The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements.
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
1. Organization and Description of Business and Recent
Developments
Northwest Biotherapeutics, Inc. and its
subsidiaries NW Bio Europe S.A.R.L, 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’s platform technology,
DCVax®, is currently being tested for the treatment of certain types of cancers through clinical trials in the United States
and Europe that are in various phases.
2. Liquidity and Financial Condition
For the three months ended March 31, 2016
and 2015, we recognized a net loss of $6.1 million and a net loss of $46.4 million, respectively.
During the three months ended March 31,
2016, the Company used approximately $17.6 million of cash in its operating activities. These cash outflows included substantial
amounts of accrued costs relating to periods of higher activity and expenditures in the Company’s Phase III clinical trial
which have subsequently been reduced, and included substantial amounts of legal costs which the Company anticipates may be subject
to reimbursement under the Company’s insurance, with further legal expenses going forward being covered by insurance directly.
The Company had cash and cash equivalents of $11.7 million and a working capital deficiency (cash and non-cash liabilities combined)
of approximately $44.3 million at March 31, 2016 (with $14.5 million of the $44.3 million deficit comprised of non-cash derivative
liabilities and $6.2 million comprised of projected potential future liability for future environmental costs). The Company owes
an aggregate of $6.4 million of trade liabilities and convertible notes to related parties.
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 financial statements have been prepared assuming 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 might become necessary should the Company be able to continue as a going concern.
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.
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,
2016, condensed consolidated statements of operations for the three months ended March 31, 2016 and 2015, condensed consolidated
statements of comprehensive loss for the three months ended March 31, 2016 and 2015, condensed consolidated statement of stockholders’
equity (deficit) for the three months ended March 31, 2016, and the condensed consolidated statements of cash flows for the three
months ended March 31, 2016 and 2015 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, 2016 are not necessarily indicative of
results to be expected for the year ending December 31, 2016 or for any future interim period. The condensed consolidated balance
sheet at March 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, 2015, and
notes thereto included in the Company’s annual report on Form 10-K, which was filed with the SEC on March 16, 2016.
NORTHWEST BIOTHERAPEUTICS, INC.
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
Use of Estimates
In preparing 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 equity 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 its fair value and adjusts the instrument 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 in connection the Conversion Transaction
has been estimated using a Monte Carlo simulation.
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 liability resulting from the completion of the clean-up, if any,
would be included in other income (expense). As of March 31, 2016, 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 Financial
Statements
(Unaudited)
Foreign Currency Translation and Transactions
The Company has operations in Germany,
the United Kingdom and Canada, in addition to the U.S. Assets and liabilities are translated into U.S. dollars using end of period
exchange rates and revenues and expenses are translated into U.S. dollars using weighted average rates. Foreign currency translation
adjustments are reported as a separate component of accumulated other comprehensive income (loss) within stockholders’ equity
(deficit).
During the three months ended March 31,
2016, the Company recorded $0.5 million of foreign currency translation gain primarily due to the strengthening of the U.S. dollar
relative to the euro and British pound sterling.
Foreign currency transaction losses are
recognized in the Consolidated Statements of Operations as incurred.
Comprehensive Loss
The Company reports comprehensive loss
and its components in its consolidated financial statements. Comprehensive loss consists of net loss and foreign currency translation
adjustments, affecting stockholders’ equity (deficit) that, under U.S, GAAP, is 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.
For the three months ended March 31, 2016
and 2015, the Company recognized research and development costs of $13.4 million and $19.6 million, respectively.
Significant Accounting Policies
There have been no material changes in
the Company’s significant accounting policies to those previously disclosed in the 2015 Annual Report.
NORTHWEST BIOTHERAPEUTICS, INC.
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
Recent Accounting Pronouncements
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 condensed consolidated financial statements and related disclosures.
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 condensed consolidated financial statements and
related disclosures.
In March 2016, the FASB issued ASU No.
2016-09,
Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
(“ASU
2016-09”). The amendment is to simplify several aspects of the accounting for share-based payment transactions including
the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of
cash flows. For public entities, the amendments in ASU 2016-09 are effective for interim and annual reporting periods beginning
after December 15, 2016. The Company is currently assessing the impact of ASU 2016-09 on its condensed consolidated financial
statements and related disclosures.
NORTHWEST BIOTHERAPEUTICS, INC.
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
4. Fair Value Measurements
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, 2016 and December 31, 2015
(in thousands):
|
|
Fair value measured at March
31, 2016
|
|
|
|
|
|
|
Quoted prices in active
|
|
|
Significant other
|
|
Significant
|
|
|
|
|
Fair
value at
|
|
|
|
markets
|
|
|
observable inputs
|
|
|
unobservable
inputs
|
|
|
|
|
March
31, 2016
|
|
|
|
(Level
1)
|
|
|
(Level 2)
|
|
|
(Level
3)
|
|
Derivative liability
|
|
$
|
14,457
|
|
|
$
|
-
|
|
|
$
|
-
|
|
$
|
14,457
|
|
|
|
Fair value measured
at December 31, 2015
|
|
|
|
|
|
|
|
|
Quoted
prices in active
|
|
|
Significant other
|
|
|
Significant
|
|
|
|
|
Fair
value at
|
|
|
|
markets
|
|
|
observable inputs
|
|
|
unobservable
inputs
|
|
|
|
|
December
31, 2015
|
|
|
|
(Level
1)
|
|
|
(Level 2)
|
|
|
(Level
3)
|
|
Derivative liability
|
|
$
|
27,982
|
|
|
$
|
-
|
|
|
$
|
-
|
|
$
|
27,982
|
|
There were no transfers between Level
1, 2 or 3 during the three-month period ended March 31, 2016.
The following table presents changes in
Level 3 liabilities measured at fair value for the three-month period ended March 31, 2016. Both observable and unobservable
inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category.
Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair
value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable
long- dated volatilities) inputs (in thousands).
|
|
Warrant
|
|
|
|
Liability
|
|
Balance - January 1, 2016
|
|
$
|
27,982
|
|
Change in fair value
|
|
|
(13,525
|
)
|
Balance – March 31, 2016
|
|
$
|
14,457
|
|
The Company’s warrant liabilities
are measured at fair value using the Monte Carlo simulation valuation methodology. 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 for the three months ended March 31, 2016 is as follows:
Date of valuation
|
|
January 1, 2016
|
|
|
March 31, 2016
|
|
Strike price
|
|
$
|
3.49
|
|
|
$
|
2.38
|
|
Volatility (annual)
|
|
|
86.9
|
%
|
|
|
85.9
|
%
|
Risk-free rate
|
|
|
1.3
|
%
|
|
|
0.9
|
%
|
Contractual term (years)
|
|
|
3.1
|
|
|
|
3.0
|
|
Dividend yield (per share)
|
|
|
0
|
%
|
|
|
0
|
%
|
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.
NORTHWEST BIOTHERAPEUTICS, INC.
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
5. Property, Plant and Equipment
Property and equipment consist of the following at March 31,
2016 and December 31, 2015 (in thousands):
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Leasehold improvements
|
|
$
|
69
|
|
|
$
|
69
|
|
Office furniture and equipment
|
|
|
25
|
|
|
|
25
|
|
Computer equipment and software
|
|
|
602
|
|
|
|
597
|
|
UK property acquisition, construction and estimated environmental liability
|
|
|
47,893
|
|
|
|
45,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,589
|
|
|
|
46,373
|
|
Less: accumulated depreciation
|
|
|
(229
|
)
|
|
|
(216
|
)
|
|
|
$
|
48,360
|
|
|
$
|
46,157
|
|
Depreciation expense was approximately
$13,000 and $3,000 for the three months ended March 31, 2016 and 2015.
6. Notes Payable
2014 Convertible Senior Notes
The Company has Convertible Senior Notes
of $10.6 million, net of $0.4 million deferred offering cost as of March 31, 2016 with an interest rate of 5% and conversion price
of $6.60. The Company has remaining $1.0 million in escrowed interest payments, which is sufficient to fund, when due, the total
aggregate amount of the six scheduled semi-annual interest payments during the remaining term of the notes, excluding additional
interest, if any.
The following table shows the details
of interest expenses related to 2014 Convertible Senior Notes for the three months ended March 31, 2016 and 2015, respectively
(in thousands):
NORTHWEST BIOTHERAPEUTICS, INC.
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
|
|
For the three months ended
|
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Contractual interest
|
|
$
|
137
|
|
|
$
|
216
|
|
Amortization of debt issuance costs
|
|
|
70
|
|
|
|
105
|
|
Total interest expense on the convertible senior notes
|
|
$
|
207
|
|
|
$
|
321
|
|
Mortgage Loan
The Company has two 12% mortgage loans
that are secured by the UK facility with principal of $11.3 million, net of deferred financing costs of $0.3 million. $4.7 million
of the mortgage loans are due in August 2016 and the remainder in November 2016.
Interest expense was approximately $0.4
million and $0.3 million for the three months ended March 31, 2016 and 2015, respectively, which includes $0.1 million amortization
of deferred offering financing costs in both periods.
Other Notes Payable
Notes payable consist of the following at March 31, 2016 and
December 31, 2015 (in thousands):
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Notes payable – current
|
|
|
|
|
|
|
|
|
12% unsecured originally due July 2011 - in dispute (1)
|
|
$
|
934
|
|
|
$
|
934
|
|
|
|
|
934
|
|
|
|
934
|
|
Convertible notes payable, net - current
|
|
|
|
|
|
|
|
|
6% unsecured (2)
|
|
|
135
|
|
|
|
135
|
|
|
|
|
135
|
|
|
|
135
|
|
Note payable
|
|
|
|
|
|
|
|
|
6% due on demand (3)
|
|
|
50
|
|
|
|
50
|
|
|
|
|
50
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
Total notes payable, net
|
|
$
|
1,119
|
|
|
$
|
1,119
|
|
(1) This $0.934 million note, which was
originally due in July 2011 is currently under dispute with the creditor as to the validity of the note payable balance, which
the Company believes has already been paid in full and is not outstanding.
(2) This $0.135 million note as of March
31, 2016 consists of two separate 6% notes in the amounts of $0.110 million and $0.025 million. In regard to the $0.110 million
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 $0.025 million 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.
NORTHWEST BIOTHERAPEUTICS, INC.
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
(3) This $0.050 million demand note as
of March 31, 2016 is held by an officer of the Company. The holder has made no demand for payment, but reserves the right to make
a demand at any time.
7. Net Loss per Share Applicable to
Common Stockholders
Options, warrants, and convertible debt
outstanding were all considered anti-dilutive for the three months ended March 31, 2016, and 2015, due to net losses.
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,
|
|
|
|
2016
|
|
|
2015
|
|
Common stock options
|
|
|
1,551
|
|
|
|
1,551
|
|
Common stock warrants - equity treatment
|
|
|
26,876
|
|
|
|
15,830
|
|
Common stock warrants - liability treatment
|
|
|
15,839
|
|
|
|
12,500
|
|
Convertible notes and accrued interest
|
|
|
1,743
|
|
|
|
2,797
|
|
Potentially dilutive securities
|
|
|
46,009
|
|
|
|
32,678
|
|
8. Related Party Transactions
Cognate BioServices, Inc.
Cognate Expenses and Accounts Payable
At March 31, 2016 and December 31, 2015,
the Company owed Cognate $6.4 million and $5.5 million, respectively, for unpaid invoices for manufacturing and related services.
Overall, for the three months ended March
31, 2016 and 2015, the Company incurred research and development costs (cash and non-cash) related to Cognate BioServices of $11.2
million and $14.7 million, respectively, relating to the DCVax-L and DCVax-Direct programs, product and process development work
and preparations for upcoming Phase II trials.
Share Based Payments
The Company recorded $5.2 million of income
and $6.4 million of expense for the three-month period ended March 31, 2016 or 2015, respectively, for stock based payment expense
to Cognate for the applicable pro rata portion of the ongoing 3-year vesting of the one-time initiation payments under Manufacturing
and Services Agreement that were entered into in January 2014. The fair value calculation of these shares was determined using
the market price for tradable shares.
NORTHWEST BIOTHERAPEUTICS, INC.
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
Shares payable to related party –
most favored nation provision
The shares and warrants previously issued
to Cognate in partial payment of invoices for manufacturing services continue to be under a 3-year lock-up, which has been in place
since January 2014, preventing Cognate from selling them. If the Company enters into a transaction with other investors or creditors
during this lock-up period on more favorable terms than Cognate received, the Company has an ongoing obligation to conform the
terms of Cognate’s shares and warrants to the same terms as the other investors or creditors, under a most favored nation
provision.
On March 3, 2016, the Company entered into
a financing under which it sold 5.9 million common shares and 12.1 million Series A, B and C warrants to unrelated investors on
terms more favorable than the existing terms of Cognate’s shares. The sale of common shares had an effective price of $1.7,
which triggered a most favored nation obligation which would result in an obligation to issue 6.0 million shares to Cognate. However,
these shares have not been issued, and the Company is in active negotiations with Cognate seeking to modify these arrangements.
While these negotiations are ongoing, the
Company has accrued $8.8 million to represent shares payable to related parties on the condensed consolidated balance sheet based
upon the closing stock price as of March 31, 2016 to recognize the contractual provision of the most favored nation clause.
9. Stockholders’ Equity (Deficit)
Common Stock Issuances
First Quarter 2016
On February 29,
2016, the Company entered into a Securities Purchase Agreement (the “Agreement”) with certain institutional investors
(the “Purchasers”), for a registered direct offering (the “Offering”) of 5,882,353 shares (the “Shares”)
of the Company’s Common Stock at the purchase price of $1.70 per share, and Series A Warrants (the “Series A Warrants”)
to purchase an additional 2,941,177 shares of Common Stock at an exercise price of $2.25 per share. The Series A Warrants will
become exercisable on the six month anniversary of issuance and expire five years thereafter.
In addition,
the Company granted the Purchasers a sixty (60) day overallotment option in the form of Series B Warrants to purchase an additional
5,882,353 shares of Common Stock at an exercise price of $3.00 per share (the “Series B Warrants”). The Series B Warrants
was exercisable immediately and was to expire within sixty (60) days. However, on May 2, 2016, the Company and the investors agreed
to extend this warrant exercise period by twenty-one (21) days, from May 2 to May 23, 2016. The Company and the Purchasers consummated
the purchase and sale of the Securities on March 3, 2016 (the “Closing”) and the Company raised gross proceeds of
$10 million and net proceeds of approximately $9.2 million, after deducting placement agent fees, attorneys’ fees and other
expenses. Subsequent to the reporting period, the Series B Warrants were extended an additional twenty-one (21) days to May 23,
2016.
In a concurrent
private placement, each Purchaser will also receive Series C Warrants (the “Series C Warrants”) to purchase up to 2,941,177
shares of Common Stock. The Series C Warrants vest and become exercisable only if, and to the extent that, the Series B Warrants
held by such Purchaser are exercised. The Series C warrants will be issuable and exercisable for one-half share of Common Stock
per each Series B Warrant exercised. The Series C Warrants have an exercise price of $4.00 per share, shall be exercisable on the
six-month anniversary of issuance and will expire five years thereafter.
NORTHWEST BIOTHERAPEUTICS, INC.
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
In connection
with the Offering and the concurrent private placement, the Company engaged H.C. Wainwright & Co., LLC (the “Placement
Agent”) to act as its exclusive placement agent. The Company agreed to pay the Placement Agent a cash placement fee equal
to 7% of the aggregate purchase price for the common stock sold in the registered offering. The Placement Agent will also receive
Common Stock purchase warrants (the “Compensation Warrants”) to purchase up to 294,118 shares of Common Stock, or
5% of the aggregate number of shares of common Stock sold in the registered offering, at an exercise price of $2.125, or 125%
of the public offering price per share in the registered offering, which are exercisable six months following issuance and terminate
on February 29, 2021.
Stock Purchase Warrants
The following is a summary of warrant
activity for the three months ended March 31, 2016 (in thousands, except per share data):
|
|
Number of
|
|
|
Weighted Average
|
|
|
|
Warrants
|
|
|
Exercise Price
|
|
Outstanding as of December 31, 2015
|
|
|
27,267,441
|
|
|
$
|
4.40
|
|
Warrants granted in a registered direct offering
|
|
|
12,058,825
|
|
|
|
3.04
|
|
Additional warrants owed to Cognate as part of reset
|
|
|
3,405,671
|
|
|
|
1.70
|
|
Warrants expired and cancelled
|
|
|
(16,791
|
)
|
|
|
11.86
|
|
Outstanding as of March 31, 2016
|
|
|
42,715,146
|
|
|
$
|
3.53
|
|
NORTHWEST BIOTHERAPEUTICS, INC.
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
10. Contingencies
Derivative and Class Action Litigation
In 2014, as previously reported, the Company
received demand letters from three purported individual shareholders seeking to inspect our corporate books and records pursuant
to Section 220 of the Delaware General Corporation Law. The demand letters were all substantially similar, and claimed that their
purpose is to investigate possible mismanagement and breaches of fiduciary duty by the Company’s directors and officers.
They requested a range of documents. On November 13, 2014, one of the purported shareholders filed a complaint in the Delaware
Court of Chancery seeking to enforce her books and records demand. The Company reached negotiated agreements and provided limited
records, under confidentiality agreements. On July 16, 2015, the parties filed, and the court entered, a stipulation dismissing
the case.
On June 19, 2015, two of the purported
shareholders filed a complaint purportedly suing on behalf of a class of similarly situated shareholders and derivatively on behalf
of the Company in the Delaware Court of Chancery. The lawsuit names Cognate BioServices, Inc., Toucan Partners, Toucan Capital
Fund III, our CEO Linda Powers and 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 objects to 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 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. On September 1, 2015,
the Company and other named defendants filed motions to dismiss. In response, the plaintiffs filed an amended complaint on
November 6, 2015. The Company and the other named defendants filed motions to dismiss plaintiffs’ amended complaint on January
19, 2016. The plaintiffs filed an answering brief in opposition to the motion to dismiss on April 4, 2016. The Company intends
to continue to vigorously defend the case.
On November 19, 2015, a third purported
shareholder who had sought corporate books and records filed a complaint in the U.S. District Court for the District of Maryland,
claiming to sue derivatively on behalf of the Company. The complaint names 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 claims that the plaintiff made a demand on the Company’s Board of Directors to commence an action against the
Company’s directors and its CEO and that the plaintiff commenced the derivative action after not receiving a response to
the demand letter within an allegedly “sufficient time.” The complaint further claims 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. The Complaint also claims that the Company’s directors
breached their fiduciary duties of loyalty and good faith to the Company by authorizing the payments to Cognate. Finally, the complaint
claims that Ms. Powers, Cognate, and Toucan aided and abetted the directors’ breaches of fiduciary duties by causing the
board to enter into the agreements with Cognate. 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. On February 2, 2016, plaintiff and defendants filed a joint motion to stay the proceedings pending an investigation
by a special committee of the Company’s Board of Directors into the allegations asserted in the demand letter and underlying
the lawsuit.
Class Action Securities Litigation
On August 26, 2015, a purported shareholder
of the Company filed a putative class action complaint in the U.S. District Court for the District of Maryland. The lawsuit
names 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 NW Bio between
January 13, 2014 and August 21, 2015. The amended complaint generally claims 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 seeks unspecified damages, attorneys’
fees, and costs. The Company and Ms. Powers filed a motion to dismiss plaintiffs’ amended complaint on April 12, 2016. The
Company intends to vigorously defend the case.
NORTHWEST BIOTHERAPEUTICS, INC.
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
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. The Company has appointed a special committee of
its Board of Directors consisting of independent and disinterested directors to investigate the allegations set forth in the demand
letter, as well as the allegations asserted in the litigation summarized above. The Company also is in ongoing discussions with
the shareholders demanding corporate books and records.
11. Subsequent Events
As the Company previously reported on Form 8-K, on April 26,
2016, the Company received a letter (the “Letter”) from the staff of The NASDAQ Stock Market LLC (“Nasdaq”)
indicating that the Nasdaq Staff had reviewed certain stock issuances by the Company to Cognate BioServices, Inc. (“Cognate”),
and had determined that those issuances did not comply with Nasdaq Rules 5635(c) and (d). The Letter has no immediate effect on
the listing of the Company’s common stock. The Letter allows the Company until June 10, 2016 to submit a remediation plan
to regain compliance with Nasdaq’s rules 5635(c) and (d). If the plan is accepted, Nasdaq can allow up to 6 months from the
date of the Letter for the Company to evidence compliance with these rules.
The Company intends to take the appropriate steps to address
the issues raised by the Nasdaq Staff as quickly as possible and is already in discussions with the Nasdaq Staff about two approaches
to remediation. The Company intends to submit a remediation plan to Nasdaq promptly for its approval.