Notes to the Consolidated Financial Statements
1. Organization and Description of Business
Northwest
Biotherapeutics, Inc. and its wholly owned subsidiaries 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 has wholly owned subsidiaries in the U.K. and on April 25, 2019, the Company established
a new wholly owned subsidiary Northwest Biotherapeutics B.V. in the Netherlands, where the European Medicines Agency is relocating.
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. The companies are Cognate BioServices in the
U.S. and Advent BioServices (a related party) in the U.K. Both of these companies specialize in the production of living cell products.
2. Financial Condition, Going Concern
and Management Plans
The Company has incurred annual net operating
losses since its inception. The Company had a net loss of $20.3 million for the year ended December 31, 2019. The Company
used approximately $31.9 million of cash in its operating activities for the year ended December 31, 2019. Management believes
that the Company has access to capital resources through the sale of equity and debt financing arrangements. However, the Company
has not secured any commitments for new financing for this specific purpose at this time.
The Company has not yet generated any material
revenue from the sale of its products and is subject to all of the risks and uncertainties that are typically faced by biotechnology
companies that devote substantially all of their efforts to R&D and clinical trials and do not yet have commercial products.
The Company expects to continue incurring losses for the foreseeable future. The Company’s existing liquidity is not sufficient
to fund its operations, anticipated capital expenditures, working capital and other financing requirements until the Company reaches
significant revenues. Until that time, the Company will need to obtain additional equity and/or debt financing, especially
if the Company experiences downturns in its business that are more severe or longer than anticipated, or if the Company experiences
significant increases in expense levels resulting from being a publicly-traded company or from expansion of operations. If
the Company attempts to obtain additional equity or debt financing, the Company cannot assume that such financing will be available
to the Company on favorable terms, or at all.
Because of recurring operating losses 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 consolidated financial statements have been prepared assuming that the Company
will continue as a going concern, and do not include any adjustments to reflect the possible future effects on the recoverability
and classification of assets, or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
3. Summary of Significant Accounting
Policies
Basis of Presentation
The accompanying consolidated financial
statements of the Company were prepared in accordance with generally accepted accounting principles in the U.S. (“U.S. GAAP”)
and include the assets, liabilities, revenues and expenses of the wholly owned subsidiaries in Germany and the United Kingdom.
All intercompany transactions and accounts have been eliminated in consolidation.
Consolidation
The Company’s policy is to consolidate
all entities in which it can vote a majority of the outstanding voting stock. In addition, the Company consolidates entities
which meet the definition of a variable interest entity (VIE) for which the Company is the primary beneficiary, if any. The
primary beneficiary is the party who has the power to direct the activities of a VIE that most significantly impact the entity’s
economic performance and who has an obligation to absorb losses of the entity or a right to receive benefits from the entity that
could potentially be significant to the VIE.
Cash and Cash Equivalents
Financial instruments that potentially
subject the Company to concentration of credit risk consist of cash accounts in a financial institution which, at times may exceed
the Federal depository insurance coverage (“FDIC”) of $250,000. The Company had not experienced losses on these
accounts and management believes the Company is not exposed to significant risks on such accounts.
NORTHWEST BIOTHERAPEUTICS, INC.
Notes to the Consolidated Financial Statements
Property, Plant and Equipment
Property and equipment are stated at cost.
Depreciation and amortization are provided for using straight-line methods, in amounts sufficient to charge the cost of depreciable
assets to operations over their estimated service lives. Repairs and maintenance costs are charged to operations as incurred.
Costs
for capital assets not yet placed into service are capitalized as Construction in progress on the Consolidated balance sheets and
will be depreciated once placed into service.
The Company assesses its long-lived assets
for impairment whenever facts and circumstances indicate that the carrying amounts may not be fully recoverable. To analyze recoverability,
the Company projects undiscounted net future cash flows over the remaining lives of such assets. If these projected undiscounted
net future cash flows are less than the carrying amounts, an impairment loss would be recognized, resulting in a write-down of
the assets with a corresponding charge to earnings. The impairment loss is measured based upon the difference between the carrying
amounts and the fair values of the assets. Assets to be disposed of are reported at the lower of the carrying amounts or fair value
less cost to sell. Management determines fair value using the discounted cash flow method or other accepted valuation techniques.
Use of Estimates
In preparing consolidated financial statements
in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported
amounts of expenses during the reporting period. Due to inherent uncertainty involved in making estimates, actual results reported
in future periods may be affected by changes in these estimates. On an ongoing basis, the Company evaluates its estimates and assumptions.
These estimates and assumptions include valuing equity securities in share-based payment arrangements, estimating the fair value
of financial instruments recorded as derivative liabilities, useful lives of depreciable assets and whether impairment charges
may apply.
Fair Value of Financial Instruments
ASC 820, Fair Value Measurements, provides
guidance on the development and disclosure of fair value measurements. Under this accounting guidance, fair value is defined as
an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined
based on assumptions that market participants would use in pricing an asset or a liability.
The accounting guidance classifies fair
value measurements in one of the following three categories for disclosure purposes:
|
Level 1:
|
Quoted prices in active markets for identical assets or liabilities.
|
|
Level 2:
|
Inputs other than Level 1 prices for similar assets or liabilities that are directly or indirectly observable in the marketplace.
|
|
Level 3:
|
Unobservable inputs which are supported by little or no market activity and values determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
|
Warrant Liability
The Company accounts for certain common
stock warrants outstanding as a liability at fair value and adjusts the instruments to fair value at each reporting period. This
liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in
the Company’s consolidated statements of operations. The fair value of the warrants issued by the Company has been estimated
using Monte Carlo simulation and or a Black Scholes model.
Embedded Conversion Features
The Company evaluates embedded conversion
features within convertible debt to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument
and accounted for as a derivative at fair value with changes in fair value recorded in the Statement of Operations. If the
conversion feature does not require recognition of a bifurcated derivative, the convertible debt instrument is evaluated for consideration
of any beneficial conversion feature (“BCF”) requiring separate recognition. When the Company record a BCF, the intrinsic
value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument (offset to additional
paid-in capital) and amortized to interest expense over the life of the debt.
NORTHWEST BIOTHERAPEUTICS, INC.
Notes to the Consolidated Financial Statements
Leases
Prior
to January 1, 2019, the Company recognized related rent expense on a straight-line basis over the term of the lease.
Subsequent
to the adoption of the new leasing standard on January 1, 2019, the Company recognizes a lease asset for its right to use
the underlying asset and a lease liability for the corresponding lease obligation. The Company determines whether an arrangement
is or contains a lease at contract inception. Operating leases with a duration greater than one year are included in operating
lease right-of-use assets, operating lease liabilities - short-term, and operating lease liabilities - long-term in the
Company’s consolidated balance sheet at December 31, 2019. Operating lease right-of-use assets and liabilities are recognized
at the lease commencement date based on the present value of lease payments over the lease term. In determining the net present
value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement
date. The incremental borrowing rate represents the interest rate the Company would incur at lease commencement to borrow an amount
equal to the lease payments on a collateralized basis over the term of a lease. The Company considers a lease term to be the noncancelable
period that it has the right to use the underlying asset.
The
operating lease right-of-use assets also include any lease payments made and exclude lease incentives. Lease expense is recognized
on a straight-line basis over the expected lease term. Variable lease expenses are recorded when incurred.
Sale and Leaseback Transactions
The Company accounts
for the sale and leaseback of the UK manufacturing facility in accordance with ASC 842. Gains on sale leaseback transactions are
recognized at the time of sale if the fair value of the property sold is more than the net book value of the property. Gains on
sale and leaseback transactions are deferred and amortized over the remaining lease term. See Note 6 for further details.
Foreign Currency Translation and Transactions
The Company has operations in Germany and
the United Kingdom in addition to the U.S. The Company translated its assets and liabilities 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.
The Company converts
receivables and payables denominated in other than the Company’s functional currency at the exchange rate as of the balance
sheet date. The resulting transaction exchange gains or losses related to intercompany receivable and payables, are included in
other income and expense.
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.
Revenue Recognition
The Company recognizes revenue in accordance
with the terms stipulated under the patient service contract. In various situations, the Company receives certain payments for
DCVax®-L for patient treatment. These payments are non-refundable, and are not dependent on the Company’s ongoing future
performance. Due to potential collectability issues with patients, the Company has adopted a policy of recognizing these payments
as revenue when received.
Accrued Outsourcing Costs
Substantial portions of our preclinical
studies and clinical trials are performed by third-party laboratories, medical centers, contract research organizations and other
vendors (collectively “CROs”). These CROs generally bill monthly or quarterly for services performed, or bill based
upon milestones achieved. For clinical studies, expenses are accrued when services are performed. The Company monitors patient
enrollment, the progress of clinical studies and related activities through internal reviews of data that is tracked by the CROs
under contractual arrangements, correspondence with the CROs and visits to clinical sites.
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.
NORTHWEST BIOTHERAPEUTICS, INC.
Notes to the Consolidated Financial Statements
Income Taxes
The Company evaluates
its tax positions and estimates its current tax exposure along with assessing temporary differences that result from different
book to tax treatment of items not currently deductible for tax purposes. These differences result in deferred tax assets and liabilities
on the Company’s Consolidated Balance Sheets, which are estimated based upon the difference between the financial statement
and tax bases of assets and liabilities using the enacted tax rates that will be in effect when these differences reverse. In general,
deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in the Company’s
Consolidated Statements of Comprehensive Loss become deductible expenses under applicable income tax laws or loss or credit carryforwards
are utilized. Accordingly, realization of the Company’s deferred tax assets is dependent on future taxable income against
which these deductions, losses and credits can be utilized.
The Company must
assess the likelihood that the Company’s deferred tax assets will be recovered from future taxable income, and to the extent
the Company believes that recovery is not more likely than not, the Company must establish a valuation allowance. Management judgment
is required in determining the Company’s provision for income taxes, the Company’s deferred tax assets and liabilities
and any valuation allowance recorded against the Company’s net deferred tax assets. Excluding foreign operations, the Company
recorded a full valuation allowance at each balance sheet date presented because, based on the available evidence, the Company
believes it is more likely than not that it will not be able to utilize all of its deferred tax assets in the future. The Company
intends to maintain the full valuation allowance until sufficient evidence exists to support the reversal of the valuation allowance.
Stock Based Compensation
Effective January 1, 2019, the Company
adopted ASU 2018-07, by which the accounting for share-based payments to non-employees and employees is substantially aligned.
There was no cumulative effect of the adoption of this standard.
Share-based compensation cost is recorded
for all option grants and awards of non-vested stock based on the grant date fair value of the award using the Black-Scholes option-pricing
model, and is recognized over the service period required for the award. Prior to January 1, 2019, share-based compensation cost
for non-employees was remeasured at every reporting period.
The Company estimates the fair value of
stock option grants using the Black-Scholes option pricing model and the assumptions used in calculating the fair value of stock-based
awards represent management’s best estimates and involve inherent uncertainties and the application of management’s
judgment.
Expected
Term - The expected term of options represents the period that the Company’s stock-based awards are expected
to be outstanding based on the simplified method, which is the half-life from vesting to the end of its contractual term.
Expected
Volatility - The Company computes stock price volatility over expected terms based on its historical common stock
trading prices.
Risk-Free
Interest Rate - The Company bases the risk-free interest rate on the implied yield available on U. S. Treasury
zero-coupon issues with an equivalent remaining term.
Expected
Dividend - The Company has never declared or paid any cash dividends on its common shares and does not plan to
pay cash dividends in the foreseeable future, and, therefore, uses an expected dividend yield of zero in its valuation models.
The Company recognizes forfeitures when
they occur.
Debt Extinguishment
The Company accounts for the income or
loss from extinguishment of debt by comparing the difference between the reacquisition price and the net carrying amount of the
debt being extinguished and recognizes this as gain or loss when the debt is extinguished. The gain or loss from debt extinguishment
is recorded in the consolidated statements of operations under “other income (expense)” as loss from extinguishment
of convertible debt.
Sequencing
As of October 13, 2016, the Company adopted
a sequencing policy whereby all financial instruments issued after adoption date will be classified as a derivative liability
with the exception of instruments related to share-based compensation issued to employees, non-employees or directors and convertible
preferred stock.
NORTHWEST BIOTHERAPEUTICS, INC.
Notes to the Consolidated Financial Statements
Loss per Share
Basic loss per share is computed on the
basis of the weighted average number of shares outstanding for the reporting period. Diluted loss per share is computed on the
basis of the weighted average number of common shares plus dilutive potential common shares outstanding using the treasury stock
method. Any potentially dilutive securities are anti-dilutive due to the Company’s net losses. For the years presented, there
is no difference between the basic and diluted net loss per share.
Recent Accounting Standards
Income Taxes
In December 2019, the FASB issued 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.
The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.
Adoption of Recent Accounting Standards
Accounting for Certain Financial Instruments with Down
Round Features
In July 2017, the FASB has issued a two-part
ASU No. 2017-11, (i). Accounting for Certain Financial Instruments with Down Round Features and (ii) Replacement of the
Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable
Noncontrolling Interests with a Scope Exception which simplifies the accounting for certain financial instruments with down
round features, a provision in an equity-linked financial instrument (or embedded feature) that provides a downward adjustment
of the current exercise price based on the price of future equity offerings. It is effective for public business entities for fiscal
years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company
adopted this standard on its consolidated financial statements and disclosures as of January 1, 2019, and given its sequencing
policy in effect as of October 13, 2016, the impact of this standard was not material.
Improvements to Non-employee Share-Based Payment Accounting
In June 2018, the FASB issued ASU 2018-07
“Improvements to Nonemployee Share-Based Payment Accounting”, which simplifies the accounting for share-based payments
granted to nonemployees for goods and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned
with the requirements for share-based payments granted to employees. The amendments are effective for fiscal years beginning after
December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but
no earlier than an entity’s adoption date of Topic 606. The Company adopted this standard on its consolidated financial statements
as of January 1, 2019, and the adoption did not have a material impact on its consolidated financial statements.
Leases
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842) in order to increase transparency and comparability among organizations by, among other provisions, recognizing
lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous GAAP. For
public companies, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (including interim periods within
those periods) using a modified retrospective approach and early adoption is permitted. In transition, entities may also elect
a package of practical expedients that must be applied in its entirety to all leases commencing before the adoption date, unless
the lease is modified, and permits entities to not reassess (a) the existence of a lease, (b) lease classification or (c) determination
of initial direct costs, as of the adoption date, which effectively allows entities to carryforward accounting conclusions under
previous U.S. GAAP. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides entities
an optional transition method to apply the guidance under Topic 842 as of the adoption date, rather than as of the earliest period
presented. The Company adopted Topic 842 on January 1, 2019, using the optional transition method to apply the new guidance as
of January 1, 2019, rather than as of the earliest period presented, and elected the package of practical expedients described
above. Based on the analysis, on January 1, 2019, the Company recorded right of use assets and lease liabilities of approximately
$4.3 million, which represented operating lease entered prior to January 1, 2019. Additionally, the Company recorded an adjustment
to opening accumulated deficit of $4.8 million related to the derecognition of deferred profit related to the U.K facility sales
leaseback transaction.
NORTHWEST BIOTHERAPEUTICS, INC.
Notes to the Consolidated Financial Statements
4. Fair Value Measurements
In accordance with ASC 820 (Fair Value
Measurements and Disclosures), the Company uses various inputs to measure the outstanding warrants and certain embedded conversion
feature associated with convertible debt on a recurring basis to determine the fair value of the liability.
The following table classifies the Company’s
liabilities measured at fair value on a recurring basis into the fair value hierarchy as of December 31, 2019 and 2018 (in thousands):
|
|
Fair value measured at December 31, 2019
|
|
|
|
Fair value at
|
|
|
Quoted prices in active
markets
|
|
|
Significant other
observable inputs
|
|
|
Significant
unobservable inputs
|
|
|
|
December 31, 2019
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Warrant liability
|
|
$
|
20,213
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
20,213
|
|
Contingent payable derivative liability
|
|
|
7,261
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,261
|
|
Total fair value
|
|
$
|
27,474
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
27,474
|
|
|
|
Fair value measured at December 31, 2018
|
|
|
|
Fair value at
|
|
|
Quoted prices in active
markets
|
|
|
Significant other
observable inputs
|
|
|
Significant
unobservable inputs
|
|
|
|
December 31, 2019
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Warrant liability
|
|
$
|
29,995
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
29,995
|
|
Embedded conversion feature
|
|
|
357
|
|
|
|
-
|
|
|
|
-
|
|
|
|
357
|
|
Total fair value
|
|
$
|
30,352
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
30,352
|
|
There were no transfers between Level 1,
2 or 3 during the years ended December 31, 2019 and 2018.
The following table presents changes in
Level 3 liabilities measured at fair value for the years ended December 31, 2019 and 2018. 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
|
|
|
Contingent Payable
Derivative Liability
|
|
|
Embedded
Conversion
Feature
|
|
|
Total
|
|
Balance – January 1, 2019
|
|
$
|
29,995
|
|
|
$
|
-
|
|
|
$
|
357
|
|
|
$
|
30,352
|
|
Additional contingent liability in connection with a settlement agreement
|
|
|
-
|
|
|
|
6,602
|
|
|
|
-
|
|
|
|
6,602
|
|
Additional warrant liability
|
|
|
4,110
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,110
|
|
Extinguishment of derivative liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
Extinguishment of warrant liabilities related to warrants exercised for cash
|
|
|
(1,759
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,759
|
)
|
Change in fair value
|
|
|
(12,133
|
)
|
|
|
659
|
|
|
|
(354
|
)
|
|
|
(11,828
|
)
|
Balance – December 31, 2019
|
|
$
|
20,213
|
|
|
$
|
7,261
|
|
|
$
|
-
|
|
|
$
|
27,474
|
|
|
|
Warrant
Liability
|
|
|
Embedded
Conversion
Feature
|
|
|
Share-
settled Debt
(in Default)
|
|
|
Total
|
|
Balance – January 1, 2018
|
|
|
40,171
|
|
|
|
2,608
|
|
|
|
3,308
|
|
|
|
46,087
|
|
Warrants granted
|
|
|
10,066
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,066
|
|
Bifurcated embedded derivative liability
|
|
|
-
|
|
|
|
351
|
|
|
|
|
|
|
|
351
|
|
Extinguishment of warrant liabilities related to warrants exercised for cash
|
|
|
(2,492
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,492
|
)
|
Conversion of share-settled debt
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,308
|
)
|
|
|
(3,308
|
)
|
Extinguishment of derivative liabilities related to repayment of debt
|
|
|
-
|
|
|
|
(2,049
|
)
|
|
|
-
|
|
|
|
(2,049
|
)
|
Change in fair value
|
|
|
(17,750
|
)
|
|
|
(553
|
)
|
|
|
|
|
|
|
(18,303
|
)
|
Balance – December 31, 2018
|
|
$
|
29,995
|
|
|
$
|
357
|
|
|
$
|
-
|
|
|
$
|
30,352
|
|
NORTHWEST BIOTHERAPEUTICS, INC.
Notes to the Consolidated Financial Statements
A summary of the weighted average (in aggregate)
significant unobservable inputs (Level 3 inputs) used in measuring the Company’s warrant liabilities and embedded conversion
feature that are categorized within Level 3 of the fair value hierarchy as of December 31, 2019 and 2018 is as follows:
|
|
As of December 31, 2019
|
|
|
As of December 31, 2018
|
|
|
|
Warrant
Liability
|
|
|
Contingent Payable
Derivative Liability
|
|
|
Warrant
Liability
|
|
|
Embedded
Conversion Feature
|
|
Strike price
|
|
$
|
0.21
|
|
|
$
|
0.21
|
*
|
|
$
|
0.29
|
|
|
$
|
0.44
|
|
Contractual term (years)
|
|
|
1.4
|
|
|
|
1.0
|
|
|
|
2.2
|
|
|
|
1.5
|
|
Volatility (annual)
|
|
|
74
|
%
|
|
|
62
|
%
|
|
|
85
|
%
|
|
|
85
|
%
|
Risk-free rate
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
3
|
%
|
|
|
3
|
%
|
Dividend yield (per share)
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
* contingent based on current stock price as of December 31, 2019
5. Stock-based Compensation
Stock Options
The following table summarizes stock option
activity for the Company’s option plans during the years ended December 31, 2019 and 2018 (amount in thousands, except per
share number):
|
|
Number of Shares
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted Average
Remaining
Contractual Life (in years)
|
|
|
Total Intrinsic Value
|
|
Outstanding as of January 1, 2018
|
|
|
12,656
|
|
|
$
|
1.32
|
|
|
|
4.1
|
|
|
$
|
-
|
|
Granted
|
|
|
100,090
|
|
|
|
0.23
|
|
|
|
9.3
|
|
|
|
-
|
|
Forfeited/expired
|
|
|
(12,587
|
)
|
|
|
1.27
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding as of December 31, 2018
|
|
|
100,159
|
|
|
|
0.24
|
|
|
|
9.3
|
|
|
|
-
|
|
Granted
|
|
|
4,500
|
|
|
|
0.22
|
|
|
|
10.4
|
|
|
|
-
|
|
Outstanding as of December 31, 2019
|
|
|
104,659
|
|
|
$
|
0.24
|
|
|
|
8.4
|
|
|
$
|
-
|
|
Options vested and exercisable
|
|
|
95,500
|
|
|
$
|
0.24
|
|
|
|
8.3
|
|
|
$
|
-
|
|
2019 Grants
During the year ended December 31, 2019,
the Company issued 4.5 million stock options to certain employees with grant date fair value of approximately $741,000. Approximately
3.3 million stock options will vest on a pro rata monthly basis over the first 36 months, and the remaining 1.2 million stock options
will vest based on performance condition. The exercise price of the options is between $0.21 and $0.22, and the exercise period
will be 10 years.
The Company also agreed to issue another
2.0 million stock options which will vest on certain performance criteria, which remain to be determined by the parties as of December
31, 2019. The Company does not consider such performance options to be granted until such performance criteria are determined in
accordance with ASC 718. There is no financial impact as of December 31, 2019.
2018 Grants
During the year ended December 31, 2018,
the Company issued options to certain directors, officers and consultants (collectively, the “Options”) based upon
services over a number of years.
The Options are subject to vesting requirements.
50% of the Options were vested on the grant date, and the remaining 50% of the Options are vesting monthly over a period of 24
months following the Board approvals of the Options, subject to acceleration upon the occurrence of certain achievement milestones.
A performance milestone was achieved and the Company accelerated vesting on 25% of these outstanding Options.
On November 18, 2018, the disinterested
members of the Company’s Board of Directors (the “Board”) approved an increase of the equity compensation option
pool to reflect increases in the numbers of issued and outstanding shares since the prior equity awards were made. This incremental
increase added approximately 3.1 million options to the pool. The incremental options are being issued in individual awards which
are in the process of being implemented in individual agreements, including with respect to certain conditions such as vesting
over 4 years, subject to potential acceleration events. In the case of the independent directors, the awards were approved by the
shareholders. The exercise price of the options will be $0.25, in accordance with the prior trading day’s closing price at
the time of approval, and the exercise period will be 10 years.
NORTHWEST
BIOTHERAPEUTICS, INC.
Notes
to the Consolidated Financial Statements
Modification
of Stock Options
In
January 2018, the Board approved extension of the exercise period for options that were granted to Dr. Alton Boyton and Dr. Marnix
Bosch on June 13, 2017, from 5 years to 10 years to conform to the exercise period of other employee options. The Company accounted
for the modification as a Type I (probable-to-probable) modification and the incremental cost was approximately $0.3 million based
on the following assumptions:
Exercise
price
|
|
$
|
0.25
|
|
Expected
term (years)
|
|
|
5.0
|
|
Expected
stock price volatility
|
|
|
93
|
%
|
Risk-free
rate of interest
|
|
|
2
|
%
|
The
following assumptions were used to compute the fair value of stock options granted during the years ended December 31, 2019 and
2018:
|
|
For
the years ended
|
|
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
Exercise
price
|
|
$
|
0.20
|
|
|
$
|
0.23
|
|
Expected
term (years)
|
|
|
5.6
|
|
|
|
5.2
|
|
Expected
stock price volatility
|
|
|
86
|
%
|
|
|
96
|
%
|
Risk-free
rate of interest
|
|
|
1
|
%
|
|
|
3
|
%
|
The
following table summarizes stock-based compensation expense related to stock options for the years ended December 31, 2019 and
2018 (in thousands):
|
|
For
the years ended
|
|
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
Research
and development
|
|
$
|
471
|
|
|
$
|
1,777
|
|
General
and administrative
|
|
|
1,350
|
|
|
|
12,509
|
|
Total
stock-based compensation expense
|
|
$
|
1,821
|
|
|
$
|
14,286
|
|
As
of December 31, 2019, there was approximately $657,000 of total unrecognized compensation expense related to non-vested share-based
compensation arrangements granted under the employee stock option program. That cost is expected to be recognized over a weighted
average period of 3 years.
6. Sale
and Leaseback Transactions in the U.K.
On
December 14, 2018, the Company completed certain transactions involving the Company’s U.K. property: the sale of most of
the property for approximately $47.2 million in gross proceeds, the retention of the Company’s ownership of 17 acres of
the property, and the lease-back of the 87,000 square foot manufacturing facility which the Company has been developing on the
property, together with adjacent areas, for 20 years with a renewal option for another 20 years on favorable terms.
Total
gain from the sale was approximately $8.0 million, of which the Company recognized approximately $3.3 million upfront gain on
the closing date in December 2018, and approximately $4.7 million of the gain has been deferred.
The
Company recorded the following amounts on December 14, 2018, resulting in a gain of $3.3 million on the sale of the
U.K. property calculated as the difference between the consideration amount for the assets and the net carrying amount of the
assets and liabilities extinguished. The following sets forth the calculation of the gain on sale as of the closing (in thousands):
NORTHWEST
BIOTHERAPEUTICS, INC.
Notes
to the Consolidated Financial Statements
Cash
consideration received, net of fees
|
|
$
|
45,595
|
|
Extinguishment
of environmental liability
|
|
|
6,200
|
|
Land
and buildings – carrying value
|
|
|
(45,168
|
)
|
Accumulated
depreciation costs written off
|
|
|
1,397
|
|
Deferred
profit on sale-leaseback transaction*
|
|
|
(4,748
|
)
|
Gain
from sale of property in the United Kingdom
|
|
$
|
3,276
|
|
*
On January 1, 2019, the Company adopted the new lease standard and recorded an adjustment to opening accumulated deficit of $4.8
million (adjusted based on currency rate on January 1, 2019) related to the de-recognition of deferred profit related to the U.K
facility sales leaseback transaction.
7.
Property, Plant and Equipment
Property,
plant and equipment consist of the following at December 31, 2019 and 2018 (in thousands):
|
|
December 31,
|
|
|
December 31,
|
|
|
Estimated
|
|
|
2019
|
|
|
2018
|
|
|
Useful Life
|
Leasehold improvements
|
|
$
|
186
|
|
|
$
|
81
|
|
|
Lesser of lease term or estimated useful life
|
Office furniture and equipment
|
|
|
59
|
|
|
|
25
|
|
|
3 years
|
Computer equipment and software
|
|
|
611
|
|
|
|
599
|
|
|
3 years
|
Land in the United Kingdom
|
|
|
90
|
|
|
|
86
|
|
|
NA
|
|
|
|
946
|
|
|
|
791
|
|
|
|
Less: accumulated depreciation
|
|
|
(665
|
)
|
|
|
(683
|
)
|
|
|
Total property, plant and equipment, net
|
|
$
|
281
|
|
|
$
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction in progress
|
|
$
|
171
|
|
|
$
|
-
|
|
|
|
Depreciation expense was approximately
$21,000 and $1.3 million for the years ended December 31, 2019 and 2018, respectively.
During the year ended December 31, 2019,
the Company purchased $171,000 laboratory equipment which has not yet been placed in service as of December 31, 2019.
8. Notes
Payable
The
following two tables summarize outstanding debt as of December 31, 2019 and 2018, respectively (amount in thousands):
|
|
|
|
Stated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
Conversion
|
|
|
|
|
|
Remaining
|
|
|
Carrying
|
|
|
|
Maturity
Date
|
|
Rate
|
|
|
Price
|
|
|
Face
Value
|
|
|
Debt
Discount
|
|
|
Value
|
|
Short
term convertible notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6%
unsecured (1)
|
|
Due
|
|
|
6
|
%
|
|
$
|
3.09
|
|
|
$
|
135
|
|
|
$
|
-
|
|
|
$
|
135
|
|
10%
unsecured (2)
|
|
4/18/2020
|
|
|
10
|
%
|
|
$
|
0.22
|
|
|
|
500
|
|
|
|
(67
|
)
|
|
|
433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
635
|
|
|
|
(67
|
)
|
|
|
568
|
|
Short
term notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8%
unsecured (5)
|
|
Various
|
|
|
8
|
%
|
|
|
N/A
|
|
|
|
555
|
|
|
|
(43
|
)
|
|
|
512
|
|
10%
unsecured (6)
|
|
Various
|
|
|
10
|
%
|
|
|
N/A
|
|
|
|
3,551
|
|
|
|
(73
|
)
|
|
|
3,478
|
|
12%
unsecured (7)
|
|
On
Demand
|
|
|
12
|
%
|
|
|
N/A
|
|
|
|
440
|
|
|
|
-
|
|
|
|
440
|
|
0%
unsecured (8)
|
|
8/1/2020
|
|
|
0
|
%
|
|
|
N/A
|
|
|
|
1,156
|
|
|
|
(85
|
)
|
|
|
1,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,702
|
|
|
|
(201
|
)
|
|
|
5,501
|
|
Short
term notes payable - related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10%
unsecured - Related Parties (9)
|
|
On
Demand
|
|
|
10
|
%
|
|
|
N/A
|
|
|
|
66
|
|
|
|
-
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
|
|
|
|
-
|
|
|
|
66
|
|
Long
term notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8%
unsecured (10)
|
|
Various
|
|
|
8
|
%
|
|
|
N/A
|
|
|
|
7,008
|
|
|
|
(420
|
)
|
|
|
6,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,008
|
|
|
|
(420
|
)
|
|
|
6,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance as of December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,411
|
|
|
$
|
(688
|
)
|
|
$
|
12,723
|
|
NORTHWEST
BIOTHERAPEUTICS, INC.
Notes
to the Consolidated Financial Statements
|
|
|
|
Stated
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value of
|
|
|
|
|
|
|
|
|
Interest
|
|
|
Conversion
|
|
|
|
|
|
Remaining
|
|
|
Embedded
|
|
|
Carrying
|
|
|
|
Maturity
Date
|
|
Rate
|
|
|
Price
|
|
|
Face
Value
|
|
|
Debt Discount
|
|
|
Conversion Option
|
|
|
Value
|
|
Short
term convertible notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6%
unsecured (1)
|
|
Due
|
|
|
6
|
%
|
|
$
|
3.09
|
|
|
$
|
135
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
135
|
|
10% unsecured
(2)
|
|
10/18/2019
|
|
|
10
|
%
|
|
$
|
0.22
|
|
|
|
500
|
|
|
|
(43
|
)
|
|
|
-
|
|
|
|
457
|
|
18%
unsecured (3)
|
|
In
Default
|
|
|
18
|
%
|
|
$
|
0.21
|
|
|
|
914
|
|
|
|
-
|
|
|
|
357
|
|
|
|
1,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,549
|
|
|
|
(43
|
)
|
|
|
357
|
|
|
|
1,863
|
|
Short
term convertible notes payable - related party
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10% unsecured
(4)
|
|
On
Demand
|
|
|
10
|
%
|
|
$
|
0.23
|
|
|
|
5,400
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short
term notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8% unsecured
(5)
|
|
6/20/2019
and 12/12/2019
|
|
|
8
|
%
|
|
|
N/A
|
|
|
|
3,840
|
|
|
|
(383
|
)
|
|
|
-
|
|
|
|
3,457
|
|
10% unsecured
(6)
|
|
Various
|
|
|
10
|
%
|
|
|
N/A
|
|
|
|
3,658
|
|
|
|
(400
|
)
|
|
|
|
|
|
|
3,258
|
|
12%
unsecured (7)
|
|
On
Demand
|
|
|
12
|
%
|
|
|
N/A
|
|
|
|
440
|
|
|
|
-
|
|
|
|
-
|
|
|
|
440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,938
|
|
|
|
(783
|
)
|
|
|
-
|
|
|
|
7,155
|
|
Short
term notes payable - related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10%
unsecured - Related Parties (9)
|
|
On
Demand
|
|
|
10
|
%
|
|
|
N/A
|
|
|
|
324
|
|
|
|
-
|
|
|
|
-
|
|
|
|
324
|
|
12%
unsecured - Related Parties (9)
|
|
On
Demand
|
|
|
12
|
%
|
|
|
N/A
|
|
|
|
69
|
|
|
|
-
|
|
|
|
-
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
393
|
|
|
|
-
|
|
|
|
-
|
|
|
|
393
|
|
Long
term notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8% unsecured
(5)
|
|
2/13/2020
|
|
|
8
|
%
|
|
|
N/A
|
|
|
|
1,155
|
|
|
|
(119
|
)
|
|
|
-
|
|
|
|
1,036
|
|
5%
unsecured (6)
|
|
1/13/2020
|
|
|
10
|
%
|
|
|
N/A
|
|
|
|
1,000
|
|
|
|
(50
|
)
|
|
|
-
|
|
|
|
950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,155
|
|
|
|
(169
|
)
|
|
|
-
|
|
|
|
1,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance as of December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,435
|
|
|
$
|
(995
|
)
|
|
$
|
357
|
|
|
$
|
16,797
|
|
(1)
|
This
$135,000 note as of December 31, 2019 and December 31, 2018 consists of two separate 6% notes in the amounts of $110,000 and
$25,000. In regard to the $110,000 note, the Company has made ongoing attempts to locate the creditor to repay or convert
this note, but has been unable to locate the creditor to date. In regard to the $25,000 note, the holder has elected to convert
these notes into equity, the Company has delivered the applicable conversion documents to the holder, and the Company is waiting
for the holder to execute and return the documents.
|
(2)
|
On October 18, 2018, the Company entered into an Unsecured Convertible
Promissory Note Agreement Plus Warrant (the “Note”) with an individual investor (the “Holder”) for an aggregate
principal amount of $500,000. The Note bore interest at a rate of 10% per annum and is convertible at a conversion price of $0.22
per share of common stock. The Note was due and payable on October 18, 2019. Upon issuance of the Note, the Holder received a 2-year
warrant to purchase 714,286 common shares of the Company at an exercise price of $0.35 per share (the “Warrants”).
The fair value of the Warrants on the issuance date was approximately $57,000 using the Black-Scholes Model, which was recorded
as a discount with a corresponding credit to warrant liabilities.
On October 30, 2019, the Company entered into a Note Amendment
Agreement (the “Amendment”) with the Holder with the following material adjustments.
- Extended
the Note maturity date by six months from October 18, 2019 to April 18, 2020;
- Issued
a new 2-year Warrant for up to 1,000,000 shares of the Company’s common stock at an exercise price of $0.25 per share valued
at $100,000 on October 30, 2019.
The Amendment was treated as an extinguishment for accounting
purposes. The Company recorded approximately $56,000 loss on debt extinguishment.
|
(3)
|
On May 1, 2018, the Company entered into a Convertible Redeemable Note Agreement (the “Redeemable Note”) of $1.4 million with an existing investor. The Redeemable Note was in default on August 25, 2018.
|
Due
to the events of default, the holder is entitled to convert all or any amount of the outstanding principal amount and interest
into shares of the common stock of the Company without restrictive legend of any nature. The conversion price is equal to 90%
of the average of the 5 lowest daily volume weighted average prices of the Company’s common stock during the 15 consecutive
trading days immediately preceding the conversion date.
During
the year ended December 31, 2019, the Company converted approximately $0.9 million of principal and $0.1 million of accrued interest
into approximately 4.9 million shares of the Company’s common stock at a fair value of $1.4 million. The Company recorded
approximately $0.4 million of debt extinguishment loss from this conversion.
(4)
|
Between
February 2018 and April 2018, the Company’s Chief Executive Officer, Linda Powers, loaned the Company aggregate
funding of $5.4 million, and the Company entered into Convertible Note agreements for this amount (the “Convertible
Notes”). The Convertible Notes were 15-day demand notes, and intended as temporary bridge loans. However, they remained
unpaid and outstanding for up to nearly 1-1/2 years.
The
fair value of the warrants for the Convertible Notes was approximately $4.2 million, which was recorded as debt discount
at the issuance date. This $4.2 million debt discount was expensed immediately for these demand Convertible Note warrants.
|
|
During
the year ended December 31, 2019, the Company repaid the $5.4 million principal and $0.8 million of interest.
|
NORTHWEST
BIOTHERAPEUTICS, INC.
Notes
to the Consolidated Financial Statements
(5)
|
During
the year ended December 31, 2019, the Company converted approximately $5.2 million of principal and $0.4 million of accrued
interest into approximately 26.5 million shares of the Company’s common stock at a fair value of $6.8 million. The Company
recorded approximately $1.2 million of debt extinguishment loss from this conversion.
|
(6)
|
Between
October 1, 2018 and November 7, 2018, the Company entered into multiple one-year promissory notes (the “Notes”)
with multiple investors (the “Holders”) for an aggregate principal amount of $3.7 million. The Notes included
approximately $0.2 million OID. The Notes bore interest at 10% per annum.
Between
October and November 2019, the Company entered into multiple Note Amendment Agreements (the “Amendments”)
with the Holders with the following major adjustments:
- Extended the Notes maturity date by four to six months;
- Agreed to partially settle $0.6 million principal and accrued interest of the Notes in 2.8 million shares of common stock
at $0.23 per share;
- Issued new 2-year warrant for up to 5.5 million shares of the Company’s common stock at an exercise price of $0.23
per share valued at $560,000 on the amendment date;
- Extended the maturity date of 21.1 million existing warrants to June 19, 2021.
The
Amendment was treated as an extinguishment for accounting purposes. The Company recorded approximately $1.2 million loss
on debt extinguishment.
During
the year ended December 31, 2019, the Company made a principal payment of approximately $420,000, and an interest payment
of approximately $43,000, which included a $27,000 premium pursuant to the prepayment option.
During
the year ended December 31, 2019, the Company converted approximately $0.3 million of principal and $44,000 of accrued
interest into approximately 1.3 million shares of the Company’s common stock at a fair value of $0.3 million. The
Company recorded approximately $20,000 of debt extinguishment loss from this conversion. The Company also wrote off $29,000
of unamortized debt discount during the conversion, which was recognized as additional debt extinguishment loss.
|
(7)
|
This
$440,000 note as of December 31, 2019 consists of two separate 12% demand notes in the amounts of $300,000 and $140,000.
|
(8)
|
On
May 28, 2019, the Company entered into a settlement agreement (the “Settlement”) with Cognate BioServices, resolving
past matters and providing for the restart of DCVax®-Direct Production.
|
Cognate
agreed to reduce outstanding accounts payable by approximately $10 million, with some amounts related to periods of inactivity
being cancelled and with $1.1 million being deferred until 2020 (the “Deferred Note”). As part of this overall settlement,
the Company also provided a contingent note payable (the “Contingent Payable Derivative”) of $10 million, which is
only payable upon the Company’s first financing after DCVax product approval in or outside the U.S. If such product approval
has not been obtained by the seventh anniversary of the agreement, such Contingent Payable Derivative will expire without becoming
payable.
The
Contingent Payable Derivative may be satisfied in whole or in part through conversion to equity if Cognate so elects on a Determination
Date during the period from the date of the first application for product approval until 120 days after such application date.
The Contingent Payable Derivative may also become payable in the event of an uncured event of default. The Contingent Payable
Derivative bears interest rate at 6% per annum.
The
following table summarizes the Settlement transaction at inception date which resulted in a $1.0 million gain from debt extinguishment
(amount in thousands):
Accounts payable (in dispute)
|
|
$
|
9,894
|
|
Upfront cash payment
|
|
|
(1,334
|
)
|
Deferred installment note (net of $175 discount)
|
|
|
(981
|
)
|
Contingent payable derivative at inception *
|
|
|
(6,602
|
)
|
Gain from debt extinguishment
|
|
$
|
977
|
|
*see
Note 4 for valuation details
NORTHWEST BIOTHERAPEUTICS, INC.
Notes to the Consolidated Financial Statements
As of December 31, 2019, the Deferred Note had $1.2 million
principal outstanding.
Goldman
Notes
In
2017, Leslie J. Goldman, an officer of the Company, loaned the Company an aggregate amount of $1.3 million pursuant to certain
Demand Promissory Note Agreements. On January 3, 2018, Mr. Goldman loaned the Company an additional $30,000 (collectively the
“Goldman Notes”). Approximately $0.5 million of the Goldman Notes bear interest at the rate of 12% per annum, and
$0.8 million of the Goldman Notes bear interest at the rate of 10% per annum.
During the year ended December 31, 2017, the Company
made an aggregate principal payment of $1.2 million and an aggregate of $47,000 interest payment associated with these demand notes.
During 2018, the Company made an aggregate principal
payment of $0.4 million, leaving an outstanding principal balance of approximately $69,000 and approximately $73,000 accrued interest
associated with the Goldman Notes as of December 31, 2018.
During the year ended December
31, 2019, the Company paid $148,000 related to the Goldman Notes, including $79,000 of interest completing the payments on the
outstanding Goldman Notes.
Toucan Notes
In
2017, Toucan Capital Fund III loaned the Company an aggregate amount of $1.2 million pursuant to multiple Demand Promissory Notes
(the “Toucan Notes”). The Toucan Notes bear interest at 10% per annum, and are payable upon demand, with 7 days’
prior written notice to the Company.
During the year ended December
31, 2017, the Company made an aggregate principal payment of approximately $0.8 million on the Toucan Notes.
During the year ended December
31, 2018, the Company made an aggregate principal payment of approximately $0.4 million on the Toucan Notes. In addition, the Company
also made a partial interest payment of $18,000.All principal was repaid as of December 31, 2018. There was approximately $46,000
remaining of unpaid interest as of December 31, 2018.
During the year ended December
31, 2019, the Company paid interest totaling $46,000, to pay off the Notes.
Board of Directors Notes
In 2017, Jerry Jasinowski, Robert
Farmer and Cofer Black, members of the Company’s Board of Directors, loaned the Company an aggregate amount of $300,000 pursuant
to multiple Demand Promissory Notes (the “Notes”). The Notes bear interest at 10% per annum, and are payable upon demand,
with 7 days’ prior written notice to the Company.
On November 28, 2018, the Company made a partial
payment of $40,000 to the Note held by Mr. Farmer.
The Notes were fully paid back
in January 2019.
Advent BioServices Note
Advent BioServices (“Advent”),
a related party which was formerly part of Cognate BioServices and was spun off separately as part of an institutional financing
of Cognate, provided a short-term loan to the Company in the amount of $65,000 on September 26, 2018. The loan bears interest at
10% per annum, and is payable upon demand, with 7 days’ prior written notice to the Company.
As of December 31, 2019, the
Note remains outstanding and unpaid. The principal and interest owed to Advent under this Note at December 31, 2019 was $66,000
and $8,000, respectively, based on the current exchange rate.
NORTHWEST BIOTHERAPEUTICS, INC.
Notes to the Consolidated Financial Statements
(10)
|
On
March 29, 2019, the Company entered into two 22-month notes (the “Notes”), with two different institutional investors.
The Notes have a principal balance of $4.4 million, accrue interest at a rate of 8% per annum and have a maturity date of January
29, 2021. The Notes contain an OID of 10%. Net funding to the Company totaled $4.0 million. The Notes allow for an optional prepayment
at the Company’s discretion. Should the Company elect to prepay the Notes, the Company will incur a prepayment premium
of 15%. Monthly amortization payments of 1/14th of the total due on
the Notes will be payable beginning in month 9 through month 22, with a 10% premium.
In
June 2019, the Company entered into two 21-month notes (the “Notes”), with two different institutional investors. The
Notes have a principal balance of $2.8 million, accrue interest at a rate of 8% per annum and mature in March 2021. The Notes contain
an OID of 10%. Net funding to the Company totaled $2.5 million. The Notes allow for an optional prepayment at the Company’s
discretion. Should the Company elect to prepay the Notes, the Company will incur a prepayment premium of 15%. Monthly amortization
payments of 1/14th of the total due related to the Notes will be payable beginning
in month 7 through month 21, with a 10% premium.
The
outstanding interest for the above long-term notes was approximately $0.3 million as of December 31, 2019.
|
The following table summarizes total
interest expenses related to senior convertible notes, share-settled debt, other notes and mortgage loans for the years ended December
31, 2019 and 2018, respectively (in thousands):
|
|
For the years ended
|
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Interest expenses related to outstanding notes:
|
|
|
|
|
|
|
|
|
Contractual interest
|
|
$
|
1,168
|
|
|
$
|
1,648
|
|
Amortization on debt premium
|
|
|
-
|
|
|
|
(355
|
)
|
Amortization of debt discount
|
|
|
1,430
|
|
|
|
1,975
|
|
Total interest expenses related to outstanding notes
|
|
|
2,598
|
|
|
|
3,268
|
|
Interest expenses related to outstanding notes to related parties:
|
|
|
|
|
|
|
|
|
Contractual interest
|
|
|
366
|
|
|
|
617
|
|
Amortization of debt discount
|
|
|
-
|
|
|
|
4,235
|
|
Total interest expenses related to outstanding notes to
related parties
|
|
|
366
|
|
|
|
4,852
|
|
Interest expenses related to mortgage loan:
|
|
|
|
|
|
|
|
|
Contractual interest
|
|
|
-
|
|
|
|
1,174
|
|
Amortization of debt issuance costs
|
|
|
-
|
|
|
|
496
|
|
Total interest expenses on the mortgage loan
|
|
|
-
|
|
|
|
1,670
|
|
Interest expenses related to Series A convertible preferred stock
|
|
|
|
|
|
|
68
|
|
Other interest expenses
|
|
|
11
|
|
|
|
13
|
|
Total interest expense
|
|
$
|
2,975
|
|
|
$
|
9,871
|
|
NORTHWEST BIOTHERAPEUTICS, INC.
Notes to the Consolidated Financial Statements
The following table summarizes the principal
amounts of the Company’s debt obligations as of December 31, 2019 (amount in thousands):
|
|
Payment Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
1 to 2
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
Short term convertible notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
6% unsecured
|
|
|
135
|
|
|
|
135
|
|
|
|
-
|
|
10% unsecured
|
|
|
500
|
|
|
|
500
|
|
|
|
-
|
|
Short term notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
8% unsecured
|
|
|
555
|
|
|
|
555
|
|
|
|
-
|
|
10% unsecured
|
|
|
3,551
|
|
|
|
3,551
|
|
|
|
|
|
12% unsecured
|
|
|
440
|
|
|
|
440
|
|
|
|
-
|
|
0% unsecured
|
|
|
1,156
|
|
|
|
1,156
|
|
|
|
-
|
|
Short term notes payable - related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
10% unsecured - (on demand)
|
|
|
66
|
|
|
|
66
|
|
|
|
-
|
|
Long term notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
8% unsecured
|
|
|
7,008
|
|
|
|
-
|
|
|
|
7,008
|
|
Total
|
|
$
|
13,411
|
|
|
$
|
6,403
|
|
|
$
|
7,008
|
|
9. Net Loss per Share Applicable to
Common Stockholders
Basic loss per common share is computed
by dividing net loss by the weighted average number of common shares outstanding during the reporting period. Diluted loss per
common share is computed similar to basic loss per common share except that it reflects the potential dilution that could occur
if dilutive securities or other obligations to issue common stock were exercised or converted into common stock.
The following securities were not included
in the diluted net loss per share calculation because their effect was anti-dilutive as of the periods presented (in thousands):
|
|
For the years ended
|
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Common stock options
|
|
|
104,659
|
|
|
|
100,159
|
|
Common stock warrants
|
|
|
347,734
|
|
|
|
360,414
|
|
Contingently issuable warrants
|
|
|
11,739
|
|
|
|
11,739
|
|
Convertible notes and accrued interest
|
|
|
2,617
|
|
|
|
32,954
|
|
Potentially dilutive securities
|
|
|
466,749
|
|
|
|
505,266
|
|
10. Related Party Transactions
Advent BioServices Agreement
On May 14, 2018, the Company entered into
a DCVax®-L Manufacturing and Services Agreement with Advent BioServices (the “Advent Agreement”), a related party
which was formerly part of Cognate BioServices and was spun off separately as part of an institutional financing of Cognate. The
Advent Agreement provides for manufacturing of DCVax-L products at an existing facility in London; it does not cover activities
involving the facility in Sawston. The Sawston activities are covered in Ancillary Services Agreement as described below. The manufacturing
in the UK is intended to supply the European region as well as the UK. The Advent Agreement provided for a program initiation payment
of approximately $1.0 million (£0.7 million), in connection with technology transfer and operations transfer from Germany
to the U.K., to the existing facility in London, development of new Standard Operating Procedures (SOPs), training of new personnel,
selection of new suppliers and auditing for GMP compliance, and other preparatory activities. Such initiation payment was fully
paid by the Company as of December 31, 2018. The Advent Agreement provides for certain payments for achievement of milestones and,
as is the case under the existing agreements with Cognate BioServices, the Company is required to pay certain fees for dedicated
production capacity reserved exclusively for DCVax production, and pay for a certain minimum number of patients, whether or not
the Company fully utilizes the dedicated capacity and number of patients. Either party may terminate the Advent Agreement at any
time for any reason on twelve months’ notice. The notice period is designed to enable an effective transition and minimize
or avoid interruption of product supply. During the twelve-month period, the Company will continue to pay the minimum fees and
the applicable fees for any DCVax products beyond the minimums, and Advent will continue to produce the DCVax products.
NORTHWEST BIOTHERAPEUTICS, INC.
Notes to the Consolidated Financial Statements
On November 8, 2019, the Company and Advent
entered into an Ancillary Services Agreement with an 8-month Term for the U.K. Facility Development Activities and the Compassionate
Use Program Activities. The Ancillary Services Agreement establishes a structure under which Advent will develop Statements of
Work (“SOWs”) for each portion of the U.K. Facility Development Activities and Compassionate Use Program Activities,
and will deliver those SOWs to the Company for review and approval. The SOWs will set forth activities relating to the design,
specifications, engineering, infrastructure, regulatory compliance, construction, equipment, test runs, regulatory inspection and
certification of the facility. The SOWs will also set forth the costs related to such activities. For SOWs approved by the Company,
the Company will pay or reimburse Advent on the basis of costs incurred plus fifteen percent. To date, Advent has not yet submitted
SOWs and the Company has not yet made any payments.
Related Party Expenses and Accounts
Payable
The following table summarizes expenses
incurred to related parties (i.e., amounts invoiced) during the year ended December 31, 2019 and 2018 (amount in thousands) (some
of which remain unpaid as noted in the second table below):
|
|
For the years ended
|
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Cognate BioServices, Inc. (related party until February 2018)
|
|
|
N/A
|
|
|
$
|
873
|
|
Cognate BioServices GmbH
|
|
|
N/A
|
|
|
|
66
|
|
Cognate Israel
|
|
|
N/A
|
|
|
|
168
|
|
Advent BioServices
|
|
|
5,218
|
|
|
|
6,258
|
|
Total
|
|
$
|
5,218
|
|
|
$
|
7,365
|
|
The
following table summarizes outstanding unpaid accounts payable held by related party as of December 31, 2019 and 2018 (amount in
thousands). These unpaid amounts are part of the expenses reported in the table above and also part of certain
expenses incurred in prior periods.
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Advent BioServices
|
|
$
|
834
|
|
|
$
|
3,967
|
|
Other Related Parties Loans
Linda F. Powers - Demand Loans
Between
February 2018 and April 2018, the Company’s Chief Executive Officer, Linda Powers, loaned the Company aggregate funding of
$5.4 million pursuant to convertible Notes. The Notes were 15-day demand notes, for loans provided as short-term bridge
loans. However, repayment was not completed for nearly 1-1/2 years.
During the year ended December 31, 2019,
the Company repaid the $5.4 million principal and $0.8 million interest.
NORTHWEST BIOTHERAPEUTICS, INC.
Notes to the Consolidated Financial Statements
Advent BioServices Note
Advent BioServices provided a short-term
loan to the Company in the amount of $65,000 on September 26, 2018. The loan bears interest at 10% per annum, and is payable upon
demand, with 7 days’ prior written notice to the Company.
As of December 31, 2019, the Advent Note
remains outstanding and unpaid. The principal amount and accrued interest owed to Advent under this Note at December 31, 2019 was
$66,000 and $8,000, respectively, based on the current exchange rate.
Interest
expense for the year ended December 31, 2019 and 2018 associated with related party loans was approximately $0.4 million and $4.9
million, respectively.
11. Stockholders’ Deficit
2019 Activities
Registered Direct Offering
During the year ended December 31, 2019,
the Company issued an aggregate of 32.7 million shares of its common stock at a purchase price between $0.19 and $0.23 per share
to certain institutional investors in multiple registered direct offerings (the “Offering”). Included
with the Offering were 1.3 million shares of common stock which were issued from the conversion of an existing loan and the related
accrued interest totaling $306,000. The net proceeds from the Offering were approximately $6.9 million, after deducting offering
costs of $0.3 million paid by the Company.
In connection with the Offering, the Company
did not issue any additional warrants for the new investment by the investors, but the Company, in effect, agreed to modify certain
existing warrants already held by some of those investors. The Company extended the expiration date for additional 12 to 18 months
after the original expiration date and the weighted average exercise price of warrants was reduced by an amount ranging from 2
to 8 cents as well. The Company recorded an incremental change of $2.5 million on the fair value of warrants due to the modification
and recorded it as part of offering cost during the year ended December 31, 2019.
Debt Conversion
During the year ended December 31, 2019,
the Company converted debt of approximately $6.8 million of principal and $0.7 million of accrued interest into approximately 35.5
million shares of the Company’s common stock at a fair value of $9.2 million. The Company recorded approximately $1.7 million
of debt extinguishment loss from the conversion.
Warrants Exercised for Cash
During the year ended December 31, 2019,
the Company issued 9.5 million shares of its common stock from warrants exercised for cash. The Company received $2.2 million in
cash.
Shares Settlement
On May 28, 2019, the Company entered into
a settlement agreement with Cognate BioServices, resolving past matters and providing for the restart of DCVax®-Direct Production
(see Note 8).
As part of the settlement agreement, the
number of shares of the Company’s common stock which the Company was to issue to Cognate was substantially reduced: 52 million
shares of the Company’s common stock which the Company had previously agreed to issue to Cognate were reduced to 12 million
shares. The Company considers the reduction in shares owed to Cognate a modification. Because the 52 million shares were never
issued and the modification, which resulted in a decrease in fair value, is not a forfeiture, previously recognized expense related
to services performed by Cognate is not reversed in connection with this modification. During the year ended December 31, 2019,
the Company recorded $12,000 in its common stock par and reduced same amount in additional paid-in capital.
2018 Activities
Increase of Authorized Shares
On April 27, 2018, the Company held a Special
Meeting of Shareholders to vote on several matters, including increasing the number of authorized shares of common stock from 450,000,000
to 1,200,000,000, par value $0.001 per share, and increasing the number of authorized shares of preferred stock from 40,000,000
to 100,000,000, par value $0.001 per share. On May 2, 2018, the Company filed a Certificate of Amendment of its Seventh Amended
and Restated Certificate of Incorporation with the Secretary of the State of Delaware, which effected the increase in authorized
shares of common stock and the increase in authorized shares of preferred stock.
NORTHWEST BIOTHERAPEUTICS, INC.
Notes to the Consolidated Financial Statements
Equity Financing
On June 22, 2018, the Company entered into
agreements with institutional investors for a registered direct offering with proceeds of $1.0 million. The Company issued 4 million
shares of common stock at a purchase price of $0.25 per share. Additionally, the investors received 2-year Class D-3 warrants to
purchase up to 2 million shares of common stock with an exercise price of $0.30 per share.
Debt Conversion
During the year ended December 31, 2018,
the Company converted approximately $6.1 million principal and $0.4 million accrued interest into approximately 32.4 million shares
of common stock at fair value of $8.1 million. The Company recorded an approximate $1.6 million debt extinguishment loss from the
conversion.
Warrants Exercised for Cash
During the year ended December 31, 2018,
the Company issued approximately 10.9 million shares of common stock from the exercise of warrants with an exercise price from
$0.22 to $0.26 for aggregate proceeds of $2.6 million.
Share-settled Debt
During the year ended December 31, 2018,
the Company issued 14.2 million shares of common stock to the holder of the Company’s share-settled debt as advance payment
for future debt conversion. There was no share-settled debt outstanding as of December 31, 2018.
Stock Purchase Warrants
The following is a summary of warrant activity
for the years ended December 31, 2019 and 2018 (dollars in thousands, except per share data):
|
|
Number
of
Warrants
|
|
|
Weighted
Average
Exercise Price
|
|
|
Remaining
Contractual Term
|
|
Outstanding as of January 1, 2018
|
|
|
320,406
|
|
|
$
|
0.50
|
|
|
|
2.62
|
|
Warrants granted
|
|
|
75,669
|
|
|
|
0.48
|
|
|
|
|
|
Warrants exercised for cash
|
|
|
(10,936
|
)
|
|
|
0.23
|
|
|
|
|
|
Warrants expired and cancellation
|
|
|
(12,986
|
)
|
|
|
1.33
|
|
|
|
|
|
Outstanding as of December 31, 2018
|
|
|
372,153
|
|
|
$
|
0.29
|
|
|
|
1.97
|
|
Warrants granted
|
|
|
8,067
|
|
|
|
0.23
|
|
|
|
|
|
Warrants exercised for cash
|
|
|
(9,532
|
)
|
|
|
0.23
|
|
|
|
|
|
Warrants expired and cancellation
|
|
|
(11,215
|
)
|
|
|
0.62
|
|
|
|
|
|
Outstanding as of December 31, 2019
|
|
|
359,473
|
|
|
$
|
0.27
|
|
|
|
1.42
|
|
12. Variable Interest Entities
Variable Interest Entities (“VIEs”)
are entities in which equity investors lack the characteristics of a controlling financial interest. VIEs are consolidated
by the primary beneficiary. The primary beneficiary is the party who has both the power to direct the activities of a VIE
that most significantly impact the entity’s economic performance and an obligation to absorb losses of the entity or a right
to receive benefits from the entity that could potentially be significant to the entity.
Advent
On May 14, 2018, the Company entered into
a DCVax-L Manufacturing and Services Agreement with Advent BioServices, a related party which was formerly part of Cognate and
was spun off separately as part of an institutional financing of Cognate. The Advent Agreement provides for manufacturing of DCVax-L
products at an existing facility in London for the European region. On November 8, 2019, the Company and Advent entered into an
Ancillary Services Agreement with an 8-month Term for U.K. Facility Development Activities and Compassionate Use Program Activities.
The Ancillary Services Agreement provides for U.K. Facility Development Activities for the manufacturing facility in Sawston, UK
and the Compassionate Use Program Activities in the UK. See Note 10 for more detail.
NORTHWEST BIOTHERAPEUTICS, INC.
Notes to the Consolidated Financial Statements
As of December 31, 2019 and 2018, the Company
did not have the power over the most significant activities (control of operating decisions) and therefore did not meet the “power”
criteria of the primary beneficiary.
The
maximum exposure to loss is limited to the notional amounts of the implicit variable interest in Advent, if any. Under the
Advent Agreement, either party may terminate at any time upon twelve months’ notice, providing a transition period for technology
transfer. Accordingly, the maximum exposure to loss, if any, is approximately $5 million and $6 million as of December
31, 2019 and 2018, respectively, which is the minimum twelve-monthly payments the Company must pay to terminate their relationship
with Advent. Under the Ancillary Services Agreement, the agreement expires eight months after its effective date, and can also
be terminated upon any material breach that remains uncured for thirty days after notice.
13. Commitments and Contingencies
Operating Lease
The Company adopted ASC Topic 842 - Leases
as of January 1, 2019, using the transition method per ASU No. 2018-11 issued on July 2018 wherein entities were allowed to initially
apply the new leases standard at adoption date and recognize a cumulative-effect adjustment to the opening balance of retained
earnings in the period of adoption. Accordingly, all periods prior to January 1, 2019 were presented in accordance with the previous
ASC Topic 840, Leases, and no retrospective adjustments were made to the comparative periods presented. Adoption of ASC 842
resulted in an increase to total assets and liabilities due to the recording of operating lease right-of-use assets ("ROU")
and operating lease liabilities of approximately $4.3 million, as of January 1, 2019. On March 4, 2019, the
Company recognized additional $0.6 million ROU and lease liabilities to its amended office lease in the U.S. The adoption did not
materially impact the Company’s consolidated statements of operations or cash flows.
The Company has operating leases for corporate
offices in the U.S., U.K., Germany and the Netherlands, and for manufacturing facilities in the U.K. Leases with an initial term
of 12 months or less are not recorded in the balance sheet. The Company has elected the practical expedient to account for each
separate lease component of a contract and its associated non-lease components as a single lease component,
thus causing all fixed payments to be capitalized. The Company also elected the package of practical expedients permitted within
the new standard, which among other things, allows the Company to carry forward historical lease classification. The
renewal options have not been included in the calculation of the lease liabilities and ROU as the Company is not reasonably certain
to exercise the options. Variable lease payment amounts that cannot be determined at the commencement of the lease such
as increases in lease payments based on changes in index rates or usage, are not included in the ROU assets or liabilities. These
are expensed as incurred and recorded as variable lease expense.
At December 31, 2019, the Company had operating
lease liabilities of approximately $5.3 million for both the 20-year lease of the building for the manufacturing facility in Sawston,
U.K., and the current office lease in the U.S. and ROU of approximately $4.7 million for the Sawston lease and US office lease,
which were included in the consolidated balance sheet.
The following summarizes quantitative information about the
Company’s operating leases:
|
|
For the Year ended
|
|
|
|
December 31, 2019
|
|
|
|
U.K
|
|
|
U.S
|
|
|
Total
|
|
Lease cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
$
|
607
|
|
|
$
|
247
|
|
|
$
|
854
|
|
Short-term lease cost
|
|
|
50
|
|
|
|
81
|
|
|
|
131
|
|
Variable lease cost
|
|
|
-
|
|
|
|
15
|
|
|
|
15
|
|
Total
|
|
$
|
657
|
|
|
$
|
343
|
|
|
$
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other information
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
-
|
|
|
$
|
(244
|
)
|
|
$
|
(244
|
)
|
Weighted-average remaining lease term – operating leases
|
|
|
10.0
|
|
|
|
0.9
|
|
|
|
|
|
Weighted-average discount rate – operating leases
|
|
|
12
|
%
|
|
|
12
|
%
|
|
|
|
|
The Company recorded lease costs as a component of general and
administrative expense during the year ended December 31, 2019.
Maturities of our operating leases, excluding short-term leases,
are as follows:
NORTHWEST BIOTHERAPEUTICS, INC.
Notes to the Consolidated Financial Statements
|
|
U.K
|
|
|
U.S
|
|
|
Total
|
|
Year ended December 31, 2020
|
|
$
|
679
|
|
|
$
|
332
|
|
|
$
|
1,011
|
|
Year ended December 31, 2021
|
|
|
659
|
|
|
|
84
|
|
|
|
743
|
|
Year ended December 31, 2022
|
|
|
659
|
|
|
|
-
|
|
|
|
659
|
|
Year ended December 31, 2023
|
|
|
659
|
|
|
|
-
|
|
|
|
659
|
|
Year ended December 31, 2024
|
|
|
659
|
|
|
|
-
|
|
|
|
659
|
|
Thereafter
|
|
|
9,209
|
|
|
|
-
|
|
|
|
9,209
|
|
Total
|
|
|
12,524
|
|
|
|
416
|
|
|
|
12,940
|
|
Less present value discount
|
|
|
(7,600
|
)
|
|
|
(31
|
)
|
|
|
(7,631
|
)
|
Total lease liabilities
|
|
$
|
4,924
|
|
|
$
|
385
|
|
|
$
|
5,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities, current portion included in the
Consolidated Balance Sheet at December 31, 2019
|
|
$
|
92
|
|
|
$
|
303
|
|
|
$
|
395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities, long-term portion included in the
Consolidated Balance Sheet at December 31, 2020
|
|
$
|
4,832
|
|
|
$
|
82
|
|
|
$
|
4,914
|
|
Manufacturing Services Agreements
The Company has manufacturing services
agreements with Cognate BioServices in the US, and with Advent BioServices in the U.K.
Advent BioServices
On May 14, 2018, the Company entered
into a DCVax®-L Manufacturing and Services Agreement (“MSA”) with Advent BioServices, a related party which
was formerly part of Cognate BioServices and was spun off separately as part of an institutional financing of Cognate. The
Advent Agreement provides for manufacturing of DCVax-L products at an existing facility in London for the European region.
The Agreement is structured in the same manner as the Company’s existing Agreements with Cognate BioServices. The
Advent Agreement provides for a program initiation payment of approximately $1.0 million, in connection with technology
transfer and operations to the U.K. from Germany, development of new Standard Operating Procedures (SOPs), training of new
personnel, selection of new suppliers and auditing for GMP compliance, and other preparatory activities. Such initiation
payment was fully paid by the Company as of December 31, 2018. The Advent Agreement provides for certain payments for
achievement of milestones and, as is the case under the existing agreement with Cognate BioServices, the Company is required
to pay certain fees for dedicated production capacity reserved exclusively for DCVax production, and pay for manufacturing of
DCVax-L products for a certain minimum number of patients, whether or not the Company fully utilizes the dedicated capacity
and number of patients. Either party may terminate the MSA on twelve months’ notice, to allow for transition
arrangements by both parties.
On November 8, 2019, the Company and Advent
entered into an Ancillary Services Agreement with an 8-month Term for U.K. Facility Development Activities and Compassionate Use
Program Activities. The Ancillary Services Agreement establishes a structure under which Advent will develop Statements of Work
(“SOWs”) for each portion of the U.K. Facility Development Activities and Compassionate Use Program Activities, and
will deliver those SOWs to the Company for review and approval. After an SOW is approved by the Company, Advent will proceed with
or continue the applicable services and will invoice the Company pursuant to the SOW. Since both the U.K. Facility Development
and the Compassionate Use Program involve pioneering and uncertainties in most aspects, the invoicing under the Ancillary Services
Agreement will be on the basis of costs incurred plus fifteen percent. To date, Advent has not yet submitted any SOWs and the Company
has not yet made any payments to Advent under the Ancillary Services Agreement.
U.S. Securities and Exchange Commission
As previously reported, the SEC has been
investigating the Company regarding various topics that have been previously disclosed. The Company has been cooperating with the
SEC investigation. On October 10, 2019, the Company entered into a settlement agreement with the SEC. Under the settlement,
in which the Company neither admits nor denies any violations, the Company paid a fine of $250,000 in connection with past weaknesses
in its internal controls. As part of this investigation and settlement, the Company, with SEC oversight, will and has retained
an additional independent consultant to review remediation efforts implemented and provide guidance to help the Company remediate,
if applicable, any outstanding deficiencies.
NORTHWEST BIOTHERAPEUTICS, INC.
Notes to the Consolidated Financial Statements
15. Income Taxes
No provision was made for U.S. taxes on
undistributed foreign earning as such earnings are considered to be permanently reinvested. It is not practicable to determine
the amount of additional tax, if any that might be payable on those earnings if repatriated.
The tax effects of temporary differences
and tax loss and credit carry forwards that give rise to significant portions of deferred tax assets and liabilities at December
31, 2019 and 2018 are comprised of the following (in thousands):
|
|
As of
December
31, 2019
|
|
|
As of
December
31, 2018
|
|
Deferred tax asset
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
176,140
|
|
|
$
|
170,087
|
|
Research and development credit carry forwards
|
|
|
16,983
|
|
|
|
16,377
|
|
Stock based compensation and other
|
|
|
14,565
|
|
|
|
14,216
|
|
Total deferred tax assets
|
|
|
207,688
|
|
|
|
200,680
|
|
Valuation Allowance
|
|
|
(207,688
|
)
|
|
|
(200,680
|
)
|
Deferred tax asset, net of allowance
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company has identified the United States, Maryland, Germany
and United Kingdom as significant tax jurisdictions.
The Company's U.S. net operating loss (“NOL”)
carryforwards for tax purposes as of December 31, 2019, are approximately $620.1 million. Unused NOL carryforwards from years prior
to 2018 of $554.5 million will begin to expire in 2019 through 2037. NOL incurred in 2018 and later amount to $65.6 million and
shall carryforward indefinitely. NOL carryforwards are generally available to offset future taxable income; however, the utilization
of NOL may be limited under the Internal Revenue Code Section 382 as a result of changes in ownership of the Company's stock over
the loss periods and prior to utilization of the carryforwards. The Company also has approximately $17 million in research and
development tax credits available to offset federal income tax in future periods. If unused, these credits expire through 2037.
The Company’s NOL carryforwards for foreign tax purposes as of December 31, 2019 are $31.1 million. NOL in the United Kingdom
and Germany of $15.6 million and $15.2 million respectively do not expire over time. NOL in the Netherlands of $253,000 will begin
to expire in 2025 through 2031. The Company’s tax years are still open under statute from 2016 to present, although NOL carryovers
from prior tax years are subject to examination and adjustments to the extent utilized in future years.
During 2018 the Company reevaluated
the pricing/deductibility of stock options granted and the value of warrants issued, resulting in the decrease in the potential
future tax deduction from those instruments.
In assessing the realization of deferred
tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be
realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the
period in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income and taxing strategies in making this assessment. In case the deferred tax assets will not be realized
in future periods, the Company has provided a valuation allowance for the full amount of the deferred tax assets at December 31,
2019 and 2018.
NORTHWEST BIOTHERAPEUTICS, INC.
Notes to the Consolidated Financial Statements
The expected tax expense (benefit) based
on the U.S. federal statutory rate is reconciled with actual tax expense (benefit) as follows:
(dollars in thousands)
|
|
As of December 31, 2019
|
|
|
As of December 31, 2018
|
|
Statutory federal income tax rate
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
State taxes, net of federal tax benefit
|
|
|
8.9
|
%
|
|
|
9.1
|
%
|
Tax rate differential on foreign income
|
|
|
-0.4
|
%
|
|
|
-0.4
|
%
|
Derivative gain or loss
|
|
|
12.2
|
%
|
|
|
10.7
|
%
|
Expiration of net operating losses
|
|
|
-7.9
|
%
|
|
|
0.0
|
%
|
Other permanent items and true ups
|
|
|
-2.3
|
%
|
|
|
0.5
|
%
|
R&D Credit
|
|
|
3.0
|
%
|
|
|
2.7
|
%
|
Change in rate
|
|
|
0.0
|
%
|
|
|
17.9
|
%
|
Change in valuation allowance
|
|
|
-34.5
|
%
|
|
|
-61.5
|
%
|
Income tax provision (benefit)
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
As of December 31, 2019
|
|
|
As of December 31, 2018
|
|
Federal
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
|
|
|
(5,183
|
)
|
|
|
(10,688
|
)
|
State
|
|
|
|
|
|
|
|
|
Current
|
|
|
-
|
|
|
|
-
|
|
Deferred
|
|
|
(1,421
|
)
|
|
|
(9,469
|
)
|
Foreign
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
(404
|
)
|
|
|
(1,868
|
)
|
Change in valuation allowance
|
|
|
7,008
|
|
|
|
22,025
|
|
Income tax provision (benefit)
|
|
$
|
-
|
|
|
$
|
-
|
|
ASC 740 prescribes a recognition threshold
and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken
in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination
by taxing authorities. As of December 31, 2019, and 2018, there were no uncertain tax positions. The Company’s policy for
recording interest and penalties associated with uncertain tax positions is to record such expense as a component of income tax
expense. There were no amounts accrued for penalties or interest during the year ended December 31, 2019. Management is currently
unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.
16. Subsequent Events
Between January and February 2020, the
Company received approximately $6.0 million cash from issuance of 34 million shares of common stock and 8.5 million warrants. Approximately
11.4 million shares of the total 34 million shares are pending to be issued.
Between January and March 2020, the Company
converted approximately $1.7 million outstanding debt and interest into 11.4 million shares of common stock.
During February 2020, the Company entered
into multiple one-year convertible notes (the “Notes”) with multiple holders (the “Holders”) for an aggregate
principal amount of $1.0 million. The Notes are convertible at 2 cents above the closing price on each of the Note’s issuance
date and bear interest at the rate of 10% per annum. Upon issuance of the Notes, the Holders also received a 2-year warrant to
purchase a total of 1.4 million common shares at an exercise price of $0.35 per share.
During February 2020, the Senior Vice President,
General Counsel advanced $0.2 million to the Company.