NORTHWEST BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share and per share amounts)

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

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

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

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

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

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

1. Organization and Description of Business and Recent Developments

Northwest Biotherapeutics, Inc. and its subsidiaries NW Bio Europe S.A.R.L, NW Bio Gmbh and Aracaris Capital, Ltd. (collectively, the “Company”, “we”, “us” and “our”) were organized to discover and develop innovative immunotherapies for cancer.

The Company’s platform technology, DCVax®, is currently being tested for the treatment of certain types of cancers through clinical trials in the United States and Europe that are in various phases.

2. Liquidity and Financial Condition

For the six months ended June 30, 2016, the Company recognized net losses of $20.3 million.

During the six months ended June 30, 2016, the Company used approximately $31.8 million of cash in its operating activities. These cash outflows included substantial amounts of accrued costs relating to prior periods of higher activity and expenditures in the Company’s Phase III clinical trial which have subsequently been reduced, and included substantial amounts of legal costs which the Company anticipates may be subject to reimbursement under the Company’s insurance, with further legal expenses going forward being covered by insurance directly. The Company had cash and cash equivalents of $2.1 million and a working capital deficiency (cash and non-cash liabilities combined) of approximately $55.4 million at June 30, 2016. The Company owes an aggregate of $7.6 million of accounts payable and convertible notes to related parties.

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. The financial statements have been prepared assuming 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 might become necessary should the Company not be able to continue as a going concern.

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.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and on the same basis as the Company prepares its annual audited consolidated financial statements. The condensed consolidated balance sheet as of June 30, 2016, condensed consolidated statements of operations for the three and six months ended June 30, 2016 and 2015, condensed consolidated statements of comprehensive loss for the three and six months ended June 30, 2016 and 2015, condensed consolidated statement of stockholders’ equity (deficit) for the six months ended June 30, 2016, and the condensed consolidated statements of cash flows for the six months ended June 30, 2016 and 2015 are unaudited, but include all adjustments, consisting only of normal recurring adjustments, which the Company considers necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The results for the three and six months ended June 30, 2016 are not necessarily indicative of results to be expected for the year ending December 31, 2016 or for any future interim period. The condensed consolidated balance sheet at December 31, 2015 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, 2015, and notes thereto included in the Company’s annual report on Form 10-K, which was filed with the SEC on March 16, 2016, as amended on April 29, 2016.

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, valuing environmental liabilities, estimating the fair value of equity instruments recorded as derivative liabilities, and estimating the useful lives of depreciable assets and whether impairment charges may apply.

Warrant Liability

The Company accounts for certain common stock warrants outstanding as a liability at its fair value and adjusts the instruments to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company's statements of operations. The fair value of the warrants issued by the Company in connection with the conversion transaction has been estimated using a Monte Carlo simulation.

Environmental Remediation Liabilities

The Company records environmental remediation liabilities for properties acquired. The environmental remediation liabilities are initially recorded at fair value. The liability is reduced for actual costs incurred in connection with the clean-up activities for each property. Upon completion of the clean-up, the environmental remediation liability is adjusted to equal the fair value of the remaining operation, maintenance and monitoring activities to be performed for the property. The amount of the additional liability resulting from the completion of the clean-up, if any, would be included in other income (expense). As of June 30, 2016, the Company estimated that the total environmental remediation costs associated with the purchase of the UK Facility will be approximately $6.2 million. This is a projected potential future cost. No such environmental costs have been incurred to date and none are currently pending. Contamination clean-up costs that improve the property from its original acquisition state will be capitalized as part of the property’s overall development costs. The Company engaged a third party specialist to conduct certain surveys of the condition of the property which included, among other things, a preliminary analysis of potential environmental remediation exposures. The Company determined, based on information contained in the specialist’s report, that it would be required to estimate the fair value of an unconditional obligation to remediate specific ground contamination at an estimated fair value of approximately $6.2 million. The Company computed the fair value of this obligation using a probability weighted approach that measures the likelihood of the following two potential outcomes: (i) a higher probability requirement of erecting a protective barrier around the affected area at an estimated cost of approximately $4.5 million, and (ii) a lower probability requirement of having to excavate the affected area at an estimated cost of approximately $32.0 million. The Company’s estimate is preliminary and therefore subject to change as further studies are conducted, and as additional facts come to the Company’s attention. Environmental remediation efforts are complex, technical and subject to various uncertainties. Accordingly, it is at least reasonably possible that any changes in the Company’s estimate could materially differ from the management’s preliminary assessment discussed herein.      

Comprehensive Loss

The Company reports comprehensive loss and its components in its condensed consolidated financial statements. Comprehensive loss consists of net loss and foreign currency translation adjustments, affecting stockholders’ equity (deficit) that, under U.S, GAAP, are excluded from net loss.

Research and Development Costs

Research and development costs are charged to operations as incurred and consist primarily of clinical trial costs, related party manufacturing costs, consulting costs, contract research and development costs, clinical site costs and compensation costs. 

For the three months ended June 30, 2016 and 2015, the Company recognized research and development costs of $8.7 million and $27.8 million, respectively. For the six months ended June 30, 2016 and 2015, the Company recognized research and development costs of $22.2 million and $47.4 million, respectively.

Significant Accounting Policies

There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 2015 Annual Report.

Recent Issued Accounting Pronouncements

Compensation-Stock Compensation

In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting . Under ASU No. 2016-09, companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital (“APIC”). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement and the APIC pools will be eliminated. In addition, ASU No. 2016-09 eliminates the requirement that excess tax benefits be realized before companies can recognize them. ASU No. 2016-09 also requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. Furthermore, ASU No. 2016-09 will increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to satisfy the employer’s statutory income tax withholding obligation. An employer with a statutory income tax withholding obligation will now be allowed to withhold shares with a fair value up to the amount of taxes owed using the maximum statutory tax rate in the employee’s applicable jurisdiction(s). ASU No. 2016-09 requires a company to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on the statement of cash flows. Under current U.S. GAAP, it was not specified how these cash flows should be classified. In addition, companies will now have to elect whether to account for forfeitures on share-based payments by (1) recognizing forfeitures of awards as they occur or (2) estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change, as is currently required. The amendments of this ASU are effective for reporting periods beginning after December 15, 2016, with early adoption permitted but all of the guidance must be adopted in the same period. The Company is currently assessing the impact that ASU No. 2016-09 will have on its condensed consolidated financial statements.

Revenue from Contracts with Customer

In April 2016, the FASB issued ASU No. 2016-10,  Revenue from Contracts with Customer . The new guidance is an update to ASC 606 and provides clarity on: identifying performance obligations and licensing implementation. For public companies, ASU No. 2016-10 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2016. The Company is currently evaluating the impact that ASU No. 2016-10 will have on its condensed consolidated financial statements.

Recognition and Measurement of Financial Assets and Financial Liabilities

In January 2016, FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities . ASU 2016-01 requires equity investments to be measured at fair value with changes in fair value recognized in net income; simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; requires separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the accompanying notes to the financial statements; and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU 2016-01 will be effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the impact that ASU 2016-01 will have on its condensed consolidated financial statements and related disclosures.

Leases

In February 2016, FASB issued ASU No. 2016-02, Leases (Topic 842) which supersedes FASB ASC Topic 840, Leases (Topic 840) and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months regardless of classification. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases. The standard will be effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted upon issuance. The Company is currently evaluating the impact that ASU 2016-02 will have on its condensed consolidated financial statements and related disclosures.

4. Fair Value Measurements

The following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy as of June 30, 2016 and December 31, 2015 (in thousands):

There were no transfers between Level 1, 2 or 3 during the six-month period ended June 30, 2016.

The following table presents changes in Level 3 liabilities measured at fair value for the six-month period ended June 30, 2016. 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).

The Company’s warrant liabilities are measured at fair value using the Monte Carlo simulation valuation methodology. A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the Company’s warrant liabilities that are categorized within Level 3 of the fair value hierarchy for the six months ended June 30, 2016 is as follows:

The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management.

5. Property, Plant and Equipment

Property and equipment consist of the following at June 30, 2016 and December 31, 2015 (in thousands):

Depreciation expense was approximately $67,000 and $12,000 for the three months ended June 30, 2016 and 2015. Depreciation expense was approximately $80,000 and $15,000 for the six months ended June 30, 2016 and 2015.

6. Notes Payable

2014 Convertible Senior Notes

The Company has Convertible Senior Notes of $10.7 million, net of $0.3 million deferred offering cost as of June 30, 2016 with an interest rate of 5% and conversion price of $6.60. The Company has $1.0 million remaining in escrowed interest payments, which is sufficient to fund, when due, the total aggregate amount of the six scheduled semi-annual interest payments during the remaining term of the notes, excluding additional interest, if any.

The following table shows the details of interest expenses related to 2014 Convertible Senior Notes for the three and six months ended June 30, 2016 and 2015, respectively (in thousands):

Mortgage Loan

On June 17, 2016, the Company entered into an extension agreement to renew the second mortgage loan maturity date to August 17, 2017. The effective date of the extension agreement is August 17, 2016 and a renewal fee of approximately $0.2 million, which is not due until the end of the extension period and will be recorded as deferred financing cost.

As of June 30, 2016, the Company had a net mortgage liability of $10.3 million, including deferred financing costs of $0.5 million. Approximately $5.9 million of the mortgage loans are due in November 2016, and the remainder in August 2017.

The following table shows the details of interest expenses related to mortgages for the three and six months ended June 30, 2016 and 2015, respectively (in thousands):

(1) This $0.934 million note, which was originally due in July 2011 is currently under dispute with the creditor as to the validity of the note payable balance.

(2) This $0.135 million note as of June 30, 2016 consists of two separate 6% notes in the amounts of $0.110 million and $0.025 million. In regard to the $0.110 million 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 $0.025 million 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.

(3) This $0.050 million demand note as of June 30, 2016 is held by an officer of the Company. The holder has made no demand for payment, but reserves the right to make a demand at any time.

7. Net Loss per Share Applicable to Common Stockholders

Options, warrants, and convertible debt outstanding were all considered anti-dilutive for the three and six months ended June 30, 2016, and 2015, due to net losses.

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): 

8. Related Party Transactions

Cognate BioServices, Inc.

Cognate Expenses and Accounts Payable

At June 30, 2016 and December 31, 2015, the Company owed Cognate $7.6 million and $5.5 million, respectively, for unpaid invoices for manufacturing, product distribution, product and process development, and related services.

The following table shows a summary of research and development cost from Cognate relating to the DCVax-L and DCVax-Direct programs, product and process development work and preparations for upcoming Phase II trials for the three and six months ended June 30, 2016 and 2015, respectively (in thousands):

Share Based Payments

The Company recorded $8.2 million of income and $15.8 million of expense for the six-month period ended June 30, 2016 and 2015, respectively, for stock based payment expense to Cognate for the applicable pro rata portion of the ongoing 3-year vesting of the one-time initiation payments under Manufacturing and Services Agreement that were entered into in January 2014. The fair value calculation of these shares was determined using the market price for tradable shares, although the shares issued to Cognate were unregistered non-tradable shares, subject to multiple restrictions, including multi-year vesting and a multi-year lock-up.

Shares payable to related party - most favored nation provision

Shares and warrants previously issued to Cognate in partial payment of invoices for manufacturing services are under a 3-year lock-up, which has been in place since January 2014.  The lock-up prevents Cognate from selling the shares received.   During the lock-up, if the Company enters into a transaction with other investors or creditors on more favorable terms than Cognate received, the Company has an ongoing obligation, under the Manufacturing Services Agreement,  to conform the terms of Cognate’s shares and warrants to the same terms as the other investors or creditors, under a most favored nation provision.

During the period ended June 30, 2016 the Company entered into two financings with unrelated institutional investors that triggered the most favored nation provision.  The first reset in the period ended March 31, 2016 had an effective price of $1.70 and would result in an obligation by the Company to issue 6.0 million shares to Cognate.  The second reset occurred in the three month period ended June 30, 2016 had an effective price of $0.96 that resulted in an obligation to issue an additional 12.0 million shares.  In total, the Company has an obligation to issue 18 million shares to Cognate as of June 30, 2016 under the most favored nation provision.  However, the shares have not been issued, and the Company is in active negotiations with Cognate seeking to modify these arrangements. The Company accounted for the obligation to issue shares in the balance sheet based on the fair market value of the Company’s unrestricted tradable stock at the reporting date.

Shares payable to related party for the three and six months ended June 30, 2016 was $1.7 and $10.5 million, respectively and recorded in research and development expense in the statement of operations.

9. Stockholders’ Equity (Deficit)

Common Stock Issuances

First Quarter of 2016

On February 29, 2016, the Company entered into a Securities Purchase Agreement (the “Agreement”) with certain institutional investors (the “Purchasers”), for a registered direct offering (the “Offering”) of 5,882,353 shares (the “Shares”) of the Company’s Common Stock at the purchase price of $1.70 per share, and Series A Warrants (the “Series A Warrants”) to purchase an additional 2,941,177 shares of Common Stock at an exercise price of $2.25 per share. The Series A Warrants will become exercisable on the six month anniversary of issuance and expire five years thereafter.

In addition, the Company granted the Purchasers a sixty (60) day overallotment option in the form of Series B Warrants to purchase an additional 5,882,353 shares of Common Stock at an exercise price of $3.00 per share (the “Series B Warrants”). The Series B Warrants was exercisable immediately and was to expire within sixty (60) days. However, on May 2, 2016, the Company and the investors agreed to extend this warrant exercise period by twenty-one (21) days, from May 2 to May 23, 2016. The Company and the Purchasers consummated the purchase and sale of the Securities on March 3, 2016 (the “Closing”) and the Company raised gross proceeds of $10 million and net proceeds of approximately $9.2 million, after deducting placement agent fees, attorneys’ fees and other expenses. Subsequent to the reporting period, the Series B Warrants were extended an additional twenty-one (21) days to May 23, 2016.

In a concurrent private placement, each Purchaser also received Series C Warrants (the “Series C Warrants”) to purchase up to 2,941,177 shares of Common Stock. The Series C Warrants vest and become exercisable only if, and to the extent that, the Series B Warrants held by such Purchaser are exercised. The Series C warrants will be issuable and exercisable for one-half share of Common Stock per each Series B Warrant exercised. The Series C Warrants have an exercise price of $4.00 per share, shall be exercisable on the six-month anniversary of issuance and will expire five years thereafter.

In connection with the Offering and the concurrent private placement, the Company engaged H.C. Wainwright & Co., LLC (the “Placement Agent”) to act as its exclusive placement agent. The Company agreed to pay the Placement Agent a cash placement fee equal to 7% of the aggregate purchase price for the common stock sold in the registered offering. The Placement Agent also received Common Stock purchase warrants (the “Compensation Warrants”) to purchase up to 294,118 shares of Common Stock, or 5% of the aggregate number of shares of common Stock sold in the registered offering, at an exercise price of $2.125, or 125% of the public offering price per share in the registered offering, which are exercisable six months following issuance and terminate on February 29, 2021.

Second Quarter of 2016

On May 15, 2016, the Company entered into an agreement with a holder (the “Holder”) of the Company’s existing Series A, B and C Warrants, pursuant to which the Holder agreed to exercise all of the Holder’s Series B Warrants to purchase 4,411,764 shares of Common Stock. In consideration, the Company agreed to reduce the exercise price of the Series B Warrants to $0.96 per share, the Company’s closing price on the prior trading day, for gross proceeds of approximately $4,235,000, and agreed to issue new Series D Common Stock Purchase Warrants (the “Series D Warrants”) to purchase up to 2,205,882 shares of Common Stock at an exercise price of $1.00 per share (subject to customary adjustments such as for stock splits and dividends), with an exercise period of five years, commencing six months after issuance.

The Holder’s exercise of the Series B Warrants to purchase 4,411,764 shares of Common Stock triggered the existing outstanding Series C Warrants to become vested and exercisable for up to 2,205,882 shares of Common Stock. The Company agreed to reset the exercise price of the Series A and Series C Warrants to $1.00 per share.

In connection with the offering and the concurrent private placement, the Company engaged H.C. Wainwright & Co., LLC (the "Placement Agent") to act as its exclusive placement agent. The Company agreed to pay the Placement Agent a cash placement fee equal to 7% of the aggregate purchase price for the common stock sold. The Placement Agent also received Common Stock purchase warrants (the "Compensation Warrants") to purchase up to 220,588 shares of Common Stock, or 5% of the aggregate number of shares of common Stock sold, at an exercise price of $1.20, or 125% of the public offering price per share, which are exercisable six months following issuance and terminate on May 15, 2021.

The modification of the warrant exercise price increased the value of the warrants by approximately $2.6 million. This cost was recorded as a deemed dividend in additional paid-in capital due to the absence of retained earnings. This cost is included in modification of warrants and increased the net loss available to common shareholders on the condensed, consolidated statements of operations.

10. Contingencies

Derivative and Class Action Litigation

In 2014, as previously reported, the Company received demand letters from three purported individual shareholders seeking to inspect our corporate books and records pursuant to Section 220 of the Delaware General Corporation Law. The demand letters were all substantially similar, and claimed that their purpose is to investigate possible mismanagement and breaches of fiduciary duty by the Company’s directors and officers.  They requested a range of documents.  On November 13, 2014, one of the purported shareholders filed a complaint in the Delaware Court of Chancery seeking to enforce her books and records demand. The Company reached negotiated agreements and provided limited records, under confidentiality agreements. On July 16, 2015, the parties filed, and the court entered, a stipulation dismissing the case.

On June 19, 2015, two of the purported shareholders filed a complaint purportedly suing on behalf of a class of similarly situated shareholders and derivatively on behalf of the Company in the Delaware Court of Chancery.  The lawsuit names Cognate BioServices, Inc., Toucan Partners, Toucan Capital Fund III, our CEO Linda Powers and the Company’s Board of Directors as defendants, and names the Company as a “nominal defendant” with respect to the derivative claims.  The complaint generally objects to certain transactions between the Company and Cognate and the Toucan entities, in which Cognate and the Toucan entities provided services and financing to the Company, or agreed to conversion of debts owed to them by the Company into equity.  The complaint seeks unspecified monetary relief for the Company and the plaintiffs, and various forms of equitable relief, including disgorgement of allegedly improper benefits, rescission of the challenged transactions, and an order forbidding similar transactions in the future.  On September 1, 2015, the Company and other named defendants filed motions to dismiss.  In response, the plaintiffs filed an amended complaint on November 6, 2015. The Company and the other named defendants filed motions to dismiss plaintiffs’ amended complaint on January 19, 2016. The plaintiffs filed an answering brief in opposition to the motion to dismiss on April 4, 2016. The Company and the other defendants filed reply briefs on May 18, 2016. Oral argument has been set for October 11, 2016. The Company intends to continue to vigorously defend the case.

On November 19, 2015, a third purported shareholder who had sought corporate books and records filed a complaint in the U.S. District Court for the District of Maryland, claiming to sue derivatively on behalf of the Company. The complaint names the Company's Board of Directors, Toucan Capital Fund III, L.P., Toucan General II, LLC, Toucan Partners, LLC, and Cognate as defendants, and names the Company as a nominal defendant. The complaint claims that the plaintiff made a demand on the Company's Board of Directors to commence an action against the Company's directors and its CEO and that the plaintiff commenced the derivative action after not receiving a response to the demand letter within an allegedly "sufficient time." The complaint further claims that the Company purportedly overcompensated Cognate and Toucan for certain services and loans in payments of stock, and that the Company's CEO, Ms. Powers, benefited from these transactions with Cognate and Toucan, which she allegedly owns or controls. The complaint asserts that the alleged overpayments unjustly enriched Ms. Powers, Toucan, and Cognate. The Complaint also claims that the Company's directors breached their fiduciary duties of loyalty and good faith to the Company by authorizing the payments to Cognate. Finally, the complaint claims that Ms. Powers, Cognate, and Toucan aided and abetted the directors' breaches of fiduciary duties by causing the board to enter into the agreements with Cognate. The plaintiff seeks an award of unspecified damages to the Company and seeks equitable remedies, including disgorgement by Ms. Powers, Toucan, and Cognate of the allegedly improper benefits received as a result of the disputed transactions. The plaintiff also seeks costs and disbursements associated with bringing suit, including attorneys' fees and expert fees. On February 2, 2016, plaintiff and defendants filed a joint motion to stay the proceedings pending an investigation by a special committee of the Company's Board of Directors into the allegations asserted in the demand letter and underlying the lawsuit. The court entered the stay on March 18, 2016.

Class Action Securities Litigation

On August 26, 2015, a purported shareholder of the Company filed a putative class action complaint in the U.S. District Court for the District of Maryland.  The lawsuit names the Company and Ms. Powers as defendants.  On December 14, 2015, the court appointed two lead plaintiffs. The Lead Plaintiffs filed an amended complaint on February 12, 2016, purportedly on behalf of all of those who purchased common stock in NW Bio between January 13, 2014 and August 21, 2015. The amended complaint generally claims that the defendants violated Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934 by making misleading statements and/or omissions on a variety of subjects, including the status and results of the Company’s DCVax trials.  The amended complaint seeks unspecified damages, attorneys’ fees, and costs. The Company and Ms. Powers filed a motion to dismiss plaintiffs’ amended complaint on April 12, 2016.  The plaintiffs filed an opposition to the motion to dismiss on June 13, 2016. The Company and Ms. Powers filed a reply in support of their motion to dismiss on July 28, 2016. The Company intends to vigorously defend the case.

Shareholder Books and Record Demand

On December 7, 2015, the Company received a letter on behalf of shareholders demanding to inspect certain corporate books and records pursuant to Section 220 of the Delaware General Corporation Law. The demand letter claimed that its purpose was to investigate: (1) allegedly improper transactions, misconduct, and mismanagement by directors and an officer of the Company; (2) the possible breach of fiduciary duty by certain directors and officers of the Company; and (3) the independence and disinterestedness of the Company’s board, to determine whether a pre-suit demand would be necessary before commencing any derivative action on behalf of the Company. The Company has appointed a special committee of its Board of Directors consisting of independent and disinterested directors to investigate the allegations set forth in the demand letter, as well as the allegations asserted in the litigation summarized above. The Company also is in ongoing discussions with the shareholders demanding corporate books and records.

11. Subsequent Events

On July 4, 2016, the Company entered into a Securities Purchase Agreement (the “Agreement”) with certain investors (the “Purchasers”), for a registered direct offering (the “Offering”) of 7,400,000 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) at the purchase price of $0.50 per share, and warrants (the “Warrants”) to purchase an additional 3,700,000 shares of Common Stock at an exercise price of $0.60 per share (the “Warrant Shares”, collectively with the Common Stock and the Warrants, the “Securities”). The Warrants shall expire in five years.

The Company and the Purchasers consummated the purchase and sale of the Securities (the “Closing”) on July 6, 2016. The Company raised gross proceeds of $3,700,000 and net proceeds of approximately $3,300,000, after deducting aggregate placement agent fees of $296,000, attorneys’ fees, and other expenses.