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| NWBO.OB > SEC Filings for NWBO.OB > Form 10-Q on 19-Nov-2008 | All Recent SEC Filings |
19-Nov-2008
Quarterly Report
In February 2007, we, through our legal representative, applied to the Bundesamt
für Gesundheit ("BAG" or "Office Fédéral de la Santé Publique") in Switzerland
for an Authorization for Use ("Autorisation"). In June 2007, we, through our
legal representative, received such Autorisation from the BAG to make
DCVax®-Brain available at limited selected medical centers in Switzerland, as
well as an authorization ("Autorisation pour activités transfrontalières avec
des transplants") to export patients' cells and tissues from Switzerland, for
vaccine manufacturing in the United States, and to import patients' DCVax®-Brain
finished vaccines into Switzerland. These authorizations are conditional upon
certain implementation commitments which must be fulfilled to the satisfaction
of Swissmedic ("Institut Suisse des Agents Thérapeutiques") before the product
may be made available (e.g., finalizing our arrangements for a clean-room suite
for processing of patients' immune cells). We believe we have fulfilled these
commitments and are awaiting Swissmedic confirmation.
In fulfillment of a condition of the BAG authorization, a Marketing
Authorisation Application ("MAA") was submitted to Swissmedic in December 2007.
The MAA differs from the Authorisation of Use granted by the BAG in that if
Swissmedic approves an MAA the applicant is granted unrestricted marketing and
commercialization rights within Switzerland. To date, Swissmedic has conducted,
as part of the MAA review process, an inspection of the Company's manufacturing
facility in Switzerland in August 2008, and of NWBio Europe (our wholly owned
subsidiary in Switzerland) with respect to the Company's Pharmaceutical License
Application in October 2008. The assessment by Swissmedic of our MAA will
continue and include a full review by Swissmedic of the safety and efficacy data
generated in our DCVax®-Brain clinical studies to date. This review is underway
and we are addressing inquiries from Swissmedic concerning our application. This
review is likely to take at least one year from our submission in December 2007.
Until such an MAA is granted, and assuming we complete our implementation
commitments to the satisfaction of Swissmedic under the Authorisation of Use,
DCVax®-Brain may only be made available at the selected Medical Centers in
Switzerland under the Autorisation as granted by the BAG. The term of the BAG
authorization is five years from June 2007.
We completed an initial public offering of our common stock on the NASDAQ Stock
Market ("NASDAQ") in December 2001 and an initial public offering of our common
stock on the Alternative Investment Market ("AIM") of the London Stock Exchange
in June 2007.
As described in further detail elsewhere in this report, since 2004 we have
undergone a significant recapitalization pursuant to which (i) Toucan Capital
Fund II, L.P. ("Toucan Capital") loaned us an aggregate of $6.75 million, which
notes payable and accrued interest thereon were converted into shares of our
Series A-1 cumulative convertible preferred stock (the "Series A-1 Preferred
Stock") in April 2006 and subsequently converted into common stock in June 2007;
and (ii) Toucan Partners, LLC ("Toucan Partners") loaned us an aggregate of
$4.825 million (excluding $225,000 in proceeds from a demand note that was
received on June 13, 2007 and repaid on June 27, 2007), which borrowings have,
in a series of transactions, been converted into convertible notes with an
aggregate outstanding principal of $4.825 million and related warrant coverage.
In the fourth quarter of 2007, we repaid all of the remaining outstanding
principal and accrued interest pursuant to these convertible notes in the
aggregate amount of $5.3 million to Toucan Partners.
In addition, on January 26, 2005, Toucan Capital purchased 32.5 million shares
of our Series A cumulative convertible preferred stock (the "Series A Preferred
Stock") at a purchase price of $0.04 per share, for a net purchase price of
$1.276 million, net of offering related costs of approximately $24,000. In
June 2007, this Series A Preferred Stock was converted into common stock.
On March 30, 2006, we sold approximately 2.6 million shares of common stock at a
purchase price of $2.10 per share and raised aggregate gross proceeds of
approximately $5.5 million in a closed equity financing with unrelated investors
(the "PIPE Financing") The total cost of the offering recorded, including both
cash and non-cash costs, was approximately $837,000.
On June 22, 2007, we placed 15,789,473 shares of our common stock with foreign
institutional investors at a price of £0.95 per share. The gross proceeds from
the placement were approximately £15.0 million, or $29.9 million, while net
proceeds from the offering, after deducting commissions and expenses, were
approximately £13.0 million, or $25.9 million.
On May 12, 2008, the Company entered into a loan agreement with Al Rajhi
Holdings W.L.L. ("Al Rajhi") under which Al Rajhi provided the Company with debt
financing in the amount of $4.0 million (the "Loan"). Under the terms of the
Loan, the Company received $4.0 million in return for an unsecured promissory
note in the principal amount of $4,240,000 (reflecting an original issue
discount of six percent, or $240,000). The Loan has a term of six months. The
note may be paid at any time without a prepayment penalty and the term may be
extended in Al Rajhi's discretion upon the Company's request. At September 30,
2008, the carrying value of the Loan was $4,198,000, net of unamortized discount
of $42,000. The Company amortizes the discount using the effective interest
method over the term of the Loan. During the nine months ended September 30,
2008 the Company recorded interest expense related to the amortization of the
discount of $198,000. Al Rajhi may elect to have the original issue discount
amount paid at maturity in shares of common stock, at a price per share equal to
the average closing price of the Company's Common Stock on the NASD
Over-The-Counter Bulletin Board during the ten trading days prior to the
execution of the Loan agreement. The intrinsic value of the Loan did not result
in a beneficial conversion feature. On November 12, 2008 Al Rajhi, agreed to
extend the term of the loan on terms that are currently being negotiated.
On August 19, 2008, the Company entered into a loan agreement with Toucan
Partners, under which Toucan Partners provided the Company with debt financing
in the amount of $1.0 million (the "Toucan Loan"). Under the terms of the Toucan
Loan, the Company received $1.0 million in return for an unsecured promissory
note in the principal amount of $1,060,000 (reflecting an original issue
discount of six percent, or $60,000). The Toucan Loan has a term of six months.
The note may be paid at any time without a prepayment penalty and the term may
be extended in Toucan Partners' discretion upon the Company's request. Toucan
Partners may elect to have the original issue discount amount paid at maturity
in shares of common stock, at a price per share equal to the average closing
price of the Company's common stock on the NASD Over-The-Counter Bulletin Board
during the ten trading days prior to the execution of the loan agreement. The
intrinsic value of the Toucan Loan did not result in a beneficial conversion
feature.
On October 1, 2008, the Company entered into a Loan Agreement (the "SDS Loan")
and Promissory Note (the "Note") with SDS Capital Group SPC, Ltd. ("SDS"). Under
the Note, SDS has loaned the Company $1.0 million. The Note is an unsecured
obligation of the Company and accrues interest at the rate of 12% per year. The
term of the Note is six months, with a maturity date of April 1, 2009. The Note
may not be prepaid without the consent of SDS. The Note contains customary
representations and warranties, and affirmative and negative covenants regarding
the operation of the Company's business during the term of the Note. In
connection with the Note, the Company issued to SDS a warrant (the "Investment
Warrant") to purchase 299,046 shares of the Company's common stock at an
exercise price equal to $0.53 per share, which was the closing price of the
Company's common stock on AIM on October 1, 2008. The Investment Warrant expires
five years from the date of issuance.
In addition to the Investment Warrant, under the terms of the Note, the Company
issued SDS an additional warrant as a placement fee (the "Placement Warrant") to
purchase 398,729 shares of the Company's common stock at an exercise price equal
to $0.53 per share. The Placement Warrant, which is in substantially the same
form as the Investment Warrant, also expires 5 years after issuance.
Upon issuing the note to SDS, the Company recognized the note and warrants based
on their relative fair values of $1.0 million and $0.6 million, respectively, in
accordance with APB Opinion No. 14, "Accounting for Convertible Debt and Debt
Issued with Stock Purchase Warrants ("APB 14"). The fair value of the notes and
warrants was determined using the Black-Scholes option pricing model. The
relative fair value of the warrants was classified as a component of additional
paid-in capital in accordance with SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of the Liabilities and Equity" ("SFAS
150") and EITF 00-19, "Accounting for Derivative Financial Instruments Indexed
to, and Potentially Settled in, a Company's Own Stock" ("EITF 00-19"), with the
corresponding amount reflected as a contra-liability to the debt. The fair value
of the warrants was determined using the Black Scholes model, assuming a term of
five years, volatility of 194%, no dividends, and a risk-free interest rate of
2.87%.
On dates between October 21, 2008 and November 6, 2008, the Company entered into
Loan Agreements (the "Private Investor Loans") and Promissory Notes (the
"Private Investor Promissory Notes") with SDS and a group of private investors
(the "Private Investors"). Under the Private Investor Promissory Notes, SDS and
the Private Investors have loaned the Company $1 million and $650,000
respectively for an aggregate of $1.65 million. The Private Investor Promissory
Notes are unsecured obligations of the Company and accrue interest at the rate
of 12% per year. The term of the Private Investor Promissory Notes is six
months, with maturity dates in April 2009. The Private Investor Promissory Notes
may be prepaid at the discretion of the Company any time prior to maturity. The
Private Investor Promissory Notes contain customary representations and
warranties. The Company granted SDS and the Private Investors piggyback
registration rights for any of the Company's common stock issued to such
investors upon exercise of the warrants issued to them in connection with the
Private Investor Promissory Notes. Additionally, SDS will receive certain rights
relating to subsequent financings, subject to the Company's right to pre-pay SDS
and avoid the rights being triggered.
In connection with the Private Investor Promissory Notes, the Company issued to
SDS and the Private Investors warrants to purchase, in the aggregate, 2,132,927
shares of the Company's common stock at an exercise price of $0.41 per share.
The Warrants expire five years from the date of issuance.
Upon issuing the note to SDS and the Private Investors, the Company recognized
the notes and warrants based on their relative fair values of $1.65 million and
$0.9 million, respectively, in accordance with APB 14. The fair value of the
notes and warrants was determined using the Black-Scholes option pricing model.
The relative fair value of the warrants was classified as a component of
additional paid-in capital in accordance with SFAS 150 and EITF 00-19 with the
corresponding amount reflected as a contra-liability to the debt. The fair value
of the warrants was determined using the Black Scholes model, assuming a term of
five years, volatility of 196%, no dividends, and a risk-free interest rate of
2.50%.
The Company has raised $2.65 million since the quarter ended on September 30,
2008. These funds should be sufficient to fund operations into December 2008. We
need to raise additional capital to fund our clinical trials and other operating
activities and to repay our indebtedness under the Loan, the Toucan Loan the SDS
Loan and the Private Investor Promissory Notes. We are in late stage discussions
with several parties in regard to additional financing transactions with several
other parties, which we hope to complete later this year. However, there can be
no assurance that we will be able to complete any of the financings, or that the
terms for such financings will be favorable to us. Our independent auditors have
indicated in their report on our December 31, 2007 financial statements that
there is substantial doubt about our ability to continue as a going concern. See
"- Liquidity and Capital Resources" for additional information regarding our
liquidity, cash flow and financings.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations
is based upon our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses and related disclosure of contingent assets and liabilities. The
critical accounting policies that involve significant judgments and estimates
used in the preparation of our financial statements are disclosed in our Annual
Report on Form 10-K for the year ended December 31, 2007.
Recent Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141(R), Business
Combinations ("SFAS 141(R)"). SFAS 141(R) expands the scope of acquisition
accounting to all transactions under which control of a business is obtained.
Among other things, SFAS 141(R) requires that contingent consideration as well
as contingent assets and liabilities be recorded at fair value on the
acquisition date, that acquired in-process research and development be
capitalized and recorded as intangible assets at the acquisition date, and also
requires transaction costs and costs to restructure the acquired company be
expensed. SFAS 141(R) is effective on a prospective basis as of January 1, 2009
for the Company. The Company is assessing the impact of the adoption of this
standard on its financial position and results of operations.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB No. 51 ("SFAS 160"). The
statement changes how noncontrolling interests in subsidiaries are measured to
initially be measured at fair value and classified as a separate component of
equity. SFAS 160 establishes a single method of accounting for changes in a
parent's ownership interest in a subsidiary that do not result in
deconsolidation. No gains or losses will be recognized on partial disposals of a
subsidiary where control is retained. In addition, in partial acquisitions,
where control is obtained, the acquiring company will recognize and measure at
fair value all of the assets and liabilities, including goodwill, as if the
entire target company had been acquired. The statement is to be applied
prospectively for fiscal years beginning on or after December 15, 2008. We will
adopt the statement on January 1, 2009. The Company is currently evaluating the
impact the adoption of this statement will have, if any, on its consolidated
financial position or results of operations.
In December 2007, the FASB ratified the consensus reached by the Emerging Issues
Task Force ("EITF") on Issue No. 07-1 ("EITF 07-1"), Accounting for
Collaborative Arrangements. EITF 07-1 is effective for the Company beginning
January 1, 2009 and will be applied retrospectively to all prior periods
presented for all collaborative arrangements existing as of the effective date.
EITF 07-1 defines collaborative arrangements and establishes reporting
requirements for transactions between participants in a collaborative
arrangement and between participants in the arrangement and third parties. The
Company is assessing the impact of adoption of EITF 07-1 on its financial
position and results of operations.
On January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements
("SFAS 157"), which clarifies the definition of fair value, establishes a
framework for measuring fair value, and expands the required disclosures on fair
value measurements. In February 2008, the FASB issued Staff Position 157-2,
Effective Date of FASB Statement No. 157 ("FSP 157-2"), that deferred the
effective date of SFAS 157 for one year for nonfinancial assets and liabilities
recorded at fair value on a non-recurring basis. The effect of adoption of SFAS
157 for financial assets and liabilities recognized at fair value on a recurring
basis did not have a material impact on the Company's financial position and
results of operations (See Note 3). The Company is assessing the impact of the
adoption of SFAS 157 for nonfinancial assets and liabilities on the Company's
financial position and results of operations.
On January 1, 2008, the Company adopted SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities, including an amendment of FASB
Statement No. 115 ("SFAS 159"). SFAS 159 permits companies to irrevocably elect
to measure certain financial assets and financial liabilities at fair value.
Unrealized gains and losses on items for which the fair value option has been
elected are reported in earnings at each subsequent reporting date. The Company
did not elect the fair value option under SFAS 159 for any of its financial
assets or liabilities upon adoption.
On January 1, 2008, the Company adopted EITF Issue No. 07-3, Accounting for
Advance Payments for Goods or Services Received for Use in Future Research and
Development Activities ("EITF 07-3"), which is being applied prospectively for
new contracts. EITF 07-3 addresses nonrefundable advance payments for goods or
services that will be used or rendered for future research and development
activities. EITF 07-3 requires these payments be deferred and capitalized and
recognized as an expense as the related goods are delivered or the related
services are performed. The effect of adoption of EITF 07-3 on the Company's
financial position and results of operations was not material.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities ("SFAS 161"), which is effective January 1,
2009 for the Company. SFAS 161 requires enhanced disclosures about derivative
instruments and hedging activities to allow for a better understanding of their
effects on an entity's financial position, financial performance, and cash
flows. Among other things, SFAS 161 requires disclosure of the fair values of
derivative instruments and associated gains and losses in a tabular format.
Since SFAS 161 requires only additional disclosures about the Company's
derivatives and hedging activities, the adoption of SFAS 161 will not affect the
Company's financial position or results of operations, should the Company
acquire derivatives in the future.
In May 2008, the FASB issued Staff Position No. APB 14-1, Accounting for
Convertible Debt Instruments that may be Settled in Cash upon Conversion
(Including Partial Cash Settlement) ("FSP APB 14-1"). FSP APB 14-1 states that
convertible debt instruments that may be settled in cash upon conversion
(including partial cash settlement) are not addressed by paragraph 12 of
Accounting Principles Board Opinion No. 14 and that issuers of such instruments
should account separately for the liability and equity components of the
instrument in a manner that will reflect the entity's nonconvertible debt
borrowing rate when interest cost is recognized in subsequent periods. FSP APB
14-1 is effective for financial statements issued for fiscal years beginning
after December 15, 2008, and must be applied retrospectively to all periods
presented. The Company is assessing the impact of the adoption of this standard
on its financial position and results of operations.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles. This Statement identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in
the United States (the GAAP hierarchy). The Company is assessing the impact of
this Statement on its financial position and results of operations.
In May 2008, the FASB issued SFAS No.163, Accounting for Financial Guarantee
Insurance Contracts, an interpretation of SFAS 60. The scope of this Statement
is limited to financial guarantee insurance (and reinsurance) contracts, as
described in this Statement, issued by enterprises included within the scope of
SFAS 60. Accordingly, this Statement does not apply to financial guarantee
contracts issued by enterprises excluded from the scope of SFAS 60 or to some
insurance contracts that seem similar to financial guarantee contracts issued by
insurance enterprises (such as mortgage guaranty insurance or credit insurance
on trade receivables). This Statement does not apply to financial guarantee
insurance contracts that are derivative instruments include within the scope of
SFAS 133, Accounting for Derivative Instrument and Hedging Activities. The
Company is assessing the impact of the adoption of this standard on its
financial position and results of operations.
In June 2008, the FASB ratified EITF Issue No. 07-5, Determining Whether an Instrument (or an Embedded Feature) is Indexed to an Entity's Own Stock ("EITF 07-5"). EITF 07-5 provides that an entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument's contingent exercise and settlement provisions. EITF 07-5 is effective for fiscal years beginning after December 15, 2008. The Company is assessing the impact of the adoption of EITF 07-5 on its financial position and results of operations. In June 2008, the FASB issued EITF Issue No. 08-4, Transition Guidance for Conforming Changes to Issue No. 98-5 (EITF 08-4"). The objective of EITF 08-4 is to provide transition guidance for conforming changes made to EITF Issue No. 98-5, Accounting for Convertible Securities with Beneficial Conversion . . .
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