NORTHWEST BIOTHERAPEUTICS INC - Quarter Report: 2019 June (Form 10-Q)

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 June 30, 2019

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 x 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 x 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	x
Non-accelerated filer	¨	Smaller reporting company	x
		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 x

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 August 8, 2019, the total number of shares of common stock, par value $0.001 per share, outstanding was 578,509,384.

NORTHWEST BIOTHERAPEUTICS, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION		3

Item 1.	Condensed Consolidated Interim Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018	3

	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2019 and 2018	4

	Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the three and six months ended June 30, 2019 and 2018	5

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018	7

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29

Item 4.	Controls and Procedures	29

PART II - OTHER INFORMATION		30

Item 1.	Legal Proceedings	30

Item 1A.	Risk Factors	30

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

Item 3.	Defaults Upon Senior Securities	30

Item 4.	Mine Safety Disclosures	30

Item 5.	Other Information	30

Item 6.	Exhibits	30

SIGNATURES		31

PART I - FINANCIAL INFORMATION

NORTHWEST BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(Unaudited)

	June 30,			December 31,
	2019			2018
ASSETS
Current assets:
Cash and cash equivalents	$	6,676		$	22,224
Prepaid expenses and other current assets		2,230			1,574
Total current assets		8,906			23,798

Non-current assets:
Property, plant and equipment, net		355			108
Right-of-use asset, net		4,668			-
Other assets		775			761
Total non-current assets		5,798			869

TOTAL ASSETS	$	14,704		$	24,667


LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses	$	5,887		$	15,506
Accounts payable and accrued expenses to related parties and affiliates		548			4,588
Convertible notes, net		619			1,863
Convertible notes to related party		1,398			5,400
Notes payable, net		6,519			7,155
Notes payable to related party		63			393
Shares payable		138			138
Contingent payable derivative liability		6,713			-
Warrant liability		33,299			29,995
Lease liabilities		280			-
Deferred profit on sale-leaseback transaction		-			4,802
Total current liabilities		55,464			69,840

Non-current liabilities:
Note payable, net of current portion, net		7,557			1,986
Lease liabilities, net of current portion		4,690			-
Total non-current liabilities		12,247			1,986

Total liabilities		67,711			71,826

COMMITMENTS AND CONTINGENCIES

Stockholders' deficit:
Preferred stock ($0.001 par value); 100,000,000 shares authorized as of June 30, 2019 and December 31, 2018, respectively		-			-
Common stock ($0.001 par value); 1,200,000,000 shares authorized; 562.5 million and 523.2 million shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively		562			523
Additional paid-in capital		785,648			775,741
Stock subscription receivable		(10	)		(10	)
Accumulated deficit		(840,338	)		(824,413	)
Accumulated other comprehensive income		1,131			1,000
Total stockholders' deficit		(53,007	)		(47,159	)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	14,704		$	24,667

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

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 six months ended
	June 30,						June 30,
	2019			2018			2019			2018
Revenues:
Research and other	$	581		$	278		$	920		$	410
Total revenues		581			278			920			410
Operating costs and expenses:
Research and development		3,291			5,282			6,295			10,015
General and administrative		3,013			14,449			6,575			17,454
Legal expenses		914			901			2,453			2,111
Total operating costs and expenses		7,218			20,632			15,323			29,580
Loss from operations		(6,637	)		(20,354	)		(14,403	)		(29,170	)
Other income (expense):
Change in fair value of derivative liabilities		7,201			6,313			(4,820	)		(5,138	)
Gain (loss) from extinguishment of debt		784			(816	)		(4	)		(601	)
Interest expense		(787	)		(3,302	)		(1,543	)		(6,626	)
Foreign currency transaction gain (loss)		(342	)		(3,018	)		43			(1,187	)
Total other loss		6,856			(823	)		(6,324	)		(13,552	)
Net income (loss)	$	219		$	(21,177	)	$	(20,727	)	$	(42,722	)
Deemed dividend on convertible preferred stock		-			(3,535	)		-			(13,589	)
Net income (loss) applicable to common stockholders	$	219		$	(24,712	)	$	(20,727	)	$	(56,311	)

Other comprehensive income
Foreign currency translation adjustment		75			835			131			681
Total other comprehensive income (loss)	$	294		$	(20,342	)	$	(20,596	)	$	(42,041	)

Net earnings (loss) per share applicable to common stockholders
Basic	$	0.00		$	(0.06	)	$	(0.04	)	$	(0.14	)
Diluted	$	0.00		$	(0.06	)	$	(0.04	)	$	(0.14	)
Weighted average shares used in computing basic earnings (loss) per share		550,214			424,992			539,732			390,732
Weighted average shares used in computing diluted earnings (loss) per share		597,375			424,992			539,732			390,732

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

NORTHWEST BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands)

(Unaudited)

	For the Three Months Ended June 30, 2019
					Additional									Accumulated		Total
	Common Stock				Paid-in			Subscription			Accumulated			Other Comprehensive		Stockholders'
	Shares		Par value		Capital			Receivable			Deficit			Income		Deficit
Balance at April 1, 2019		537,091		537		780,478			(10	)		(840,557	)		1,056		(58,496	)
Warrants exercised for cash		6,546		6		1,525			-			-			-		1,531
Reclassification of warrant liabilities related to warrants exercised for cash		-		-		1,250			-			-			-		1,250
Issuance of common stock and warrants for conversion of debt and accrued interest		6,625		7		1,969			-			-			-		1,976
Stock-based compensation		200		0		438			-			-			-		438
Issuance of common shares in connection with a settlement agreement		12,000		12		(12	)		-			-			-		-
Net income		-		-		-			-			219			-		219
Cumulative translation adjustment		-		-		-			-			-			75		75
Balance at June 30, 2019		562,462	$	562	$	785,648		$	(10	)	$	(840,338	)	$	1,131	$	(53,007	)

	For the Six Months Ended June 30, 2019
					Additional									Accumulated		Total
	Common Stock				Paid-in			Subscription			Accumulated			Other Comprehensive		Stockholders'
	Shares		Par value		Capital			Receivable			Deficit			Income		Deficit
Balance at January 1, 2019		523,232		523		775,741			(10	)		(824,413	)		1,000		(47,159	)
Warrants exercised for cash		9,532		9		2,210			-			-			-		2,219
Reclassification of warrant liabilities related to warrants exercised for cash		-		-		1,759			-			-			-		1,759
Issuance of common stock and warrants for conversion of debt and accrued interest		17,498		18		4,959			-			-			-		4,977
Stock-based compensation		200		-		991			-			-			-		991
Cumulative effect of adopting new accounting standard		-		-		-			-			4,802			-		4,802
Issuance of common shares in connection with a settlement agreement		12,000		12		(12	)		-			-			-		-
Net loss		-		-		-			-			(20,727	)		-		(20,727	)
Cumulative translation adjustment		-		-		-			-			-			131		131
Balance at June 30, 2019		562,462	$	562	$	785,648		$	(10	)	$	(840,338	)	$	1,131	$	(53,007	)

NORTHWEST BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) - CONTINUED

(in thousands)

(Unaudited)

	For the Three Months Ended June 30, 2018
					Additional									Accumulated			Total
	Common Stock				Paid-in			Subscription			Accumulated			Other Comprehensive			Stockholders'
	Shares		Par value		Capital			Receivable			Deficit			Loss			Equity (Deficit)
Balance at April 1, 2018		414,665	$	415	$	730,502		$	(109	)	$	(810,164	)	$	(1,467	)	$	(80,823	)
Issuance of common stock and warrants for cash in a registered direct offering		4,000		4		696			-			-			-			700
Issuance of common stock for conversion of Series A convertible preferred stock		2,677		3		452			-			-			-			455
Deemed dividend on conversion of Series A convertible preferred stock to common stock		-		-		(419	)		-			-			-			(419	)
Beneficial conversion feature of Series B convertible preferred stock		-		-		1,698			-			-			-			1,698
Deemed dividend related to immediate accretion of beneficial conversion feature of Series B convertible preferred stock		-		-		(1,698	)		-			-			-			(1,698	)
Issuance of common stock for conversion of Series B convertible preferred stock		5,117		5		1,172			-			-			-			1,177
Deemed dividend on conversion of Series B convertible preferred stock to common stock		-		-		(1,417	)		-			-			-			(1,417	)
Warrants exercised for cash		2,161		2		506			-			-			-			508
Reclassification of warrant liabilities related to warrants exercised for cash		-		-		430			-			-			-			430
Conversion of share settled debt into common stock		6,500		6		666			-			-			-			672
Issuance of common stock and warrants for conversion of debt and accrued interest		9,463		9		2,352			-			-			-			2,361
Reclass between accrued interest and subscription receivable		-		-		-			9			-			-			9
Proceeds from investor to offset subscription receivable		-		-		-			100			-			-			100
Stock-based compensation		-		-		11,569			-			-			-			11,569
Net loss		-		-		-			-			(21,177	)		-			(21,177	)
Cumulative translation adjustment		-		-		-			-			-			1,551			1,551
Balance at June 30, 2018		444,583	$	444	$	746,509		$	-		$	(831,341	)	$	84		$	(84,304	)

	For the Six Months Ended June 30, 2018
					Additional									Accumulated			Total
	Common Stock				Paid-in			Subscription			Deficit			Other Comprehensive			Stockholders'
	Shares		Par value		Capital			Receivable			Accumulated			Loss			Equity (Deficit)
Balance at January 1, 2018		328,857	$	329	$	721,554		$	-		$	(788,619	)	$	(597	)	$	(67,333	)
Issuance of common stock and warrants for cash in a registered direct offering		4,000		4		696			-			-			-			700
Issuance of common stock for conversion of Series A convertible preferred stock		67,955		68		11,807			(109	)		-			-			11,766
Deemed dividend on conversion of Series A convertible preferred stock to common stock		-		-		(9,910	)		-			-			-			(9,910	)
Beneficial conversion feature of Series B convertible preferred stock		-		-		2,086			-			-			-			2,086
Deemed dividend related to immediate accretion of beneficial conversion feature of Series B convertible preferred stock		-		-		(2,086	)		-			-			-			(2,086	)
Issuance of common stock for conversion of Series B convertible preferred stock		9,441		9		2,162			-			-			-			2,171
Deemed dividend on conversion of Series B convertible preferred stock to common stock		-		-		(1,594	)		-			-			-			(1,594	)
Warrants exercised for cash		8,957		9		2,110			-			-			-			2,119
Reclassification of warrant liabilities related to warrants exercised for cash		-		-		2,177			-			-			-			2,177
Conversion of share settled debt into common stock		10,800		11		1,735			-			-			-			1,746
Issuance of common stock and warrants for conversion of debt and accrued interest		14,473		14		3,899			-			-			-			3,913
Reclass between accrued interest and subscription receivable		-		-		-			9			-			-			9
Proceeds from investor to offset subscription receivable		-		-		-			100			-			-			100
Stock-based compensation		100		-		11,873			-			-			-			11,873
Net loss		-		-		-			-			(42,722	)		-			(42,722	)
Cumulative translation adjustment		-		-		-			-			-			681			681
Balance at June 30, 2018		444,583	$	444		746,509		$	-		$	(831,341	)	$	84		$	(84,304	)

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

NORTHWEST BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	For the six months ended
	June 30,
	2019			2018
Cash Flows from Operating Activities:
Net Loss	$	(20,727	)	$	(42,722	)
Reconciliation of net loss to net cash used in operating activities:
Depreciation and amortization		8			722
Amortization of debt discount		663			5,082
Amortization of debt premium		-			(240	)
Change in fair value of derivatives		4,820			5,138
Loss from extinguishment of debt		4			601
Amortization of operating lease right-of-use asset		222			-
Stock-based compensation related to warrants modification		-			141
Stock-based compensation for services		991			11,873
Subtotal of non-cash charges		6,708			23,317
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(664	)		453
Other non-current assets		(44	)		857
Accounts payable and accrued expenses		(742	)		1,782
Related party accounts payable and accrued expenses		(4,040	)		(42	)
Lease liabilities		80			-
Net cash used in operating activities		(19,429	)		(16,355	)
Cash Flows from Investing Activities:
Purchase of equipment		(225	)		-
Net cash used in investing activities		(225	)		-
Cash Flows from Financing Activities:
Proceeds from issuance of Series A convertible preferred stock and warrants		-			527
Proceeds from issuance of Series B convertible preferred stock and warrants, net		-			6,594
Proceeds from issuance of common stock and warrants in a registered direct offering, net		-			1,000
Proceeds from private offering (shares payable)		-			138
Proceeds from investor to offset subscription receivable		-			100
Proceeds from exercise of warrants		2,219			2,119
Proceeds from issuance of notes payable, net		6,500			3,701
Proceeds from issuance of notes payable to related party		-			30
Proceeds from issuance of convertible notes payable to related party		-			5,400
Repayment of notes payable		(420	)		(2,200	)
Repayment of notes payable to related parties		(329	)		(782	)
Repayment of convertible notes payable to related parties		(4,002	)		-
Net cash provided by financing activities		3,968			16,627
Effect of exchange rate changes on cash and cash equivalents		138			1,208
Net (decrease) increase in cash and cash equivalents		(15,548	)		1,480

Cash and cash equivalents, beginning of the period		22,224			117
Cash and cash equivalents, end of the period	$	6,676		$	1,597

Supplemental disclosure of cash flow information
Interest payments on mortgage loan	$	-		$	(633	)
Interest payments on notes payable	$	(43	)	$	-
Interest payments on notes payable to related party	$	(177	)	$	(27	)
Interest payments on convertible notes payable to related party	$	(748	)	$	-

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

NORTHWEST BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	For the six months ended
	June 30,
	2019		2018
Supplemental schedule of non-cash investing and financing activities:
Issuance of common stock for conversion of Series A convertible preferred stock	$	-	$	11,766
Deemed dividend on conversion of Series A convertible preferred stock to common stock	$	-	$	9,910
Beneficial conversion feature of Series B convertible preferred stock	$	-	$	2,086
Deemed dividend related to immediate accretion of beneficial conversion feature of Series B convertible preferred stock	$	-	$	2,086
Issuance of common stock for conversion of Series B convertible preferred stock	$	-	$	2,171
Deemed dividend on conversion of Series B convertible preferred stock to common stock	$	-	$	1,594
Reclassification of warrant liabilities related to warrants exercised for cash	$	1,759	$	2,177
Conversion of share settled debt into common stock	$	-	$	1,746
Issuance of common stock and warrants for conversion of debt and accrued interest	$	3,994	$	3,312
Conversion of outstanding accounts payables to note payable and contingent payable	$	8,560	$	-
Issuance of common shares in connection with a settlement agreement	$	12	$	-
Warrants and contingently issuable warrants associated with convertible notes payable to related party	$	-	$	4,217
Conversion of note payable to offset Series A convertible preferred stock subscription receivable	$	-	$	500
Conversion of interest payable to offset Series A convertible preferred stock subscription receivable	$	-	$	71
Reclass between accrued interest and subscription receivable	$	-	$	9

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

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

1. Organization and Description of Business

Northwest Biotherapeutics, Inc. and its wholly owned subsidiaries NW Bio GmbH, Aracaris Ltd, Aracaris Capital, Ltd, and Northwest Biotherapeutics B.V. (collectively, the “Company”, “we”, “us” and “our”) were organized to discover and develop innovative immunotherapies for cancer. On April 25, 2019, the Company established a new wholly owned subsidiary Northwest Biotherapeutics B.V. in the Netherlands, where the European Medicines Agency is relocating.

The Company is developing experimental dendritic cell vaccines using its platform technology known as DCVax®. DCVax is being tested in clinical trials for use in the treatment of certain types of cancers.

The Company currently relies upon contract manufacturers for production of its DCVax products, research and development services, distribution and logistics, and related services, in compliance with the Company’s specifications and the applicable regulatory requirements. The companies are Cognate BioServices in the U.S. and Advent BioServices (a related party) in the U.K. Both of these companies specialize in the production of living cell products. Although there are many contract manufacturers for small molecule drugs and for biologics, there are only a few contract manufacturers in the U.S. and in Europe that specialize in producing living cell products. The manufacturing of such products is highly specialized and entirely different than production of biologics: the physical facilities and equipment are different, the types of personnel and skill sets are different, and the processes are different. The regulatory requirements relating to manufacturing of cellular products are especially challenging and are one of the most frequent reasons for the development of a company’s cellular products to be put on clinical hold (i.e., stopped by regulatory authorities).

In addition, the Company’s programs require dedicated capacity in these specialized manufacturing facilities. The Company’s products are fully personalized and not made in standardized batches: the Company’s products are made on demand, patient by patient, on an as needed basis.

2. Financial Condition, Going Concern and Management Plans

The Company has incurred annual net operating losses since its inception. The Company had a net loss of $20.7 million for the six months ended June 30, 2019. The Company used approximately $19.4 million of cash in its operating activities for the six months ended June 30, 2019.

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

Because of recurring operating losses, net operating cash flow deficits, and an accumulated deficit, 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.

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.

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and on the same basis as the Company prepares its annual audited consolidated financial statements. The condensed consolidated balance sheet as of June 30, 2019, condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2019 and 2018, condensed consolidated statement of stockholders’ deficit for the three and six months ended June 30, 2019 and 2018, and the condensed consolidated statements of cash flows for the six months ended June 30, 2019 and 2018 are unaudited, but include all adjustments, consisting only of normal recurring adjustments, which the Company considers necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The results for the three and six months ended June 30, 2019 are not necessarily indicative of results to be expected for the year ending December 31, 2019 or for any future interim period. The condensed consolidated balance sheet at December 31, 2018 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, 2018 and notes thereto included in the Company’s annual report on Form 10-K, which was filed with the SEC on April 2, 2019.

Use of Estimates

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

Significant Accounting Policies

Leases

Effective January 1, 2019, the Company accounts for its leases under ASC 842, Leases. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the condensed consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the right of use asset results in front-loaded expense over the lease term. Variable lease expenses are recorded when incurred.

In calculating the right of use asset and lease liability, the Company elects to combine lease and non-lease components. The Company excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election and instead recognizes rent expense on a straight-line basis over the lease term.

The Company continues to account for leases in the prior period financial statements under ASC Topic 840.

Other than above, there have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 2018 Annual Report.

Adoption of Recent Accounting Standards

Leases

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) in order to increase transparency and comparability among organizations by, among other provisions, recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous GAAP. For public companies, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (including interim periods within those periods) using a modified retrospective approach and early adoption is permitted. In transition, entities may also elect a package of practical expedients that must be applied in its entirety to all leases commencing before the adoption date, unless the lease is modified, and permits entities to not reassess (a) the existence of a lease, (b) lease classification or (c) determination of initial direct costs, as of the adoption date, which effectively allows entities to carryforward accounting conclusions under previous U.S. GAAP. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides entities an optional transition method to apply the guidance under Topic 842 as of the adoption date, rather than as of the earliest period presented. The Company adopted Topic 842 on January 1, 2019, using the optional transition method to apply the new guidance as of January 1, 2019, rather than as of the earliest period presented, and elected the package of practical expedients described above. Based on the analysis, on January 1, 2019, the Company recorded right of use assets and lease liabilities of approximately $4.3 million, which represented operating lease entered prior to January 1, 2019. Additionally, the Company recorded an adjustment to opening accumulated deficit of $4.8 million related to the derecognition of deferred profit related to the U.K facility sales leaseback transaction.

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

4. Fair Value Measurements

In accordance with ASC 820 (Fair Value Measurements and Disclosures), the Company uses various inputs to measure the outstanding warrants and certain embedded conversion feature associated with convertible debt on a recurring basis to determine the fair value of the liability. 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

The following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy as of June 30, 2019 and December 31, 2018 (in thousands):

	Fair value measured at June 30, 2019
			Quoted prices in active		Significant other		Significant
	Fair value at		markets		observable inputs		unobservable inputs
	June 30, 2019		(Level 1)		(Level 2)		(Level 3)
Warrant liability	$	33,299	$	-	$	-	$	33,299
Contingent payable derivative liability		6,713		-		-		6,713
Total fair value	$	40,012	$	-	$	-	$	40,012

	Fair value measured at December 31, 2018
			Quoted prices in active		Significant other		Significant
	Fair value at		markets		observable inputs		unobservable inputs
	December 31, 2018		(Level 1)		(Level 2)		(Level 3)
Warrant liability	$	29,995	$	-	$	-	$	29,995
Embedded conversion feature		357		-		-		357
Total fair value	$	30,352	$	-	$	-	$	30,352

There were no transfers between Level 1, 2 or 3 during the six-month period ended June 30, 2019.

The following table presents changes in Level 3 liabilities measured at fair value for the six-month period ended June 30, 2019. 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).

						Embedded
	Warrant			Contingent Payable		Conversion
	Liability			Derivative Liability		Feature			Total
Balance – January 1, 2019	$	29,995		$	-	$	357		$	30,352
Additional contingent liability in connection with a settlement agreement		-			6,602					6,602
Extinguishment of derivative liabilities		-			-		(3	)		(3	)
Extinguishment of warrant liabilities related to warrants exercised for cash		(1,759	)		-		-			(1,759	)
Change in fair value		5,063			111		(354	)		4,820
Balance – June 30, 2019	$	33,299		$	6,713	$	-		$	40,012

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the Company’s warrant liabilities and embedded conversion feature that are categorized within Level 3 of the fair value hierarchy as of June 30, 2019 and December 31, 2018 is as follows:

	As of June 30, 2019						As of December 31, 2018
	Warrant			Contingent Payable			Warrant			Embedded
	Liability			Derivative Liability			Liability			Conversion Feature
Strike price	$	0.29		$	0.26	*	$	0.29		$	0.44
Contractual term (years)		1.5			0.8			2.2			1.5
Volatility (annual)		78	%		64	%		85	%		85	%
Risk-free rate		2	%		2	%		3	%		3	%
Dividend yield (per share)		0	%		0	%		0	%		0	%

* The strike price related to the derivative liability associated with contingent payable as of June 30, 2019 is contingent based on the market price.

5. Stock-based Compensation

During the six months ended June 30, 2019, the Company issued 200,000 shares of common stock to David Innes, the Company’s vice president investor relations pursuant to his employment agreement in February 2019. The Company recorded $48,000 stock-based compensation expense based on fair value on February 18, 2019, which was the effective date of his employment.

The following table summarizes stock-based compensation expense for the three and six months ended June 30, 2019 and 2018 (in thousands):

	For the three months ended				For the six months ended
	June 30,				June 30
	2019		2018		2019		2018
Research and development	$	69	$	854	$	173	$	1,124
General and administrative ⁽¹⁾		369		10,715		818		10,749
Total stock-based compensation expense	$	438	$	11,569	$	991	$	11,873

(1)

The general and administrative expense during the three months and six months ended June 30, 2019 is related to applicable vesting portion of stock options awards made in the past to directors and employees.

The total unrecognized compensation cost was approximately $0.5 million as of June 30, 2019, and will be recognized over the next 1.3 years.

6. Property & Equipment

Property and equipment consist of the following at June 30, 2019 and December 31, 2018 (in thousands):

	June 30,			December 31,			Estimated
	2019			2018			Useful Life
Leasehold improvements	$	81		$	81		Lesser of lease term or estimated useful life
Office furniture and equipment		58			25		3 years
Computer equipment and software		790			599		3 years
Land in the United Kingdom		86			86		NA
		1,015			791
Less: accumulated depreciation		(660	)		(683	)
Total property, plant and equipment, net	$	355		$	108

Depreciation expenses were approximately $6,000 and $357,000 for the three months ended June 30, 2019 and 2018 and were approximately $8,000 and $722,000 for the six months ended June 30, 2019 and 2018.

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

7. Leases

The Company adopted ASC Topic 842 - Leases as of January 1, 2019, using the transition method per ASU No. 2018-11 issued on July 2018 wherein entities were allowed to initially apply the new leases standard at adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Accordingly, all periods prior to January 1, 2019 were presented in accordance with the previous ASC Topic 840, Leases, and no retrospective adjustments were made to the comparative periods presented. Adoption of ASC 842 resulted in an increase to total assets and liabilities due to the recording of operating lease right-of-use assets ("ROU") and operating lease liabilities of approximately $4.3 million, as of January 1, 2019. On March 4, 2019, the Company recognized additional $0.6 million ROU and lease liabilities to its amended office lease in the U.S. The adoption did not materially impact the Company’s Condensed Consolidated Statements of Operations or Cash Flows.

The Company has operating leases for corporate offices in the U.S., U.K. and Germany, and manufacturing facilities in the U.K. Leases with an initial term of 12 months or less are not recorded in the balance sheet. The Company has elected the practical expedient to account for each separate lease component of a contract and its associated non-lease components as a single lease component, thus causing all fixed payments to be capitalized. The Company also elected the package of practical expedients permitted within the new standard, which among other things, allows the Company to carry forward historical lease classification. The renewal options have not been included in the calculation of the lease liabilities and ROU as the Company is not reasonably certain to exercise the options. Variable lease payment amounts that cannot be determined at the commencement of the lease such as increases in lease payments based on changes in index rates or usage, are not included in the ROU assets or liabilities. These are expensed as incurred and recorded as variable lease expense.

At June 30, 2019, the Company had operating lease liabilities of approximately $5.0 million for both the 20-year lease of the building for the manufacturing facility in Sawston, U.K., and the current office lease in the U.S. and ROU of approximately $4.7 million for the Sawston lease and US office lease, which were included in the condensed consolidated balance sheet.

The following summarizes quantitative information about the Company’s operating leases:

	For the Six Months Ended
	June 30, 2019
	U.K			U.S			Total
Lease cost
Operating lease cost	$	307		$	82		$	389
Short-term lease cost		27			81			108
Variable lease cost		-			4			4
Total	$	334		$	167		$	501

Other information as of adoption date
Operating cash flows from operating leases	$	-		$	(81)		$	(81)
Weighted-average remaining lease term – operating leases		10.5			1.3
Weighted-average discount rate – operating leases		12	%		12	%

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

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

	U.K			U.S			Total
Six months ended December 31, 2019	$	-		$	162		$	162
Year ended December 31, 2020		635			332			967
Year ended December 31, 2021		635			84			719
Year ended December 31, 2022		635			-			635
Year ended December 31, 2023		635			-			635
Year ended December 31, 2024		635			-			635
Thereafter		8,883			-			8,883
Total		12,058			578			12,636
Less present value discount		(7,607	)		(59	)		(7,666	)
Operating lease liabilities included in the Consolidated Balance Sheet at June 30, 2019	$	4,451		$	519		$	4,970

8. Outstanding Debt

The following two tables summarize outstanding debt as of June 30, 2019 and December 31, 2018, respectively (amount in thousands):

		Stated
		Interest			Conversion				Remaining			Carrying
	Maturity Date	Rate			Price		Face Value		Debt Discount			Value
Short term convertible notes payable
6% unsecured (1)	Due		6	%	$	3.09	$	135	$	-		$	135
10% unsecured (2)	10/18/2019		10	%	$	0.22		500		(16	)		484
								635		(16	)		619
Short term convertible notes payable - related party
18% unsecured (4)	In default		18	%	$	0.23		1,398		-			1,398
								1,398		-			1,398

Short term notes payable
8% unsecured (5)	Various		8	%		N/A		2,210		(193	)		2,017
10% unsecured (6)	Various		10	%		N/A		4,238		(176	)		4,062
12% unsecured (7)	On Demand		12	%		N/A		440		-			440
								6,888		(369	)		6,519
Short term notes payable - related parties
10% unsecured - Related Parties (8)	On Demand		10	%		N/A		63		-			63
								63		-			63
Long term notes payable
0% unsecured (9)	8/1/2020		0	%		N/A		1,156		(158	)		998
8% unsecured (10)	Various		8	%		N/A		7,165		(606	)		6,559
								8,321		(764	)		7,557

Ending balance as of June 30, 2019							$	17,305	$	(1,149	)	$	16,156

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

		Stated										Fair Value of
		Interest			Conversion				Remaining			Embedded		Carrying
	Maturity Date	Rate			Price		Face Value		Debt Discount			Conversion Option		Value
Short term convertible notes payable
6% unsecured (1)	Due		6	%	$	3.09	$	135	$	-		$	-	$	135
10% unsecured (2)	10/18/2019		10	%	$	0.22		500		(43	)		-		457
18% unsecured (3)	In Default		18	%	$	0.21		914		-			357		1,271
								1,549		(43	)		357		1,863
Short term convertible notes payable - related party
10% unsecured (4)	On Demand		10	%	$	0.23		5,400		-			-		5,400

Short term notes payable
8% unsecured (5)	6/20/2019 and 12/12/2019		8	%		N/A		3,840		(383	)		-		3,457
10% unsecured (6)	Various		10	%		N/A		3,658		(400	)				3,258
12% unsecured (7)	On Demand		12	%		N/A		440		-			-		440
								7,938		(783	)		-		7,155
Short term notes payable - related parties
10% unsecured - Related Parties (8)	On Demand		10	%		N/A		324		-			-		324
12% unsecured - Related Parties (8)	On Demand		12	%		N/A		69		-			-		69
								393		-			-		393
Long term notes payable
8% unsecured (5)	2/13/2020		8	%		N/A		1,155		(119	)		-		1,036
5% unsecured (6)	1/13/2020		10	%		N/A		1,000		(50	)		-		950
								2,155		(169	)		-		1,986

Ending balance as of December 31, 2018							$	17,435	$	(995	)	$	357	$	16,797

(1)

This $135,000 note as of June 30, 2019 and December 31, 2018 consists of two separate 6% notes in the amounts of $110,000 and $25,000. In regard to the $110,000 note, the Company has made ongoing attempts to locate the creditor to repay or convert this note, but has been unable to locate the creditor to date. In regard to the $25,000 note, the holder has elected to convert these notes into equity, the Company has delivered the applicable conversion documents to the holder, and the Company is waiting for the holder to execute and return the documents.

(2)

On October 18, 2018, the Company entered into an Unsecured Convertible Promissory Note Agreement Plus Warrant (the “Note”) with an individual investor (the “Holder”) for an aggregate principal amount of $500,000. No payment was made during the six months ended June 30, 2019.

The accrued interest associated with the Note was approximately $35,000 as of June 30, 2019.

(3)

On May 1, 2018, the Company entered into a Convertible Redeemable Note Agreement (the “Redeemable Note”) of $1.4 million with an existing investor. The Redeemable Note was in default on August 25, 2018.

Due to the events of default, the holder is entitled to convert all or any amount of the outstanding principal amount and interest into shares of the common stock of the Company without restrictive legend of any nature. The conversion price is equal to 90% of the average of the 5 lowest daily VWAP of the Company’s common stock during the 15 consecutive trading days immediately preceding the conversion date.

During the six months ended June 30, 2019, the Company converted approximately $0.9 million principal and $0.1 million accrued interest into approximately 4.9 million shares of common stock at fair value of $1.4 million. The Company recorded an approximate $0.4 million debt extinguishment loss from this conversion.

The Redeemable Note was converted as of June 30, 2019.

(4)

Between February 2018 and April 2018, the Company’s Chief Executive Officer, Linda Powers, loaned the Company aggregate funding of $5.4 million, and the Company entered into convertible Note agreements for this amount (the “Convertible Notes”). The Notes were 15-day demand notes, intended as temporary bridge loans. However, they remained unpaid and outstanding throughout the year.

On November 11, 2018, the Company and Ms. Powers agreed to further extend the forbearance on the notes to a maturity of one year following the respective funding dates. In consideration of the continuing forbearance, the Company agreed to issue warrants representing 50% of the repayment amounts of the Notes. The warrants were anticipated have exercise price at $0.35 per share, and have an exercise period of 2 years. However, the Company has not finalized the terms of the warrant agreement.

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

During the six months ended June 30, 2019, the Company made an aggregate payment of $4.7 million to the Convertible Notes, including $0.7 million interest payment.

As of June 30, 2019, $1.4 million of the $5.4 million principal amount of the February through April 2018 Notes remained unpaid and were past the end of the further forbearance period agreed last November. As such, the Notes were again in default, and the Company started to accrue interest using 18% annual rate from the default dates. The accrued unpaid interest associated with the Convertible Notes was approximately $12,000 as of June 30, 2019.

(5)

This $2.2 million note as of June 30, 2019 consists of two separate 8% notes in the amounts of $1.4 million and $0.8 million.

During the six months ended June 30, 2019, the Company converted approximately $2.8 million principal and $0.2 million accrued interest into approximately 12.6 million shares of common stock at fair value of $3.6 million. The Company recorded an approximate $0.6 million debt extinguishment loss from this conversion.

(6)

Between October 1, 2018 and November 7, 2018, the Company entered into multiple one-year promissory notes (the “Notes”) with multiple holders (the “Holders”) for an aggregate principal amount of $3.7 million. The notes included approximately $0.2 million OID. The Notes bore interest at 10% per annum.

During the six months ended June 30, 2019, the Company made principal payment of approximately $420,000, and interest payment of approximately $43,000 which included $27,000 premium pursuant to the prepayment option. During the six months ended June 30, 2019, the Company wrote off $22,000 unamortized debt discount from debt extinguishment, which was recognized as part of debt extinguishment loss.

During the six months ended June 30, 2019, the Company recognized interest expense of approximately $252,000 resulting from amortization of debt discount for the Notes. The remaining debt discount as of June 30, 2019 was approximately $176,000.

The accrued interest associated with the Note was approximately $292,000 as of June 30, 2019.

(7)

This $440,000 note as of June 30, 2019 consists of two separate 12% demand notes (the “Notes”) in the amounts of $300,000 and $140,000.

The accrued interest associated with the Notes was approximately $105,000 as of June 30, 2019.

(8)

Related Party Notes

Goldman Notes

In 2017, Leslie J. Goldman, an officer of the Company, loaned the Company an aggregate amount of $1.3 million pursuant to certain Demand Promissory Note Agreements. On January 3, 2018, Mr. Goldman loaned the Company an additional $30,000 (collectively the “Goldman Notes”). Approximately $0.5 million of the Goldman Notes bear interest at the rate of 12% per annum, and $0.8 million of the Goldman Notes bear interest at the rate of 10% per annum.

During the six months ended June 30, 2019, the Company made an aggregate payment of $148,000 to the Goldman Notes, including $79,000 interest payment.

As of June 30, 2019, there were no outstanding notes or interest owed to Mr. Goldman.

Toucan Notes

In 2017, Toucan Capital Fund III loaned the Company an aggregate amount of $1.2 million pursuant to multiple Demand Promissory Notes (the “Toucan Notes”). The Toucan Notes bear interest at 10% per annum, and are payable upon demand, with 7 days’ prior written notice to the Company.

During the six months ended June 30, 2019, the Company made $46,000 interest payment.

As of June 30, 2019, there were no outstanding notes or interest owed to Toucan Capital Fund III.

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

Board of Directors Notes

As of June 30, 2019, there were no outstanding notes or interest owed to the Company’s Board of Directors.

Advent BioServices Note

On September 26, 2018, 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, provided a short-term loan to the Company in the amount of $65,000. The loan bears interest at 10% per annum, and is payable upon demand, with 7 days’ prior written notice to the Company.

This Note remains outstanding and unpaid. The principal and interest amount owed to Advent under this Note at June 30, 2019 was $63,000 and $5,000 based on the current exchange rate, respectively.

(9)

On May 28, 2019, the Company entered into a settlement agreement (the “Settlement”) with Cognate BioServices, resolving past matters and providing for restart of DCVax®-Direct Production.

Cognate agreed to reduce outstanding accounts payable by approximately $10 million, with some amounts related to periods of inactivity being cancelled and with $1.1 million being deferred until 2020 (the “Deferred Note”). As part of this overall settlement, the Company also provided a contingent note payable (the “Contingent Payable Derivative”) of $10 million, which is only payable upon the Company’s first financing after DCVax product approval in or outside the U.S. If such product approval has not been obtained by the seventh anniversary of the Contingent Payable Derivative, such Contingent Payable Derivative will expire without becoming payable. The Contingent Payable Derivative may be satisfied in whole or in part through conversion to equity if Cognate so elects on a Determination Date during the period from the date of the first application for product approval until 120 days after such application date. The Contingent Payable Derivative may also become payable in the event of an uncured event of default. The Contingent Payable Derivative bears interest rate at 6% per annum.

The following table summarizes the Settlement transaction which resulted $1.0 million gain from debt extinguishment (amount in thousands):

Accounts payable (in dispute)	$	9,894
Upfront cash payment		(1,334	)
Deferred installment note (net of $175 discount)		(981	)
Contingent payable derivative *		(6,602	)
Gain from debt extinguishment	$	977
*see Note 4 for valuation details

(10)

On March 29, 2019, the Company entered into two 22-month notes (the “Notes”), with two different institutional investors, for a total of $4.4 million with an interest rate of 8% and a maturity date of January 29, 2021. The Notes carried an OID of 10%. Net funding to the Company is $4.0 million. The Note allows for optional prepayment by the Company, in the Company’s discretion. If the Company elects to prepay the Notes, there will be a prepayment premium of 15%. Monthly amortization payments of 1/14^th of the total are payable from month 9 through 22, with a 10% premium.

In June 2019, the Company entered into two 21-month notes (the “Notes”), with two different institutional investors, for a total of $2.8 million with an interest rate of 8% and a maturity date in March 2021. The Notes carried an OID of 10%. Net funding to the Company is $2.5 million. The Note allows for optional prepayment by the Company, in the Company’s discretion. If the Company elects to prepay the Notes, there will be a prepayment premium of 15%. Monthly amortization payments of 1/14 ^th of the total are payable from month 7 through 21, with a 10% premium.

The outstanding interest for the above long-term notes was approximately $95,000 as of June 30, 2019.

The following table summarizes total interest expenses related to outstanding notes and mortgage loan for the three and six months ended June 30, 2019 and 2018, respectively (in thousands):

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

	For the three months ended					For the six months ended
	June 30,					June 30
	2019		2018			2019		2018
Interest expenses related to outstanding notes:
Contractual interest	$	283	$	358		$	551	$	743
Amortization on debt premium		-		(90	)		-		(240	)
Amortization of debt discount		367		307			663		584
Total interest expenses related to outstanding notes		650		575			1,214		1,087
Interest expenses related to outstanding notes to related parties:
Contractual interest		137		193			328		331
Amortization of debt discount		-		2,018			-		4,235
Total interest expenses related to outstanding notes to related parties		137		2,211			328		4,566
Interest expenses related to mortgage loan:
Contractual interest		-		316			-		639
Amortization of debt issuance costs		-		130			-		263
Total interest expenses on the mortgage loan		-		446			-		902
Interest expenses related to Series A convertible preferred stock		-		68					68
Other interest expenses		-		2			1		3
Total interest expense	$	787	$	3,302		$	1,543	$	6,626

The following table summarizes the Company’s contractual obligations on debt principal as of June 30, 2019 (amount in thousands):

	Payment Due by Period
			Less than		1 to 2
	Total		1 Year		Years
Short term convertible notes payable - related party
18% unsecured (in default)	$	1,398	$	1,398	$	-
Short term convertible notes payable
6% unsecured		135		135		-
10% unsecured		500		500		-
Short term notes payable
8% unsecured		2,210		2,210		-
10% unsecured		4,238		4,238
12% unsecured		440		440		-
Short term notes payable - related parties
10% unsecured - (on demand)		63		63		-
Long term notes payable
0% unsecured		1,156		-		1,156
8% unsecured		7,165		-		7,165
Total	$	17,305	$	8,984	$	8,321

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

Basic earnings (loss) per common share is computed by dividing net 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.

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

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

	For the three months ended					For the six months ended
	June 30,					June 30
	2019		2018			2019			2018
Net earnings (loss) - basic	$	219	$	(24,712	)	$	(20,727	)	$	(56,311	)
Interest on convertible senior notes		125		-			-			-
Net earnings (loss) - diluted	$	344	$	(24,712	)	$	(20,727	)	$	(56,311	)

Weighted average shares outstanding - basic		550,214		424,992			539,732			390,732
Warrants		27,854		-			-			-
Stock options		10,676		-			-			-
Convertible notes and accrued interest		8,631		-			-			-
Weighted average shares outstanding - diluted		597,375		424,992			539,732			390,732

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

	For the six months ended
	June 30,
	2019		2018
Series A convertible preferred stock		-		32,187
Series B convertible preferred stock		-		75,059
Common stock options		100,159		97,192
Common stock warrants		349,991		356,844
Contingently issuable warrants		11,739		11,739
Share-settled debt and accrued interest, at fair value		-		11,046
Convertible notes and accrued interest		8,632		40,923
Potentially dilutive securities		470,521		624,990

10. Related Party Transactions

Advent BioServices Agreement

On May 14, 2018, the Company entered into a DCVax®-L Manufacturing and Services Agreement with Advent BioServices, 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 for the European region. The Advent Agreement provides for a program initiation payment of approximately $1.0 million (£0.7 million), in connection with technology transfer and operations transfer from Germany to the U.K., to an existing facility in London, development of new Standard Operating Procedures (SOPs), training of new personnel, selection of new suppliers and auditing for GMP compliance, and other preparatory activities. Such initiation payment was fully paid by the Company as of December 31, 2018. The Advent Agreement provides for certain payments for achievement of milestones and, as is the case under the existing agreements with Cognate BioServices, the Company is required to pay certain fees for dedicated production capacity reserved exclusively for DCVax production, and pay for a certain minimum number of patients, whether or not the Company fully utilizes the dedicated capacity and number of patients. Either party may terminate the Advent Agreement at any time for any reason on twelve months’ notice. The notice period is designed to enable an effective transition and minimize or avoid interruption of product supply. During the twelve-month period, the Company will continue to pay the minimum fees and the applicable fees for any DCVax products beyond the minimums, and Advent will continue to produce the DCVax products. The parties are in discussions for an agreement relating to the design, engineering, equipment, SOPs, staff recruitment and training, specialized information technology systems, regulatory requirements and other aspects of the development of the manufacturing facility in Sawston, U.K.

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

Advent Expenses and Accounts Payable

The following table summarizes expenses incurred to related parties (i.e., amounts invoiced) during the three and six months ended June 30, 2019 and 2018 (amount in thousands) (some of which remain unpaid as noted in the second table below):

	For the three months ended				For the six months ended
	June 30,				June, 30
	2019		2018		2019		2018
Cognate BioServices, Inc. (related party until February 2018)		N/A		N/A		N/A	$	873
Cognate BioServices GmbH		N/A		N/A		N/A		66
Cognate Israel		N/A		70		N/A		98
Advent BioServices		1,263		1,747		2,713		3,666
Total	$	1,263	$	1,817	$	2,713	$	4,703

The following table summarizes outstanding unpaid accounts payable held by related parties as of June 30, 2019 and December 31, 2018 (amount in thousands). These unpaid amounts include part of the expenses reported in the table above and also certain expenses incurred in prior periods.

	June 30,		December 31,
	2019		2018
Accounts payable:
Advent BioServices	$	536	$	3,967

Other Related Parties

Linda F. Powers - Demand Loans

Between February 2018 and April 2018, the Company’s Chief Executive Officer, Linda Powers, loaned the Company aggregate funding of $5.4 million pursuant to convertible Notes.

The Company issued 23.5 million Class D-2 Warrants with an exercise price of $0.30, including 11.7 million contingently issuable warrants. The fair value of the warrants were approximately $4.2 million, which were recorded as debt discount at the issuance date.

The Notes entered into in February through April 2018 were 15-day demand notes, and were intended as temporary bridge notes. However, the Notes remained unpaid and outstanding throughout the year. On November 11, 2018, the Company and Ms. Powers agreed to further extend forbearance on the notes to a maturity of one year following the respective funding dates. In consideration of the continuing forbearance, the Company agreed to issue warrants representing 50% of the repayment amounts of the Notes. The warrants were anticipated to have an exercise price of $0.35 per share, and have an exercise period of 2 years. However, the Company has not yet finalized the terms of the warrant agreement.

During the six months ended June 30, 2019, the Company made an aggregate payment of $4.7 million to the Convertible Notes, including $0.7 million interest payment.

Leslie J. Goldman - Demand Loans

In 2017, Leslie J. Goldman, an officer of the Company, loaned the Company an aggregate amount of $1.3 million pursuant to certain Demand Promissory Note Agreements. On January 3, 2018, Mr. Goldman loaned the Company an additional $30,000 (collectively the “Goldman Notes”). Approximately $0.5 million of the Goldman Notes bore interest at the rate of 12% per annum, and $0.8 million of the Goldman Notes bore interest at the rate of 10% per annum.

During the six months ended June 30, 2019, the Company made an aggregate payment of $148,000 on the Goldman Notes, including $79,000 interest payment.

As of June 30, 2019, there were no outstanding notes or interest owed to Mr. Goldman.

Toucan Capital III Fund - Demand Loans

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

During the six months ended June 30, 2019, the Company made $46,000 interest payment.

As of June 30, 2019, there were no outstanding notes or interest owed to Toucan Capital Fund III.

Board of Directors - Demand Loans

As of June 30, 2019, there was no outstanding notes or interest owed to the Company’s Board of Directors.

Advent BioServices Note

This Note remains outstanding and unpaid. The principal amount and accrued interest owed to Advent under this Note at June 30, 2019 was $63,000 and $5,000, respectively, based on the current exchange rate.

Interest expense for the six-month period ended June 30, 2019 and 2018 associated with related party loans was approximately $0.3 million and $4.6 million, respectively.

11. Stockholders’ Deficit

Debt Conversion

During the six months ended June 30, 2019, the Company converted debt of approximately $3.7 million principal and $0.3 million accrued interest into approximately 17.5 million shares of common stock at fair value of $5.0 million. The Company recorded an approximate $1.0 million debt extinguishment loss from the conversion.

Warrants Exercised for Cash

During the six months ended June 30, 2019, the Company issued 9.5 million shares of common stock from warrants exercised for cash. The Company received $2.2 million cash.

Shares Settlement

On May 28, 2019, the Company entered into a settlement agreement with Cognate BioServices, resolving past matters and providing for restart of DCVax®-Direct Production (see Note 8).

As part of the settlement agreement, the number of shares of the Company’s stock which the Company was to issue to Cognate was substantially reduced: 52 million shares of the Company’s stock which the Company had previously agreed to issue to Cognate were reduced to 12 million shares. The Company considers the reduction in shares owed to Cognate a modification. Because the 52 million shares were never issued and the modification, which resulted in a decrease in fair value, is not a forfeiture, previously recognized expense related to services performed by Cognate is not reversed in connection with this modification. The Company recorded $12,000 in common par and reduced same amount in additional paid in capital.

Stock-based Compensation

NORTHWEST BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

Common Stock Purchase Warrants

The following is a summary of warrant activity for the six months ended June 30, 2019 (in thousands, except per share data):

	Number of			Weighted Average		Remaining
	Warrants			Exercise Price		Contractual Term
Outstanding as of January 1, 2019		372,153		$	0.29		1.97
Warrants exercised for cash		(9,532	)		0.23
Warrants expired and cancellation		(891	)		0.19
Outstanding as of June 30, 2019		361,730		$	0.29		1.47

12. Commitments and Contingencies

U.S. Securities and Exchange Commission

As previously reported, the Company has received a number of formal information requests (subpoenas) from the SEC regarding several broad topics that have been previously disclosed, including the Company’s membership on Nasdaq and delisting, related party matters, the Company’s programs, internal controls, the Company’s Special Litigation Committee, disclosures and the publication of interim clinical trial data. Testimony of certain officers and third parties has been taken as well. The Company has been cooperating with the SEC investigation. As hoped, the investigation is winding to a conclusion. After investigation of a broad array of issues over the past two-plus years, the SEC Staff has informed us preliminarily that they have concerns in regard to two issues, relating to the Company’s internal controls over financial reporting and the adequacy of certain disclosures made in the past. We have previously disclosed material weaknesses in our internal controls. As for disclosures, we believe our disclosures complied with applicable law. Despite our belief that the Staff should close the investigation, there can be no assurance that the Staff will not recommend some action involving the Company and/or individuals. The Company is in discussions with the Staff about resolving the issue concerning internal controls weaknesses. Despite this potentially positive outcome, the Company cannot yet assure any particular outcome or any ultimate liability resulting from this investigation.

13. Subsequent Events

On July 15, 2019, the Company issued an aggregate of 11,782,609 shares of our common stock at a purchase price of $0.23 per share to certain institutional investors in a registered direct offering (the “Offering”). 1,333,043 shares of the total 11,782,609 shares were issued from conversion of an existing loan and related accrued interest for the amount of $306,000. The net proceeds of the Offering were approximately $2.2 million, after deducting offering expenses payable by the Company.

Between July 2019 and August 2019, the Company converted debt of approximately $0.7 million principal and $25,000 accrued interest into approximately 3.6 million shares of common stock at fair value of $0.9 million. The Company recorded an approximate $0.2 million debt extinguishment loss from the conversion.

On August 1, 2019, the Company issued 640,000 shares of common stock at fair value of $141,000 to an external consultant for services provided to research and development.

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, 2018 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

The Company is 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. This product is in an ongoing Phase III trial for newly diagnosed Glioblastome multiforme (GBM). 331 patients were enrolled in the trial, and the Company is working to reach completion. The Company, the physicians and the patients remain blinded. On May 29, 2018, interim blinded data from the Phase III trial collected in 2017 were published in a peer reviewed scientific journal. On November 17, 2018, updated interim blinded data from the Phase III trial were presented at the Society for Neuro-Oncology annual meeting. As the Company noted in its announcement of the May publication and in subsequent reports, the data could get either better or worse as it continues to mature. The Company has been consulting with its Scientific Advisory Board, the Steering Committee of the trial and other independent experts about the ongoing handling of the trial and preparations for completion.

As previously reported, the Company is now moving forward with the several stages of work that are needed to reach completion of this trial. These include finalizing the Statistical Analysis Plan, conducting the final data collection, data validation and data lock, and then unblinding and analyzing the data. Each of these stages are multi-month processes, involving teams of outside experts as well as Company personnel. This work also involves various special circumstances such as a crossover trial design and the issue of pseudo-progression as previously reported. The Company’s projections, estimates and expectations are subject to material changes as the work proceeds.

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 cancers. As resources permit, the Company is working on preparations for Phase II trials of DCVax-Direct.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our condensed financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed 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 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 may differ from these estimates.

Our critical accounting policies and significant estimates are detailed in our Annual Report on Form 10-K for the year ended December 31, 2018 and Note 7 Leases to the condensed consolidated financial statements in this accompanying Form 10-Q. Other than the changes related to adoption of ASC 842, 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, 2018.

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. The associated administrative expenses also 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. Going forward, we are also incurring large amounts of costs to carry out and complete statistical analyses, process validation work, final data collection and validation, and other work associated with moving towards completing the statistical analysis plan for the trial and obtaining approval of the plan by regulators in all of the countries where the clinical trial has been conducted, data lock for the clinical trial data, unblinding and analysis of the data, manufacturing validation, and other requirements.

Our operating costs also include the costs of preparations for the launch of 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 of manufacturing capacity, in both the US 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 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.

The Board approved a 5.5 million option pool to various external manufacturing parties (Advent BioServices, the Royal Free Hospital, Fraunhofer and other consultants) in December 2018. We have not allocated the options to the individual manufacturing parties but anticipate doing so during the latter half of 2019.

General and administrative:

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

Three Months Ended June 30, 2019 and 2018

We recognized net income of $0.2 million for the three months ended June 30, 2019, and net loss of $21.2 million for the three months ended June 30, 2018.

Research and Development Expense

For the three months ended June 30, 2019 and 2018, research and development expense was $3.3 million and $5.3 million, respectively. The decrease was due to a reduction in expenses incurred from Advent BioServices compared to last year. We also incurred less cost under stock-based compensation compared to last year. We recorded approximately $0.9 million of stock-based compensation under research and development expenses during the three months ended June 30, 2018.

The following table summarizes outstanding balance under accounts payable and outstanding principal amount of notes payable to related parties for services related to the Company’s research and development activities as of June 30, 2019 and December 31, 2018 (amount in thousands):

	June 30		December 31,
	2019		2018
Accounts payable:
Advent BioServices	$	536	$	3,967

Demand Loan:
Linda Powers ⁽¹⁾	$	1,398	$	5,400
Advent BioServices ⁽²⁾		63		65
Total	$	1,461	$	5,465

(1)

Cash loaned by our CEO was used for operations, including research and development expenses. The amount represents principal only.

(2)

The amount represents principal only.

The following table summarizes expenses incurred (i.e., amounts invoiced, which have only been partly paid) to related parties during the three months ended June 30, 2019 and 2018 (amount in thousands):

	For the three months ended
	June 30,
	2019		2018
Cognate Israel		N/A		70
Advent BioServices		1,263		1,747
Total	$	1,263	$	1,817

General and Administrative Expense

General and administrative expenses were $3.0 million and $14.4 million for three months ended June 30, 2019 and 2018, respectively. The decrease compared with 2018 was primarily due to the absence of new stock-based compensation in this period in 2019, compared with the issuance of stock options to our officers and directors (covering multiple years of performance) in 2018. We recorded approximately $10.7 million of stock-based compensation under general and administrative expenses during the three months ended June 30, 2018.

Legal Expenses

Legal costs were $0.9 million for both the three months ended June 30, 2019 and three months ended June 30, 2018.

Change in fair value of derivatives

During the three months ended June 30, 2019 and 2018, we recognized a non-cash gain of $7.2 million and a non-cash gain of $6.3 million, respectively. The gain was primarily due to the decrease of stock price at June 30, 2019 compared to March 31, 2019.

Gain (Loss) from Extinguishment of Debt

During the three months ended June 30, 2019, we converted debt of approximately $1.6 million principal and $0.2 million accrued interest into approximately 6.6 million shares of common stock at fair value of $2.0 million. We recorded an approximate $0.2 million debt extinguishment loss from the conversion.

During the three months ended June 30, 2019, we entered into a settlement agreement with Cognate BioServices to settle certain outstanding invoices. We recorded approximately $1.0 million gain from this settlement.

During the three months ended June 30, 2018, we converted approximately $1.4 million principal and $0.1 million accrued interest into approximately 9.5 million shares of common stock at fair value of $2.3 million. We recorded an approximate $0.8 million debt extinguishment loss from the conversion.

Interest Expense

During the three months ended June 30, 2019 and 2018, we recorded interest expense of $0.8 million and $3.3 million, respectively. We recorded approximately $2.0 million debt discount amortization cost on Ms. Powers’ Notes during the three months ended June 30, 2018.

Foreign currency transaction gain

During the three months ended June 30, 2019 and 2018, we recognized foreign currency transaction loss of $0.3 million and $3.0 million, respectively. The loss was due to the weakening of the British pound sterling relative to the U.S. dollar. The fluctuation on the foreign currency during the three months ended June 30, 2019 was less than in the three months ended June 30, 2018.

Six Months Ended June 30, 2019 and 2018

We recognized a net loss of $20.7 million and $42.7 million for the six months ended June 30, 2019 and 2018, respectively. Net cash used in operations was $19.4 million and $16.4 million for the six months ended June 30, 2019 and 2018, respectively, including payment of substantial amounts of accumulated current and past payables in the six months ended June 30, 2019.

Research and Development Expense

For the six months ended June 30, 2019 and 2018, research and development expense was $6.3 million and $10.0 million, respectively. The decrease was primarily due to a reduction in expenses incurred to Advent BioServices and some other major third party vendors compared to last year. We also incurred less cost under stock-based compensation compared to last year. We recorded approximately $1.1 million of stock-based compensation under research and development expenses during the six months ended June 30, 2018.

The following table summarizes expenses incurred (i.e., amounts invoiced, which have only been partly paid) to related parties during the six months ended June 30, 2019 and 2018 (amount in thousands):

	For the six months ended
	June, 30
	2019		2018
Cognate BioServices, Inc. (related party until February 2018) *		N/A	$	873
Cognate BioServices GmbH		N/A		66
Cognate Israel		N/A		98
Advent BioServices		2,713		3,666
Total	$	2,713	$	4,703

* We made $2 million cash payment to Cognate BioServices, Inc. pursuant to the settlement agreement entered into on May 21, 2019.

General and Administrative Expense

General and administrative expenses were $6.6 million and $17.5 million for six months ended June 30, 2019 and 2018, respectively. The decrease compared with 2018 was primarily due to the absence of new stock option grants in 2019, compared with the grants of stock options to our officers and directors (covering multiple years of performance) in 2018. We recorded approximately $10.7 million of stock-based compensation under general and administrative expenses during the three months ended June 30, 2018.

Legal Expenses

Legal costs were $2.5 million for the six months ended June 30, 2019 versus $2.1 million for the six months ended June 30, 2018.

Change in fair value of derivatives

During the six months ended June 30, 2019 and 2018, we recognized a non-cash loss of $4.8 million and $5.1 million, respectively, primarily due to the increase of stock price as of June 30, 2019 compared to December 31, 2018.

Gain (Loss) from Extinguishment of Debt

During the six months ended June 30, 2019, we entered into a settlement agreement with Cognate BioServices to settle certain outstanding invoices. We recorded approximately $1.0 million gain from this settlement.

During the six months ended June 30, 2018, the Company converted approximately $3.1 million principal and $0.2 million accrued interest into approximately 14.5 million shares of common stock at fair value of $3.9 million. The Company recorded an approximate $0.6 million debt extinguishment loss from the conversion.

Interest Expense

During the six months ended June 30, 2019 and 2018, we recorded interest expense of $1.5 million and $6.6 million, respectively. We recorded approximately $4.2 million debt discount amortization cost on Ms. Powers’ Notes during the six months ended June 30, 2018.

Foreign currency transaction gain

During the six months ended June 30, 2019 and 2018, we recognized foreign currency transaction gain of $43,000 and a foreign currency transaction loss of $1.2 million, respectively. The loss was due to the less strengthening of the British pound sterling relative to the U.S. dollar. The fluctuation on the foreign currency during the three months ended June 30, 2019 was less than in the three months ended June 30, 2018.

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 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 condensed 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.

Contingent Contractual Payment

The following table summarizes our contractual obligations as of June 30, 2019 (amount in thousands):

	Payment Due by Period
			Less than		1 to 2
	Total		1 Year		Years
Short term convertible notes payable - related party (1)
10% unsecured	$	1,410	$	1,410	$	-
Short term convertible notes payable (2)
10% unsecured		550		550		-
Short term notes payable (3)
8% unsecured		2,223		2,223		-
10% unsecured		4,662		4,662
12% unsecured		545		545		-
Short term notes payable - related parties (4)
10% unsecured - (on demand)		68		68		-
Long term notes payable (5)
0% unsecured		1,156		-		1,156
8% unsecured		8,216		-		8,216
Operating leases (6)		8,443		2,635		5,808
Purchase obligation (7)
Total	$	27,273	$	12,093	$	15,180

(1) The principal amount of the obligations related to short term convertible notes to Linda Powers were approximately $1.4 million as of June 30, 2019, which included contractual unpaid interest of $12,000. The Notes were entered into in February through April 2018 as 15-day demand notes, and were intended to be short-term bridge notes. However, the Notes remained unpaid and outstanding throughout 2018. On November 11, 2018, the Company and Ms. Powers agreed to further extend forbearance on the notes to a maturity of one year following the respective funding dates. In consideration of the continuing forbearance, the Company agreed to issue warrants representing 50% of the repayment amounts of the Notes for the loans from Ms. Powers. The warrants were anticipated to have an exercise price of $0.35 per share, and have an exercise period of 2 years. However, the Company has not yet finalized the key terms of this agreement. Therefore, the Company has not recorded the impact of this modification as of June 30, 2019.

(2) The obligations related to short term convertible notes were approximately $0.6 million as of June 30, 2019, which included remaining contractual unpaid interest of $50,000.

(3) The obligations related to short term notes were approximately $7.4 million as of June 30, 2019, which included remaining contractual unpaid interest of $0.5 million.

(4) The obligations related to short term notes to related parties were approximately $68,000 as of June 30, 2019, which included unpaid interest of $5,000 owed to Advent BioServices, Ltd. The obligations included loans of $63,000 from Advent BioServices, Ltd.

(5) The obligations related to long term notes were approximately $9.4 million as of June 30, 2019, which included remaining contractual unpaid interest of $1.1 million.

(6) The operating lease obligations during the next 2 years included $495,000, $8,000 (6 months remaining term) and $23,000 to our offices in Maryland, Germany and London, respectively. Approximately $0.7 million lease obligations during the next 2 years (the first year is rent-free) related to the Vision Centre in the U.K. that we leased back in December 2018. We also included approximately $7.2 million of anticipated payments to Advent BioServices, which represents the next 2 years’ obligation. The remaining contract term as of June 30, 2019 was approximately 4 years under the Manufacturing Services Agreement with Advent.

(7) We have possible contingent obligations to pay certain fees to Cognate BioServices (in addition to any other remedies) if we shut down or suspend its DCVax-L program or DCVax-Direct program. These obligations are not reflected in the accompanying balance sheets.

For a shut down or suspension of the DCVax-Direct program,at Cognate the Company must give 3 months’ advance notice.

For a shut down or suspension of the DCVax-L program at Cognate, the fees will be as follows:

Prior to the last dose of the last patient enrolled in the Phase III trial for DCVax®-L or After the last dose of the last patient enrolled in the Phase III clinical trial for DCVax®-L but before any submission for product approval in any jurisdiction or after the submission of any application for market authorization but prior to receiving a marketing authorization approval: in any of these cases, the fee shall be $3 million.

·	At any time after receiving product approval for DCVax®-L in any jurisdiction, the fee shall be $5 million. For a shut down or suspension of the DCVax-L program at Advent, the Company must give 12 months’ advance notice.

As of June 30, 2019, no shut-down or suspension fees were triggered.

While our DCVax programs are ongoing, under our agreements with Cognate we are required to pay certain fees for dedicated production suites or capacity reserved exclusively for DCVax production, and pay for a certain minimum number of patients, whether or not we fully utilize the dedicated capacity and number of patients. The same is the case under our agreement with Advent. As previously reported, we recently settled certain disputed amounts that had been invoiced to us by Cognate.

Operating Activities

During the six months ended June 30, 2019 and 2018, net cash outflows from operations were $19.4 million and $16.4 million, respectively. The increase in cash used in operating activities was primarily attributable to the increase in the levels of activity in our ongoing clinical programs, as well as payment of substantial accumulated payables.

Financing Activities

During the six months ended June 30, 2019, we did not issue any new preferred stock, common stock or warrants. During the six months ended June 30, 2018, we received approximately $8.1 million cash proceeds from issuance of preferred stock, common stock and warrants in a public offering.

We received $2.2 million and $2.1 million from the exercise of warrants during the six months ended June 30, 2019 and 2018, respectively.

We received approximately $6.5 million from third parties during the six months ended June 30, 2019, and $9.1 million cash proceeds from issuances of debt to third parties and related parties during the six months ended June 30, 2018.

We made aggregate debt payments of $4.8 million and $3.0 million during the six months ended June 30, 2019 and 2018, respectively.

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 June 30, 2019, 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

Certain of our Company’s finance and accounting functions are performed by an external firm on a contract services basis. This firm specializes in providing finance and accounting functions for biotech companies, and the founders and senior managers are highly experienced former partners of national accounting firms. Further, the Company is engaged with a second external firm: one that specializes in Sarbanes-Oxley matters and helping public companies improve their controls and procedures. Together with these two external firms, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on the evaluation of our disclosure controls and procedures, our principal executive, financial and accounting officer concluded that during the period covered by this report, our Company’s processes for internally reporting material information in a systematic manner to allow for timely filing of material information were not effective, due to inherent limitations from being a small company, and the three material weaknesses described in our Form 10-K for 2018, filed on April 2, 2019, remain as of the filing of this Form 10-Q. The Company has expanded its efforts to further strengthen its processes through the creation, adoption, and implementation of new policies designed to address two of the three weaknesses: an employee performance policy and a policy on financial operations objectives. The Company also continues to work to define and execute new information technology controls to address the third of three weaknesses. This relates to information technology controls which were identified as a weakness for the first time during Q1 of this year (for 2018), when the Company underwent its first SOX Section 404(b) more comprehensive evaluation of internal controls.

Changes in Internal Control over Financial Reporting

There have been changes in our internal controls over financial reporting during the three months ended June 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Effective January 1, 2019, we adopted Accounting Standards Update (“ASU”) No 2016-02, Leases (Topic 842). ASC Topic 842 requires management to make significant judgments and estimates. As a result, we implemented changes to our internal controls related to lease evaluation during the six months ended June 30, 2019. These changes include updated accounting policies affected by ASC Topic 842 as well as redesigned internal controls over financial reporting related to ASC Topic 842 implementation. Additionally, management has expanded data gathering procedures to comply with the additional disclosure requirements and ongoing contract review requirements.

Part II - Other Information

Item 1. Legal Proceedings

U.S. Securities and Exchange Commission

As previously reported, the Company has received a number of formal information requests (subpoenas) from the SEC regarding several broad topics that have been previously disclosed, including the Company’s membership on Nasdaq and delisting, related party matters, the Company’s programs, internal controls, the Company’s Special Litigation Committee, disclosures and the publication of interim clinical trial data. Testimony of certain officers and third parties has been taken as well. The Company has been cooperating with the SEC investigation. As hoped, the investigation is winding to a conclusion. After investigation of a broad array of issues over the past two-plus years, the SEC Staff has informed us preliminarily that they have concerns in regard to two issues, relating to the Company’s internal controls over financial reporting and the adequacy of certain disclosures made in the past. We have previously disclosed material weaknesses in our internal controls. As for disclosures, we believe our disclosures complied with applicable law. Despite our belief that the Staff should close the investigation, there can be no assurance that the Staff will not recommend some action involving the Company and/or individuals. Given the stage of the process, the Company is unable to provide a current assessment of the potential outcome or potential liability, if any.

Item 1A. Risk Factors

See risk factors described in our most recent Annual Report on Form 10-K.

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

None.

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		XBRL Instance Document.
101.SCH		XBRL Schema Document.
101.CAL		XBRL Calculation Linkbase Document.
101.DEF		XBRL Definition Linkbase Document.
101.LAB		XBRL Label Linkbase Document.
101.PRE		XBRL Presentation Linkbase Document.

* Filed herewith

** Furnished herewith

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: August 9, 2019	By:	/s/ Linda F. Powers
		Name:	Linda F. Powers

		Title:	President and Chief Executive Officer
			Principal Executive Officer
			Principal Financial and Accounting Officer