NORTHWEST BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share and per share
amounts)
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
ASSETS
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,143
|
|
|
$
|
21,813
|
|
Restricted cash - interest payments held in escrow
|
|
|
883
|
|
|
|
886
|
|
Prepaid expenses and other current assets
|
|
|
1,473
|
|
|
|
1,402
|
|
Total current assets
|
|
|
4,499
|
|
|
|
24,101
|
|
|
|
|
|
|
|
|
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
46,892
|
|
|
|
46,157
|
|
Restricted cash - interest payments held in escrow, net of current portion
|
|
|
77
|
|
|
|
349
|
|
Other assets
|
|
|
141
|
|
|
|
190
|
|
Total non-current assets
|
|
|
47,110
|
|
|
|
46,696
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
51,609
|
|
|
$
|
70,797
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
12,318
|
|
|
$
|
11,721
|
|
Accounts payable to related party
|
|
|
7,575
|
|
|
|
5,455
|
|
Accrued expenses (includes related party of $13 and $11 as of June 30, 2016 and December 31, 2015, respectively)
|
|
|
1,341
|
|
|
|
1,309
|
|
Convertible notes, net (includes related party note of $50 as of June 30, 2016 and December 31, 2015)
|
|
|
185
|
|
|
|
185
|
|
Note payable - in dispute
|
|
|
934
|
|
|
|
934
|
|
Mortgage loan (net of deferred financing cost of $466 and $468 as of June 30, 2016 and December 31, 2015, respectively)
|
|
|
10,339
|
|
|
|
11,144
|
|
Environmental remediation liability
|
|
|
6,200
|
|
|
|
6,200
|
|
Shares payable to related party
|
|
|
10,480
|
|
|
|
-
|
|
Derivative liability
|
|
|
10,527
|
|
|
|
27,982
|
|
Total current liabilities
|
|
|
59,899
|
|
|
|
64,930
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
Convertible note (net of deferred financing cost of $317 and $457 as of June 30, 2016 and December 31, 2015, respectively)
|
|
|
10,683
|
|
|
|
10,543
|
|
Total non-current liabilities
|
|
|
10,683
|
|
|
|
10,543
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
70,582
|
|
|
|
75,473
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity (deficit):
|
|
|
|
|
|
|
|
|
Preferred stock ($0.001 par value); 40,000,000 shares authorized; 0 shares issued and outstanding as of June 30, 2016 and December 31, 2015, respectively
|
|
|
-
|
|
|
|
-
|
|
Common stock ($0.001 par value); 450,000,000 shares authorized; 106,167,204 and 95,858,087 shares issued and outstanding as of June 30, 2016 and December 31, 2015, respectively
|
|
|
106
|
|
|
|
96
|
|
Additional paid-in capital
|
|
|
635,550
|
|
|
|
630,613
|
|
Accumulated deficit
|
|
|
(655,543
|
)
|
|
|
(635,262
|
)
|
Accumulated other comprehensive gain (loss)
|
|
|
914
|
|
|
|
(123
|
)
|
Total stockholders' equity (deficit)
|
|
|
(18,973
|
)
|
|
|
(4,676
|
)
|
Total liabilities and stockholders' equity (deficit)
|
|
$
|
51,609
|
|
|
$
|
70,797
|
|
The accompanying notes
are an integral part of these unaudited condensed consolidated financial statements.
NORTHWEST BIOTHERAPEUTICS,
INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
|
|
For the three months ended
|
|
|
For the six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research grant and other
|
|
$
|
157
|
|
|
$
|
391
|
|
|
$
|
393
|
|
|
$
|
585
|
|
Total revenues
|
|
|
157
|
|
|
|
391
|
|
|
|
393
|
|
|
|
585
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
8,713
|
|
|
|
27,799
|
|
|
|
22,153
|
|
|
|
47,424
|
|
General and administrative
|
|
|
6,467
|
|
|
|
11,446
|
|
|
|
10,742
|
|
|
|
14,846
|
|
Total operating costs and expenses
|
|
|
15,180
|
|
|
|
39,245
|
|
|
|
32,895
|
|
|
|
62,270
|
|
Loss from operations
|
|
|
(15,023
|
)
|
|
|
(38,854
|
)
|
|
|
(32,502
|
)
|
|
|
(61,685
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative liability
|
|
|
3,930
|
|
|
|
(25,694
|
)
|
|
|
17,455
|
|
|
|
(48,852
|
)
|
Interest expense
|
|
|
(729
|
)
|
|
|
(1,636
|
)
|
|
|
(1,447
|
)
|
|
|
(2,429
|
)
|
Foreign currency transaction loss
|
|
|
(2,353
|
)
|
|
|
(661
|
)
|
|
|
(3,787
|
)
|
|
|
(312
|
)
|
Net loss
|
|
|
(14,175
|
)
|
|
|
(66,845
|
)
|
|
|
(20,281
|
)
|
|
|
(113,278
|
)
|
Deemed dividend related to warrant modification
|
|
|
(2,640
|
)
|
|
|
-
|
|
|
|
(2,640
|
)
|
|
|
-
|
|
Net loss applicable to common stockholders
|
|
$
|
(16,815
|
)
|
|
$
|
(66,845
|
)
|
|
$
|
(22,921
|
)
|
|
$
|
(113,278
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share applicable to common stockholders - basic and diluted
|
|
$
|
(0.16
|
)
|
|
$
|
(0.88
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
(1.56
|
)
|
Weighted average shares used in computing basic and diluted loss per share
|
|
|
103,831
|
|
|
|
75,619
|
|
|
|
100,782
|
|
|
|
72,530
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NORTHWEST BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE LOSS
(Unaudited)
(in thousands)
|
|
For the three months ended
|
|
|
For the six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Net loss
|
|
$
|
(14,175
|
)
|
|
$
|
(66,845
|
)
|
|
$
|
(20,281
|
)
|
|
$
|
(113,278
|
)
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
537
|
|
|
|
672
|
|
|
|
1,037
|
|
|
|
604
|
|
Total comprehensive loss
|
|
$
|
(13,638
|
)
|
|
$
|
(66,173
|
)
|
|
$
|
(19,244
|
)
|
|
$
|
(112,674
|
)
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NORTHWEST BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’
EQUITY (DEFICIT)
(Unaudited)
(in thousands)
|
|
Common Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
Cumulative
Translation
|
|
|
Total
Stockholders'
|
|
|
|
Shares
|
|
|
Par value
|
|
|
Capital
|
|
|
Deficit
|
|
|
Adjustment
|
|
|
Equity (Deficit)
|
|
Balance January 1, 2016
|
|
|
95,858
|
|
|
$
|
96
|
|
|
$
|
630,613
|
|
|
$
|
(635,262
|
)
|
|
$
|
(123
|
)
|
|
$
|
(4,676
|
)
|
Issuance of common stock and warrants for cash in a registered direct offering
|
|
|
5,882
|
|
|
|
6
|
|
|
|
9,994
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,000
|
|
Offering cost related to registered direct offering
|
|
|
-
|
|
|
|
-
|
|
|
|
(756
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(756
|
)
|
Warrants exercised for cash
|
|
|
4,412
|
|
|
|
4
|
|
|
|
4,231
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,235
|
|
Offering cost related to warrants exercise
|
|
|
-
|
|
|
|
-
|
|
|
|
(341
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(341
|
)
|
Modification on warrant exercise price
|
|
|
-
|
|
|
|
-
|
|
|
|
2,640
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,640
|
|
Deemed dividend related to warrant exercise price modification
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,640
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,640
|
)
|
Common stock issued as compensation
|
|
|
15
|
|
|
|
-
|
|
|
|
12
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12
|
|
Shares payment due to Cognate BioServices
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,203
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,203
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(20,281
|
)
|
|
|
-
|
|
|
|
(20,281
|
)
|
Cumulative translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,037
|
|
|
|
1,037
|
|
Balance at June 30, 2016
|
|
|
106,167
|
|
|
$
|
106
|
|
|
$
|
635,550
|
|
|
$
|
(655,543
|
)
|
|
$
|
914
|
|
|
$
|
(18,973
|
)
|
The accompanying
notes are an integral part of these unaudited condensed consolidated financial statements.
NORTHWEST BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Unaudited)
(in thousands)
|
|
For the six months ended
|
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(20,281
|
)
|
|
$
|
(113,278
|
)
|
Reconciliation of net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
80
|
|
|
|
15
|
|
Amortization of deferred financing cost
|
|
|
431
|
|
|
|
717
|
|
Change in fair value of derivatives
|
|
|
(17,455
|
)
|
|
|
48,852
|
|
Stock and warrants issued for services
|
|
|
-
|
|
|
|
3,389
|
|
Stock issued to Cognate BioServices under Cognate Agreements
|
|
|
2,277
|
|
|
|
15,784
|
|
Common stock issued as compensation
|
|
|
12
|
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
337
|
|
|
|
(591
|
)
|
Accounts payable and accrued expenses
|
|
|
628
|
|
|
|
2,211
|
|
Related party accounts payable and accrued expenses
|
|
|
2,121
|
|
|
|
(1,529
|
)
|
Other non-current assets
|
|
|
49
|
|
|
|
(254
|
)
|
Net cash used in operating activities
|
|
|
(31,801
|
)
|
|
|
(44,684
|
)
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
(4,303
|
)
|
|
|
(2,015
|
)
|
Funding of escrow - convertible notes
|
|
|
275
|
|
|
|
-
|
|
Net cash used in investing activities
|
|
|
(4,028
|
)
|
|
|
(2,015
|
)
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from mortgage loan
|
|
|
-
|
|
|
|
4,997
|
|
Deferred offering cost related to mortgage loan
|
|
|
-
|
|
|
|
(138
|
)
|
Proceeds transferred from escrow account
|
|
|
-
|
|
|
|
62
|
|
Proceeds from issuance of common stock and warrants in a registered direct offering
|
|
|
10,000
|
|
|
|
40,000
|
|
Offering cost related to registered direct offering
|
|
|
(756
|
)
|
|
|
-
|
|
Warrants exercised for cash
|
|
|
4,235
|
|
|
|
6,792
|
|
Offering cost related to warrants exercise
|
|
|
(341
|
)
|
|
|
-
|
|
Net cash provided by financing activities
|
|
|
13,138
|
|
|
|
51,713
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
3,021
|
|
|
|
798
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(19,670
|
)
|
|
|
5,812
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year
|
|
|
21,813
|
|
|
|
13,390
|
|
Cash and cash equivalents at end of year
|
|
$
|
2,143
|
|
|
$
|
19,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Interest payments on mortgage loan
|
|
$
|
(920
|
)
|
|
$
|
(673
|
)
|
Interest payments on senior convertible notes
|
|
$
|
(275
|
)
|
|
$
|
(803
|
)
|
The accompanying notes
are an integral part of these unaudited condensed consolidated financial statements.
NORTHWEST BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS - CONTINUED
(Unaudited)
(in thousands)
|
|
For the six months ended
|
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Supplemental schedule of non-cash investing and financing activities:
|
|
|
|
|
|
|
Accrued exit fee incurred from mortgage loan
|
|
$
|
-
|
|
|
$
|
51
|
|
Accrued renewal fee incurred from mortgage loan
|
|
$
|
301
|
|
|
$
|
-
|
|
Deemed dividend related to modification of warrant
|
|
$
|
2,640
|
|
|
$
|
-
|
|
Cashless warrant exercise on warrant liability
|
|
$
|
-
|
|
|
$
|
521
|
|
Reclassification of warrant liabilities related to warrants exercised for cash
|
|
$
|
-
|
|
|
$
|
58
|
|
Increase in accounts payable related to UK property
|
|
$
|
-
|
|
|
$
|
257
|
|
VAT receivables related to UK property
|
|
$
|
408
|
|
|
$
|
-
|
|
Interest payment on convertible note from escrow
|
|
$
|
-
|
|
|
$
|
803
|
|
Issuance of common stock for debt conversion
|
|
$
|
-
|
|
|
$
|
4,500
|
|
Issuance of common stock for conversion of accrued interest
|
|
$
|
-
|
|
|
$
|
187
|
|
Redeemable security settlement
|
|
$
|
-
|
|
|
$
|
299
|
|
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
NORTHWEST BIOTHERAPEUTICS, INC.
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 six months ended June 30,
2016, the Company recognized net losses of $20.3 million.
During the six months ended June 30, 2016,
the Company used approximately $31.8 million of cash in its operating activities. These cash outflows included substantial amounts
of accrued costs relating to prior 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 $2.1 million and a working capital deficiency (cash and non-cash liabilities combined)
of approximately $55.4 million at June 30, 2016. The Company owes an aggregate of $7.6 million of accounts payable 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 not
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 June 30, 2016, condensed
consolidated statements of operations for the three and six months ended June 30, 2016 and 2015, condensed consolidated statements
of comprehensive loss for the three and six months ended June 30, 2016 and 2015, condensed consolidated statement of stockholders’
equity (deficit) for the six months ended June 30, 2016, and the condensed consolidated statements of cash flows for the six months
ended June 30, 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 and six months ended June 30, 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 December 31,
2015 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, as amended on April 29, 2016.
NORTHWEST BIOTHERAPEUTICS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Use of Estimates
In preparing condensed consolidated financial
statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well
as the reported amounts of expenses during the reporting period. Due to inherent uncertainty involved in making estimates, actual
results reported in future periods may be affected by changes in these estimates. On an ongoing basis, the Company evaluates its
estimates and assumptions. These estimates and assumptions include valuing equity securities in share-based payment arrangements,
valuing environmental liabilities, estimating the fair value of 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 instruments to fair value at each
reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in
fair value is recognized in the Company's statements of operations. The fair value of the warrants issued by the Company in
connection with 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 additional liability
resulting from the completion of the clean-up, if any, would be included in other income (expense). As of June 30, 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.
Comprehensive Loss
The Company reports comprehensive
loss and its components in its condensed consolidated financial statements. Comprehensive loss consists of net loss and
foreign currency translation adjustments, affecting stockholders’ equity (deficit) that, under U.S, GAAP, are excluded
from net loss.
Research and Development Costs
Research and development costs are charged
to operations as incurred and consist primarily of clinical trial costs, related party manufacturing costs, consulting costs, contract
research and development costs, clinical site costs and compensation costs.
For the three months ended June 30, 2016
and 2015, the Company recognized research and development costs of $8.7 million and $27.8 million, respectively. For the six months
ended June 30, 2016 and 2015, the Company recognized research and development costs of $22.2 million and $47.4 million, respectively.
NORTHWEST BIOTHERAPEUTICS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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.
Recent Issued Accounting Pronouncements
Compensation-Stock Compensation
In March 2016, the FASB issued ASU No.
2016-09,
Compensation-Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting
. Under ASU
No. 2016-09, companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital (“APIC”).
Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement
and the APIC pools will be eliminated. In addition, ASU No. 2016-09 eliminates the requirement that excess tax benefits be realized
before companies can recognize them. ASU No. 2016-09 also requires companies to present excess tax benefits as an operating activity
on the statement of cash flows rather than as a financing activity. Furthermore, ASU No. 2016-09 will increase the amount an employer
can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to
satisfy the employer’s statutory income tax withholding obligation. An employer with a statutory income tax withholding obligation
will now be allowed to withhold shares with a fair value up to the amount of taxes owed using the maximum statutory tax rate in
the employee’s applicable jurisdiction(s). ASU No. 2016-09 requires a company to classify the cash paid to a tax authority
when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on the statement of
cash flows. Under current U.S. GAAP, it was not specified how these cash flows should be classified. In addition, companies will
now have to elect whether to account for forfeitures on share-based payments by (1) recognizing forfeitures of awards as they occur
or (2) estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change, as is currently
required. The amendments of this ASU are effective for reporting periods beginning after December 15, 2016, with early adoption
permitted but all of the guidance must be adopted in the same period. The Company is currently assessing the impact that ASU No.
2016-09 will have on its condensed consolidated financial statements.
Revenue from Contracts with Customer
In April 2016, the FASB issued ASU No.
2016-10,
Revenue from Contracts with Customer
. The new guidance is an update to ASC 606 and provides clarity on:
identifying performance obligations and licensing implementation. For public companies, ASU No. 2016-10 is effective for annual
periods, including interim periods within those annual periods, beginning after December 15, 2016. The Company is currently evaluating
the impact that ASU No. 2016-10 will have on its condensed consolidated financial statements.
Recognition and Measurement of Financial
Assets and Financial Liabilities
In January 2016, FASB issued ASU 2016-01,
Recognition and Measurement of Financial Assets and Financial Liabilities
. ASU 2016-01 requires equity investments to be measured
at fair value with changes in fair value recognized in net income; simplifies the impairment assessment of equity investments without
readily determinable fair values by requiring a qualitative assessment to identify impairment; eliminates the requirement for public
business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be
disclosed for financial instruments measured at amortized cost on the balance sheet; requires public business entities to use the
exit price notion when measuring the fair value of financial instruments for disclosure purposes; requires an entity to present
separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change
in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the
fair value option for financial instruments; requires separate presentation of financial assets and financial liabilities by measurement
category and form of financial assets on the balance sheet or the accompanying notes to the financial statements; and clarifies
that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities
in combination with the entity’s other deferred tax assets. ASU 2016-01 will be effective for financial statements issued
for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating
the impact that ASU 2016-01 will have on its condensed consolidated financial statements and related disclosures.
Leases
In February 2016, FASB issued ASU No. 2016-02,
Leases (Topic 842)
which supersedes FASB ASC Topic 840,
Leases (Topic 840)
and provides principles for the recognition,
measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual
approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively
a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective
interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use
asset and a lease liability for all leases with a term of greater than twelve months regardless of classification. Leases with
a term of twelve months or less will be accounted for similar to existing guidance for operating leases. The standard will be effective
for annual and interim periods beginning after December 15, 2018, with early adoption permitted upon issuance. The Company is currently
evaluating the impact that ASU 2016-02 will have on its 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 June 30, 2016 and December 31, 2015
(in thousands):
|
|
Fair value measured at June 30, 2016
|
|
|
|
|
|
|
Quoted prices in active
|
|
|
Significant other
|
|
|
Significant
|
|
|
|
Fair value at
|
|
|
markets
|
|
|
observable inputs
|
|
|
unobservable inputs
|
|
|
|
June 30, 2016
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Derivative liability
|
|
$
|
10,527
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,527
|
|
|
|
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 six-month period ended June 30, 2016.
The following table presents changes in
Level 3 liabilities measured at fair value for the six-month period ended June 30, 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
|
|
|
(17,455
|
)
|
Balance – June 30, 2016
|
|
$
|
10,527
|
|
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 six months ended June 30, 2016 is as follows:
Date of valuation
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Strike price
|
|
$
|
1.50
|
|
|
$
|
3.49
|
|
Volatility (annual)
|
|
|
85.6
|
%
|
|
|
86.9
|
%
|
Risk-free rate
|
|
|
0.7
|
%
|
|
|
1.3
|
%
|
Contractual term (years)
|
|
|
2.8
|
|
|
|
3.1
|
|
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 June 30,
2016 and December 31, 2015 (in thousands):
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Leasehold improvements
|
|
$
|
69
|
|
|
$
|
69
|
|
Office furniture and equipment
|
|
|
25
|
|
|
|
25
|
|
Equipment and software
|
|
|
618
|
|
|
|
598
|
|
Construction in progress (property in the United Kingdom)
|
|
|
46,476
|
|
|
|
45,681
|
|
|
|
|
47,188
|
|
|
|
46,373
|
|
Less: accumulated depreciation
|
|
|
(296
|
)
|
|
|
(216
|
)
|
|
|
$
|
46,892
|
|
|
$
|
46,157
|
|
Depreciation expense was approximately
$67,000 and $12,000 for the three months ended June 30, 2016 and 2015. Depreciation expense was approximately $80,000 and $15,000
for the six months ended June 30, 2016 and 2015.
6. Notes Payable
2014 Convertible Senior Notes
The Company has Convertible Senior Notes
of $10.7 million, net of $0.3 million deferred offering cost as of June 30, 2016 with an interest rate of 5% and conversion price
of $6.60. The Company has $1.0 million remaining 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 and six months ended June 30, 2016 and 2015, respectively
(in thousands):
|
|
For the three months ended
|
|
|
For the six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Contractual interest
|
|
$
|
137
|
|
|
$
|
135
|
|
|
$
|
274
|
|
|
$
|
351
|
|
Accelerated interest due to the conversion of convertible senior notes into common stock
|
|
|
-
|
|
|
|
563
|
|
|
|
-
|
|
|
|
563
|
|
Amortization of debt issuance costs
|
|
|
70
|
|
|
|
107
|
|
|
|
140
|
|
|
|
212
|
|
Accelerated amortization of debt issuance cost due to the conversion of convertible senior notes into common stock
|
|
|
-
|
|
|
|
234
|
|
|
|
-
|
|
|
|
234
|
|
Total interest expense on the convertible senior notes
|
|
$
|
207
|
|
|
$
|
1,039
|
|
|
$
|
414
|
|
|
$
|
1,360
|
|
Mortgage Loan
On June 17, 2016, the Company entered into an extension agreement
to renew the second mortgage loan maturity date to August 17, 2017. The effective date of the extension agreement is August 17,
2016 and a renewal fee of approximately $0.2 million, which is not due until the end of the extension period and will be recorded
as deferred financing cost.
As of June 30, 2016, the Company had
a net mortgage liability of $10.3 million, including deferred financing costs of $0.5 million. Approximately $5.9 million of
the mortgage loans are due in November 2016, and the remainder in August 2017.
NORTHWEST BIOTHERAPEUTICS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table shows the details of
interest expenses related to mortgages for the three and six months ended June 30, 2016 and 2015, respectively (in thousands):
|
|
For the three months ended
|
|
|
For the six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Contractual interest
|
|
$
|
310
|
|
|
$
|
363
|
|
|
$
|
644
|
|
|
$
|
643
|
|
Amortization of debt issuance costs
|
|
|
152
|
|
|
|
144
|
|
|
|
291
|
|
|
|
290
|
|
Total interest expense on the mortgage loans
|
|
$
|
462
|
|
|
$
|
507
|
|
|
$
|
935
|
|
|
$
|
933
|
|
Other Notes Payable
Notes payable consist of the following at June 30, 2016 and
December 31, 2015 (in thousands):
|
|
June 30,
|
|
|
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.
(2) This $0.135 million note as of June
30, 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.
(3) This $0.050 million demand note as
of June 30, 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 and six months ended June 30, 2016, and 2015, due to net losses.
NORTHWEST BIOTHERAPEUTICS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 six months ended
|
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Common stock options
|
|
|
1,551
|
|
|
|
1,551
|
|
Common stock warrants - equity treatment
|
|
|
23,276
|
|
|
|
13,166
|
|
Common stock warrants - liability treatment
|
|
|
21,169
|
|
|
|
12,491
|
|
Convertible notes and accrued interest
|
|
|
1,764
|
|
|
|
2,135
|
|
Potentially dilutive securities
|
|
|
47,760
|
|
|
|
29,343
|
|
8. Related Party Transactions
Cognate BioServices, Inc.
Cognate Expenses and Accounts Payable
At June 30, 2016 and December 31, 2015,
the Company owed Cognate $7.6 million and $5.5 million, respectively, for unpaid invoices for manufacturing, product distribution,
product and process development, and related services.
The following table shows a summary of
research and development cost from Cognate relating to the DCVax-L and DCVax-Direct programs, product and process development work
and preparations for upcoming Phase II trials for the three and six months ended June 30, 2016 and 2015, respectively (in thousands):
|
|
For the three months ended
|
|
|
For the six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Research and development cost related to Cognate
|
|
$
|
5,463
|
|
|
$
|
20,922
|
|
|
$
|
16,618
|
|
|
$
|
35,640
|
|
Share Based Payments
The Company recorded $8.2 million of income
and $15.8 million of expense for the six-month period ended June 30, 2016 and 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, although the shares issued to Cognate were unregistered non-tradable shares, subject to multiple
restrictions, including multi-year vesting and a multi-year lock-up.
Shares payable to related party - most
favored nation provision
Shares and warrants previously issued to
Cognate in partial payment of invoices for manufacturing services are under a 3-year lock-up, which has been in place since January
2014. The lock-up prevents Cognate from selling the shares received. During the lock-up, if the Company enters
into a transaction with other investors or creditors on more favorable terms than Cognate received, the Company has an ongoing
obligation, under the Manufacturing Services Agreement, 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.
During the period ended June 30, 2016 the
Company entered into two financings with unrelated institutional investors that triggered the most favored nation provision.
The first reset in the period ended March 31, 2016 had an effective price of $1.70 and would result in an obligation by the Company
to issue 6.0 million shares to Cognate. The second reset occurred in the three month period ended June 30, 2016 had an effective
price of $0.96 that resulted in an obligation to issue an additional 12.0 million shares. In total, the Company has an obligation
to issue 18 million shares to Cognate as of June 30, 2016 under the most favored nation provision. However, the shares have
not been issued, and the Company is in active negotiations with Cognate seeking to modify these arrangements. The Company accounted
for the obligation to issue shares in the balance sheet based on the fair market value of the Company’s unrestricted tradable
stock at the reporting date.
Shares payable to related party for the three and six months ended June 30, 2016 was $1.7 and $10.5 million,
respectively and recorded in research and development expense in the statement of operations.
NORTHWEST BIOTHERAPEUTICS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
9. Stockholders’ Equity (Deficit)
Common Stock Issuances
First Quarter of 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 also received 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.
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 also received 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.
Second Quarter of 2016
On May 15, 2016, the Company entered into
an agreement with a holder (the “Holder”) of the Company’s existing Series A, B and C Warrants, pursuant to which
the Holder agreed to exercise all of the Holder’s Series B Warrants to purchase 4,411,764 shares of Common Stock. In consideration,
the Company agreed to reduce the exercise price of the Series B Warrants to $0.96 per share, the Company’s closing price
on the prior trading day, for gross proceeds of approximately $4,235,000, and agreed to issue new Series D Common Stock Purchase
Warrants (the “Series D Warrants”) to purchase up to 2,205,882 shares of Common Stock at an exercise price of $1.00
per share (subject to customary adjustments such as for stock splits and dividends), with an exercise period of five years, commencing
six months after issuance.
The Holder’s exercise of the Series
B Warrants to purchase 4,411,764 shares of Common Stock triggered the existing outstanding Series C Warrants to become vested and
exercisable for up to 2,205,882 shares of Common Stock. The Company agreed to reset the exercise price of the Series A and Series
C Warrants to $1.00 per share.
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. The Placement Agent also received Common Stock
purchase warrants (the "Compensation Warrants") to purchase up to 220,588 shares of Common Stock, or 5% of the aggregate number
of shares of common Stock sold, at an exercise price of $1.20, or 125% of the public offering price per share, which are exercisable
six months following issuance and terminate on May 15, 2021.
NORTHWEST BIOTHERAPEUTICS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The modification of the warrant exercise price increased the
value of the warrants by approximately $2.6 million. This cost was recorded as a deemed dividend in additional paid-in capital
due to the absence of retained earnings. This cost is included in modification of warrants and increased the net loss available
to common shareholders on the condensed, consolidated statements of operations.
Stock Purchase Warrants
The following is a summary of warrant activity
for the six months ended June 30, 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
|
|
Warrants granted to Cognate
|
|
|
3,405,671
|
|
|
|
1.70
|
|
Warrants expired and cancellation
|
|
|
(16,791
|
)
|
|
|
11.86
|
|
Outstanding as of March 31, 2016
|
|
|
42,715,146
|
|
|
$
|
3.53
|
|
Warrants granted in a registered direct offering
|
|
|
2,426,470
|
|
|
|
1.02
|
|
Warrants granted to Cognate
|
|
|
5,329,961
|
|
|
|
0.96
|
|
Warrants exercised for cash
|
|
|
(4,411,764
|
)
|
|
|
0.96
|
|
Warrants expired and cancellation
|
|
|
(1,614,837
|
)
|
|
|
8.82
|
|
Outstanding as of June 30, 2016
|
|
|
44,444,976
|
|
|
$
|
2.67
|
|
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 and the
other defendants filed reply briefs on May 18, 2016. Oral argument has been set for October 11, 2016. The Company intends to continue
to vigorously defend the case.
NORTHWEST BIOTHERAPEUTICS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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. The court entered the stay
on March 18, 2016.
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
plaintiffs filed an opposition to the motion to dismiss on June 13, 2016. The Company and Ms. Powers filed a reply in support of
their motion to dismiss on July 28, 2016. The Company intends to vigorously defend the case.
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
On July 4, 2016, the Company entered into
a Securities Purchase Agreement (the “Agreement”) with certain investors (the “Purchasers”), for a registered
direct offering (the “Offering”) of 7,400,000 shares of the Company’s common stock, par value $0.001 per share
(the “Common Stock”) at the purchase price of $0.50 per share, and warrants (the “Warrants”) to purchase
an additional 3,700,000 shares of Common Stock at an exercise price of $0.60 per share (the “Warrant Shares”, collectively
with the Common Stock and the Warrants, the “Securities”). The Warrants shall expire in five years.
The Company and the Purchasers consummated
the purchase and sale of the Securities (the “Closing”) on July 6, 2016. The Company raised gross proceeds of $3,700,000
and net proceeds of approximately $3,300,000, after deducting aggregate placement agent fees of $296,000, attorneys’ fees,
and other expenses.