
|
138
|
|
|
|
138
|
|
Warrant liability
|
|
|
41,717
|
|
|
|
29,995
|
|
Lease liabilities
|
|
|
270
|
|
|
|
-
|
|
Deferred profit on sale-leaseback transaction
|
|
|
-
|
|
|
|
4,802
|
|
Total current liabilities
|
|
|
74,216
|
|
|
|
69,840
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
Note payable, net of current portion, net
|
|
|
4,001
|
|
|
|
1,986
|
|
Lease liabilities, net of current portion
|
|
|
4,749
|
|
|
|
-
|
|
Total non-current liabilities
|
|
|
8,750
|
|
|
|
1,986
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
82,966
|
|
|
|
71,826
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficit:
|
|
|
|
|
|
|
|
|
Preferred stock ($0.001 par value); 100,000,000 shares authorized as of March 31, 2019 and December 31, 2018, respectively
|
|
|
-
|
|
|
|
-
|
|
Common stock ($0.001 par value); 1,200,000,000 shares authorized; 537.1 million and 523.2 million shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively
|
|
|
537
|
|
|
|
523
|
|
Additional paid-in capital
|
|
|
780,478
|
|
|
|
775,741
|
|
Stock subscription receivable
|
|
|
(10
|
)
|
|
|
(10
|
)
|
Accumulated deficit
|
|
|
(840,557
|
)
|
|
|
(824,413
|
)
|
Accumulated other comprehensive loss
|
|
|
1,056
|
|
|
|
1,000
|
|
Total stockholders' deficit
|
|
|
(58,496
|
)
|
|
|
(47,159
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
$
|
24,470
|
|
|
$
|
24,667
|
|
The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements
NORTHWEST BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except per share amounts)
(Unaudited)
|
|
For the three months ended
|
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Research and other
|
|
$
|
339
|
|
|
$
|
132
|
|
Total revenues
|
|
|
339
|
|
|
|
132
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
3,004
|
|
|
|
4,733
|
|
General and administrative
|
|
|
3,562
|
|
|
|
3,005
|
|
Legal expenses
|
|
|
1,539
|
|
|
|
1,210
|
|
Total operating costs and expenses
|
|
|
8,105
|
|
|
|
8,948
|
|
Loss from operations
|
|
|
(7,766
|
)
|
|
|
(8,816
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Change in fair value of derivative liabilities
|
|
|
(12,021
|
)
|
|
|
(11,451
|
)
|
Net (loss) gain from extinguishment of debt
|
|
|
(788
|
)
|
|
|
215
|
|
Interest expense
|
|
|
(756
|
)
|
|
|
(3,324
|
)
|
Foreign currency transaction gain
|
|
|
385
|
|
|
|
1,831
|
|
Total other expenses
|
|
|
(13,180
|
)
|
|
|
(12,729
|
)
|
Net loss
|
|
$
|
(20,946
|
)
|
|
$
|
(21,545
|
)
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
56
|
|
|
|
(870
|
)
|
Total comprehensive loss
|
|
$
|
(20,890
|
)
|
|
$
|
(22,415
|
)
|
Deemed dividend on convertible preferred stock
|
|
|
-
|
|
|
|
(10,056
|
)
|
Net loss applicable to common stockholders
|
|
$
|
(20,946
|
)
|
|
$
|
(31,601
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share applicable to common stockholders - basic and diluted
|
|
$
|
(0.04
|
)
|
|
$
|
(0.09
|
)
|
Weighted average shares used in computing basic and diluted loss per share
|
|
|
529,133
|
|
|
|
356,162
|
|
The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements.
NORTHWEST BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands)
(Unaudited)
|
|
Common
Stock
|
|
|
Additional
Paid-in
|
|
|
Subscription
|
|
|
Accumulated
|
|
|
Cumulative
Translation
|
|
|
Total
Stockholders'
|
|
|
|
Shares
|
|
|
Par
value
|
|
|
Capital
|
|
|
Receivable
|
|
|
Deficit
|
|
|
Adjustment
|
|
|
Deficit
|
|
Balance at January
1, 2019
|
|
|
523,232
|
|
|
|
523
|
|
|
|
775,741
|
|
|
|
(10
|
)
|
|
|
(824,413
|
)
|
|
|
1,000
|
|
|
|
(47,159
|
)
|
Warrants exercised for
cash
|
|
|
2,986
|
|
|
|
3
|
|
|
|
685
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
688
|
|
Reclassification of
warrant liabilities related to warrants exercised for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
509
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
509
|
|
Issuance of common stock
and warrants for conversion of debt and accrued interest
|
|
|
10,873
|
|
|
|
11
|
|
|
|
2,990
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,001
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
553
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
553
|
|
Cumulative effect of
adopting new accounting standard
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,802
|
|
|
|
-
|
|
|
|
4,802
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(20,946
|
)
|
|
|
-
|
|
|
|
(20,946
|
)
|
Cumulative
translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
56
|
|
|
|
56
|
|
Balance
at March 31, 2019
|
|
|
537,091
|
|
|
$
|
537
|
|
|
$
|
780,478
|
|
|
$
|
(10
|
)
|
|
$
|
(840,557
|
)
|
|
$
|
1,056
|
|
|
$
|
(58,496
|
)
|
|
|
Common
Stock
|
|
|
Additional
Paid-in
|
|
|
Subscription
|
|
|
Accumulated
|
|
|
Cumulative Translation
|
|
|
Total Stockholders'
|
|
|
|
Shares
|
|
|
Par
value
|
|
|
Capital
|
|
|
Receivable
|
|
|
Deficit
|
|
|
Adjustment
|
|
|
Deficit
|
|
Balance at January
1, 2018
|
|
|
328,857
|
|
|
$
|
329
|
|
|
$
|
721,554
|
|
|
$
|
-
|
|
|
$
|
(788,619
|
)
|
|
$
|
(597
|
)
|
|
$
|
(67,333
|
)
|
Issuance of common stock
for conversion of Series A convertible preferred stock
|
|
|
65,278
|
|
|
|
65
|
|
|
|
11,355
|
|
|
|
(109
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
11,311
|
|
Deemed dividend on conversion
of Series A convertible preferred stock to common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,491
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,491
|
)
|
Beneficial conversion
feature of Series B convertible preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
388
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
388
|
|
Deemed dividend related
to immediate accretion of beneficial conversion feature of Series B convertible preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
(388
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(388
|
)
|
Issuance of common stock
for conversion of Series B convertible preferred stock
|
|
|
4,323
|
|
|
|
4
|
|
|
|
990
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
994
|
|
Deemed dividend on conversion
of Series B convertible preferred stock to common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
(177
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(177
|
)
|
Warrants exercised for
cash
|
|
|
6,796
|
|
|
|
7
|
|
|
|
1,604
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,611
|
|
Reclassification of
warrant liabilities related to warrants exercised for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
1,747
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,747
|
|
Conversion of share
settled debt into common stock
|
|
|
4,300
|
|
|
|
5
|
|
|
|
1,069
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,074
|
|
Issuance of common stock
and warrants for conversion of debt and accrued interest
|
|
|
5,011
|
|
|
|
5
|
|
|
|
1,547
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,552
|
|
Stock-based compensation
|
|
|
100
|
|
|
|
-
|
|
|
|
304
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
304
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(21,545
|
)
|
|
|
-
|
|
|
|
(21,545
|
)
|
Cumulative
translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(870
|
)
|
|
|
(870
|
)
|
Balance
at March 31, 2018
|
|
|
414,665
|
|
|
$
|
415
|
|
|
$
|
730,502
|
|
|
$
|
(109
|
)
|
|
$
|
(810,164
|
)
|
|
$
|
(1,467
|
)
|
|
$
|
(80,823
|
)
|
The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements.
NORTHWEST BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(in thousands)
(Unaudited)
`
|
|
For the three months ended
|
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(20,946
|
)
|
|
$
|
(21,545
|
)
|
Reconciliation of net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2
|
|
|
|
365
|
|
Amortization of debt discount
|
|
|
296
|
|
|
|
2,627
|
|
Amortization of debt premium
|
|
|
-
|
|
|
|
(151
|
)
|
Change in fair value of derivatives
|
|
|
12,021
|
|
|
|
11,451
|
|
Loss (gain) from extinguishment of debt
|
|
|
788
|
|
|
|
(215
|
)
|
Amortization of operating lease right-of-use asset
|
|
|
26
|
|
|
|
-
|
|
Stock-based compensation related to warrants modification
|
|
|
-
|
|
|
|
141
|
|
Stock-based compensation for services
|
|
|
553
|
|
|
|
304
|
|
Subtotal of non-cash charges
|
|
|
13,686
|
|
|
|
14,522
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
(705
|
)
|
|
|
362
|
|
Other non-current assets
|
|
|
9
|
|
|
|
(62
|
)
|
Accounts payable and accrued expenses
|
|
|
(65
|
)
|
|
|
(628
|
)
|
Related party accounts payable and accrued expenses
|
|
|
(1,859
|
)
|
|
|
2,564
|
|
Lease liabilities
|
|
|
129
|
|
|
|
-
|
|
Net cash used in operating activities
|
|
|
(9,751
|
)
|
|
|
(4,787
|
)
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Purchase of equipment
|
|
|
(164
|
)
|
|
|
-
|
|
Net cash used in investing activities
|
|
|
(164
|
)
|
|
|
-
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of Series A convertible preferred stock and warrants
|
|
|
-
|
|
|
|
500
|
|
Proceeds from issuance of Series B convertible preferred stock and warrants, net
|
|
|
-
|
|
|
|
2,671
|
|
Proceeds from exercise of warrants
|
|
|
688
|
|
|
|
1,611
|
|
Proceeds from issuance of notes payable, net
|
|
|
4,000
|
|
|
|
-
|
|
Proceeds from issuance of notes payable to related party
|
|
|
-
|
|
|
|
30
|
|
Proceeds from issuance of convertible notes payable to related party
|
|
|
-
|
|
|
|
4,400
|
|
Repayment of notes payable
|
|
|
(420
|
)
|
|
|
(2,200
|
)
|
Repayment of notes payable to related parties
|
|
|
(329
|
)
|
|
|
(250
|
)
|
Net cash provided by financing activities
|
|
|
3,939
|
|
|
|
6,762
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
40
|
|
|
|
(1,894
|
)
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(5,936
|
)
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of the period
|
|
|
22,224
|
|
|
|
117
|
|
Cash and cash equivalents, end of the period
|
|
$
|
16,288
|
|
|
$
|
198
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Interest payments on mortgage loan
|
|
$
|
-
|
|
|
$
|
(326
|
)
|
Interest payments on notes payable
|
|
$
|
(43
|
)
|
|
$
|
-
|
|
Interest payments on notes payable to related party
|
|
$
|
(131
|
)
|
|
$
|
(9
|
)
|
The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements.
NORTHWEST BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(in thousands)
(Unaudited)
|
|
For the three months ended
|
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Supplemental schedule of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Issuance of common stock for conversion of Series A convertible preferred stock
|
|
$
|
-
|
|
|
$
|
11,311
|
|
Deemed dividend on conversion of Series A convertible preferred stock to common stock
|
|
$
|
-
|
|
|
$
|
9,491
|
|
Beneficial conversion feature of Series B convertible preferred stock
|
|
$
|
-
|
|
|
$
|
388
|
|
Deemed dividend related to immediate accretion of beneficial conversion feature of Series B convertible preferred stock
|
|
$
|
-
|
|
|
$
|
388
|
|
Issuance of common stock for conversion of Series B convertible preferred stock
|
|
$
|
-
|
|
|
$
|
994
|
|
Deemed dividend on conversion of Series B convertible preferred stock to common stock
|
|
$
|
-
|
|
|
$
|
177
|
|
Reclassification of warrant liabilities related to warrants exercised for cash
|
|
$
|
509
|
|
|
$
|
1,747
|
|
Conversion of share settled debt into common stock
|
|
$
|
-
|
|
|
$
|
1,074
|
|
Issuance of common stock and warrants for conversion of debt and accrued interest
|
|
$
|
2,213
|
|
|
$
|
1,767
|
|
Warrants issued associated with convertible notes payable to related party
|
|
$
|
-
|
|
|
$
|
2,217
|
|
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, Aracaris Ltd 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 experimental
dendritic cell vaccines using its platform technology known as DCVax®. DCVax is being tested in clinical trials for use in
the treatment of certain types of cancers.
The Company currently relies upon contract
manufacturers for production of its DCVax products, research and development services, distribution and logistics, and related
services, in compliance with the Company’s specifications and the applicable regulatory requirements. The companies are Cognate
BioServices in the U.S. and Advent BioServices (a related party) in the U.K. Both of these companies specialize in the production
of living cell products. 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 in Europe that specialize in producing living cell products. The manufacturing of
such 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 dedicated capacity in these specialized manufacturing facilities. 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. Financial Condition, Going Concern
and Management Plans
The Company has incurred annual net operating losses since its inception. The Company had a net loss of $20.9
million for the three months ended March 31, 2019. The Company used approximately $9.8 million of cash in its operating
activities for the three months ended March 31, 2019.
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 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.
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, 2019, condensed
consolidated statements of operations for the three months ended March 31, 2019 and 2018, condensed consolidated statements of
comprehensive loss for the three months ended March 31, 2019 and 2018, condensed consolidated statement of stockholders’
deficit for the three months ended March 31, 2019 and 2018, and the condensed consolidated statements of cash flows for the three
months ended March 31, 2019 and 2018 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, 2019 are not necessarily indicative of results to be expected
for the year ending December 31, 2019 or for any future interim period. The condensed consolidated balance sheet at December 31,
2018 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, 2018 and notes thereto included
in the Company’s annual report on Form 10-K, which was filed with the SEC on April 2, 2019.
NORTHWEST BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
Use of Estimates
In preparing condensed consolidated financial
statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well
as the reported amounts of expenses during the reporting period. Due to inherent uncertainty involved in making estimates, actual
results reported in future periods may be affected by changes in these estimates. On an ongoing basis, the Company evaluates its
estimates and assumptions. These estimates and assumptions include valuing equity securities in share-based payment arrangements,
estimating the fair value of financial instruments recorded as derivative liabilities, useful lives of depreciable assets and whether
impairment charges may apply, and the fair value of environmental remediation liabilities.
Significant Accounting Policies
Leases
Effective January 1, 2019, the Company
accounts for its leases under ASC 842, Leases. Under this guidance, arrangements meeting the definition of a lease are classified
as operating or financing leases and are recorded on the condensed consolidated balance sheet as both a right of use asset and
lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s
incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use
asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right
of use asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and
the amortization of the right of use asset results in front-loaded expense over the lease term. Variable lease expenses are recorded
when incurred.
In calculating the right of use asset and
lease liability, the Company elects to combine lease and non-lease components. The Company excludes short-term leases having initial
terms of 12 months or less from the new guidance as an accounting policy election and instead recognizes rent expense on a straight-line
basis over the lease term.
The Company continues to account for leases
in the prior period financial statements under ASC Topic 840.
Other than above, there have been no material
changes in the Company’s significant accounting policies to those previously disclosed in the 2018 Annual Report.
Adoption of Recent Accounting Standards
Leases
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842) in order to increase transparency and comparability among organizations by, among other provisions, recognizing
lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous GAAP. For
public companies, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (including interim periods within
those periods) using a modified retrospective approach and early adoption is permitted. In transition, entities may also elect
a package of practical expedients that must be applied in its entirety to all leases commencing before the adoption date, unless
the lease is modified, and permits entities to not reassess (a) the existence of a lease, (b) lease classification or (c) determination
of initial direct costs, as of the adoption date, which effectively allows entities to carryforward accounting conclusions under
previous U.S. GAAP. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides entities
an optional transition method to apply the guidance under Topic 842 as of the adoption date, rather than as of the earliest period
presented. The Company adopted Topic 842 on January 1, 2019, using the optional transition method to apply the new guidance as
of January 1, 2019, rather than as of the earliest period presented, and elected the package of practical expedients described
above. Based on the analysis, on January 1, 2019, the Company recorded right of use assets and lease liabilities of approximately
$4.3 million, which represented operating lease entered prior to January 1, 2019. Additionally, the Company recorded an adjustment
to opening accumulated deficit of $4.8 million related to the derecognition of deferred profit related to the U.K facility sales
leaseback transaction.
NORTHWEST BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
4. Fair Value Measurements
In accordance with ASC 820 (Fair Value
Measurements and Disclosures), the Company uses various inputs to measure the outstanding warrants and certain embedded conversion
feature associated with convertible debt on a recurring basis to determine the fair value of the liability. ASC 820 also establishes
a hierarchy categorizing inputs into three levels used to measure and disclose fair value. The hierarchy gives the highest priority
to quoted prices available in active markets and the lowest priority to unobservable inputs. An explanation of each level in the
hierarchy is described below:
Level 1 - Unadjusted quoted prices in active markets for identical
instruments that are accessible by the Company on the measurement date
Level 2 - Quoted prices in markets that are not active or inputs
which are either directly or indirectly observable
Level 3 - Unobservable inputs for the instrument requiring the
development of assumptions by the Company
The following table classifies the Company’s
liabilities measured at fair value on a recurring basis into the fair value hierarchy as of March 31, 2019 and December 31, 2018
(in thousands):
|
|
Fair value measured at March 31, 2019
|
|
|
|
|
|
|
Quoted prices
in active
|
|
|
Significant
other
|
|
|
Significant
|
|
|
|
Fair value at
|
|
|
markets
|
|
|
observable inputs
|
|
|
unobservable inputs
|
|
|
|
March 31, 2019
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Warrant liability
|
|
$
|
41,717
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
41,717
|
|
Embedded conversion feature
|
|
|
147
|
|
|
|
-
|
|
|
|
-
|
|
|
|
147
|
|
Total fair value
|
|
$
|
41,864
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
41,864
|
|
|
|
Fair value measured at December 31, 2018
|
|
|
|
|
|
|
Quoted prices
in active
|
|
|
Significant
other
|
|
|
Significant
|
|
|
|
Fair value at
|
|
|
markets
|
|
|
observable inputs
|
|
|
unobservable inputs
|
|
|
|
December 31, 2018
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Warrant liability
|
|
$
|
29,995
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
29,995
|
|
Embedded conversion feature
|
|
|
357
|
|
|
|
-
|
|
|
|
-
|
|
|
|
357
|
|
Total fair value
|
|
$
|
30,352
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
30,352
|
|
There were no transfers between Level 1,
2 or 3 during the three-month period ended March 31, 2019.
The following table presents changes in
Level 3 liabilities measured at fair value for the three-month period ended March 31, 2019. 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).
|
|
|
|
|
Embedded
|
|
|
|
|
|
|
Warrant
|
|
|
Conversion
|
|
|
|
|
|
|
Liability
|
|
|
Feature
|
|
|
Total
|
|
Balance – January 1, 2019
|
|
$
|
29,995
|
|
|
$
|
357
|
|
|
$
|
30,352
|
|
Extinguishment of warrant liabilities related to warrants exercised for cash
|
|
|
(509
|
)
|
|
|
-
|
|
|
|
(509
|
)
|
Change in fair value
|
|
|
12,231
|
|
|
|
(210
|
)
|
|
|
12,021
|
|
Balance – March 31, 2019
|
|
$
|
41,717
|
|
|
$
|
147
|
|
|
$
|
41,864
|
|
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 and embedded conversion
feature that are categorized within Level 3 of the fair value hierarchy as of March 31, 2019 and December 31, 2018 is as follows:
|
|
As of March 31, 2019
|
|
|
As of December 31, 2018
|
|
|
|
Warrant
|
|
|
Embedded
|
|
|
Warrant
|
|
|
Embedded
|
|
|
|
Liability
|
|
|
Conversion Feature
|
|
|
Liability
|
|
|
Conversion Feature
|
|
Strike price
|
|
$
|
0.29
|
|
|
$
|
0.27
|
|
|
$
|
0.29
|
|
|
$
|
0.44
|
|
Contractual term (years)
|
|
|
1.7
|
|
|
|
0.3
|
|
|
|
2.2
|
|
|
|
1.5
|
|
Volatility (annual)
|
|
|
85
|
%
|
|
|
62
|
%
|
|
|
85
|
%
|
|
|
85
|
%
|
Risk-free rate
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
3
|
%
|
|
|
3
|
%
|
Dividend yield (per share)
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
5. Stock-based Compensation
The Company didn’t incur any new
stock option activities for the three months ended March 31, 2019.
The following table summarizes stock-based
compensation expense related to stock options for the three months ended March 31, 2019 and 2018 (in thousands):
|
|
For the three months ended
|
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Research and development
|
|
$
|
104
|
|
|
$
|
270
|
|
General and administrative
(1)
|
|
|
449
|
|
|
|
-
|
|
Total stock-based compensation expense
|
|
$
|
553
|
|
|
$
|
270
|
|
|
(1)
|
The general and administrative expense during the three
months ended March 31, 2019 is related to applicable vesting portion of stock options awards made in the past to directors and
employees.
|
The total unrecognized compensation cost
was approximately $0.9 million as of March 31, 2019, and will be recognized over the next 1.5 years.
NORTHWEST BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
|
6. Property & Equipment
Property and equipment consist of the following
at March 31, 2019 and December 31, 2018 (in thousands):
|
|
March 31,
|
|
|
December 31,
|
|
|
Estimated
|
|
|
2019
|
|
|
2018
|
|
|
Useful Life
|
Leasehold improvements
|
|
$
|
81
|
|
|
$
|
81
|
|
|
Lesser of lease term or estimated useful life
|
Office furniture and equipment
|
|
|
25
|
|
|
|
25
|
|
|
3 years
|
Computer equipment and software
|
|
|
763
|
|
|
|
599
|
|
|
3 years
|
Land in the United Kingdom
|
|
|
89
|
|
|
|
86
|
|
|
NA
|
|
|
|
958
|
|
|
|
791
|
|
|
|
Less: accumulated depreciation
|
|
|
(681
|
)
|
|
|
(683
|
)
|
|
|
Total property, plant and equipment, net
|
|
$
|
277
|
|
|
$
|
108
|
|
|
|
Depreciation expense was approximately
$2,000 and $365,000 for the three months ended March 31, 2019 and 2018.
7. Leases
The Company adopted ASC Topic 842 - Leases
as of January 1, 2019, using the transition method per ASU No. 2018-11 issued on July 2018 wherein entities were allowed to initially
apply the new leases standard at adoption date and recognize a cumulative-effect adjustment to the opening balance of retained
earnings in the period of adoption. Accordingly, all periods prior to January 1, 2019 were presented in accordance with the previous
ASC Topic 840, Leases, and no retrospective adjustments were made to the comparative periods presented. Adoption of ASC 842
resulted in an increase to total assets and liabilities due to the recording of operating lease right-of-use assets ("ROU")
and operating lease liabilities of approximately $4.3 million, as of January 1, 2019. On March 4, 2019, the
Company recognized additional $0.6 million ROU and lease liabilities to its amended office lease in the U.S. The adoption did not
materially impact the Company’s Condensed Consolidated Statements of Earnings or Cash Flows.
The Company has operating leases for corporate
offices in the U.S. and manufacturing facility in the U.K. Leases with an initial term of 12 months or less are not recorded in
the balance sheet. The Company has elected the practical expedient to account for each separate lease component of a
contract and its associated non-lease components as a single lease component, thus causing all fixed payments
to be capitalized. The Company also elected the package of practical expedients permitted within the new standard, which among
other things, allows the Company to carry forward historical lease classification. The renewal options have not been
included in the calculation of the lease liabilities and ROU as the Company is not reasonably certain to exercise the options.
Variable lease payment amounts that cannot be determined at the commencement of the lease such as increases
in lease payments based on changes in index rates or usage, are not included in the ROU assets or liabilities. These
are expensed as incurred and recorded as variable lease expense.
At March 31, 2019, the Company had operating
lease liabilities of approximately $5.0 million for both the 20-year lease of the building for the manufacturing facility in Sawston,
U.K., and the current office lease in the U.S. and ROU of approximately $4.9 million for the Sawston lease and US office lease,
which were included in the condensed consolidated balance sheet.
NORTHWEST BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
|
The following summarizes quantitative information about the
Company’s operating leases:
|
|
For the Three Months Ended
|
|
|
|
March 31, 2019
|
|
|
|
U.K
|
|
|
U.S
|
|
|
Total
|
|
Lease cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
$
|
155
|
|
|
$
|
-
|
|
|
$
|
155
|
|
Short-term lease cost
|
|
|
14
|
|
|
|
81
|
|
|
|
95
|
|
Variable lease cost
|
|
|
-
|
|
|
|
2
|
|
|
|
2
|
|
Total
|
|
$
|
169
|
|
|
$
|
83
|
|
|
$
|
252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other information
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Right of use assets exchanged for new operating lease liabilities
|
|
$
|
4,306
|
|
|
$
|
584
|
|
|
$
|
4,890
|
|
Weighted-average remaining lease term – operating leases
|
|
|
10.7
|
|
|
|
1.4
|
|
|
|
|
|
Weighted-average discount rate – operating leases
|
|
|
12
|
%
|
|
|
12
|
%
|
|
|
|
|
Maturities of our operating leases, excluding short-term leases,
are as follows:
|
|
U.K
|
|
|
U.S
|
|
|
Total
|
|
Nine months ended December 31, 2019
|
|
$
|
-
|
|
|
$
|
244
|
|
|
$
|
244
|
|
Year ended December 31, 2020
|
|
|
651
|
|
|
|
332
|
|
|
|
983
|
|
Year ended December 31, 2021
|
|
|
651
|
|
|
|
84
|
|
|
|
735
|
|
Year ended December 31, 2022
|
|
|
651
|
|
|
|
-
|
|
|
|
651
|
|
Year ended December 31, 2023
|
|
|
651
|
|
|
|
-
|
|
|
|
651
|
|
Year ended December 31, 2024
|
|
|
651
|
|
|
|
-
|
|
|
|
651
|
|
Thereafter
|
|
|
9,116
|
|
|
|
-
|
|
|
|
9,116
|
|
Total
|
|
|
12,371
|
|
|
|
660
|
|
|
|
13,031
|
|
Less present value discount
|
|
|
(7,936
|
)
|
|
|
(76
|
)
|
|
|
(8,012
|
)
|
Operating lease liabilities included in the Condensed Consolidated Balance Sheet at March 31, 2019
|
|
$
|
4,435
|
|
|
$
|
584
|
|
|
$
|
5,019
|
|
NORTHWEST BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
|
8. Outstanding Debt
The following two tables summarize outstanding
debt as of March 31, 2019 and December 31, 2018, respectively (amount in thousands):
|
|
|
|
Stated
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value of
|
|
|
|
|
|
|
|
|
Interest
|
|
|
Conversion
|
|
|
|
|
|
Remaining
|
|
|
Embedded
|
|
|
Carrying
|
|
|
|
Maturity
Date
|
|
Rate
|
|
|
Price
|
|
|
Face
Value
|
|
|
Debt
Discount
|
|
|
Conversion
Option
|
|
|
Value
|
|
Short
term convertible notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6% unsecured
(1)
|
|
Due
|
|
|
6
|
%
|
|
$
|
3.09
|
|
|
$
|
135
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
135
|
|
10% unsecured (2)
|
|
10/18/2019
|
|
|
10
|
%
|
|
$
|
0.22
|
|
|
|
500
|
|
|
|
(30
|
)
|
|
|
-
|
|
|
|
470
|
|
18%
unsecured (3)
|
|
In Default
|
|
|
18
|
%
|
|
$
|
0.26
|
|
|
|
100
|
|
|
|
-
|
|
|
|
147
|
|
|
|
247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
735
|
|
|
|
(30
|
)
|
|
|
147
|
|
|
|
852
|
|
Short
term convertible notes payable - related party
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10% unsecured (4)
|
|
On Demand
|
|
|
10
|
%
|
|
$
|
0.23
|
|
|
|
1,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,000
|
|
18%
unsecured (4)
|
|
In Default
|
|
|
18
|
%
|
|
$
|
0.23
|
|
|
|
4,400
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,400
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short
term notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8% unsecured (5)
|
|
Various
|
|
|
8
|
%
|
|
|
N/A
|
|
|
|
3,699
|
|
|
|
(348
|
)
|
|
|
-
|
|
|
|
3,351
|
|
10% unsecured (6)
|
|
Various
|
|
|
10
|
%
|
|
|
N/A
|
|
|
|
4,238
|
|
|
|
(300
|
)
|
|
|
|
|
|
|
3,938
|
|
12%
unsecured (7)
|
|
On Demand
|
|
|
12
|
%
|
|
|
N/A
|
|
|
|
440
|
|
|
|
-
|
|
|
|
-
|
|
|
|
440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,377
|
|
|
|
(648
|
)
|
|
|
-
|
|
|
|
7,729
|
|
Short
term notes payable - related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10%
unsecured - Related Parties (8)
|
|
On Demand
|
|
|
10
|
%
|
|
|
N/A
|
|
|
|
65
|
|
|
|
-
|
|
|
|
-
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
|
|
|
|
-
|
|
|
|
-
|
|
|
|
65
|
|
Long
term notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10%
unsecured (9)
|
|
1/29/2021
|
|
|
8
|
%
|
|
|
N/A
|
|
|
|
4,405
|
|
|
|
(404
|
)
|
|
|
-
|
|
|
|
4,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,405
|
|
|
|
(404
|
)
|
|
|
-
|
|
|
|
4,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance as of March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18,982
|
|
|
$
|
(1,082
|
)
|
|
$
|
147
|
|
|
$
|
18,047
|
|
|
|
|
|
Stated
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of
|
|
|
|
|
|
|
|
|
Interest
|
|
|
Conversion
|
|
|
|
|
|
Remaining
|
|
|
Embedded
|
|
|
Carrying
|
|
|
|
Maturity Date
|
|
Rate
|
|
|
Price
|
|
|
Face Value
|
|
|
Debt Discount
|
|
|
Conversion Option
|
|
|
Value
|
|
Short term convertible notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6% unsecured (1)
|
|
Due
|
|
|
6
|
%
|
|
$
|
3.09
|
|
|
$
|
135
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
135
|
|
10% unsecured (2)
|
|
10/18/2019
|
|
|
10
|
%
|
|
$
|
0.22
|
|
|
|
500
|
|
|
|
(43
|
)
|
|
|
-
|
|
|
|
457
|
|
18% unsecured (3)
|
|
In Default
|
|
|
18
|
%
|
|
$
|
0.21
|
|
|
|
914
|
|
|
|
-
|
|
|
|
357
|
|
|
|
1,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,549
|
|
|
|
(43
|
)
|
|
|
357
|
|
|
|
1,863
|
|
Short term convertible notes payable - related party
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10% unsecured (4)
|
|
On Demand
|
|
|
10
|
%
|
|
$
|
0.23
|
|
|
|
5,400
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8% unsecured (5)
|
|
6/20/2019 and 12/12/2019
|
|
|
8
|
%
|
|
|
N/A
|
|
|
|
3,840
|
|
|
|
(383
|
)
|
|
|
-
|
|
|
|
3,457
|
|
10% unsecured (6)
|
|
Various
|
|
|
10
|
%
|
|
|
N/A
|
|
|
|
3,658
|
|
|
|
(400
|
)
|
|
|
|
|
|
|
3,258
|
|
12% unsecured (7)
|
|
On Demand
|
|
|
12
|
%
|
|
|
N/A
|
|
|
|
440
|
|
|
|
-
|
|
|
|
-
|
|
|
|
440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,938
|
|
|
|
(783
|
)
|
|
|
-
|
|
|
|
7,155
|
|
Short term notes payable - related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10% unsecured - Related Parties (8)
|
|
On Demand
|
|
|
10
|
%
|
|
|
N/A
|
|
|
|
324
|
|
|
|
-
|
|
|
|
-
|
|
|
|
324
|
|
12% unsecured - Related Parties (8)
|
|
On Demand
|
|
|
12
|
%
|
|
|
N/A
|
|
|
|
69
|
|
|
|
-
|
|
|
|
-
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
393
|
|
|
|
-
|
|
|
|
-
|
|
|
|
393
|
|
Long term notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8% unsecured (5)
|
|
2/13/2020
|
|
|
8
|
%
|
|
|
N/A
|
|
|
|
1,155
|
|
|
|
(119
|
)
|
|
|
-
|
|
|
|
1,036
|
|
5% unsecured (6)
|
|
1/13/2020
|
|
|
10
|
%
|
|
|
N/A
|
|
|
|
1,000
|
|
|
|
(50
|
)
|
|
|
-
|
|
|
|
950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,155
|
|
|
|
(169
|
)
|
|
|
-
|
|
|
|
1,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance as of December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,435
|
|
|
$
|
(995
|
)
|
|
$
|
357
|
|
|
$
|
16,797
|
|
NORTHWEST BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
|
|
(1)
|
This $135,000 note as of March 31, 2019 and December
31, 2018 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)
|
On October 18, 2018, the Company entered into an Unsecured
Convertible Promissory Note Agreement Plus Warrant (the “Note”) with an individual investor (the “Holder”)
for an aggregate principal amount of $500,000. No payment was made during the three months ended March 31, 2019.
|
The Company recognized interest expense
of approximately $13,000 resulting from amortization of debt discount for the Note. The accrued interest associated with the Note
was approximately $22,000 as of March 31, 2019.
|
(3)
|
On May 1, 2018, the Company entered into a Convertible
Secured Full Recourse Redeemable Note Agreement (the “Redeemable Note”) of $1.4 million with an existing investor.
The Redeemable Note is currently in default with an 18% annual interest rate.
|
Due to the events of default,
the holder is entitled to convert all or any amount of the outstanding principal amount and interest into shares of the common
stock of the Company without restrictive legend of any nature. The conversion price is equal to 90% of the average of the 5 lowest
daily VWAP of the Company’s common stock during the 15 consecutive trading days immediately preceding the conversion date.
During the three months ended
March 31, 2019, the Company converted approximately $0.8 million principal into approximately 4.0 million shares of common stock
at fair value of $1.1 million. The Company recorded an approximate $0.3 million debt extinguishment loss from this conversion.
The accrued interest associated
with the Redeemable Note was approximately $129,000 as of March 31, 2019.
|
(4)
|
Between February 2018 and April 2018, the Company’s
Chief Executive Officer, Linda Powers, loaned the Company aggregate funding of $5.4 million, and the Company entered into convertible
Note agreements for this amount (the “Convertible Notes”). The Notes were 15-day demand notes, intended as temporary
bridge loans. However, they remained unpaid and outstanding throughout the year.
|
On November 11, 2018, the Company and Ms.
Powers agreed to further extend the forbearance on the notes to a maturity of one year following the respective funding dates.
In consideration of the continuing forbearance, the Company agreed to issue warrants representing 50% of the repayment amounts
of the Notes. The warrants were anticipated have exercise price at $0.35 per share, and have an exercise period of 2 years. However,
the Company has not finalized the terms of the warrant agreement.
By February and March 2019, $4.4 million
of the $5.4 million principal amount of the February through April 2018 Notes remained unpaid and were past the end of the further
forbearance period agreed last November. As such, the Notes were again in default, and the Company started to accrue interest using
18% annual rate from the default dates. The accrued unpaid interest associated with the Convertible Notes was approximately $0.6
million as of March 31, 2019.
|
(5)
|
This $3.7 million note as of March 31, 2019 consists
of three separate 8% notes in the amounts of $0.5 million, $2.2 million and $1.0 million.
|
During the three months ended
March 31, 2019, the Company converted approximately $1.3 million principal and $0.1 million accrued interest into approximately
6.9 million shares of common stock at fair value of $1.9 million. The Company recorded an approximate $0.5 million debt extinguishment
loss from this conversion.
|
(6)
|
Between October 1, 2018 and November 7, 2018, the Company
entered into multiple one-year promissory notes (the “Notes”) with multiple holders (the “Holders”) for
an aggregate principal amount of $3.7 million. The notes included approximately $0.2 million OID. The Notes bore interest at 10%
per annum.
|
During the three months ended March 31, 2019, the Company made principal payment of approximately $400,000, and interest payment of approximately $43,000 which included $27,000 premium pursuant to the prepayment option.
During the three months ended March 31, 2019, the Company recognized interest expense of approximately $150,000 resulting from amortization of debt discount for the Notes. The remaining debt discount as of March 31, 2019 was approximately $300,000.
The accrued interest associated with the Note was approximately $64,000 as of December 31, 2018.
|
(7)
|
This $440,000 note as of March 31, 2019 consists of two
separate 12% demand notes (the “Notes”) in the amounts of $300,000 and $140,000.
|
The accrued interest associated with the
Notes was approximately $92,000 as of March 31, 2019.
NORTHWEST BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
|
Goldman Notes
In 2017, Leslie J. Goldman,
an officer of the Company, loaned the Company an aggregate amount of $1.3 million pursuant to certain Demand Promissory Note Agreements.
On January 3, 2018, Mr. Leslie loaned the Company an additional $30,000 (collectively the “Goldman Notes”). Approximately
$0.5 million of the Goldman Notes bear interest at the rate of 12% per annum, and $0.8 million of the Goldman Notes bear interest
at the rate of 10% per annum.
During the three months ended
March 31, 2019, the Company made an aggregate payment of $148,000 to the Goldman Notes, including $79,000 interest payment.
As of March 31, 2019, there
were no outstanding notes or interest owed to Mr. Goldman.
Toucan Notes
In 2017, Toucan Capital Fund
III loaned the Company an aggregate amount of $1.2 million pursuant to multiple Demand Promissory Notes (the “Toucan Notes”).
The Toucan Notes bear interest at 10% per annum, and are payable upon demand, with 7 days’ prior written notice to the Company.
All principal was repaid as
of March 31, 2019. There was approximately $46,000 remaining of unpaid interest as of March 31, 2019.
Board of Directors Notes
As of March 31, 2019, there
were no outstanding notes or interest owed to the Company’s Board of Directors.
Advent BioServices Note
On September 26, 2018, Advent
BioServices, a related party which was formerly part of Cognate BioServices and was spun off separately as part of an institutional
financing of Cognate, provided a short-term loan to the Company in the amount of $65,000. The loan bears interest at 10% per annum,
and is payable upon demand, with 7 days’ prior written notice to the Company.
This Note remains outstanding
and unpaid. The amount owed to Advent under this Note at March 31, 2019 was $65,000 based on the current exchange rate.
|
(9)
|
On March 29, 2019, the Company entered into two 22-month
notes (the “Notes”), with two different institutional investors, for a total of $4.4 million with an interest rate
of 8% and a maturity date of November 29, 2020. The Notes carried an OID of 10%. Net funding to the Company is $4.0 million. The
Note allows for optional prepayment by the Company, in the Company’s discretion. If the Company elects to prepay the
Notes, there will be a prepayment premium of 15%. Monthly amortization payments of 1/14
th
of the total are payable
from month 9 through 22, with a 10% premium.
|
NORTHWEST BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
|
The following table summarizes total interest
expenses related to outstanding notes and mortgage loan for the three months ended March 31, 2019 and 2018, respectively (in thousands):
|
|
For the three months ended
|
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Interest expenses related to outstanding notes:
|
|
|
|
|
|
|
|
|
Contractual interest
|
|
$
|
268
|
|
|
$
|
385
|
|
Amortization on debt premium
|
|
|
-
|
|
|
|
(150
|
)
|
Amortization of debt discount
|
|
|
296
|
|
|
|
277
|
|
Total interest expenses related to outstanding notes
|
|
|
564
|
|
|
|
512
|
|
Interest expenses related to outstanding notes to related parties:
|
|
|
|
|
|
|
|
|
Contractual interest
|
|
|
191
|
|
|
|
138
|
|
Amortization of debt discount
|
|
|
-
|
|
|
|
2,217
|
|
Total interest expenses related to outstanding notes to related parties
|
|
|
191
|
|
|
|
2,355
|
|
Interest expenses related to mortgage loan:
|
|
|
|
|
|
|
|
|
Contractual interest
|
|
|
-
|
|
|
|
323
|
|
Amortization of debt issuance costs
|
|
|
-
|
|
|
|
133
|
|
Total interest expenses on the mortgage loan
|
|
|
-
|
|
|
|
456
|
|
Other interest expenses
|
|
|
1
|
|
|
|
1
|
|
Total interest expense
|
|
$
|
756
|
|
|
$
|
3,324
|
|
The following table summarizes the Company’s
contractual obligations on debt principal as of March 31, 2019 (amount in thousands):
|
|
Payment Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
1 to 2
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
Short term convertible notes payable - related party
|
|
|
|
|
|
|
|
|
|
|
|
|
10% unsecured
|
|
$
|
5,400
|
|
|
$
|
5,400
|
|
|
$
|
-
|
|
Short term convertible notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
6% unsecured
|
|
|
135
|
|
|
|
135
|
|
|
|
-
|
|
10% unsecured
|
|
|
500
|
|
|
|
500
|
|
|
|
-
|
|
18% unsecured
|
|
|
100
|
|
|
|
100
|
|
|
|
-
|
|
Short term notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
8% unsecured
|
|
|
3,699
|
|
|
|
3,699
|
|
|
|
-
|
|
10% unsecured
|
|
|
4,238
|
|
|
|
4,238
|
|
|
|
|
|
12% unsecured
|
|
|
440
|
|
|
|
440
|
|
|
|
-
|
|
Short term notes payable - related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
10% unsecured - (on demand)
|
|
|
65
|
|
|
|
65
|
|
|
|
-
|
|
Long term notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
8% unsecured
|
|
|
4,405
|
|
|
|
-
|
|
|
|
4,405
|
|
Total
|
|
$
|
18,982
|
|
|
$
|
14,577
|
|
|
$
|
4,405
|
|
9. 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.
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,
|
|
|
|
2019
|
|
|
2018
|
|
Series A convertible preferred stock
|
|
|
-
|
|
|
|
34,863
|
|
Series B convertible preferred stock
|
|
|
-
|
|
|
|
63,557
|
|
Common stock options
|
|
|
100,159
|
|
|
|
12,656
|
|
Common stock warrants
|
|
|
357,428
|
|
|
|
349,056
|
|
Contingently issuable warrants
|
|
|
11,739
|
|
|
|
|
|
Share-settled debt and accrued interest, at fair value
|
|
|
-
|
|
|
|
12,757
|
|
Convertible notes and accrued interest
|
|
|
29,516
|
|
|
|
35,380
|
|
Potentially dilutive securities
|
|
|
498,842
|
|
|
|
508,269
|
|
10. Related Party Transactions
Advent BioServices Agreement
On May 14, 2018, the Company entered into
a DCVax®-L Manufacturing and Services Agreement with Advent BioServices, a related party which was formerly part of Cognate
BioServices and was spun off separately as part of an institutional financing of Cognate. The Advent Agreement provides for manufacturing
of DCVax-L products for the European region. The Advent Agreement provides for a program initiation payment of approximately $1.0
million (£0.7 million), in connection with technology transfer and operations transfer to the U.K. from Germany, development
of new Standard Operating Procedures (SOPs), training of new personnel, selection of new suppliers and auditing for GMP compliance,
and other preparatory activities. Such initiation payment was fully paid by the Company as of December 31, 2018. The Advent Agreement
provides for certain payments for achievement of milestones and, as is the case under the existing agreements with Cognate BioServices,
the Company is required to pay certain fees for dedicated production capacity reserved exclusively for DCVax production, and pay
for a certain minimum number of patients, whether or not the Company fully utilizes the dedicated capacity and number of patients.
Either party may terminate the Advent Agreement at any time for any reason on twelve months’ notice. The notice period is
designed to enable an effective transition and minimize or avoid interruption of product supply. During the twelve-month period,
the Company will continue to pay the minimum fees and the applicable fees for any DCVax products beyond the minimums, and Advent
will continue to produce the DCVax products.
NORTHWEST BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
|
Cognate & Advent Expenses and Accounts
Payable
The following table summarizes expenses
incurred to related parties (i.e., amounts invoiced) during the three months ended March 31, 2019 and 2018 (amount in thousands)
(some of which remain unpaid as noted in the second table below):
|
|
For the three months ended
|
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Cognate BioServices, Inc. (no longer related party since Q2 2018)
|
|
$
|
-
|
|
|
$
|
1,302
|
|
Cognate BioServices GmbH
|
|
|
-
|
|
|
|
66
|
|
Cognate Israel
|
|
|
-
|
|
|
|
27
|
|
Advent BioServices
|
|
|
1,450
|
|
|
|
1,919
|
|
Total
|
|
$
|
1,450
|
|
|
$
|
3,314
|
|
The following table summarizes outstanding
unpaid accounts payable held by related parties as of March 31, 2019 and December 31, 2018 (amount in thousands).
These
unpaid amounts include part of the expenses reported in the table above and also certain expenses incurred in prior periods.
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Advent BioServices
|
|
$
|
2,061
|
|
|
$
|
3,967
|
|
Other Related Parties
Linda F. Powers - Demand Loans
Between February 2018 and April 2018, the Company’s Chief Executive Officer, Linda Powers, loaned
the Company aggregate funding of $5.4 million pursuant to convertible Notes.
The Company issued 11,739,130 Class D-2
Warrants with an exercise price of $0.30 and a fair value of approximately $2.2 million. The fair value of the warrants was recorded
as debt discount at the issuance date. The Company recorded $2.2 million interest expenses as amortization on the debt discount
immediately due to the term of the Convertible Notes, which are on demand.
The Notes entered into in
February through April 2018 were 15-day demand notes, and were intended as temporary bridge notes. However, the Notes
remained unpaid outstanding throughout the year. On November 11, 2018, the Company and Ms. Powers agreed to further extend
forbearance on the notes to a maturity of one year following the respective funding dates. In consideration of the continuing
forbearance, the Company agreed to issue warrants representing 50% of the repayment amounts of the Notes. The warrants were
anticipated to have an exercise price of $0.35 per share, and have an exercise period of 2 years. However, the Company
has not yet finalized the terms of the warrant agreement.
By February and March 2019, $4.4 million
of the $5.4 million principal amount of the February and March 2018 Notes remained unpaid and were past the end of the further
forbearance period agreed last November. As such, the Notes were again in default, and the Company started to accrue interest using
18% annual rate from the default dates. The accrued unpaid interest associated with the Convertible Notes was approximately $0.6
million as of March 31, 2019.
As of March 31, 2019, the entire principal
and interest amounts (approximately $6 million) owed to Ms. Powers under the February through April 2018 bridge notes remained
outstanding and owed.
NORTHWEST BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
|
Leslie J. Goldman - Demand Loans
In 2017, Leslie J. Goldman, an officer
of the Company, loaned the Company an aggregate amount of $1.3 million pursuant to certain Demand Promissory Note Agreements. On
January 3, 2018, Mr. Goldman loaned the Company an additional $30,000 (collectively the “Goldman Notes”). Approximately
$0.5 million of the Goldman Notes bore interest at the rate of 12% per annum, and $0.8 million of the Goldman Notes bore interest
at the rate of 10% per annum.
During the three months ended March 31,
2019, the Company made an aggregate payment of $148,000 on the Goldman Notes, including $79,000 interest payment.
As of March 31, 2019, there were no outstanding
notes or interest owed to Mr. Goldman.
Toucan Capital III Fund - Demand Loans
In 2017, Toucan Capital Fund III loaned
the Company an aggregate amount of $1.2 million pursuant to multiple Demand Promissory Notes (the “Toucan Notes”).
The Toucan Notes bear interest at 10% per annum, and are payable upon demand, with 7 days’ prior written notice to the Company.
All principal was repaid in 2018. There
was approximately $46,000 remaining of unpaid interest as of March 31, 2019.
Board of Directors - Demand Loans
As of March 31, 2019, there was no outstanding
notes or interest owed to the Company’s Board of Directors.
Advent BioServices Note
On September 26, 2018, Advent BioServices,
a related party which was formerly part of Cognate BioServices and was spun off separately as part of an institutional financing
of Cognate, provided a short-term loan to the Company in the amount of $65,000. The loan bears interest at 10% per annum, and is
payable upon demand, with 7 days’ prior written notice to the Company.
This Note remains outstanding and unpaid.
The principal amount and accrued interest owed to Advent under this Note at March 31, 2019 was $65,000 and $3,000, respectively,
based on the current exchange rate.
Interest expense for the three month period ended March 31, 2019 and 2018 associated with related party
loans was approximately $0.2 million and $2.4 million, respectively.
11. Stockholders’ Deficit
Debt Conversion
During the three months ended March 31,
2019, the Company converted debt of approximately $2.1 million principal and $0.1 million accrued interest into approximately 10.9
million shares of common stock at fair value of $3.0 million. The Company recorded an approximate $0.8 million debt extinguishment
loss from the conversion.
NORTHWEST BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
|
Warrants Exercised for Cash
During the three months ended March 31,
2019, the Company issued 3.0 million shares of common stock from warrants exercised for cash. The Company received $688,000 cash.
Common Stock Purchase Warrants
The following is a summary of warrant activity
for the three months ended March 31, 2019 (in thousands, except per share data):
|
|
Number of
|
|
|
Weighted Average
|
|
|
Remaining
|
|
|
|
Warrants
|
|
|
Exercise Price
|
|
|
Contractual Term
|
|
Outstanding as of January 1, 2019
|
|
|
372,153
|
|
|
$
|
0.29
|
|
|
|
1.97
|
|
Warrants exercised for cash
|
|
|
(2,986
|
)
|
|
|
0.23
|
|
|
|
|
|
Outstanding as of March 31, 2019
|
|
|
369,167
|
|
|
$
|
0.29
|
|
|
|
1.72
|
|
12. Commitments and Contingencies
U.S. Securities and Exchange Commission
As previously reported, the Company has
received a number of formal information requests (subpoenas) from the SEC regarding several broad topics that have been previously
disclosed, including the Company’s membership on Nasdaq and delisting, related party matters, the Company’s programs,
internal controls, the Company’s Special Litigation Committee, disclosures and the publication of interim clinical trial
data. Testimony of certain officers and third parties has been taken as well. The Company has been cooperating with the SEC investigation.
As hoped, the investigation is winding to a conclusion. After investigation of a broad array of issues over the past two-plus
years, the SEC Staff has informed us preliminarily that they have concerns in regard to two issues, relating to the Company’s
internal controls over financial reporting and the adequacy of certain disclosures made in the past. We have previously disclosed
material weaknesses in our internal controls. As for disclosures, we believe our disclosures complied with applicable law.
Despite our belief that the Staff should close the investigation, there can be no assurance that the Staff will not recommend some
action involving the Company and/or individuals. Given the stage of the process, the Company is unable to provide a current assessment
of the potential outcome or potential liability, if any.
13. Subsequent Events
Between April 2019 and May 2019, the Company
converted debt of approximately $0.9 million principal and $28,000 accrued interest into approximately 3.9 million shares of common
stock at fair value of $1.2 million. The Company recorded an approximate $0.2 million debt extinguishment loss from the conversion.
Between April 2019 and May 2019, the Company
issued 3.5 million shares of common stock from warrants exercised for cash. The Company received $0.8 million cash.
On April 25, 2019, the Company established
a new wholly owned subsidiary in the Netherlands, where the European Medicines Agency is relocating.
Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of
our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial
statements and the notes to those statements included with this report. In addition to historical information, this report contains
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”),
and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements
are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. The words
“believe,” “expect,” “intend,” “anticipate,” and similar expressions are used to
identify forward-looking statements, but some forward-looking statements are expressed differently. Many factors could affect our
actual results, including those factors described under “Risk Factors” in our Form 10-K for the year ended December
31, 2018 and in Part II Item 1A of this report. These factors, among others, could cause results to differ materially from those
presently anticipated by us. You should not place undue reliance on these forward-looking statements.
Overview
The Company is focused on developing personalized
immune therapies for cancer. We have developed a platform technology, DCVax®, which uses activated dendritic cells to mobilize
a patient's own immune system to attack their cancer.
Our lead product, DCVax®-L, is designed
to treat solid tumor cancers in which the tumor can be surgically removed. This product is in an ongoing Phase III trial for newly
diagnosed Glioblastome multiforme (GBM). 331 patients were enrolled in the trial, and the Company is working to reach completion.
The Company, the physicians and the patients remain blinded. On May 29, 2018, interim blinded data from the Phase III trial collected
in 2017 were published in a peer reviewed scientific journal. On November 17, 2018, updated interim blinded data from the Phase
III trial were presented at the Society for Neuro-Oncology annual meeting. As the Company noted in its announcement of the May
publication and in subsequent reports, the data could get either better or worse as it continues to mature. The Company has been
consulting with its Scientific Advisory Board, the Steering Committee of the trial and other independent experts about the ongoing
handling of the trial and preparations for completion.
As previously reported, the Company is
now moving forward with the several stages of work that are needed to reach completion of this trial. These include finalizing
the Statistical Analysis Plan, conducting the final data collection, data validation and data lock, and then unblinding and analyzing
the data. Each of these stages are multi-month processes, involving teams of outside experts as well as Company personnel. This
work also involves various special circumstances such as a crossover trial design and the issue of pseudo-progression as previously
reported. The Company’s projections, estimates and expectations are subject to material changes as the work proceeds.
Our second product, DCVax®-Direct,
is designed to treat inoperable solid tumors. A 40-patient Phase I trial has been completed, and included treatment of a diverse
range of cancers. As resources permit, the Company is working on preparations for Phase II trials of DCVax-Direct.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial
condition and results of operations are based on our condensed financial statements, which have been prepared in accordance with
U.S. GAAP. The preparation of these condensed financial statements requires us to make estimates and judgments that affect our
reported amounts of assets, liabilities, revenues and expenses.
On an ongoing basis, we evaluate our estimates
and judgments, including those related to accrued expenses and stock-based compensation. We based our estimates on historical experience
and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that
are not readily apparent from other sources. Actual results may differ from these estimates.
Our critical accounting policies and significant estimates are detailed in our Annual Report on Form 10-K
for the year ended December 31, 2018 and Note 7 Leases to the condensed consolidated financial statements in this accompanying
Form 10-Q. Other than the changes related to adoption of ASC 842, our critical accounting policies and significant estimates have
not changed substantially from those previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.
Results of Operations
Operating costs:
Operating costs and expenses consist primarily
of research and development expenses, including clinical trial expenses, which increase when we are actively participating in clinical
trials and especially when we are in a large ongoing international phase III trial. The associated administrative expenses also
increase as such operating activities grow.
In addition to clinical trial related costs,
our operating costs may include ongoing work relating to our DCVax products, including R&D, product characterization, and related
matters. Going forward, we are also incurring large amounts of costs to carry out and complete statistical analyses, process validation
work, final data collection and validation, and other work associated with moving towards completing the statistical analysis plan
for the trial and obtaining approval of the plan by regulators in all of the countries where the clinical trial has been conducted,
data lock for the clinical trial data, unblinding and analysis of the data, manufacturing validation, and other requirements.
Our operating costs also include the costs
of preparations for the launch of new or expanded clinical trial programs, such as our planned Phase II clinical trials. The preparation
costs include payments to regulatory consultants, lawyers, statisticians, sites and others, evaluation of potential investigators,
the clinical trial sites and the CROs managing the trials and other service providers, and expenses related to institutional approvals,
clinical trial agreements (business contracts with sites), training of medical and other site personnel, trial supplies and other.
Additional substantial costs relate to the maintenance of manufacturing capacity, in both the US and Europe.
Our operating costs also include significant
legal and accounting costs in operating the Company.
Research and development:
Discovery and preclinical research and
development expenses include costs for substantial external scientific personnel, technical and regulatory advisers, and others,
costs of laboratory supplies used in our internal research and development projects, travel, regulatory compliance, and expenditures
for preclinical and clinical trial operation and management when we are actively engaged in clinical trials.
Because we are pre-revenue company, we
do not allocate research and development costs on a project basis. We adopted this policy, in part, due to the unreasonable cost
burden associated with accounting at such a level of detail and our limited number of financial and personnel resources.
General and administrative:
General and administrative expenses include
administrative personnel related salary and benefit expenses, cost of facilities, insurance, travel, legal support, property and
equipment and amortization of stock options and warrants.
Three Months Ended March 31, 2019 and
2018
We recognized a net loss of $20.9 million
and $21.5 million for the three months ended March 31, 2019 and 2018, respectively. Net cash used in operations was $9.8 million
and $4.8 million for the three months ended March 31, 2019 and 2018, respectively, including payment of substantial amounts of
accumulated payables in the three months ended March 31, 2019.
Research and Development Expense
For the three months ended March 31, 2019
and 2018, research and development expense was $3.0 million and $4.7 million, respectively. The decrease was primarily due
to less expenses incurred from Advent BioServices compared to last year.
The following table summarizes outstanding
balance under accounts payable and outstanding principal amount of notes payable to related parties for services related to the
Company’s research and development activities as of March 31, 2019 and December 31, 2018 (amount in thousands):
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Accounts payable:
|
|
|
|
|
|
|
|
|
Advent BioServices
|
|
$
|
2,061
|
|
|
$
|
3,967
|
|
|
|
|
|
|
|
|
|
|
Demand Loan:
|
|
|
|
|
|
|
|
|
Linda Powers
(1)
|
|
$
|
5,400
|
|
|
$
|
5,400
|
|
Advent BioServices
(2)
|
|
|
65
|
|
|
|
65
|
|
Total
|
|
$
|
5,465
|
|
|
$
|
5,465
|
|
|
(1)
|
Cash loaned by our CEO was used for operations, including research and development expenses. The
amount represents principal only.
|
|
(2)
|
The amount represents principal only.
|
The following table summarizes expenses
incurred (i.e., amounts invoiced, which have only been partly paid) to related parties during the three months ended March 31,
2019 and 2018 (amount in thousands):
|
|
For the three months ended
|
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Cognate BioServices, Inc. (no longer related party since Q2 2018)
|
|
$
|
-
|
|
|
$
|
1,302
|
|
Cognate BioServices GmbH
|
|
|
-
|
|
|
|
66
|
|
Cognate Israel
|
|
|
-
|
|
|
|
27
|
|
Advent BioServices
|
|
|
1,450
|
|
|
|
1,919
|
|
Total
|
|
$
|
1,450
|
|
|
$
|
3,314
|
|
General and Administrative Expense
General and administrative expenses were
$3.6 million and $3.0 million for three months ended March 31, 2019 and 2018, respectively. The increase compared with 2018 was
primarily due to non-cash expense for the applicable portion of ongoing vesting, during the three months ended March 31, 2019,
of stock-based compensation awarded in the past to our officers and directors. We did not incur any stock-based compensation under
general and administrative expense during the three months ended March 31, 2018.
Legal Expenses
Legal costs were $1.5 million for the three
months ended March 31, 2019 versus $1.2 million for the three months ended March 31, 2018.
Change in fair value of derivatives
During the three months ended March 31,
2019 and 2018, we recognized a non-cash loss of $12.0 million and $11.5 million, respectively, primarily due to the increase of
stock price and the number of warrants outstanding as of March 31, 2019 (369 million) compared to March 31, 2018 (349 million).
Net (loss) gain from extinguishment
of debt
During the three months ended March 31,
2019, we converted debt of approximately $2.1 million principal and $0.1 million accrued interest into approximately 10.9 million
shares of common stock at fair value of $3.0 million. We recorded an approximate $0.8 million debt extinguishment loss from the
conversion.
During the quarter ended March 31, 2018,
we converted approximately $1.7 million principal and $61,000 accrued interest into approximately 5 million shares of common stock
at fair value of $1.6 million. We recorded an approximate $0.2 million debt extinguishment gain from the conversion.
Interest Expense
During the three months ended March 31,
2019 and 2018, we recorded interest expense of $0.8 million and $3.3 million, respectively. We recorded approximately $2.2 million
debt discount amortization cost on Ms. Powers’ Notes during the three months ended March 31, 2018.
Foreign currency transaction gain
During the three months ended March 31, 2019 and 2018, we recognized
foreign currency transaction gain of $0.4 million and $1.8 million, respectively. The gain was due to the strengthening of the
British pound sterling relative to the U.S. dollar. The fluctuation on the foreign currency during the three months ended March
31, 2019 was less than in the three months ended March 31, 2018.
Liquidity and Capital Resources
We have experienced recurring losses from
operations since inception. We have not yet established an ongoing source of revenues and must cover our operating through debt
and equity financings to allow us to continue as a going concern. Our ability to continue as a going concern depends on the ability
to obtain adequate capital to fund operating losses until we generate adequate cash flows from operations to fund our operating
costs and obligations. If we are unable to obtain adequate capital, we could be forced to cease operations.
We depend upon our ability, and will continue
to attempt, to secure equity and/or debt financing. We cannot be certain that additional funding will be available on acceptable
terms, or at all. Our management determined that there was substantial doubt about our ability to continue as a going concern
within one year after the condensed consolidated financial statements were issued, and management’s concerns about our ability
to continue as a going concern within the year following this report persist.
Contingent Contractual Payment
The following table summarizes our contractual
obligations as of March 31, 2019 (amount in thousands):
|
|
Payment Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
1 to 2
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
Short term convertible notes payable - related party (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
10% unsecured
|
|
$
|
6,023
|
|
|
$
|
6,023
|
|
|
$
|
-
|
|
Short term convertible notes payable (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
10% unsecured
|
|
|
550
|
|
|
|
550
|
|
|
|
-
|
|
18% unsecured
|
|
|
230
|
|
|
|
230
|
|
|
|
-
|
|
Short term notes payable (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
8% unsecured
|
|
|
3,718
|
|
|
|
3,718
|
|
|
|
-
|
|
10% unsecured
|
|
|
4,662
|
|
|
|
4,662
|
|
|
|
|
|
12% unsecured
|
|
|
483
|
|
|
|
483
|
|
|
|
-
|
|
Short term notes payable - related parties (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
10% unsecured - (on demand)
|
|
|
115
|
|
|
|
115
|
|
|
|
-
|
|
Long term notes payable (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
8% unsecured
|
|
|
5,051
|
|
|
|
-
|
|
|
|
5,051
|
|
Operating leases (6)
|
|
|
9,932
|
|
|
|
3,996
|
|
|
|
5,936
|
|
Purchase obligation (7)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
30,764
|
|
|
$
|
19,777
|
|
|
$
|
10,987
|
|
(1) The obligations related to short term
convertible notes to Linda Powers were approximately $6.0 million as of March 31, 2019, which included contractual unpaid interest
of $0.6 million. The Notes were entered into in February through April 2018 as 15-day demand notes, and were intended to be short-term
bridge notes. However, the Notes remained unpaid and outstanding throughout 2018. On November 11, 2018, the Company and Ms. Powers
agreed to further extend forbearance on the notes to a maturity of one year following the respective funding dates. In consideration
of the continuing forbearance, the Company agreed to issue warrants representing 50% of the amounts repayment amounts of the Notes
for the loans from Ms. Powers. The warrants were anticipated to have an exercise price of $0.35 per share, and have an exercise
period of 2 years. However, the Company is still working on the key terms of this agreement. Therefore, the Company
has not recorded the impact of this modification as of March 31, 2019.
(2) The obligations related to short term
convertible notes were approximately $0.8 million as of March 31, 2019, which included remaining contractual unpaid interest of
$0.2 million.
(3) The obligations related to short term
notes were approximately $8.9 million as of March 31, 2019, which included remaining contractual unpaid interest of $0.5 million.
(4) The obligations related to short term
notes to related parties were approximately $0.1 million as of March 31, 2019, which included unpaid interest of $46,000 and $3,000
owed to Toucan Capital Fund III and Advent BioServieds, Ltd, respectively. the obligations included loans of $65,000 from Advent
BioServices, Ltd.
(5) The obligations related to long term
notes were approximately $5.1 million as of March 31, 2019, which included remaining contractual unpaid interest of $0.6 million.
(6) The operating lease obligations during
the next 2 years included $576,000, $12,000 and $5,000 to our offices in Maryland, Germany and London, respectively. Approximately
$0.7 million lease obligations during the next 2 years (the first year is rent-free) related to the vision centre in the U.K. that
we leased back in December 2018. We also included approximately $8.6 million of anticipated payments to Advent BioServices, which
represents the next 2 years’ obligation. The remaining contract term as of March 31, 2019 was approximately 4 years for manufacturing
facilities under the Manufacturing Services Agreement with Advent.
(7) We have possible contingent obligations
to pay certain fees to Cognate BioServices (in addition to any other remedies) if we shut down or suspend its DCVax-L program or
DCVax-Direct program. These obligations are not reflected in the accompanying balance sheets. For a shut down or suspension
of the DCVax-L program, the fees will be as follows:
·
|
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 trial for DCVax®-Direct, the fee shall be $1.5 million.
|
·
|
After the last dose of the last patient enrolled in the Phase I 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.
|
As of March 31, 2019, no shut-down or suspension
fees were triggered.
While our DCVax programs are ongoing, under
our agreements with Cognate we are required to pay certain fees for dedicated production suites or capacity reserved exclusively
for DCVax production, and pay for a certain minimum number of patients, whether or not we fully utilize the dedicated capacity
and number of patients. The same is the case under our agreement with Advent. We have disputed certain amounts invoiced to us by
Cognate, and we are in the process of discussing the amounts with Cognate.
Operating Activities
During the three months ended March 31,
2019 and March 31, 2018, net cash outflows from operations were $9.8 million and $4.8 million, respectively. The increase in cash
used in operating activities was primarily attributable to the increase in the levels of activity in our ongoing clinical programs,
as well as payment of substantial accumulated payables.
Financing Activities
During the three months ended March 31,
2019, we did not issue any new preferred stock, common stock or warrants. During the three months ended March 31, 2018, we received
approximately $3.2 million cash proceeds from issuance of preferred stock, common stock and warrants in a public offering during
the three months ended March 31, 2018.
We received $0.7 million and $1.6 million
from the exercise of warrants during the three months ended March 31, 2019 and 2018, respectively.
We received approximately $4.0 million
and $4.4 million cash proceeds from issuances of debt to third parties (unrelated and related) during the three months ended March
31, 2019 and 2018, respectively.
We made an aggregate debt payment of $0.7
million and $2.4 million during the three months ended March 31, 2019 and 2018, respectively.
Our financial statements indicate there
is substantial doubt about our ability to continue as a going concern as we are dependent on our ability to obtain ongoing financing
and ultimately to generate sufficient cash flow to meet our obligations on a timely basis. We can give no assurance
that our plans and efforts to achieve the above steps will be successful.
Other factors affecting our ongoing funding
requirements include the number of staff we employ, the number of sites, number of patients and amount of activity in our clinical
trial programs, the costs of further product and process development work relating to our DCVax products, the costs of preparations
for Phase II trials, the costs of expansion of manufacturing, and unanticipated developments. The extent of resources available
to us will determine which programs can move forward and at what pace.
Off-Balance Sheet Arrangements
Since our inception, we have not engaged
in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.