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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

OR

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______to _______

Commission File Number: 001-35737

NORTHWEST BIOTHERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

Delaware

94-3306718 

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)

4800 Montgomery Lane, Suite 800, Bethesda, MD 20814

(Address of principal executive offices) (Zip Code)

(240497-9024

(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes       No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes       No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

 

Accelerated filer

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

Emerging growth company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.001 per share

NWBO

OTCQB

As of November 12, 2021, the total number of shares of common stock, par value $0.001 per share, outstanding was 927,782,837.

NORTHWEST BIOTHERAPEUTICS, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

3

Item 1.

Condensed Consolidated Interim Financial Statements (Unaudited)

3

 

Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020

3

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2021 and 2020

4

 

Condensed Consolidated Statements of Stockholders’ Deficit for the three and nine months ended September 30, 2021 and 2020

5

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020

7

 

Notes to Condensed Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

 

 

Item 4.

Controls and Procedures

27

PART II - OTHER INFORMATION

29

Item 1.

Legal Proceedings

29

 

 

Item 1A.

Risk Factors

29

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

29

 

 

Item 3.

Defaults Upon Senior Securities

29

 

 

Item 4.

Mine Safety Disclosures

29

 

Item 5.

Other Information

29

 

 

Item 6.

Exhibits

29

SIGNATURES

30

2

PART I - FINANCIAL INFORMATION

NORTHWEST BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

    

September 30, 

    

December 31, 

2021

2020

(Unaudited)

ASSETS

 

  

 

Current assets:

 

  

 

  

Cash and cash equivalents

$

3,836

$

9,983

Prepaid expenses and other current assets

 

2,473

 

5,528

Total current assets

 

6,309

 

15,511

Non-current assets:

 

 

Property, plant and equipment, net

 

1,264

 

1,040

Construction in progress

12,748

9,074

Right-of-use asset, net

4,929

4,489

Indefinite-lived intangible asset

1,292

1,292

Goodwill

626

626

Other assets

 

1,053

 

867

Total non-current assets

 

21,912

 

17,388

TOTAL ASSETS

$

28,221

$

32,899

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

Current liabilities:

 

 

Accounts payable and accrued expenses

$

9,271

$

7,380

Accounts payable and accrued expenses to related parties and affiliates

 

2,989

 

5,363

Convertible notes, net

 

135

 

3,830

Notes payable, net

 

7,939

 

2,437

Contingent payable derivative liability

8,322

8,275

Warrant liability

 

282,593

 

354,972

Lease liabilities

305

167

Investor advances

 

767

 

-

Total current liabilities

 

312,321

 

382,424

Non-current liabilities:

 

 

Notes payable, net of current portion, net

 

12,342

 

8,507

Lease liabilities, net of current portion

5,291

4,916

Total non-current liabilities

 

17,633

 

13,423

Total liabilities

 

329,954

 

395,847

COMMITMENTS AND CONTINGENCIES (Note 10)

 

 

Stockholders’ deficit:

 

 

Preferred stock ($0.001 par value); 100,000,000 shares authorized as of September 30, 2021 and December 31, 2020, respectively

Common stock ($0.001 par value); 1,200,000,000 shares authorized; 891.9 million and 829.6 million shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

 

892

 

830

Additional paid-in capital

 

1,022,826

 

1,008,665

Stock subscription receivable

 

(79)

 

(79)

Accumulated deficit

 

(1,325,410)

 

(1,371,216)

Accumulated other comprehensive income (loss)

 

38

 

(1,148)

Total stockholders’ deficit

 

(301,733)

 

(362,948)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

$

28,221

$

32,899

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

3

NORTHWEST BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except per share amounts)

(Unaudited)

For the three months ended

For the nine months ended

September 30, 

September 30, 

2021

    

2020

    

2021

    

2020

Research and other revenues

$

350

$

216

$

1,005

$

788

Operating costs and expenses:

 

 

 

 

Research and development

 

3,748

 

17,660

 

16,122

 

24,737

General and administrative

 

6,651

 

30,433

 

26,909

 

39,297

Total operating costs and expenses

 

10,399

 

48,093

 

43,031

 

64,034

Loss from operations

 

(10,049)

 

(47,877)

 

(42,026)

 

(63,246)

Other income (expense):

 

 

 

 

Change in fair value of derivative liabilities

 

58,473

 

(138,969)

 

93,536

 

(175,170)

Loss from extinguishment of debt

 

-

 

(2,994)

 

(144)

 

(4,260)

Interest expense

 

(1,604)

 

(5,540)

 

(3,858)

 

(7,224)

Inducement expense

(314)

(314)

Foreign currency transaction gain (loss)

 

(987)

 

1,284

 

(1,388)

 

378

Total other income (loss)

 

55,568

 

(146,219)

 

87,832

 

(186,276)

Net income (loss)

$

45,519

$

(194,096)

$

45,806

$

(249,522)

Other comprehensive income (loss)

Foreign currency translation adjustment

836

(1,240)

1,186

(477)

Total comprehensive income (loss)

$

46,355

$

(195,336)

$

46,992

$

(249,999)

Net earnings (loss) per share applicable to common stockholders

Basic

$

0.05

$

(0.26)

$

0.05

$

(0.36)

Diluted

$

(0.01)

$

(0.26)

$

(0.04)

$

(0.36)

Weighted average shares used in computing basic earnings (loss) per share

875,963

747,749

854,276

695,423

Weighted average shares used in computing diluted earnings (loss) per share

1,135,762

747,749

1,099,598

695,423

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

4

NORTHWEST BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(in thousands)

(Unaudited)

For the Three Months Ended September 30, 2021

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Subscription

Accumulated

Comprehensive

Stockholders’

    

Shares

    

Par value

    

Capital

    

Receivable

    

Deficit

    

Income (Loss)

    

Deficit

Balance at July 1, 2021

 

857,230

$

857

 

$

1,021,107

 

$

(79)

$

(1,370,929)

 

$

(798)

$

(349,842)

Warrants exercised for cash

 

34,142

34

8,001

8,035

Reclassification of warrant liabilities related to warrants exercised for cash

 

23,018

23,018

Cashless warrants and stock options exercise

488

1

(1)

Reclassification of warrant liabilities related to cashless warrants exercise

4

4

Stock-based compensation

1,263

1,263

Reclassification of warrant liabilities based on authorized shares

(30,566)

(30,566)

Net income

 

 

 

45,519

 

45,519

Cumulative translation adjustment

 

 

 

 

836

836

Balance at September 30, 2021

 

891,860

$

892

$

1,022,826

$

(79)

$

(1,325,410)

$

38

$

(301,733)

For the Three Months Ended September 30, 2020

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Subscription

Accumulated

Comprehensive

Stockholders’

    

Shares

    

Par value

    

Capital

    

Receivable

    

Deficit

    

Income

    

Equity (Deficit)

Balance at July 1, 2020

722,158

$

722

$

811,526

$

(31)

$

(896,821)

$

1,599

$

(83,005)

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

 

17,177

18

3,891

3,909

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

 

20,146

20

8,758

8,778

Warrants exercised for cash

 

19,050

 

19

 

5,610

 

 

 

 

5,629

Reclassification of warrant liabilities related to warrants exercised for cash

8,507

8,507

Cashless warrants exercise

222

Reclassification of warrant liabilities related to cashless warrants exercise

133

133

Beneficial conversion feature related to amended convertible note

44

44

Proceeds from investor to offset subscription receivable

 

 

 

 

5

 

 

 

5

Stock-based compensation

950

1

38,907

38,908

Net loss

 

 

 

 

 

(194,096)

 

 

(194,096)

Cumulative translation adjustment

 

 

 

 

 

 

(1,240)

 

(1,240)

Balance at September 30, 2020

 

779,703

$

780

$

877,376

$

(26)

$

(1,090,917)

$

359

$

(212,428)

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

5

NORTHWEST BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(in thousands)

(Unaudited)

For the Nine Months Ended September 30, 2021

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Subscription

Accumulated

Comprehensive

Stockholders’

    

Shares

    

Par value

    

Capital

    

Receivable

    

Deficit

    

Income (Loss)

    

Deficit

Balance at January 1, 2021

829,631

$

830

$

1,008,665

$

(79)

$

(1,371,216)

$

(1,148)

$

(362,948)

Issuance of common stock for cash

69

-

16

16

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

 

5,145

 

5

 

7,495

 

 

 

 

7,500

Warrants and stock options exercised for cash

 

50,340

 

50

 

12,058

 

 

 

 

12,108

Reclassification of warrant liabilities related to warrants exercised for cash

34,412

34,412

Cashless warrants and stock options exercise

6,627

7

(7)

Reclassification of warrant liabilities related to cashless warrants exercise

 

 

 

1,596

 

 

 

 

1,596

Stock-based compensation

 

48

 

 

14,705

 

 

 

 

14,705

Reclassification of warrant liabilities based on authorized shares

(56,114)

(56,114)

Net income

 

 

 

 

 

45,806

 

 

45,806

Cumulative translation adjustment

 

 

 

 

 

 

1,186

 

1,186

Balance at September 30, 2021

 

891,860

$

892

$

1,022,826

$

(79)

$

(1,325,410)

$

38

$

(301,733)

For the Nine Months Ended September 30, 2020

Accumulated

Additional  

Other

Total

Common Stock

Paid-in

Subscription

Accumulated

Comprehensive

Stockholders’

    

Shares

    

Par value

    

Capital

    

Receivable

    

Deficit

    

Income

    

Equity (Deficit)

Balance at January 1, 2020

614,292

$

614

$

794,900

$

(10)

$

(841,395)

$

836

$

(45,055)

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

85,756

86

8,792

(16)

8,862

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

 

42,764

 

43

 

13,383

 

 

 

 

13,426

Warrants exercised for cash

 

34,746

35

9,591

9,626

Reclassification of warrant liabilities related to warrants exercised for cash

 

 

 

11,228

 

 

 

 

11,228

Cashless warrants exercise

222

Reclassification of warrant liabilities related to cashless warrants exercise

 

 

 

133

 

 

 

 

133

Beneficial conversion feature related to amended convertible note

44

44

Stock-based compensation

1,923

2

39,305

39,307

Net loss

 

 

 

 

 

(249,522)

 

 

(249,522)

Cumulative translation adjustment

 

 

 

 

 

 

(477)

 

(477)

Balance at September 30, 2020

 

779,703

$

780

$

877,376

$

(26)

$

(1,090,917)

$

359

$

(212,428)

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

6

NORTHWEST BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

For the nine months ended

September 30, 

    

2021

    

2020

Cash Flows from Operating Activities:

 

  

 

Net income (loss)

$

45,806

$

(249,522)

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

 

 

Depreciation and amortization

 

240

 

33

Amortization of debt discount

 

1,721

 

1,991

Change in fair value of derivatives

 

(93,536)

 

175,170

Loss from extinguishment of debt

 

144

 

4,260

Inducement expense

 

314

 

Amortization of operating lease right-of-use asset

206

249

Stock-based compensation for services

 

14,632

 

39,307

Non-cash interest expense

4,270

Subtotal of non-cash charges

 

(76,279)

 

225,280

Changes in operating assets and liabilities:

 

  

 

  

Prepaid expenses and other current assets

 

3,113

 

146

Other non-current assets

 

(198)

 

(12)

Accounts payable and accrued expenses

 

2,351

 

986

Related party accounts payable and accrued expenses

 

(1,845)

 

1,080

Lease liabilities

(1)

152

Net cash used in operating activities

 

(27,053)

 

(21,890)

Cash Flows from Investing Activities:

 

 

  

Purchase of equipment and construction in progress

 

(4,462)

 

(3,548)

Acquisition of Flaskworks, net of cash

(1,560)

Net cash used in investing activities

 

(4,462)

 

(5,108)

Cash Flows from Financing Activities:

 

  

 

  

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

 

16

 

16,893

Proceeds from exercise of warrants and stock options

 

12,108

 

9,626

Proceeds from issuance of notes payable, net

13,574

8,557

Proceeds from warrants modification

 

 

4

Proceeds from issuance of convertible notes payable, net

 

 

3,190

Proceeds from issuance of convertible notes payable to related party

 

 

315

Investor advances

 

767

Repayment of notes payable

(2,003)

(1,556)

Repayment of notes payable to related parties

 

 

(64)

Repayment of convertible notes payable

 

 

(89)

Net cash provided by financing activities

 

24,462

 

36,876

Effect of exchange rate changes on cash and cash equivalents

 

906

 

(1,000)

Net (decrease) increase in cash and cash equivalents

 

(6,147)

 

8,878

Cash and cash equivalents, beginning of the period

 

9,983

 

372

Cash and cash equivalents, end of the period

$

3,836

$

9,250

Supplemental disclosure of cash flow information

 

  

 

  

Interest payments on notes payable to related party

$

$

(9)

Interest payments on convertible notes payable

$

$

(11)

Interest payments on notes payable

$

(506)

$

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

7

NORTHWEST BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

For the nine months ended

September 30, 

    

2021

    

2020

Supplemental schedule of non-cash investing and financing activities:

 

  

 

Unpaid consideration related to Flaskworks acquisition

$

$

465

Cashless warrants and stock options exercise

$

7

$

Reclassification of warrant liabilities related to warrants exercised for cash

$

34,412

$

11,228

Reclassification of warrant liabilities related to cashless warrants exercise

$

1,596

$

133

Reclassification of warrant liabilities based on authorized shares

$

56,114

$

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

$

7,487

$

6,850

Offering cost related to warrant liability

$

$

3,749

Capital expenditures included in accounts payable

$

327

$

954

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

$

559

$

1,294

Issuance of common shares to settle accrued service liability

$

73

$

Issuance of warrants in conjunction with convertible note payable

$

$

153

Issuance of warrants in connection with debt modification

$

$

395

Warrant modification in connection with debt amendment

$

$

91

Beneficial conversion feature related to amended convertible note

$

$

44

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

8

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NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

1. Organization and Description of Business

Northwest Biotherapeutics, Inc. and its wholly owned subsidiaries Flaskworks L.L.C., NW Bio GmbH, Aracaris Ltd, Aracaris Capital, Ltd, and Northwest Biotherapeutics B.V. (collectively, the “Company”, “we”, “us” and “our”) were organized to discover and develop innovative immunotherapies for cancer. The Company has developed DCVax® platform technologies for both operable and inoperable solid tumor cancers. The Company is headquartered in Bethesda, Maryland and has wholly owned subsidiaries in the U.K., in the Netherlands, and in Boston, Massachusetts.

The Company relies upon contract manufacturers for production of its DCVax products, research and development services, distribution and logistics, and related services, in compliance with the Company’s specifications and the applicable regulatory requirements.

2. Financial Condition, Going Concern and Management Plans

The Company has incurred annual net operating losses since its inception. The Company had a net income of $45.8 million for the nine months ended September 30, 2021. The Company had a net loss of $47.7 million for the nine months ended September 30, 2021 after removing the non-cash derivative gain. The Company used approximately $27.1 million of cash in its operating activities during the nine months ended September 30, 2021.

The Company does not expect to generate material revenue in the near future from the sale of products and is subject to all of the risks and uncertainties that are typically faced by biotechnology companies that devote substantially all of their efforts to research and development (“R&D”) and clinical trials and do not yet have commercial products. The Company expects to continue incurring annual losses for the foreseeable future. The Company’s existing liquidity is not sufficient to fund its operations, anticipated capital expenditures, working capital and other financing requirements until the Company reaches significant revenues. Until that time, the Company will need to obtain additional equity and/or debt financing, especially if the Company experiences downturns in its business that are more severe or longer than anticipated, or if the Company experiences significant increases in expense levels resulting from being a publicly-traded company or from expansion of operations. If the Company attempts to obtain additional equity or debt financing, the Company cannot assume that such financing will be available to the Company on favorable terms, or at all.

Because of recurring operating losses and operating cash flow deficits, there is substantial doubt about the Company’s ability to continue as a going concern within one year from the date of this filing. The condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets, or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

As previously reported, coronavirus-related difficulties have impacted most aspects of the database lock and the process of analyzing the Phase III trial results, especially with the successive waves of COVID-19 cases in many areas. The independent service firms have had limited capacity, and restrictions on operations. Key experts at certain specialized service providers have been unavailable for periods of time due to illness in their family. Other experts have gone on extended leave due to restrictions on operations. Clinical trial sites have not allowed personnel from the contract research organization managing the trial, or other service providers, to visit the sites for trial matters such as data monitoring and collection activities. Clinical trial site personnel have been unavailable due to being reassigned for COVID-19, and the limited site personnel have had to work under restrictions. Committee processes and regulatory processes have been similarly focused on COVID-19 matters and delayed on other matters. Firms such as the ones storing the Phase III trial tissue samples that are needed for certain analyses, and the firms conducting the analyses have had only limited operations. Even logistical matters such as the shipping of materials have been subjected to substantial restrictions and delays.

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NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

3. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated interim financial statements include the accounts of the Company and its subsidiaries. All material intercompany balances and transactions have been eliminated. Certain immaterial reclassifications have been made to prior period amounts to conform to the current period presentation.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and on the same basis as the Company prepares its annual audited consolidated financial statements. The condensed consolidated balance sheet as of September 30, 2021, condensed consolidated statements of operations and comprehensive loss, condensed consolidated statement of stockholders’ deficit for the three and nine months ended September 30, 2021 and 2020, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2021 and 2020 are unaudited, but include all adjustments, consisting only of normal recurring adjustments, which the Company considers necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The results for the three and nine months ended September 30, 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2021 or for any future interim period. The condensed consolidated balance sheet at December 31, 2020 has been derived from audited financial statements; however, it does not include all of the information and notes required by U.S. GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2020 and notes thereto included in the Company’s annual report on Form 10-K (the “2020 Annual Report”), which was filed with the SEC on March 31, 2021.

Use of Estimates

In preparing condensed consolidated financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of expenses during the reporting period. Due to inherent uncertainty involved in making estimates, actual results reported in future periods may be affected by changes in these estimates. On an ongoing basis, the Company evaluates its estimates and assumptions. These estimates and assumptions include recoverability and useful lives (indefinite) of intangible asset, assessment of impairment of goodwill, valuing equity securities in share-based payment arrangements, estimating the fair value of financial instruments recorded as derivative liabilities, useful lives of depreciable assets and whether impairment charges may apply.

Significant Accounting Policies

There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 2020 Annual Report.

Recently Adopted Accounting Standards

Income Taxes

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. On January 1, 2021, the Company adopted this standard without any material impact on its condensed consolidated financial statements and related disclosures.

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NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

Debt

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. This ASU is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption was permitted, but no earlier than fiscal years beginning after December 15, 2020. This update permits the use of either the modified retrospective or fully retrospective method of transition. The Company has adopted the new standard as of January 1, 2021, and the adoption did not have a significant effect on the condensed consolidated financial statements and related disclosures.

Recently Issued Accounting Standards Not Yet Adopted

Modifications or Exchanges of Freestanding Equity-Classified Written Call Options

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. This ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic. It specifically addresses: (1) how an entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; (2) how an entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; and (3) how an entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange. This ASU will be effective for all entities for fiscal years beginning after December 15, 2021. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted, including adoption in an interim period. The adoption of ASU 2021-04 is not expected to have a material impact on the Company’s financial statements or disclosures.

4. Fair Value Measurements

In accordance with ASC 820 (Fair Value Measurements and Disclosures), the Company uses various inputs to measure the outstanding warrants and certain embedded conversion feature associated with convertible debt on a recurring basis to determine the fair value of the liability. ASC 820 also establishes a hierarchy categorizing inputs into three levels used to measure and disclose fair value. The hierarchy gives the highest priority to quoted prices available in active markets and the lowest priority to unobservable inputs. An explanation of each level in the hierarchy is described below:

Level 1 - Unadjusted quoted prices in active markets for identical instruments that are accessible by the Company on the measurement date

Level 2 - Quoted prices in markets that are not active or inputs which are either directly or indirectly observable

Level 3 - Unobservable inputs for the instrument requiring the development of assumptions by the Company

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NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

The following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy as of September 30, 2021 and December 31, 2020 (in thousands):

Fair value measured at September 30, 2021

    

    

Quoted prices in active

    

Significant other

    

Significant

Fair value at

markets

observable inputs

unobservable inputs

September 30, 2021

(Level 1)

(Level 2)

(Level 3)

Warrant liability

$

282,593

$

$

$

282,593

Contingent payable derivative liability

 

8,322

 

 

 

8,322

Total fair value

$

290,915

$

$

$

290,915

Fair value measured at December 31, 2020

    

    

Quoted prices in active

    

Significant other

    

Significant

Fair value at

markets

observable inputs

unobservable inputs

December 31, 2020

(Level 1)

(Level 2)

(Level 3)

Warrant liability

$

354,972

$

$

$

354,972

Embedded conversion option

 

2,507

 

 

 

2,507

Contingent payable derivative liability

 

8,275

 

 

 

8,275

Total fair value

$

365,754

$

$

$

365,754

There were no transfers between Level 1, 2 or 3 during the nine-month period ended September 30, 2021.

The following table presents changes in Level 3 liabilities measured at fair value for the nine-month period ended September 30, 2021. 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

Embedded

Contingent Payable

    

Liability

    

Conversion Option

    

Derivative Liability

    

Total

Balance - January 1, 2021

$

354,972

$

2,507

$

8,275

$

365,754

Additional warrant liability

516

516

Reclassification of warrant liabilities

20,106

20,106

Debt conversion

(1,925)

(1,925)

Change in fair value

(93,001)

(582)

47

(93,536)

Balance - September 30, 2021

$

282,593

$

(0)

$

8,322

$

290,915

A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the Company’s warrant liabilities and embedded conversion feature that are categorized within Level 3 of the fair value hierarchy as of September 30, 2021 and December 31, 2020 is as follows:

As of September 30, 2021

 

    

Warrant

    

Contingent Payable

 

Liability

Derivative Liability

 

Strike price

$

0.28

$

1.28

Contractual term (years)

 

1.0

 

1.5

Volatility (annual)

 

79

%  

 

101

%

Risk-free rate

 

0.2

%  

 

0.2

%

Dividend yield (per share)

 

0

%  

 

0

%

*Contingent based on current stock price as of September 30, 2021.

12

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NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

As of December 31, 2020

Warrant

Embedded

Contingent Payable

    

Liability

    

Conversion Option

    

Derivative Liability

    

Strike price

$

0.28

$

0.59

$

1.53

Contractual term (years)

 

1.6

 

0.9

1.4

 

Volatility (annual)

 

116

%  

106

%  

126

%  

Risk-free rate

 

0.2

%  

0.1

%  

0.1

%  

Dividend yield (per share)

 

0

%  

0

%  

0

%  

* Contingent based on stock price as of December 31, 2020.

5. Stock-based Compensation

The following table summarizes total stock-based compensation expense for the three and nine months ended September 30, 2021 and 2020 (in thousands). The general and administrative expense and research and development expense during the three and nine months ended September 30, 2021 and 2020 relate to the applicable portion vesting during this period of stock option awards made in the past to directors, employees, SAB members and consultants.

For the three months ended

For the nine months ended

September 30, 2021,

September 30, 2021,

    

2021

    

2020

    

2021

    

2020

Research and development

$

982

$

14,206

$

7,224

$

14,191

General and administrative