Quarterly Report (10-q)

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Table of Contents

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


	☐	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)

(240) 497-9024

(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.

Table of Contents

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

Table of Contents

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

Table of Contents

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.

Table of Contents

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.

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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.

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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.

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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.

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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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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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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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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.

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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		281		24,702		7,408		25,116
Total stock-based compensation expense	$	1,263	$	38,908	$	14,632	$	39,307

The total unrecognized compensation cost was approximately $3.2 million as of September 30, 2021 and will be recognized over the next 1.5 years.

Stock Options

The following table summarizes stock option activity for the Company’s option plans during the nine months ended September 30, 2021 (amount in thousands, except per share number):


				Weighted
				Average
		Weighted		Remaining
	Number of	Average Exercise		Contractual Life	Total Intrinsic
	Shares	Price		(in years)	Value
Outstanding as of January 1, 2021	308,840	$	0.33	8.9	$	372,219
Granted	910		0.92	8.9
Cash exercised	(183)		0.25	—		—
Cashless exercise	(4,376)		0.25	—		—
Forfeited/expired	—		—	—		—
Outstanding as of September 30, 2021	305,191	$	0.33	8.2	$	290,517
Options vested (1)	279,875	$	0.32	8.2	$	268,218

(1)	Approximately 239.3 million options are not exercisable until at least November 30, 2021.

Ms. Linda Powers, the Company’s Chief Executive Officer, and Mr. Leslie Goldman, the Company’s Senior Vice President, are subject to an agreement under which they cannot exercise any options or warrants except upon at least 61 days’ prior notice.

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NOTES TO CONDENSED CONSOLIDATED STATEMENTS

6. Outstanding Debt

The following two tables summarize outstanding debt as of September 30, 2021 and December 31, 2020, 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		Due		6	%	$	3.09	$	135	$	—	$	135
									135		—		135
Short term notes payable
8% unsecured		Various		8	%		N/A		4,248		(214)		4,034
9% unsecured		Various		9	%		N/A		3,297		(95)		3,202
12% unsecured		On Demand		12	%		N/A		703		—		703
									8,248		(309)		7,939
Long term notes payable
1% unsecured		Various		1	%		N/A		433		—		433
8% unsecured		12/31/2022		8	%		N/A		11,005		(686)		10,319
6% secured		3/25/2025		6	%		N/A		1,590		—		1,590
									13,028		(686)		12,342

Ending balance as of September 30, 2021								$	21,411	$	(995)	$	20,416


			Stated									Embedded
			Interest			Conversion				Remaining		Conversion		Carrying
	Maturity Date		Rate			Price		Face Value		Debt Discount		Option		Value
Short term convertible notes payable
6% unsecured		Due		6	%	$	3.09	$	135	$	—	$	—	$	135
8% unsecured		4/30/2021		8	%	$	0.85		2,125		(937)		2,507		3,695
									2,260		(937)		2,507		3,830
Short term notes payable
8% unsecured		Various		8	%		N/A		1,785		(51)		—		1,734
10% unsecured		Various		10	%		N/A		263		—		—		263
12% unsecured		On Demand		12	%		N/A		440		—		—		440
									2,488		(51)		—		2,437
Long term notes payable
8% unsecured		Various		8	%		N/A		7,160		(496)		—		6,664
6% secured		3/25/2025		6	%		N/A		1,843		—		—		1,843
									9,003		(496)		—		8,507

Ending balance as of December 31, 2020								$	13,751	$	(1,484)	$	2,507	$	14,774

On March 1, 2021, the Company entered into a Commercial Loan Agreement (the “Commercial Loan”) with a commercial lender for an aggregate principal amount of $10 million. The Commercial Loan bears interest at 8% per annum with a 22-month term. There are no principal repayments during the first 8 months of the term. The Commercial Loan is amortized in 14 installments starting on November 1, 2021. The Commercial Loan carries an original issue discount of $1 million.

In April 2021, the Company received two additional loans under the Coronavirus Aid, Relief and Economic Security (“CARES”) Act’s Paycheck Protection Program (“PPP”). The two PPP loans were received on April 9, 2021 in the amount of $0.4 million total. The current terms of the PPP loan is five years with a maturity date of March 2026 and it contains a favorable fixed annual interest rate of 1.00%. Payments of principal and interest on the PPP Loan are deferred for the first 10 months of the term of the PPP Loan. The Company is using the loan to make payments for payroll, health and disability insurance and rent.

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NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

Between June and August, 2021, the Company entered into four-month note agreements (the “Notes”) with various individual lenders (the “Holders”) with an aggregate principal amount of $3.3 million for net proceeds of $3.1 million. The Notes contain a conditional piggy-back right to independently purchase shares from the Company, which provides a right for the Holders, contingent on the release of clinical trial data and a next private placement offering (“Next Offering”) after this release, to (a) purchase shares from the Company within seven days following such Next Offering at a 12% discount from the share price of the Next Offering for a variable number of shares equal to an amount up to 50% of the principal amount of the loan (the “Contingent Right”)and (b) exchange some or all of the outstanding loan amount for a variable number of shares, within seven days after the Next Offering at a 12% discount, resulting in a reduced cash amount repayable under the loan agreement (the “Contingent share-settled redemption feature”). The Company accounted for the Contingent Right as a freestanding financial instrument, which was classified as a warrant liability at fair value on the Consolidated Balance Sheet with changes in fair value recognized in the Consolidated Statement of Operations. The Company accounted for Contingent Share-settled Redemption Feature as an embedded derivative liability at fair value which requires to be bifurcated, and with changes in fair value recognized in the Consolidated Statement of Operations.

During the nine months ended September 30, 2021, $5.6 million of debt and interest was independently exchanged by the lender into 5.1 million shares of common stock and 0.8 million warrants. The fair value of common stock and warrants for these conversions were approximately $7.5 million, extinguishing approximately $1.9 million in liability from the note conversions.

During the nine months ended September 30, 2021, the Company made an aggregate $2.0 million cash payment on the existing outstanding notes.

For the three months ended September 30, 2021 and 2020, interest expense related to notes payable totaled approximately $0.9 million and $1.3 million including amortization of debt discounts totaling $0.4 million and $0.9 million, respectively.

For the nine months ended September 30, 2021 and 2020, interest expense related to notes payable totaled approximately $3.1 million and $2.9 million including amortization of debt discounts totaling $1.7 million and $2 million, respectively.

7. Net Earnings (Loss) per Share Applicable to Common Stockholders

Basic earnings (loss) per common share is computed by dividing net earnings (loss) by the weighted average number of common shares outstanding during the reporting period. Diluted earnings (loss) per common share is computed similar to basic earnings (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. Diluted weighted average common shares include common stock potentially issuable under the Company’s convertible notes, warrants and vested and unvested stock options.

For the three and nine months ended September 30, 2021, net income is adjusted for gain from change in fair value of warrant liabilities.

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NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

The following table sets forth the computation of earnings (loss) per share (amounts in thousands):


	For the three months ended				For the nine months ended
	September 30, 2021				September 30, 2021
	2021		2020		2021		2020
Net earnings (loss) - basic	$	45,519	$	(194,096)	$	45,806	$	(249,522)
Reversal of gain due to change in fair value of warrant liability		(58,473)		—		(93,536)		—
Net loss - diluted		(12,954)		(194,096)		(47,730)		(249,522)

Weighted average shares outstanding - basic		875,963		747,749		854,276		695,423
Diluted shares- Options		40,189		—		41,773		—
Diluted shares- Warrants		219,535		—		203,474		—
Convertible notes and interest		75		—		75		—
Weighted average shares outstanding - diluted		1,135,762		747,749		1,099,598		695,423

The following securities were not included in the diluted net earnings (loss) per share calculation because their effect was anti-dilutive as of the periods presented (in thousands):


	For the nine months ended
	September 30, 2021
	2021		2020
Common stock options		263,418		304,009
Common stock warrants		74,292		341,798
Convertible notes and accrued interest		—		16,193
Potentially dilutive securities		337,710		662,000

8. Related Party Transactions

Advent BioServices Agreement

The Company has a Manufacturing Services Agreement with Advent BioServices (“Advent”) for the manufacture of DCVax-L products at an existing facility in London, as previously reported. The Company also has an Ancillary Services Agreement with Advent, which establishes a structure under which Advent submits Statements of Work (“SOWs”) for activities related to the development of the Sawston facility and the compassionate use activities in the UK, as previously reported. The Ancillary Services Agreement had an original term of eight months, which ended in July 2020. The Company extended the initial term by 12 months to July 2021, with no other changes, and recently extended the term for another 12 months to July 2022.

Related Party Expenses and Accounts Payable

During the three months ended September 30, 2021 and 2020, the Company recognized approximately $1.7 million and $1.4 million, respectively, in research and development costs from Advent. During the nine months ended September 30, 2021 and 2020, the Company recognized approximately $5.1 million and $4.2 million, respectively, in research and development costs from Advent.

Additionally, during the nine months ended September 30, 2021 and 2020, the Company capitalized $2.3 million and $1.3 million costs, invoiced by Advent, related to the Sawston buildout. Some of these amounts have been paid and some have not been paid.

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NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

The following table summarizes outstanding unpaid accounts payable and accrued expenses held by related parties as of September 30, 2021 and December 31, 2020 (amount in thousands). These unpaid amounts include part of the expenses reported in the above section and also certain expenses incurred in prior periods.


	September 30, 2021		December 31, 2020
Advent BioServices – amount invoiced	$	1,173	$	3,734
Advent BioServices – amount accrued		1,816		1,629
Accounts payable and accrued expenses to Advent BioServices	$	2,989	$	5,363

9. Stockholders’ Deficit

Common Stock

Warrants and Stock Options Exercised for Cash

During the nine months ended September 30, 2021, the Company received $12.1 million from the exercise of warrants and stock options issued in the past with an exercise price between $0.175 and $0.40. The Company issued approximately 50.3 million shares of common stock upon these warrant and stock option exercises. The Company also received approximate $0.8 million cash proceeds from investors prior to September 30, 2021, for which the corresponding exercise agreement was not finalized and thus, common stock totaling 3.4 million was not issued as of September 30, 2021. Accordingly, such amounts are included in Investor advances in the accompanying condensed consolidated balance sheet as of September 30, 2021.

The Company also entered into certain warrant exercise agreement which contains conditional piggy-back right to purchase shares (the “Piggy-back Right”). In exchange for the exercise, Company agrees that if the Company (i) publicly releases top line data from the Phase III trial of its DCVax®-L vaccine (such eventuality, the “Release”) and (ii) consummates the first offering of its common stock following such Release (the “Next Offering”) then Holder shall have the right, at its sole option exercisable within seven (7) days following the Next Offering, to piggy-back on the Next Offering by independently purchasing from Company up to a number of shares equal in value to 50% of the Total Exercise Amount provided that: the price per share paid by Holder shall be equal to the Next Offering price per share less 12%. The Piggy-back Right was given to the holders as an inducement offer (a sweetener) in order for the holders to exercise the warrants. The Company recognized approximately $0.3 million inducement expense during the nine months ended September 30, 2021.

Warrants and Stock Options Cashless Exercise

During the nine months ended September 30, 2021, certain warrant and stock option holders elected to cashless exercise some of their warrants and stock options, with exercise prices between $0.22 and $0.52. The Company issued approximately 6.6 million shares of common stock upon 8 million warrants and stock options exercises.

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NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

Stock Purchase Warrants

The following is a summary of warrant activity for the nine months ended September 30, 2021 (dollars in thousands, except per share data):


	Number of	Weighted Average		Remaining
	Warrants	Exercise Price		Contractual Term
Outstanding as of January 1, 2021	331,753	$	0.28	1.61
Warrants granted	774		2.00
Warrants exercised for cash	(50,156)		0.24
Cashless warrrants exercised	(3,581)		0.24
Warrants expired and cancelled	(1,024)		2.95
Outstanding as of September 30, 2021	277,766	$	0.28	1.00

Warrants and Options Suspension

The options and warrants held by Ms. Powers and Mr. Goldman are subject to an ongoing suspension on a rolling basis pursuant to the Blocker Letter. In addition, other executive officers and directors extended their suspensions from September 30, 2021 until October 31, 2021, and from October 31 to at least November 30, 2021.

At September 30, 2021, approximately a total of 247.3 million options and 58.4 million warrants were under block or suspension agreements.

At October 31, 2021, approximately a total of 239.3 million options and 59.7 million warrants were under block or suspension until at least November 30, 2021.

10. Commitments and Contingencies

Operating Lease

The Company has operating leases for corporate offices in the U.S. and U.K., 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 lease renewal options have not been included in the calculation of the lease liabilities and right-of-use (“ROU”) assets as the Company has not yet determined whether 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.

On March 8, 2021, the Company extended its office lease in the U.S for additional three years and five months under an amended agreement. The extension included a waiver of any rent payment for the initial five-month extension period as well as insignificant change to monthly rent costs for the remainder of the lease. The Company recognized additional $0.7 million ROU assets and lease liabilities for its amended office lease in the U.S.

At September 30, 2021, the Company had operating lease liabilities of approximately $5.6 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. ROU assets of approximately $4.9 million for the Sawston lease and US office lease are included in the condensed consolidated balance sheet.

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NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

The following summarizes quantitative information about the Company’s operating leases (amount in thousands):


	For the Nine Months ended
	September 30, 2021
	U.K			U.S			Total
Lease cost
Operating lease cost	$	493		$	212		$	705
Short-term lease cost		38			—			38
Variable lease cost		48			5			53
Total	$	579		$	217		$	796
Other information
Operating cash flows from operating leases	$	(519)		$	(84)		$	(603)
Weighted-average remaining lease term – operating leases		9.1			1.9
Weighted-average discount rate – operating leases		12	%		12	%

The Company recorded lease costs as a component of general and administrative expense during the nine months ended September 30, 2021 and 2020, respectively.

Maturities of the operating leases, excluding short-term leases, are as follows:


Three months ended December 31, 2021	$	239
Year ended December 31, 2022		963
Year ended December 31, 2023		972
Year ended December 31, 2024		878
Thereafter		9,401
Total		12,453
Less present value discount		(6,857)
Operating lease liabilities included in the Condensed Consolidated Balance Sheet at September 30, 2021	$	5,596

Manufacturing Services Agreements

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. The Agreement is structured in the same manner as the Company’s prior agreements with Cognate BioServices. The Advent Agreement provides for certain payments for achievement of milestones and, as was the case under the prior agreement with Cognate BioServices, the Company is required to pay certain fees for dedicated production capacity 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 12 months’ notice, to allow for transition arrangements by both parties.

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NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

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 develops Statements of Work (“SOWs”) for the U.K. Facility Development Activities and Compassionate Use Program Activities, and delivers 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 is on the basis of costs incurred plus fifteen percent. The Ancillary Services Agreement had an original term of eight months, which ended in July 2020. The Company extended the term by 12 months to July 2021, with no other changes, and recently extended it for another 12 months to July 2022.

German Tax Matter

The German tax authorities have audited our wholly owned subsidiary, NW Bio GmbH, for 2013-2015. The NW Bio GmbH submitted substantial documentation to refute certain aspects of the assessments and the German tax authorities agreed in principle with the Company’s proposed revised approach and settlement offer. The Company provided documentation and accrued for a proposed settlement offer, that included €346,000 (approximately $406,000 as of December 31, 2020) for the years under audit, with an additional €101,000 (approximately $118,000) for the more recent years to date. A final settlement bill was received from the German Tax Authority confirming that only a portion of the original bill was owed, €277,000 (approximately $329,000), for corporate taxes, interest, and reduced penalty for the period under audit, which the Company paid on September 2, 2021. The Company also received and paid the final settlement bill from the local authority for trade taxes for the audit period in the amount of €231,000 (approximately $272,000). The Company estimated €100,528 (approximately $117,000) for the expected taxes and interest owed for more recent periods and has sufficient accruals. On November 4, 2021, the Company received a letter from the local tax authorities asking for additional late fees of €513,000 (approximately $595,000) on reimbursable withholding taxes that had been waived during the settlement process. While the Company has accrued for this new amount, we believe this new bill is not consistent with the settlement that was reached with the federal and city officials earlier this year, and the Company plans to appeal. Based on the negotiations, the Company concluded based on its evaluation under ASC 740, it is in the view of the Company that the resolution of these tax matters will not more likely than not ultimately result in a net material charge to the Company.

11. Subsequent Events

In total, the Company received $8.2 million from exercises of warrants and issuance of notes between October 1, 2021 and November 12, 2021.

During October and November 2021, 34.8 million shares of common stock were issued upon warrant exercises of $6.9 million. Approximately 0.9 million shares of common stock are pending to be issued.

During October 2021, the Company entered into multiple four-month note agreements (the “Notes”) with various individual lenders (the “Holders”) with an aggregate principal amount of $1.14 million for net proceeds of $1.1 million. The Notes contain a conditional piggy-back right to independently purchase shares from the Company, which provides a right for the Holders, contingent on the release of clinical trial data and the next private placement offering (“Next Offering”) after this release, to (a) purchase shares from the Company within seven days following such Next Offering at a 12% discount from the share price of the Next Offering for a variable number of shares equal to an amount up to 50% of the principal amount of the loan and (b) exchange some or all of the outstanding loan amount for a variable number of shares, within seven days after the Next Offering at a 12% discount, resulting in a reduced cash amount repayable under the loan agreement.

In October 2021, the Company entered into multiple note extension agreements whereby the maturity date of the notes was extended for additional 2-4 months.

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NOTES TO CONDENSED CONSOLIDATED STATEMENTS

On October 31, 2021, the Company further extended the suspension of approximately 297.6 million warrants and options held by the Company’s certain officers and board of directors until at least November 30, 2021. Additionally, certain investors also agreed to suspend total 1.4 million warrants until February and April 2022.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes to those statements included with this report. In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. The words “believe,” “expect,” “intend,” “anticipate,” and similar expressions are used to identify forward-looking statements, but some forward-looking statements are expressed differently. Many factors could affect our actual results, including those factors described under “Risk Factors” in our Form 10-K for the year ended December 31, 2020 and in Part II Item 1A of this report. These factors, among others, could cause results to differ materially from those presently anticipated by us. You should not place undue reliance on these forward-looking statements.

Overview

We are a biotechnology company focused on developing personalized immune therapies for cancer. We have developed a platform technology, DCVax®, which uses activated dendritic cells to mobilize a patient’s own immune system to attack their cancer.

Our lead product, DCVax®-L, is designed to treat solid tumor cancers in which the tumor can be surgically removed. We have conducted a 331-patient international Phase III trial of DCVax-L for Glioblastoma multiforme brain cancer (GBM). As previously reported, the data collection and confirmation process was conducted by the independent contract research organization (CRO) who managed the trial and by other independent service firms. On October 5, 2020, the Company announced that Data Lock for the Phase III trial had been reached, and that a series of steps and processes would follow. These processes included data validation, analyses of the data by independent statisticians, preparations by the statisticians of summaries of the Trial results for review by the Company, the Principal Investigator, the Steering Committee of the Trial, the Scientific Advisory Board, and independent experts, in preparation for publication in a scientific journal and public announcement. This series of processes is under way. It is anticipated that public announcement will follow these processes.

As also previously reported, coronavirus-related difficulties have impacted most aspects of the process, especially with the 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 site personnel have been unavailable due to being reassigned for COVID-19, and the limited site personnel have had to work under restrictions. The clinical trial sites have not allowed personnel from the contract research organization and other service firms to make monitoring visits to check data and resolve queries. Committee processes and regulatory processes have been 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. There has also been a reduction in compassionate use cases during COVID-related travel restrictions.

A license to work with human tissues for medical products at the Sawston facility has been issued by the UK Human Tissue Authority (HTA) to the Company’s contract manufacturer and operator of the facility, Advent BioServices. In the UK, an HTA license is required for the collection, processing and storage of human tissues and cells for medical purposes. This includes the tumor tissues used to prepare the lysate for DCVax-L products, and the immune cells that comprise the active ingredient of DCVax-L. Obtaining such a license requires an application, inspection and certification process. This process has now been completed and the HTA license allowing the relevant activities to be conducted at Sawston for DCVax-L has been issued.

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The Sawston facility must also be certified and licensed by MHRA in order to be able to manufacture products such as DCVax-L. The process involves an extensive application process, comprehensive inspection of all aspects of the physical facility, its construction and equipment, and all aspects of the facility’s operations, including all operating systems, flow of materials and activities, sterility, quality control, staffing and other factors. It also includes extensive scrutiny of the quality management system that comprises approximately 1,000 regulatory documents, including standard operating procedures (SOPs) for the facility and for the product, validation records, data from practice manufacturing runs and other required documents.

Intensive preparations have been under way all year for this comprehensive inspection. A detailed application package and data were submitted to MHRA to qualify for the inspection. The original inspection timing was delayed by MHRA due to their caseload; however, the week-long onsite review by two MHRA inspectors was recently completed. The final phase of the process involves receiving an official MHRA inspection report and taking any responsive actions that may be required. The Company currently anticipates that this process will be completed before year-end.

On August 28, 2020, the Company acquired Flaskworks, LLC (“Flaskworks”), a company that has developed a system to close and automate the manufacturing of cell therapy products such as DCVax®. The Company acquired 100% of the ownership, and Flaskworks became a wholly-owned subsidiary of the Company. Flaskworks was previously owned by its technical founders and Corning Inc. The technical team from Flaskworks joined the Company as part of the Acquisition. It is anticipated that the Flaskworks system will enable substantial scale-up of production volumes of DCVax products and substantial reduction of production costs. The Company’s buildout of the Sawston, UK facility has been designed to proceed in phases, as modules, both for efficiency in the timing of capital costs and to allow flexibility in operations and usage. The Company anticipates that implementation of the Flaskworks system will enable certain phases of the buildout to be simplified and streamlined.

Our second product, DCVax®-Direct, is designed to treat inoperable solid tumors. A 40-patient Phase I trial has been completed, and included treatment of a diverse range of more than a dozen types of cancers. The Company plans to pursue preparations for Phase II trials of DCVax-Direct, as resources permit.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect our reported amounts of assets, liabilities, revenues and expenses.

On an ongoing basis, we evaluate our estimates and judgments, including those related to derivative liabilities, accrued expenses and stock-based compensation. We based our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources. Actual results could differ from those estimates, particularly given the significant social and economic disruptions and uncertainties associated with the ongoing coronavirus pandemic (“COVID-19”) and the COVID-19 control responses.

Our critical accounting policies and significant estimates are detailed in our Annual Report on Form 10-K for the year ended December 31, 2020. Our critical accounting policies and significant estimates have not changed substantially from those previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.

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Results of Operations

Operating costs:

Operating costs and expenses consist primarily of research and development expenses, including clinical trial expenses, which increase when we are actively participating in clinical trials and especially when we are in a large ongoing international phase III trial or we are completing such a large international trial, and undertaking substantial one-time expenses such as for final site visits, query resolutions, statistical work for the Statistical Analysis Plan (SAP) and analyses pursuant to the SAP, preparations for data analyses and other activities related to completion and assessment of the trial and its results. The operating costs also include administrative expenses associated with trials and increase as such operating activities grow.

In addition to clinical trial related costs, our operating costs may include ongoing work relating to our DCVax products, including R&D, product characterization, and related matters.

Following our acquisition of Flaskworks, our operating costs now include the costs for its ongoing operations and its intellectual property filings.

Our operating costs also include the costs of preparations for new or expanded clinical trial programs, such as our planned Phase II clinical trials. The preparation costs include payments to regulatory consultants, lawyers, statisticians, sites and others, evaluation of potential investigators, the clinical trial sites and the CROs managing the trials and other service providers, and expenses related to institutional approvals, clinical trial agreements (business contracts with sites), training of medical and other site personnel, trial supplies and other. Additional substantial costs relate to the maintenance and substantial expansion of manufacturing capacity, in both the U.S. and Europe.

Our operating costs also include significant legal and accounting costs in operating the Company.

Research and development:

Discovery and preclinical research and development expenses include costs for substantial external scientific personnel, technical and regulatory advisers, and others, costs of laboratory supplies used in our internal research and development projects, travel, regulatory compliance, and expenditures for preclinical and clinical trial operation and management when we are actively engaged in clinical trials.

Because we are a pre-revenue company, we do not allocate research and development costs on a project basis. We adopted this policy, in part, due to the unreasonable cost burden associated with accounting at such a level of detail and our limited number of financial and personnel resources.

General and administrative:

General and administrative expenses include personnel related salary and benefit expenses, cost of facilities, insurance, travel, legal services, property and equipment and amortization of stock options and warrants.

Three Months Ended September 30, 2021 and 2020

We recognized a net income of $45.5 million and a net loss of $194.1 million for the three months ended September 30, 2021 and 2020, respectively. The net income of $45.5 million for the three months ended September 30, 2021 inlcuded a non-cash gain of $58.5 million from change in fair value derivative liabilities.

Research and Development Expense

For the three months ended September 30, 2021 and 2020, research and development expense was $3.7 million and $17.7 million, respectively. The decrease was mainly related to a decrease of $13.2 million stock-based compensation that represented the vesting of a portion of previously granted equity-based awards, and that was recognized in research and development expense.

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We incurred approximately $1.7 million and $1.4 million in expenses from related parties during the three months ended September 30, 2021 and 2020, respectively.

General and Administrative Expense

General and administrative expenses were $6.7 million and $30.4 million for three months ended September 30, 2021 and 2020, respectively. The decrease was mainly related to a decrease of $24.4 million stock-based compensation that represented the vesting of a portion of previously granted equity-based awards, and that was recognized in general and administrative expense.

Change in fair value of derivatives

During the three months ended September 30, 2021 and 2020, we recognized a non-cash gain of $58.5 million and a non-cash loss of $139 million, respectively. The gain was primarily due to the decrease of our stock price as of September 30, 2021 ($1.28 per share) compared to June 30, 2021 ($1.47 per share), and the loss was primarily due to the increase of our stock price as of September 30, 2020 ($0.77 per share) compared to June 30, 2020 ($0.34 per share).

Interest Expense

During the three months ended September 30, 2021 and 2020, we recorded interest expense of $1.6 million and $5.5 million, respectively.

Inducement Expense

During the three months ended September 30, 2021, we recorded inducement expense of $0.3 million, which was related to certain warrants exercise.

Nine Months Ended September 30, 2021 and 2020

We recognized a net income of $45.8 million and a net loss of $249.5 million for the nine months ended September 30, 2021 and 2020, respectively. The net income of $45.8 million for the nine months ended September 30, 2021 included a non-cash gain of $93.5 million from change in fair value derivative liabilities.

Research and Development Expense

For the nine months ended September 30, 2021 and 2020, research and development expense was $16.1 million and $24.7 million, respectively. The decrease was mainly related to a decrease of $7 million stock-based compensation that represented the vesting of a portion of previously granted equity-based awards, and that was recognized in research and development expense.

We incurred approximately $5.1 million and $4.2 million in expenses from related parties during the nine months ended September 30, 2021 and 2020, respectively.

General and Administrative Expense

General and administrative expenses were $26.9 million and $39.3 million for nine months ended September 30, 2021 and 2020, respectively. The decrease was mainly related to a decrease of $17.7 million stock-based compensation that represented the vesting of a portion of previously granted equity-based awards, and that was recognized in general and administrative expense, and offset by an increase of approximately $3.4 million related to consulting expenses.

Change in fair value of derivatives

During the nine months ended September 30, 2021 and 2020, we recognized a non-cash gain of $93.5 million and a non-cash loss of $175.2 million, respectively. The gain was primarily due to the decrease of our stock price as of September 30, 2021 ($1.28 per share) compared to December 31, 2020 ($1.53 per share), and the loss was primarily due to the increase of our stock price as of September 30, 2020 ($0.77 per share) compared to December 31, 2019 ($0.21 per share)

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Interest Expense

During the nine months ended September 30, 2021 and 2020, we recorded interest expense of $3.9 million and $7.2 million, respectively.

Inducement Expense

During the nine months ended September 30, 2021, we recorded inducement expense of $0.3 million, which was related to certain warrants exercise.

Liquidity and Capital Resources

We have experienced recurring losses from operations since inception. We have not yet established an ongoing source of revenues and must cover our operating expenses through debt and equity financings to allow us to continue as a going concern. Our ability to continue as a going concern depends on the ability to obtain adequate capital to fund operating losses until we generate adequate cash flows from operations to fund our operating costs and obligations. If we are unable to obtain adequate capital, we could be forced to cease operations.

We depend upon our ability, and will continue to attempt, to secure equity and/or debt financing. We cannot be certain that additional funding will be available on acceptable terms, or at all. Our management determined that there was substantial doubt about our ability to continue as a going concern within one year after the consolidated financial statements were issued, and management’s concerns about our ability to continue as a going concern within the year following this report persist.

Cash Flow

Operating Activities

During the nine months ended September 30, 2021 and 2020, net cash outflows from operations were approximately $27.1 million and $21.9 million, respectively. The increase in cash used in operating activities was primarily attributable to an increase in clinical trial related expenditures.

Financing Activities

We received approximately $12.1 million cash from the exercise of warrants and options during the nine months ended September 30, 2021.

We received approximately $10.0 million cash proceeds from a loan from a commercial lender, $3.2 million cash from loans from various third-party lenders and $0.4 million from PPP loans during nine months ended September 30, 2021.

We received approximately $16.9 million cash from issuance of 85.8 million shares of common stock during the nine months ended September 30, 2020.

We received $9.6 million cash from the exercise of warrants during the nine months ended September 30, 2020.

We received approximately $8.6 million cash proceeds from issuances of debt to third parties during the nine months ended September 30, 2020.

We received approximately $315,000 in cash proceeds from issuances of debt with a related party during the nine months ended September 30, 2020.

We made an aggregate debt payments of approximately $2.0 million and $1.7 million during the nine months ended September 30, 2021 and 2020, respectively, including $64,000 to related parties during the nine months ended September 30, 2020.

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Other factors affecting our ongoing funding requirements include the number of staff we employ, the number of sites, number of patients and amount of activity in our clinical trial programs, the costs of further product and process development work relating to our DCVax products, the costs of preparations for Phase II trials, the costs of expansion of manufacturing, and unanticipated developments. The extent of resources available to us will determine which programs can move forward and at what pace.

Off-Balance Sheet Arrangements

Since our inception, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk represents the risk of loss that may result from the change in value of financial instruments due to fluctuations in its market price. Market risk is inherent in all financial instruments. Market risk may be exacerbated in times of trading illiquidity when market participants refrain from transacting in normal quantities and/or at normal bid-offer spreads. Our exposure to market risk is directly related to derivatives, debt and equity linked instruments related to our financing activities.

Our assets and liabilities are overwhelmingly denominated in U.S. dollars. We do not use foreign currency contracts or other derivative instruments to manage changes in currency rates. We do not now, nor do we plan to, use derivative financial instruments for speculative or trading purposes. However, these circumstances might change.

The primary quantifiable market risk associated with our financial instruments is sensitivity to changes in interest rates. Interest rate risk represents the potential loss from adverse changes in market interest rates. We use an interest rate sensitivity simulation to assess our interest rate risk exposure. For purposes of presenting the possible earnings effect of a hypothetical, adverse change in interest rates over the 12-month period from our reporting date, we assume that all interest rate sensitive financial instruments will be impacted by a hypothetical, immediate 100 basis point increase in interest rates as of the beginning of the period. The sensitivity is based upon the hypothetical assumption that all relevant types of interest rates that affect our results would increase instantaneously, simultaneously and to the same degree. We do not believe that our cash and equivalents have significant risk of default or illiquidity.

The sensitivity analyses of the interest rate sensitive financial instruments are hypothetical and should be used with caution. Changes in fair value based on a 1% or 2% variation in an estimate generally cannot be extrapolated because the relationship of the change in the estimate to the change in fair value may not be linear. Also, the effect of a variation in a particular estimate on the fair value of financial instruments is calculated independent of changes in any other estimate; in practice, changes in one factor may result in changes in another factor, which might magnify or counteract the sensitivities. In addition, the sensitivity analyses do not consider any action that we may take to mitigate the impact of any adverse changes in the key estimates.

Based on our analysis, as of September 30, 2021, the effect of a 100+/- basis point change in interest rates on the value of our financial instruments and the resultant effect on our net loss are considered immaterial.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation as of September 30, 2021, of the design and operation of our disclosure controls and procedures, as such terms are defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based on this evaluation, management concluded that, as of such date, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

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Changes in Internal Control over Financial Reporting

No change in internal control over financial reporting occurred during the most recent quarter with respect to our operations, which materially affected, or is reasonable likely to materially affect, our internal controls over financial reporting.

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Part II - Other Information

Item 1. Legal Proceedings

Not Applicable.

Item 1A. Risk Factors

Applicable risk factors are set forth in the Company’s report on Form 10-K for 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

Not Applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not Applicable

Item 6. Exhibits


31.1		Certification of President (Principal Executive Officer and Principal Financial and Accounting Officer), Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of President, Chief Executive Officer and Principal Financial and Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		Inline XBRL Instance Document.

101.SCH		Inline XBRL Schema Document.

101.CAL		Inline XBRL Calculation Linkbase Document.

101.DEF		Inline XBRL Definition Linkbase Document.

101.LAB		Inline XBRL Label Linkbase Document.

101.PRE		Inline XBRL Presentation Linkbase Document.

104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline XBRL (included as Exhibit 101).

* Filed herewith

** Furnished herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	NORTHWEST BIOTHERAPEUTICS, INC

Dated: November 15, 2021	By:	/s/ Linda F. Powers
		Name:	Linda F. Powers


		Title:	President and Chief Executive Officer

			Principal Executive Officer

			Principal Financial and Accounting Officer

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