UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2019

OR

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

For the transition period from ______to _______

Commission File Number: 001-35737

NORTHWEST BIOTHERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

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

4800 Montgomery Lane, Suite 800, Bethesda, MD 20814

(Address of principal executive offices) (Zip Code)

(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 November 11, 2019, the total number of shares of common stock, par value $0.001 per share, outstanding was 597,061,801.

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 September 30, 2019 and December 31, 2018	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2019 and 2018	4
	Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the three and nine months ended September 30, 2019 and 2018	5
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018	9
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
PART II - OTHER INFORMATION		29
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Mine Safety Disclosures	29
Item 5.	Other Information	29
Item 6.	Exhibits	29
SIGNATURES		30

2

PART I - FINANCIAL INFORMATION

NORTHWEST BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(Unaudited) 

	September 30,			December 31,
	2019			2018
ASSETS
Current assets:
Cash and cash equivalents	$	1,970		$	22,224
Prepaid expenses and other current assets		2,602			1,574
Total current assets		4,572			23,798
Non-current assets:
Property, plant and equipment, net		365			108
Right-of-use asset, net		4,455			-
Other assets		753			761
Total non-current assets		5,573			869
TOTAL ASSETS	$	10,145		$	24,667
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses	$	6,609		$	15,506
Accounts payable and accrued expenses to related parties and affiliates		788			4,588
Convertible notes, net		632			1,863
Convertible notes to related party		-			5,400
Notes payable, net		6,310			7,155
Notes payable to related party		61			393
Shares payable		138			138
Contingent payable derivative liability		7,015			-
Warrant liability		31,579			29,995
Lease liabilities		291			-
Deferred profit on sale-leaseback transaction		-			4,802
Total current liabilities		53,423			69,840
Non-current liabilities:
Note payable, net of current portion, net		6,652			1,986
Lease liabilities, net of current portion		4,605			-
Total non-current liabilities		11,257			1,986
Total liabilities		64,680			71,826
COMMITMENTS AND CONTINGENCIES (Note 12)
Stockholders' deficit:
Preferred stock ($0.001 par value); 100,000,000 shares authorized as of September 30, 2019 and December 31, 2018, respectively		-			-
Common stock ($0.001 par value); 1,200,000,000 shares authorized; 582.8 million and 523.2 million shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively		583			523
Additional paid-in capital		789,449			775,741
Stock subscription receivable		(10	)		(10	)
Accumulated deficit		(846,580	)		(824,413	)
Accumulated other comprehensive income		2,023			1,000
Total stockholders' deficit		(54,535	)		(47,159	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	10,145		$	24,667

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

3

NORTHWEST BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except per share amounts)

(Unaudited)

	For the three months ended						For the nine months ended
	September 30,						September 30,
	2019			2018			2019			2018
Revenues:
Research and other	$	593		$	453		$	1,513		$	863
Total revenues		593			453			1,513			863
Operating costs and expenses:
Research and development		3,409			4,296			9,704			14,311
General and administrative		2,838			3,531			9,413			20,985
Legal expenses		802			1,945			3,255			4,056
Total operating costs and expenses		7,049			9,772			22,372			39,352
Loss from operations		(6,456	)		(9,319	)		(20,859	)		(38,489	)
Other income (expense):
Change in fair value of derivative liabilities		2,460			24,358			(2,360	)		19,220
Loss from extinguishment of debt		(504	)		(229	)		(508	)		(830	)
Interest expense		(724	)		(1,596	)		(2,267	)		(8,222	)
Foreign currency transaction loss		(1,018	)		(636	)		(975	)		(1,823	)
Total other income (loss)		214			21,897			(6,110	)		8,345
Net income (loss)	$	(6,242	)	$	12,578		$	(26,969	)	$	(30,144	)
Deemed dividend on convertible preferred stock		-			(4,175	)		-			(17,765	)
Net income (loss) applicable to common stockholders	$	(6,242	)	$	8,403		$	(26,969	)	$	(47,909	)
Other comprehensive income
Foreign currency translation adjustment		892			301			1,023			982
Total comprehensive income (loss)	$	(5,350	)	$	12,879		$	(25,946	)	$	(29,162	)
Net earnings (loss) per share applicable to common stockholders
Basic	$	(0.01	)	$	0.02		$	(0.05	)	$	(0.12	)
Diluted	$	(0.01	)	$	0.02		$	(0.05	)	$	(0.12	)
Weighted average shares used in computing basic earnings (loss) per share		577,130			461,040			552,335			414,426
Weighted average shares used in computing diluted earnings (loss) per share		577,130			516,300			552,335			414,426

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

4

NORTHWEST BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands)

(Unaudited)

	For the Three Months Ended September 30, 2019
					Additional								Accumulated Other		Total
	Common Stock				Paid-in		Subscription			Accumulated			Comprehensive		Stockholders'
	Shares		Par value		Capital		Receivable			Deficit			Income		Deficit
Balance at July 1, 2019		562,462	$	562	$	785,648	$	(10	)	$	(840,338	)	$	1,131	$	(53,007	)
Issuance of common stock and warrants for cash in a registered direct offering (net of $1.0 million warrant liability and $0.2 million cash offering cost)		10,450		11		1,199		-			-			-		1,210
Issuance of common stock and warrants for conversion of debt and accrued interest		8,736		9		2,034		-			-			-		2,043
Stock-based compensation		1,140		1		568		-			-			-		569
Net loss		-		-		-		-			(6,242	)		-		(6,242	)
Cumulative translation adjustment		-		-		-		-			-			892		892
Balance at September 30, 2019		582,788	$	583	$	789,449	$	(10	)	$	(846,580	)	$	2,023	$	(54,535	)

	For the Nine Months Ended September 30, 2019
					Additional									Accumulated Other		Total
	Common Stock				Paid-in			Subscription			Accumulated			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	)
Issuance of common stock and warrants for cash in a registered direct offering (net of $1.0 million warrant liability and $0.2 million cash offering cost)		10,450		11		1,199			-			-			-		1,210
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		26,234		27		6,993			-			-			-		7,020
Stock-based compensation		1,340		1		1,559			-			-			-		1,560
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		-		-		-			-			(26,969	)		-		(26,969	)
Cumulative translation adjustment		-		-		-			-			-			1,023		1,023
Balance at September 30, 2019		582,788	$	583	$	789,449		$	(10	)	$	(846,580	)	$	2,023	$	(54,535	)

	For the Three Months Ended September 30, 2018
					Additional									Accumulated Other		Total
	Common Stock				Paid-in			Subscription			Accumulated			Comprehensive		Stockholders'
	Shares		Par value		Capital			Receivable			Deficit			Income		Equity (Deficit)
Balance at July 1, 2018		444,583	$	444	$	746,509		$	-		$	(831,341	)	$	84	$	(84,304	)
Issuance of common stock for conversion of Series A convertible preferred stock		32,187		32		7,131			-			-			-		7,163
Deemed dividend on conversion of Series A convertible preferred stock to common stock		-		-		(982	)		-			-			-		(982	)
Issuance of common stock for conversion of Series B convertible preferred stock		23,050		23		17,513			(10	)		-			-		17,526
Deemed dividend on conversion of Series B convertible preferred stock to common stock		-		-		(3,193	)		-			-			-		(3,193	)
Conversion of share settled debt into common stock		2,500		3		705			-			-			-		708
Issuance of common stock and warrants for conversion of debt and accrued interest		7,794		8		1,600			-			-			-		1,608
Stock-based compensation		-		-		1,456			-			-			-		1,456
Net income		-		-		-			-			12,578			-		12,578
Cumulative translation adjustment		-		-		-			-			-			301		301
Balance at September 30, 2018		510,114	$	510	$	770,739		$	(10	)	$	(818,763	)	$	385	$	(47,139	)

5

NORTHWEST BIOTHERAPEUTICS, INC.

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

(in thousands)

(Unaudited)

	For the Nine Months Ended September 30, 2018
					Additional									Accumulated Other
	Common Stock				Paid-in			Subscription			Accumulated			Comprehensive			Stockholders'
	Shares		Par value		Capital			Receivable			Deficit			Income (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		100,141		100		18,938			(109	)		-			-			18,929
Deemed dividend on conversion of Series A convertible preferred stock to common stock		-		-		(10,892	)		-			-			-			(10,892	)
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		32,491		33		19,674			(10	)		-			-			19,697
Deemed dividend on conversion of Series B convertible preferred stock to common stock		-		-		(4,787	)		-			-			-			(4,787	)
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		13,300		13		2,440			-			-			-			2,453
Issuance of common stock and warrants for conversion of debt and accrued interest		22,268		22		5,500			-			-			-			5,522
Reclass between accrued interest and subscription receivable		-		-		-			9			-			-			9
Proceeds from investor to offset subscription receivable		-		-		-			100			-			-			100
Stock-based compensation		100		-		13,329			-			-			-			13,329
Net loss		-		-		-			-			(30,144	)		-			(30,144	)
Cumulative translation adjustment		-		-		-			-			-			982			982
Balance at September 30, 2018		510,114	$	510	$	770,739		$	(10	)	$	(818,763	)	$	385		$	(47,139	)

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

6

NORTHWEST BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	For the nine months ended
	September 30,
	2019			2018
Cash Flows from Operating Activities:
Net Loss	$	(26,969	)	$	(30,144	)
Reconciliation of net loss to net cash used in operating activities:
Depreciation and amortization		16			1,063
Amortization of debt discount		1,020			5,882
Amortization of debt premium		-			(319	)
Change in fair value of derivatives		2,360			(19,220	)
Loss from extinguishment of debt		508			830
Amortization of operating lease right-of-use asset		435			-
Stock-based compensation related to warrants modification		3			141
Stock-based compensation for services		1,560			13,329
Subtotal of non-cash charges		5,902			1,706
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(1,059	)		428
Other non-current assets		(23	)		(55	)
Accounts payable and accrued expenses		62			4,493
Related party accounts payable and accrued expenses		(3,800	)		3,164
Lease liabilities		6			-
Net cash used in operating activities		(25,881	)		(20,408	)
Cash Flows from Investing Activities:
Purchase of equipment		(246	)		-
Net cash used in investing activities		(246	)		-
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		2,241			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 warrants modification		7			-
Proceeds from issuance of notes payable, net		6,500			5,701
Proceeds from issuance of notes payable to related party		-			95
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		(5,400	)		-
Net cash provided by financing activities		4,818			18,692
Effect of exchange rate changes on cash and cash equivalents		1,055			1,847
Net (decrease) increase in cash and cash equivalents		(20,254	)		131
Cash and cash equivalents, beginning of the period		22,224			117
Cash and cash equivalents, end of the period	$	1,970		$	248
Supplemental disclosure of cash flow information
Interest payments on mortgage loan	$	-		$	(935	)
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	$	(795	)	$	-

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

7

NORTHWEST BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	For the nine months ended
	September 30,
	2019		2018
Supplemental schedule of non-cash investing and financing activities:
Issuance of common stock for conversion of Series A convertible preferred stock	$	-	$	18,929
Deemed dividend on conversion of Series A convertible preferred stock to common stock	$	-	$	10,892
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	$	-	$	19,697
Deemed dividend on conversion of Series B convertible preferred stock to common stock	$	-	$	4,787
Reclassification of warrant liabilities related to warrants exercised for cash	$	1,759	$	2,177
Conversion of share settled debt into common stock	$	-	$	2,453
Issuance of common stock and warrants for conversion of debt and accrued interest	$	5,533	$	4,692
Conversion of outstanding accounts payables to note payable and contingent payable	$	8,560	$	-
Issuance of common shares in connection with a settlement agreement	$	12	$	-
Offering cost related to warrant liability	$	1,031	$	-
Warrants and contingently issuable warrants associated with convertible notes payable to related party	$	-	$	4,217
Issuance of warrants in conjunction with note payable			$	67
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
Accrued renewal fee incurred from mortgage loan			$	212
Reclass between accrued interest and subscription receivable	$	-	$	9

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

8

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.  

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 $27.0 million for the nine months ended September 30, 2019. The Company used approximately $25.9 million of cash in its operating activities for the nine months ended September 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.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and on the same basis as the Company prepares its annual audited consolidated financial statements. The condensed consolidated balance sheet as of September 30, 2019, condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2019 and 2018, condensed consolidated statement of stockholders’ deficit for the three and nine months ended September 30, 2019 and 2018, and the condensed consolidated statements of cash flows for the nine months ended September 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 nine months ended September 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.

9

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.

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:

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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 September 30, 2019 and December 31, 2018 (in thousands):

	Fair value measured at September 30, 2019
			Quoted prices in active		Significant other		Significant
	Fair value at		markets		observable inputs		unobservable inputs
	September 30, 2019		(Level 1)		(Level 2)		(Level 3)
Warrant liability	$	31,579	$	-	$	-	$	31,579
Contingent payable derivative liability		7,015		-		-		7,015
Total fair value	$	38,594	$	-	$	-	$	38,594

	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 nine-month period ended September 30, 2019.

The following table presents changes in Level 3 liabilities measured at fair value for the nine-month period ended September 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
Additional warrant liability		1,042			-		-			1,042
Extinguishment of derivative liabilities		-			-		(3	)		(3	)
Extinguishment of warrant liabilities related to warrants exercised for cash		(1,759	)		-		-			(1,759	)
Change in fair value		2,301			413		(354	)		2,360
Balance – September 30, 2019	$	31,579		$	7,015	$	-		$	38,594

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

	As of September 30, 2019						As of December 31, 2018
	Warrant			Contingent Payable			Warrant			Embedded
	Liability			Derivative Liability			Liability			Conversion Feature
Strike price	$	0.28		$	0.25	*	$	0.29		$	0.44
Contractual term (years)		1.5			0.6			2.2			1.5
Volatility (annual)		82	%		71	%		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 the contingent payable as of September 30, 2019 is contingent based on the market price.

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5. Stock-based Compensation

During the nine months ended September 30, 2019, the Company issued approximately 1.3 million shares of its common stock for service providers. The Company recorded approximately $0.3 million of stock-based compensation expense based on the fair value on the grant date.

The following table summarizes stock option activity for the Company’s option plans during the nine months ended September 30, 2019 (amount in thousands, except per share number):

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)		Total Intrinsic Value
Outstanding as of January 1, 2019		100,159	$	0.24		9.3	$	-
Granted		1,500	$	0.21		9.9	$	-
Outstanding as of September 30, 2019		101,659	$	0.24		8.6	$	2,851
Options vested and exercisable as of September 30, 2019		92,378	$	0.24		8.5	$	2,543

During the nine months ended September 30, 2019, the Company issued 1.5 million stock options with grant date fair value of approximately $327,000. The Options will vest on a pro rata monthly basis over the first 36 months. The exercise price of the options is $0.21, and the exercise period will be 10 years.

The Company also agreed to issue another 1.5 million stock options which will vest on certain performance criteria, which remain to be determined by the parties. The Company does not consider such performance options to be granted until such performance criteria is determined in accordance with ASC 718.

The following assumptions were used to compute the fair value of stock options granted during the nine months ended September 30, 2019:

	For the Nine
	Months Ended
	September 30, 2019
Exercise price	$	0.23
Expected price volatility		93	%
Risk free interest rate		2.9	%
Expected term		5.0-6.5

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

	For the three months ended				For the nine months ended
	September 30,				September 30,
	2019		2018		2019		2018
Research and development	$	221	$	451	$	394	$	1,575
General and administrative (1)		351		1,006		1,169		11,895
Total stock-based compensation expense	$	572	$	1,457	$	1,563	$	13,470

(1) The general and administrative expense during the three months and nine months ended September 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 $0.6 million as of September 30, 2019, and will be recognized over the next 3 years.

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6. Property & Equipment

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

	September 30,			December 31,			Estimated
	2019			2018			Useful Life
Leasehold improvements	$	102		$	81		Lesser of lease term or estimated useful life
Office furniture and equipment		58			25		3 years
Computer equipment and software		787			599		3 years
Land in the United Kingdom		84			86		NA
		1,031			791
Less: accumulated depreciation		(666	)		(683	)
Total property, plant and equipment, net	$	365		$	108

Depreciation expenses were approximately $8,000 and $341,000 for the three months ended September 30, 2019 and 2018 and were approximately $16,000 and $1.1 million for the nine months ended September 30, 2019 and 2018.

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

At September 30, 2019, the Company had operating lease liabilities of approximately $4.9 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 $4.5 million for the Sawston lease and US office lease, which were included in the condensed consolidated balance sheet.

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

	For the Nine Months Ended
	September 30, 2019
	U.K			U.S			Total
Lease cost
Operating lease cost	$	454		$	165		$	619
Short-term lease cost		38			81			119
Variable lease cost		-			11			11
Total	$	492		$	257		$	749
Other information as of adoption date
Operating cash flows from operating leases	$	-		$	(162	)	$	(162	)
Weighted-average remaining lease term – operating leases		10.2			1.1
Weighted-average discount rate – operating leases		12	%		12	%

The Company recorded lease costs as a component of general and administrative expense during the nine months ended September 30, 2019.

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

	U.K			U.S			Total
Three months ended December 31, 2019	$	-		$	81		$	81
Year ended December 31, 2020		615			332			947
Year ended December 31, 2021		651			84			735
Year ended December 31, 2022		651			-			651
Year ended December 31, 2023		651			-			651
Year ended December 31, 2024		651			-			651
Thereafter		9,116			-			9,116
Total		12,335			497			12,832
Less present value discount		(7,892	)		(44	)		(7,936	)
Operating lease liabilities included in the Consolidated Balance Sheet at September 30, 2019	$	4,443		$	453		$	4,896

8. Outstanding Debt

The following two tables summarize outstanding debt as of September 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)	4/18/2020		10	%	$	0.22		500		(3	)		497
								635		(3	)		632
Short term notes payable
8% unsecured (5)	Various		8	%		N/A		1,009		(98	)		911
10% unsecured (6)	Various		10	%		N/A		3,975		(50	)		3,925
12% unsecured (7)	On Demand		12	%		N/A		440		-			440
0% unsecured (8)	8/1/2020		0	%		N/A		1,156		(122	)		1,034
								6,580		(270	)		6,310
Short term notes payable - related parties
10% unsecured - Related Parties (9)	On Demand		10	%		N/A		61		-			61
								61		-			61
Long term notes payable
8% unsecured (10)	Various		8	%		N/A		7,165		(513	)		6,652
								7,165		(513	)		6,652
Ending balance as of September 30, 2019							$	14,441	$	(786	)	$	13,655

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		Stated										Fair Value of
		Interest			Conversion				Remaining			Embedded		Carrying
	Maturity Date	Rate			Price		Face Value		Debt Discount			Conversion Option		Value
Short term convertible notes payable
6% unsecured (1)	Due		6	%	$	3.09	$	135	$	-		$	-	$	135
10% unsecured (2)	10/18/2019		10	%	$	0.22		500		(43	)		-		457
18% unsecured (3)	In Default		18	%	$	0.21		914		-			357		1,271
								1,549		(43	)		357		1,863
Short term convertible notes payable - related party
10% unsecured (4)	On Demand		10	%	$	0.23		5,400		-			-		5,400
Short term notes payable
8% unsecured (5)	6/20/2019 and 12/12/2019		8	%		N/A		3,840		(383	)		-		3,457
10% unsecured (6)	Various		10	%		N/A		3,658		(400	)				3,258
12% unsecured (7)	On Demand		12	%		N/A		440		-			-		440
								7,938		(783	)		-		7,155
Short term notes payable - related parties
10% unsecured - Related Parties (9)	On Demand		10	%		N/A		324		-			-		324
12% unsecured - Related Parties (9)	On Demand		12	%		N/A		69		-			-		69
								393		-			-		393
Long term notes payable
8% unsecured (5)	2/13/2020		8	%		N/A		1,155		(119	)		-		1,036
5% unsecured (6)	1/13/2020		10	%		N/A		1,000		(50	)		-		950
								2,155		(169	)		-		1,986
Ending balance as of December 31, 2018							$	17,435	$	(995	)	$	357	$	16,797

(1) This $135,000 note as of September 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 nine months ended September 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 volume weighted average prices of the Company’s common stock during the 15 consecutive trading days immediately preceding the conversion date.

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

The Redeemable Note was fully converted as of September 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 Convertible Notes were 15-day demand notes, and 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 Convertible Notes. The Company has not yet finalized the terms of the warrant agreement.

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During the nine months ended September 30, 2019, the Company paid $6.2 million related to these Convertible Notes, including $0.8 million of interest.

(5) This $1.0 million note as of September 30, 2019 consists of two separate 8% notes in the amounts of $0.7 million and $0.3 million.

During the nine months ended September 30, 2019, the Company converted approximately $4.0 million of principal and $0.2 million of accrued interest into approximately 20.0 million shares of the Company’s common stock at a fair value of $5.3 million. The Company recorded approximately $1.1 million of debt extinguishment loss from this conversion.

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

During the nine months ended September 30, 2019, the Company made a principal payment of approximately $420,000, and an interest payment of approximately $43,000, which included a $27,000 premium pursuant to the prepayment option.

During the nine months ended September 30, 2019, the Company converted approximately $0.3 million of principal and $44,000 of accrued interest into approximately 1.3 million shares of the Company’s common stock at a fair value of $0.3 million. The Company recorded approximately $20,000 of debt extinguishment loss from this conversion.

During the nine months ended September 30, 2019, the Company wrote off $29,000 of unamortized debt discount related to the debt extinguishment, which was recognized as a debt extinguishment loss.

During the nine months ended September 30, 2019, the Company recognized interest expense of approximately $371,000 resulting from the amortization of the debt discount related to the Notes. The remaining debt discount as of September 30, 2019 was approximately $50,000.

The accrued interest associated with the Notes was approximately $374,000 as of September 30, 2019.

(7) This $440,000 note as of September 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 $118,000 as of September 30, 2019.

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

Cognate agreed to reduce outstanding accounts payable by approximately $10 million, with some amounts related to periods of inactivity being cancelled and with $1.1 million being deferred until 2020 (the “Deferred Note”). As part of this overall settlement, the Company also provided a contingent note payable (the “Contingent Payable Derivative”) of $10 million, which is only payable upon the Company’s first financing after DCVax product approval in or outside the U.S. If such product approval has not been obtained by the seventh anniversary of the 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 at inception date which resulted in a $1.0 million gain from debt extinguishment (amount in thousands):

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

*see Note 4 for valuation details

As of September 30, 2019, the Deferred Note had $1.1 million principal outstanding.

(9) 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 nine months ended September 30, 2019, the Company paid $148,000 related to the Goldman Notes, including $79,000 of interest.

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 nine months ended September 30, 2019, the Company paid interest totaling $46,000.

Advent BioServices Note

Advent BioServices (“Advent”), a related party which was formerly part of Cognate BioServices and was spun off separately as part of an institutional financing of Cognate, provided a short-term loan to the Company in the amount of $65,000 on September 26, 2018. The loan bears interest at 10% per annum, and is payable upon demand, with 7 days’ prior written notice to the Company.

As of September 30, 2019, the Note remains outstanding and unpaid. The principal and interest owed to Advent under this Note at September 30, 2019 was $61,000 and $6,000 based on the current exchange rate, respectively.

(10) On March 29, 2019, the Company entered into two 22-month notes (the “Notes”), with two different institutional investors. The Notes have a principal balance of $4.4 million, accrue interest at a rate of 8% per annum and have a maturity date of January 29, 2021. The Notes contain an OID of 10%. Net funding to the Company totaled $4.0 million. The Notes allow for an optional prepayment at the Company’s discretion.  Should the Company elect to prepay the Notes, the Company will incur a prepayment premium of 15%.  Monthly amortization payments of 1/14^th of the total due on the Notes will be payable beginning in month 9 through month 22, with a 10% premium.

In June 2019, the Company entered into two 21-month notes (the “Notes”), with two different institutional investors. The Notes have a principal balance of $2.8 million, accrue interest at a rate of 8% per annum and mature in March 2021. The Notes contain an OID of 10%. Net funding to the Company totaled $2.5 million. The Notes allow for an optional prepayment at the Company’s discretion. Should the Company elect to prepay the Notes, the Company will incur a prepayment premium of 15%. Monthly amortization payments of 1/14^th of the total due related to the Notes will be payable beginning in month 7 through month 21, with a 10% premium.

The outstanding interest for the above long-term notes was approximately $241,000 as of September 30, 2019.

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

	For the three months ended					For the nine months ended
	September 30,					September 30,
	2019		2018			2019		2018
Interest expenses related to outstanding notes:
Contractual interest	$	330	$	427		$	881	$	1,170
Amortization on debt premium		-		(79	)		-		(319	)
Amortization of debt discount		357		673			1,020		1,257
Total interest expenses related to outstanding notes		687		1,021			1,901		2,108
Interest expenses related to outstanding notes to related parties:
Contractual interest		36		143			364		474
Amortization of debt discount		-		-			-		4,235
Total interest expenses related to outstanding notes to related parties		36		143			364		4,709
Interest expenses related to mortgage loan:
Contractual interest		-		303			-		942
Amortization of debt issuance costs		-		127			-		390
Total interest expenses on the mortgage loan		-		430			-		1,332
Interest expenses related to Series A convertible preferred stock		-		-					68
Other interest expenses		1		2			2		5
Total interest expense	$	724	$	1,596		$	2,267	$	8,222

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

	Payment Due by Period
			Less than		1 to 2
	Total		1 Year		Years
Short term convertible notes payable
6% unsecured		135		135		-
10% unsecured		500		500		-
Short term notes payable
8% unsecured		1,009		1,009		-
10% unsecured		3,975		3,975
12% unsecured		440		440		-
0% unsecured		1,156		1,156		-
Short term notes payable - related parties
10% unsecured - (on demand)		61		61		-
Long term notes payable
8% unsecured		7,165		-		7,165
Total	$	14,441	$	7,276	$	7,165

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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.

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 nine months ended
	September 30,					September 30,
	2019			2018		2019			2018
Net earnings (loss) - basic	$	(6,242	)	$	8,403	$	(26,969	)	$	(47,909	)
Interest on convertible senior notes		-			2,617		-			-
Net earnings (loss) - diluted	$	(6,242	)	$	11,020	$	(26,969	)	$	(47,909	)
Weighted average shares outstanding - basic		577,130			461,040		552,335			414,426
Warrants		-			1,533		-			-
Stock options		-			41,960		-			-
Convertible notes and accrued interest		-			11,767		-			-
Weighted average shares outstanding - diluted		577,130			516,300		552,335			414,426

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 nine months ended
	September 30,
	2019		2018
Common stock options		101,659		100,159
Common stock warrants		340,769		357,192
Contingently issuable warrants		11,739		11,739
Share-settled debt and accrued interest, at fair value		-		11,767
Convertible notes and accrued interest		2,559		41,960
Potentially dilutive securities		456,726		522,817

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 provided for a program initiation payment of approximately $1.0 million (£0.7 million), in connection with technology transfer and operations transfer from Germany to the U.K., to 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.

On November 8, 2019, the Company and Advent entered into an Ancillary Services Agreement with an 8-month Term for the U.K. Facility Development Activities and the Compassionate Use Program Activities. The Ancillary Services Agreement establishes a structure under which Advent will develop Statements of Work (“SOWs”) for each portion of the U.K. Facility Development Activities and Compassionate Use Program Activities, and will deliver those SOWs to the Company for review and approval. After an SOW is approved by the Company, Advent will proceed with or continue the applicable services and will invoice the Company pursuant to the SOW. Since both the U.K. Facility Development and the Compassionate Use Program involve pioneering and uncertainties in most aspects, the invoicing under the Ancillary Services Agreement will be on the basis of costs incurred plus fifteen percent.

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Advent Expenses and Accounts Payable

The following table summarizes expenses incurred to related parties (i.e., amounts invoiced) during the three and nine months ended September 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 nine months ended
	September 30,				September 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		35		N/A		133
Advent BioServices		1,218		1,373		3,931		5,039
Total	$	1,218	$	1,408	$	3,931	$	6,111

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

	September 30,		December 31,
	2019		2018
Advent BioServices	$	782	$	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.

During the three months ended September 30, 2019, the Company made a partial repayment of $1.4 million of Ms. Powers’ outstanding demand loan, including $46,000 interest payment.

Advent BioServices Note

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 on September 26, 2018. The loan bears interest at 10% per annum, and is payable upon demand, with 7 days’ prior written notice to the Company.

As of September 30, 2019, the Advent Note remains outstanding and unpaid. The principal amount and accrued interest owed to Advent under this Note at September 30, 2019 was $61,000 and $6,000, respectively, based on the current exchange rate.

Interest expense for the nine-month period ended September 30, 2019 and 2018 associated with related party loans was approximately $0.3 million and $4.7 million, respectively.

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11. Stockholders’ Deficit

Registered Direct Offering

On July 15, 2019, the Company issued an aggregate of 11.8 million shares of its common stock at a purchase price of $0.23 per share to certain institutional investors in a registered direct offering (the “Offering”). Included with the Offering were 1.3 million shares of common stock which were issued from the conversion of an existing loan and the related accrued interest totaling $306,000. The net proceeds from the Offering were approximately $2.2 million, after deducting offering costs of $0.2 million paid by the Company.

In connection with the Offering, the Company did not issue any additional warrants for the new investment by the investors, but the Company, in effect, agreed to extend by twelve months the maturity date of certain existing warrants already held by some of those investors. The new maturity date varies between July 2020 and October 2021. The Company recorded an incremental change of $0.9 million on the fair value of warrants due to the modification and recorded it as part of offering cost during the nine months ended September 30, 2019.

Debt Conversion

During the nine months ended September 30, 2019, the Company converted debt of approximately $5.2 million of principal and $0.4 million of accrued interest into approximately 26.2 million shares of the Company’s common stock at a fair value of $7.0 million. The Company recorded approximately $1.5 million of debt extinguishment loss from the conversion.

Warrants Exercised for Cash

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

Shares Settlement

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

As part of the settlement agreement, the number of shares of the Company’s common stock which the Company was to issue to Cognate was substantially reduced: 52 million shares of the Company’s common stock which the Company had previously agreed to issue to Cognate were reduced to 12 million shares. The Company considers the reduction in shares owed to Cognate a modification. Because the 52 million shares were never issued and the modification, which resulted in a decrease in fair value, is not a forfeiture, previously recognized expense related to services performed by Cognate is not reversed in connection with this modification. During the nine months ended September 30, 2019, the Company recorded $12,000 in its common stock par and reduced same amount in additional paid-in capital.

Common Stock Purchase Warrants

The following is a summary of warrant activity for the nine months ended September 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 granted		765		$	0.23		2.85
Warrants exercised for cash		(9,532	)	$	0.23
Warrants expired and cancellation		(10,878	)	$	0.61
Outstanding as of September 30, 2019		352,508		$	0.28		1.53

12. Commitments and Contingencies

U.S. Securities and Exchange Commission

As previously reported, the SEC has been investigating the Company regarding various topics that have been previously disclosed. The Company has been cooperating with the SEC investigation.  On October 10, 2019, the Company entered into a settlement agreement with the SEC.  Under the settlement, in which the Company neither admits nor denies any violations, the Company paid a fine of $250,000 in connection with past weaknesses in its internal controls, and the Company will retain an additional independent consultant to help the Company remediate its remaining weaknesses.

13. Subsequent Events

During the period from October 1 through November 11, 2019, the Company entered into equity and debt financings of $3.4 million and converted $1.3 million of debt into equity.  The Company also entered into extensions of certain existing notes totaling approximately $3.1 million.

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes to those statements included with this report. In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. The words “believe,” “expect,” “intend,” “anticipate,” and similar expressions are used to identify forward-looking statements, but some forward-looking statements are expressed differently. Many factors could affect our actual results, including those factors described under “Risk Factors” in our Form 10-K for the year ended December 31, 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 has been 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 unblinding and analyzing the data. Each of these stages involves teams of outside experts as well as Company personnel.

The independent statisticians and the Company have completed the draft of the Statistical Analysis Plan (SAP).  The Company is proceeding with the regulatory processes relating to the SAP.  The Company is continuing to consult with its Scientific Advisory Board and Board of Directors to move forward as prudently and expeditiously as possible to data lock, unblinding and top line data.

The independent contract research organization managing the trial has been moving forward on resolving queries to confirm the trial data, in parallel while the Company and the statisticians have been developing the SAP.  The Company’s understanding is that most of the queries have been resolved and only a small number remain outstanding.

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.

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Results of Operations

Operating costs:

Operating costs and expenses consist primarily of research and development expenses, including clinical trial expenses, which increase when we are actively participating in clinical trials and especially when we are in a large ongoing international phase III trial. 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 September 30, 2019 and 2018

We recognized net loss of $6.2 million (including both cash and non-cash amounts) for the three months ended September 30, 2019 versus net income of $12.6 million for the three months ended September 30, 2018.

Research and Development Expense

For the three months ended September 30, 2019 and 2018, research and development expense was $3.4 million and $4.3 million, respectively. The decrease of $0.9 million for the three months ended September 30, 2019, was due to lower expenses incurred from Advent BioServices and other major third-party vendors compared to the same period last year.

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

	September 30,		December 31,
	2019		2018
Accounts payable:
Advent BioServices	$	782	$	3,967
Demand Loan:
Linda Powers (1)	$	-	$	5,400
Advent BioServices (2)		61		65
Total	$	61	$	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 September 30, 2019 and 2018 (amount in thousands):

	For the three months ended
	September 30,
	2019		2018
Cognate Israel		N/A	$	35
Advent BioServices		1,218		1,373
Total	$	1,218	$	1,408

General and Administrative Expense

General and administrative expenses were $2.8 million and $3.5 million for three months ended September 30, 2019 and 2018, respectively. The decrease compared with 2018 was primarily due to lower stock-based compensation expense. We recorded approximately $1.0 million of stock-based compensation under general and administrative expenses during the three months ended September 30, 2018 compared to $0.4 million during the three months ended September 30, 2019.

Legal Expenses

Legal costs were $0.8 million and $1.9 million for the three months ended September 30, 2019 and 2018, respectively. The reduction in legal costs reflects a reduction in legal processes.

Change in fair value of derivatives

During the three months ended September 30, 2019 and 2018, we recognized a non-cash gain of $2.5 million and $24.4 million, respectively. The non-cash gain in 2019 was primarily due to the decrease in our stock price as of September 30, 2019 compared to June 30, 2019.

Loss from Extinguishment of Debt

During the three months ended September 30, 2019 and 2018, we recorded a loss from extinguishment of debt of $0.5 million and $0.2 million, respectively. The debt extinguishment loss was related to debt conversions, where the fair value of common stock exceeded the book value of the debt on the date of conversion.

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Interest Expense

During the three months ended September 30, 2019 and 2018, we recorded interest expense of $0.7 million and $1.6 million, respectively. We incurred approximately $0.4 million interest expense related to mortgage loan during the three months ended September 30, 2018. The mortgage loan was fully paid off in December 2018.

Foreign currency transaction gain

During the three months ended September 30, 2019 and 2018, we recognized foreign currency transaction loss of $1.0 million and $0.6 million, respectively. The loss was due to the strengthening of the U.S. dollar relative to the British pound sterling during the three months ended September 30, 2019. 

Nine Months Ended September 30, 2019 and 2018

We recognized a net loss of $27.0 million and $30.1 million for the nine months ended September 30, 2019 and 2018, respectively. Net cash used in operations was $25.9 million and $20.4 million for the nine months ended September 30, 2019 and 2018, respectively, including payment of substantial amounts of accumulated current and past payables during the nine months ended September 30, 2019.

Research and Development Expense

For the nine months ended September 30, 2019 and 2018, research and development expense was $9.7 million and $14.3 million, respectively. The decrease of $4.6 million for the nine months ended September 30, 2019 was primarily due to lower expenses incurred from Advent BioServices and other major third-party vendors compared to the same period last year. We also incurred lower stock-based compensation arrangements compared to the same period last year. We recorded approximately $1.6 million of stock-based compensation expense related to research and development expenses during the nine months ended September 30, 2018 as compared to $0.4 million for the nine months ended September 30, 2019.

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

	For the nine months ended
	September 30,
	2019		2018
Cognate BioServices, Inc. (related party until February 2018) *		N/A	$	873
Cognate BioServices GmbH		N/A		66
Cognate Israel		N/A		133
Advent BioServices		3,931		5,039
Total	$	3,931	$	6,111

* We made a $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 $9.4 million and $21.0 million for the nine months ended September 30, 2019 and 2018, respectively. The decrease of $11.6 million during the nine months ended September 30, 2019 compared with 2018, was primarily due to lower 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 $11.9 million of stock-based compensation expense related to general and administrative expenses during the nine months ended September 30, 2018, including $141,000 related to warrants modification as compared to $1.2 million for the nine months ended September 30, 2019.

Legal Expenses

Legal costs were $3.3 million for the nine months ended September 30, 2019 versus $4.1 million for the nine months ended September 30, 2018. The reduction in legal costs reflects a reduction in legal processes.

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Change in fair value of derivatives

During the nine months ended September 30, 2019 and 2018, we recognized a non-cash loss of $2.4 million and a non-cash gain of $19.2 million, respectively. The non-cash loss in 2019 was primarily due to the increase in our stock price as of September 30, 2019 compared to December 31, 2018.

Loss from Extinguishment of Debt

During the nine months ended September 30, 2019 and 2018, we recorded loss from extinguishment of debt of $0.5 million and $0.8 million, respectively. The debt extinguishment loss was resulted from debt conversion, when the fair value of common stock exceeded the book value of the debt as of the conversion date.

Interest Expense

During the nine months ended September 30, 2019 and 2018, we recorded interest expense of $2.3 million and $8.2 million, respectively. We recorded approximately $4.2 million of debt discount amortization related to Ms. Powers’ Notes during the nine months ended September 30, 2018.

Foreign currency transaction loss

During the nine months ended September 30, 2019 and 2018, we recognized foreign currency transaction loss of $1.0 million and $1.8 million, respectively. The loss was due to the strengthening of the U.S. dollar relative to the British pound sterling during the nine months ended September 30, 2019. 

Liquidity and Capital Resources

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

We depend upon our ability, and will continue to attempt, to secure equity and/or debt financing. We cannot be certain that additional funding will be available on acceptable terms, or at all. Our management determined that there was substantial doubt about our ability to continue as a going concern within one year after the 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 September 30, 2019 (amount in thousands):

	Payment Due by Period
			Less than		1 to 2
	Total		1 Year		Years
Short term convertible notes payable (1)
6% unsecured		216		216		-
10% unsecured		550		550		-
Short term notes payable (2)
8% unsecured		1,014		1,014		-
10% unsecured		4,373		4,373
12% unsecured		558		558		-
0% unsecured		1,156		-		1,156
Short term notes payable - related parties (3)
10% unsecured - (on demand)		67		67		-
Long term notes payable (4)
8% unsecured		8,216		-		8,216
Operating leases (5)		11,032		5,559		5,473
Purchase obligation (6)
Total	$	27,182	$	12,337	$	14,845

(1) The obligations related to short term convertible notes were approximately $0.7 million as of September 30, 2019, which included remaining contractual unpaid interest of $0.1 million.

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(2) The obligations related to short term notes were approximately $7.1 million as of September 30, 2019, which included remaining contractual unpaid interest of $0.5 million.

(3) The obligations related to short term notes to related parties were approximately $67,000 as of September 30, 2019, which included unpaid interest of $6,000 owed to Advent BioServices, Ltd. The obligations included loans of $61,000 from Advent BioServices, Ltd.

(4) The obligations related to long term notes were approximately $8.2 million as of September 30, 2019, which included remaining contractual unpaid interest of $1.1 million.

(5) The operating lease obligations during the next 2 years included $497,000, $8,000 (3 months remaining term), $32,000 and $4,000 to our offices in Maryland, Germany, London and Netherlands, 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 $9.3 million of anticipated payments to Advent BioServices, which represents the next 2 years’ obligation. The remaining contract term as of September 30, 2019 was approximately 4 years under the Manufacturing Services Agreement with Advent.

(6) 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 September 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 nine months ended September 30, 2019 and 2018, net cash outflows from operations were $25.9 million and $20.4 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 nine months ended September 30, 2019, we received $2.2 million of cash proceeds from the issuance of our common stock and warrants in a registered direct offering.

During the nine months ended September 30, 2018, we received approximately $8.1 million of cash proceeds from the issuance of our 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 nine months ended September 30, 2019 and 2018, respectively.

We received approximately $6.5 million from third parties during the nine months ended September 30, 2019, and $11.2 million of cash proceeds from issuances of debt to third parties and related parties during the nine months ended September 30, 2018. 

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We made aggregate debt payments of $0.4 million and $3.0 million to third parties during the nine months ended September 30, 2019 and 2018, respectively.

We made aggregate debt payments of $5.7 million and $0.8 million to related parties during the nine months ended September 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 September 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 the Company has implemented controls that are expected to remediate the three weaknesses upon continued demonstration of consistent application of these control procedures for a sufficient period of time.  Until those demonstration periods have transpired, we must conclude that our Company’s processes for internally reporting material information in a systematic manner to allow for timely filing of material information were not effective and therefore the three material weaknesses previously reported remain as of the filing of this Form 10-Q.   The controls we put in place during the period covered by this report included controls to remediate our information technology weakness (the Company created, adopted, and began implementation of comprehensive IT Policies and Procedures) and controls related to employee performance and to financial policies and procedures.

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Changes in Internal Control over Financial Reporting

The Company implemented changes in our internal controls over financial reporting as described above during the three months ended September 30, 2019 that have improved, or are reasonably likely to improve, our internal control over financial reporting, including through the financial policies and procedures adopted by the Company. 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 nine months ended September 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 SEC has been investigating the Company regarding various topics that have been previously disclosed. The Company has been cooperating with the SEC investigation.  On October 10, 2019, the Company entered into a settlement agreement with the SEC.  Under the settlement, in which the Company neither admits nor denies any violations, the Company paid a fine of $250,000 in connection with past weaknesses in its internal controls, and the Company will retain an additional independent consultant to help the Company remediate its remaining weaknesses.

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

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SIGNATURES

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

	NORTHWEST BIOTHERAPEUTICS, INC
Dated: November 12, 2019	By:	/s/ Linda F. Powers
		Name:	Linda F. Powers
		Title:	President and Chief Executive Officer
			Principal Executive Officer
			Principal Financial and Accounting Officer

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