NORTHWEST BIOTHERAPEUTICS INC - Quarter Report: 2011 March (Form 10-Q)

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þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   For the quarterly period ended March 31, 2011

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   For the transition period from ____ to ____

Delaware	94-3306718
(State or other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

4800 Montgomery Lane, Suite 800	20814
Bethesda, Maryland 20814	(Zip Code)
(Address of Principal Executive Offices)

Large accelerated filer o	Accelerated filer o	Non-accelerated filer o	Smaller reporting company þ
		(do not check if a smaller reporting company)

	Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 2010 and March 31, 2011 (unaudited)	3
Condensed Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2010 and 2011 and the period from March 18, 1996 (inception) to March 31, 2011	4
Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2010 and 2011 and the period from March 18, 1996 (inception) to March 31, 2011	5
Notes to Condensed Consolidated Financial Statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3. Quantitative and Qualitative Disclosures About Market Risk	17
Item 4. Controls and Procedures	17
PART II — OTHER INFORMATION
Item 1. Legal Proceedings	18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3. Defaults Upon Senior Securities	20
Item 4. (Removed and Reserved)	20
Item 5. Other Information	20
Item 6. Exhibits	20
SIGNATURES	21
INDEX TO EXHIBITS	22

		December 31, 2010				March 31, 2011
						(unaudited)
ASSETS
Current assets:
Cash		$	153			$	1,068
Prepaid expenses and other current assets			86				60
Total current assets			239				1,128
Property and equipment:
Laboratory equipment			29				29
Office furniture and other equipment			123				123
			152				152
Less accumulated depreciation and amortization			(113	)			(113	)
Property and equipment, net			39				39
Deposit and other non-current assets			16				16
Total assets		$	294			$	1,183
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable		$	2,835			$	2,851
Accounts payable, related party			10,527				9,971
Accrued expenses			2,074				2,518
Accrued expenses, related party			1,749				1,904
Notes payable			1,364				1,539
Note payable to related parties			4,000				4,000
Convertible notes payable, net			2,736				2,849
Convertible notes payable to related party, net			-				1,109
Embedded derivative liability			839				832
Common stock warrant liability			-				5,753
Total current liabilities			26,124				33,326
Long term liabilities:
Notes payable			350				-
Convertible notes payable, net			555				1,519
Convertible notes payable to related party, net			949				103
Total long term liabilities			1,854				1,622
Total liabilities			27,978				34,948
Stockholders’ equity (deficit):
Preferred stock, $0.001 par value; 20,000,000 shares authorized and none issued and outstanding
Common stock, $0.001 par value; 150,000,000 shares authorized, 73,118,471 and 83,180,927 shares issued and outstanding at December 31, 2010 and March 31, 2011, respectively			73				83
Additional paid-in capital			191,344				193,681
Deficit accumulated during the development stage			(218,948	)			(227,356	)
Cumulative translation adjustment			(153	)			(173	)
Total stockholders’ equity (deficit)			(27,684	)			(33,765	)
Total liabilities and stockholders’ equity (deficit)		$	294			$	1,183

										Period from March 18, 1996 (Inception) to
		Three Months Ended March 31								March 31,
		2010				2011				2011
Revenues:
Research material sales		$	-			$	-			$	570
Contract research and development from related parties			-				-				1,128
Research grants and other			-				-				1,061
Total revenues			-				-				2,759
Operating cost and expenses:
Cost of research material sales			-				-				382
Research and development			1,991				4,440				81,252
General and administration			1,356				2,316				64,305
Depreciation and amortization			-				-				2,353
Loss on facility sublease			-				-				895
Asset impairment loss and other (gain) loss			-				-				2,445
Total operating costs and expenses			3,347				6,756				151,632
Loss from operations			(3,347	)			(6,756	)			(148,873	)
Other income (expense):
Warrant valuation			-				-				6,759
Loan conversion inducement			-				-				(10,290	)
Derivative valuation gain (loss)			-				(161	)			(107	)
Gain on sale of intellectual property and property and equipment			-				-				3,664
Interest expense			(2,498	)			(1,491	)			(35,407	)
Interest income and other			-				-				1,707
Net loss			(5,845	)			(8,408	)			(182,547	)
Issuance of common stock in connection with elimination of Series A and Series A-1 preferred stock preferences			-				-				(12,349	)
Modification of Series A preferred stock warrants			-				-				(2,306	)
Modification of Series A-1 preferred stock warrants			-				-				(16,393	)
Series A preferred stock dividends			-				-				(334	)
Series A-1 preferred stock dividends			-				-				(917	)
Warrants issued on Series A and Series A-1 preferred stock dividends			-				-				(4,664	)
Accretion of Series A preferred stock mandatory redemption obligation			-				-				(1,872	)
Series A preferred stock redemption fee			-				-				(1,700	)
Beneficial conversion feature of Series D preferred stock			-				-				(4,274	)
Net loss applicable to common stockholders		$	(5,845	)		$	(8,408	)		$	(227,356	)
Net loss per share applicable to common stockholders — basic and diluted		$	(0.10	)		$	(0.11	)
Weighted average shares used in computing basic and diluted net loss per share			59,928				77,087

(Unaudited)

										Period from March 18, 1996 (Inception) to
		Three Months Ended March 31,								March 31,
		2010				2011				2011
Cash Flows from Operating Activities:
Net Loss		$	(5,845	)		$	(8,408	)		$	(182,547	)
Reconciliation of net loss to net cash used in operating activities:
Depreciation and amortization			-				-				2,353
Amortization of deferred financing costs			-				-				320
Amortization debt discount			343				1,066				25,275
Derivative valuation (gain) loss			-				161				107
Accrued interest converted to preferred stock			-				-				260
Accreted interest on convertible promissory note			-				-				1,484
Stock-based compensation costs			514				493				11,907
Stock and warrants issued for services and other expenses			3,213				3,262				12,597
Loan conversion inducement			-				-				10,290
Warrant valuation			-				-				(6,759	)
Asset impairment loss and loss (gain) on sale of properties			-				-				(936	)
Loss on facility sublease			-				-				895
Increase (decrease) in cash resulting from changes in assets and liabilities:
Prepaid expenses and other current assets			(7	)			26				650
Accounts payable and accrued expenses			(263	)			650				6,440
Related party accounts payable and accrued expenses			87				1,249				13,525
Accrued loss on sublease			-				-				(265	)
Deferred rent			-				-				410
Net Cash used in Operating Activities			(1,958	)			(1,501	)			(103,994	)
Cash Flows from Investing Activities:
Purchase of property and equipment, net			-				-				(5,044	)
Proceeds from sale of property and equipment			-				-				258
Proceeds from sale of intellectual property			-				-				1,816
Proceeds from sale of marketable securities			-				-				2,000
Refund of security deposit			-				-				(3	)
Transfer of restricted cash			-				-				(1,035	)
Net Cash used in Investing Activities			-				-				(2,008	)
Cash Flows from Financing Activities:
Proceeds from issuance of note payable			875				2,072				7,922
Proceeds from issuance of convertible notes payable to related parties			-				500				1,800
Proceeds from issuance of note payable to related parties			-				-				11,250
Repayment of note payable to related party			-				-				(7,600	)
Proceeds from issuance of convertible promissory note and warrants, net of issuance costs			-				-				16,091
Repayment of convertible promissory note			-				(350	)			(1,020	)
Borrowing under line of credit, Northwest Hospital			-				-				2,834
Repayment of line of credit, Northwest Hospital			-				-				(2,834	)
Payment on capital lease obligations			-				-				(323	)
Payments on note payable			-				-				(420	)
Proceeds from issuance preferred stock, net			-				-				28,708
Proceeds from exercise of stock options and warrants			-				-				228
Proceeds from issuance common stock, net			1,089				210				53,784
Proceeds for sale of stock warrant			-				4				94
Payment of preferred stock dividends			-				-				(1,251	)
Series A preferred stock redemption fee			-				-				(1,700	)
Deferred financing costs			-				-				(320	)
Net Cash provided by Financing Activities			1,964				2,436				107,243
Effect of exchange rates on cash			23				(20	)			(173	)
Net increase in cash			(29	)			915				1,068
Cash at beginning of period			65				153				-
Cash at end of period		$	94			$	1,068			$	1,068
Supplemental disclosure of cash flow information — Cash paid during the period for interest		$	-			$	-			$	1,879
Supplemental schedule of non-cash financing activities:
Equipment acquired through capital leases		$	-			$	-			$	285
Issuance of common stock in connection with elimination of Series A and Series A-1 preferred stock preferences			-				-				12,349
Issuance of common stock in connection conversion of notes payable and accrued interest			-				878				4,164
Modification of Series A preferred stock warrants			-				-				2,306
Modification of Series A-1 preferred stock warrants			-				-				16,393
Warrants issued on Series A and Series A-1 preferred stock dividends			-				-				4,664
Common stock warrant liability			-				5,753				17,594
Accretion of mandatorily redeemable Series A preferred stock redemption obligation			-				-				1,872
Debt discount on promissory notes			579				1,435				15,526
Conversion of convertible promissory notes and accrued interest to Series D preferred stock			-				-				5,324
Conversion of convertible promissory notes and accrued interest to Series A-1 preferred stock			-				-				7,707
Conversion of convertible promissory notes and accrued interest to common stock			-				-				269
Issuance of Series C preferred stock warrants in connection with lease agreement			-				-				43
Issuance of common stock to settle accounts payable			-				1,650				1,654
Liability for and issuance of common stock and warrants to Medarex			-				-				840
Issuance of common stock to landlord			-				-				35
Deferred compensation on issuance of stock options and restricted stock grants			-				-				759
Cancellation of options and restricted stock			-				-				849
Financing of prepaid insurance through note payable			-				-				491
Stock subscription receivable			-				-				480

 

 

		2010				2011
Research and development		$	186			$	164
General and administrative			328				329
Total stock- based compensation expense		$	514			$	493

 

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Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

 

·

Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

 

·

Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

 

		Embedded Derivative Liability				Common Stock Warrant Liability
Balance, January 1, 2011		$	839,000			$	-
Common stock warrant liability at inception			-				5,753,000
Reclassification to stockholders' equity upon conversion of notes			(168,000	)			-
Net change in fair value of embedded derivative liabilities			161,000				-
Balance, March 31, 2011		$	832,000			$	5,753,000

On January 19, 2011, the Company entered into an agreement to receive up to $2,220,000 from a non affiliated third party (the “Investor”). Under the agreement the Company entered into two promissory notes with principal amounts of $1,120,000 and $1,100,000, which are secured by certain notes and assets provided by the Investor (representing future tranches of funding under the Agreement), but are not secured by any assets of the Company. The $1,120,000 note carries an original issue discount of 10% and annual interest of 9% per annum, payable at maturity on June 30, 2012, and the $1,100,000 note carries an original issue discount of 10% and annual interest of 6% per annum, payable at maturity on December 31, 2013. Both notes were initially convertible into shares of the Company’s common stock, at a conversion price equal to 80% of the average of the daily volume weighted price of the Company’s common stock for the five lowest trading days during the 10 days immediately preceding conversion. The notes have down-round protection upon the occurrence of specified events. The proceeds of Note 1 were received at closing on January 21, 2011. The proceeds of Note 2 were to be received in four equal monthly tranches starting on July 19, 2011. However, on May 4, 2011 the Company and the Investor entered into an agreement to accelerate the funding of $600,000 of the $1,000,000 proceeds of Note 2. Pursuant to that agreement, the Investor provided the accelerated funding to the Company on May 4, 2011 and in consideration thereof, the Company adjusted the conversion price on its promissory notes to reduce the price from 80% to 70% of the market price at the time of conversion to 70%. The Investor also agreed to purchase, before October 4, 2011, outstanding indebtedness from an existing creditor in an amount of at least $1 million which has been outstanding for at least 6 months.  The Company agreed to negotiate a settlement of the amount acquired in the form of shares of the company’s common stock. The beneficial conversion feature related to the note was determined to be approximately $276,000. As a result, the total discount on the note (including the original issue discount) totaled $396,000, and is being amortized over term of the note.   On January 20, 2011, the Company entered into a $130,000 unsecured 12% Loan Agreement with SDS (the “SDS Loan”) due June 2, 2011.   In February 11, 2011, the Company received $50,000 upon issuing unsecured 6% convertible loan agreement and promissory note due in February 11, 2012 to a private, non-affiliated investor. The note is convertible at maturity into shares of the Company’s common stock at a conversion price of $0.50 per share. The intrinsic value of the convertible notes resulted in a beneficial conversion feature amounting to $25,000 which was recorded as a debt discount to be amortized over the term of the note.   On February 18, 2011, the Company entered into a transaction under which amounts due to a service provider were converted into a Convertible Promissory note in the amount of $192,195. The note was assigned to an unrelated, non-affiliated third party and amended (the “Amended Note”). The Amended Note carries an original issue discount of 10% and an annual interest rate of 4% payable at maturity on February 18, 2013. The Amended Note is convertible into shares of the Company’s common stock, at a conversion price equal to 80% of the market price at the time of conversion (the average price comprised of the average of the daily volume weighted average prices for the five (5) trading days with the lowest average prices during the fifteen (15) trading days immediately preceding conversion). The Company also entered into an additional agreement with the same investor to receive $190,000 pursuant to an additional Convertible Promissory Note. Under the same terms and with the same maturity date as the Amended Note. The intrinsic value of the convertible notes resulted in a beneficial conversion feature amounting to $122,000. As a result, the total discount on the notes (including original issue discount) totaled $176,000 and is being amortized over the term of the note

 

		December 31, 2010				March 31, 2011
Notes payable – current
0% to 12% unsecured due between June 2011 and August 2011 (net of warrant discount and original issue discount in 2010 $38 and $45 in 2011)		$	714			$	889
0% to 12% unsecured due June 2010			650				650
		$	1,364			$	1,539
Notes payable related parties - current
12% unsecured due December 31, 2010		$	4,000			$	4,000
Convertible notes payable, net - current
0% unsecured due June 2011 (net of discount related to beneficial conversion feature $357 in 2010 and $4 in 2011)		$	360			$	15
6% unsecured due November 2010			300				50
6% unsecured due March 2011			110				110
6% unsecured due between March 2011 and March 2012 (net of discount related to beneficial conversion feature $424 in 2010 and $537 in 2011)			1,526				2,338
10% unsecured due May 2011 (net of discount related to beneficial conversion feature $57 in 2010 and $8 in 2011)			338				287
11% unsecured due December 2011 (net of discount related to beneficial conversion feature $143 in 2010 and $38 in 2011)			102				49
		$	2,736			$	2,849
Convertible Notes payable related party, net - current
6% due July 2011 and November 2011 (net of discount reated to beneficial conversion feature $351 in 2010 and $161 in 2011)		$	-			$	1,109
Long term notes payable
20% unsecured convertible note due December 2013		$	350			$	-
Long term convertible notes, net
4% to 10% unsecured due between February 2013 and March 2014 (net of discount related to beneficial conversion feature $321 in 2010 and $1,098 in 2011)		$	555			$	1,519
Long term convertible notes related party, net
20% unsecured convertible note due December 2013 (net of discount reated to beneficial conversion feature and original issue discount $449 in 2011)		$	949			$	103
Total notes payable, net		$	9,954			$	11,119

 

		Three Months Ended  March 31
		2010				2011
Common stock options			4,158				3,257
Common stock warrants			37,000				46,726
Convertible notes			16,400				29,750
Excluded potentially dilutive securities			57,558				79,733

		March 31, 2010				March 31, 2011				Change
Net cash provided by (used in):
Operating activities		$	(1,958	)		$	(1,501	)		$	457
Investing activities			(-	)			(-	)			-
Financing activities			1,964				2,436				472
Effect of exchange rates on cash			23				(20)				(43	)
Increase in cash		$	29			$	915			$	886

 

 

In February 2011, the Company received $50,000 upon issuing an unsecured 6% convertible loan agreement and promissory note due in March 2012 to private, non-affiliated investor.

 

 

 

 

(i)

The Company's process for internally reporting material information in a systematic manner to allow for timely filing of material information is ineffective, due to its inherent limitations from being a small company, and there exist material weaknesses in internal control over financial reporting that contribute to the weaknesses in our disclosure controls and procedures. These weaknesses include the lack of:

·

appropriate segregation of duties;

·

appropriate oversight and review;

·

internal accounting technical expertise;

·

preparation, review and verification of internally developed documentation;

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controls in place to insure that all material developments impacting the financial statements are reflected; and

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executed agreements for significant contracts.

(ii)

Lack of a sufficient number of independent directors for our board and audit committee. We currently only have one independent director on our board, which is comprised of three directors, and on our audit committee. Although we are considered a controlled company, whereby a group holds more than 50% of the voting power, and as such are not required to have a majority of our board of directors be independent it is our intention to have a majority of independent directors in due course.

(iii)

Lack of a financial expert on our audit committee. We currently do not have an audit committee financial expert, as defined by SEC regulations on our audit committee as defined by the SEC.

(iv)

Insufficient corporate governance policies. Although we have a code of ethics which provides broad guidelines for corporate governance, our corporate governance activities and processes are not always formally documented. Specifically, decisions made by the board to be carried out by management should be documented and communicated on a timely basis to reduce the likelihood of any misunderstandings regarding key decisions affecting our operations and management.

(v)

Inadequate approval and control over transactions and commitments made on our behalf by related parties. Specifically, during the year certain related party transactions were not effectively communicated to all internal personnel who needed to be involved to account for and report the transaction in a timely manner, and the preparation of the Company reports was not coordinated with the parties responsible for those transactions. This resulted in material adjustments during the quarterly reviews and annual audit, respectively, that otherwise would have been avoided if effective communication and approval processes had been maintained.

3.1		Seventh Amended and Restated Certificate of Incorporation (3.1)(1)
3.2		Third Amended and Restated Bylaws (3.1)(2)
3.3		Amendment to the Seventh Amended and Restated Certificate of Incorporation (3.2)(2)
3.4		Amendment to Seventh Amended and Restated Certificate of Incorporation (3.4)(3)
*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.

(1)	Incorporated by reference to the exhibit shown in the preceding parentheses filed with the Registrant’s registration statement Form S-1 (File No. 333-67350) on July 17, 2006.

 

(2)	Incorporated by reference to the exhibit shown in the preceding parentheses filed with the Registrant’s Current Report on Form 8-K on June 22, 2007.

 

(3)	Incorporated by reference to the exhibit shown in the preceding parentheses filed with the Post-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 on January 28, 2008.

 

*	Filed herewith.

 

	NORTHWEST BIOTHERAPEUTICS, INC
Dated: May 20, 2011	By:	/s/ Alton L. Boynton
		Name: Alton L. Boynton
		Title: President and Chief Executive Officer
		Principal Executive Officer
		Principal Financial and Accounting Officer

By:	/s/ Linda M. Powers
	Name: Linda M. Powers
	Title: Director and Chairperson
By:	/s/ Robert Farmer
	Name: Robert Farmer
	Title: Director

3.1		Seventh Amended and Restated Certificate of Incorporation (3.1)(1)
3.2		Third Amended and Restated Bylaws (3.1)(2)
3.3		Amendment to the Seventh Amended and Restated Certificate of Incorporation (3.2)(2)
3.4		Amendment to Seventh Amended and Restated Certificate of Incorporation (3.4)(3)
*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.

 

(1)	Incorporated by reference to the exhibit shown in the preceding parentheses filed with the Registrant’s registration statement Form S-1 (File No. 333-67350) on July 17, 2006.

(2)	Incorporated by reference to the exhibit shown in the preceding parentheses filed with the Registrant’s Current Report on Form 8-K on June 22, 2007.

(3)	Incorporated by reference to the exhibit shown in the preceding parentheses filed with the Post-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 on January 28, 2008.

*	Filed herewith.