UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

OR

Commission file number 001-35737

Northwest Biotherapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)

(240) 497-9024

(Registrant’s Telephone Number, Including Area Code)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x   No ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨   No x

As of August 8, 2013, the total number of shares of common stock, par value $0.001 per share, outstanding was 33,861,841.

TABLE OF CONTENTS

Part I. Financial Information

Item 1. Financial Statements

NORTHWEST BIOTHERAPEUTICS, INC

(A Development Stage Company)

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

See accompanying notes to the unaudited interim condensed consolidated financial statements

NORTHWEST BIOTHERAPEUTICS, INC

(A Development Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share data)

See accompanying notes to the unaudited interim condensed consolidated financial statements

NORTHWEST BIOTHERAPEUTICS, INC

(A Development Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(in thousands)

See accompanying notes to the unaudited interim condensed consolidated financial statement

NORTHWEST BIOTHERAPEUTICS, INC

(A Development Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)

See accompanying notes to the unaudited interim condensed consolidated financial statement

NORTHWEST BIOTHERAPEUTICS, INC

(A Development Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)

See accompanying notes to the unaudited interim condensed consolidated financial statement

NORTHWEST BIOTHERAPEUTICS, INC

(A Development Stage Company)

1. Basis of Presentation

The accompanying unaudited condensed consolidated interim financial statements include the accounts of Northwest Biotherapeutics, Inc. and its subsidiaries, NW Bio Europe S.A.R.L. and NW Bio GmBh (collectively, the “Company”, “we”, “us”, and “our”). All material intercompany balances and transactions have been eliminated. The accompanying unaudited condensed consolidated interim financial statements should be read in conjunction with the financial statements included in our Annual Report on Form 10-K/A for the year ended December 31, 2012. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). All normal recurring adjustments which are necessary for the fair presentation of the results for the interim periods are reflected herein. Operating results for the six month periods ended June 30, 2013 and 2012 are not necessarily indicative of results to be expected for the full year.

2. Liquidity and Going Concern

The Company has experienced recurring losses from operations.  Net cash outflows from operations were approximately $15.3 million for the six months ended June 30, 2013. The Company had a working capital deficit of $16.3 million at June 30, 2013 (excluding redeemable common stock amounting to $11.0 million).

Since inception of the Company, the accumulated cash deficit is $155.2 million and non-cash deficit is $189.9 million for a combined total deficit accumulated during the development stage of $345.1 million at June 30, 2013. The Company is past due on several notes and as a consequence has triggered cross-default provisions on its remaining indebtedness including its remaining convertible note obligations.  As a result all of the company’s debt obligations are in default and demands could be made for payment at any time.

The Company has raised capital by issuing common stock and debt securities, including issuances to related parties. As of June 30, 2013 the Company had approximately $2.0 million of cash and cash equivalents and had current liabilities of $18.7 million (of which approximately $10.0 million or 62% was owed to a related party vendor and was converted into equity in July 2013) and redeemable common stock of $11.0 million. The Company will need to raise additional capital in the near future to continue to fund its clinical trials and other operating activities and there can be no assurance that its efforts to seek such funding will be successful. The Company may seek funding from Toucan Capital or Toucan Partners or their affiliates or other third parties. Such parties are under no obligation to provide the Company with any additional funds, and any such funding may be dilutive to stockholders and may contain restrictive covenants. There can be no assurance that the Company will be able to complete any such financings or that the terms of such financings will be attractive to the Company. If the Company’s capital raising efforts are unsuccessful, its inability to obtain additional cash as needed could have a material adverse effect on the Company’s financial position, results of operations and the Company’s ability to continue its existence.

In April 2013, the Company entered into an agreement with one healthcare-dedicated institutional investor for a registered direct placement of $10.0 million of common stock at the closing market price of $3.90 per share. The number of shares of common stock issued was 2,564,103. The Company issued to the investor warrants exercisable for 1,025,641 shares of common stock. The Company also issued to the placement agent warrants exercisable for 128,205 shares of common stock. The warrants have an exercise price of $4.29 per share and are exercisable beginning six months after closing, with a term of five years after closing. Net proceeds to the Company amounted to $9.2 million after deducting deal related costs.

On August 8, 2013, the Company entered into a securities purchase agreement with institutional investors for the sale of an aggregate of $15.0 million of units in a registered direct offering. Each unit consists of one share of common stock, one long-term warrant to purchase 0.25 of a share of common stock and one over-allotment warrant to purchase 0.25 of a share of common stock. The offering closed on August 14, 2013. The purchase price paid by the investors was $3.35 per unit. The long-term warrants have an exercise price of $4.00 per share and are exercisable commencing six months from the date of issuance and for five years thereafter. The over-allotment warrants have an exercise price of $3.35 per share and are exercisable immediately for one year from date of issuance. The Company received aggregate gross offering proceeds of $15.0 million and net offering proceeds of approximately $13.7 million, after deducting placement agent fees and estimated offering fees and expenses.

In October and November 2012, the Company issued 1.9 million shares of redeemable common stock, at a purchase price of $4.80 per share to accredited investors (collectively, the “Investors”) in separate private placement transactions and as part of conversions of debt into redeemable common stock. Total cash received amounted to $5.3 million and total conversions of debt into redeemable common stock amounted to $3.6 million. These transactions were completed pursuant to a Securities Purchase Agreement (the “Agreement”) which the Company entered into with each of the respective investors. The Agreements provide a one-time window during which such investors can redeem the securities for cash at a premium to the original issuance ranging from 15% to 25%. The redemption windows occur within 9 months from the date of issuance. During the 3rd quarter of 2013, the Company entered into restructuring agreements on the redeemable common stock to extend the maturity dates.

NORTHWEST BIOTHERAPEUTICS, INC

(A Development Stage Company)

In order to continue with the Company’s current activities under the DCVax®-L program, the Company will have to obtain substantial amounts of further funding, as described in the Risk Factors section in the Company’s annual report on Form 10-K/A for the year ended December 31, 2012. The Company’s on-going funding requirements will depend on many factors, including the extent to which the Company realizes and draws upon various sources of non-dilutive funding. One such source of non-dilutive funding is a $5.5 million German grant awarded on May 1, 2012, by the German government through its Saxony Development Bank. The grant will provide funding on a matching basis for up to 50% of the costs incurred by the Company for the DCVax-L clinical trial and manufacturing in Germany. The Company anticipates beginning to draw upon the grant in the next several months.

On July 31, 2013, Cognate BioServices agreed to convert an aggregate of $11.6 million in accounts payable into shares of common stock at a conversion price of $4.00 per share, which resulted in the issuance in August 2013 of an aggregate of 2.9 million shares of common stock. The conversion shares are subject to a lock-up period of 18 months from the date of their issuance. Under the lock-up, the shares cannot be sold or traded. The conversions and lock-up are subject to a most favored nation provision with respect to terms provided to other investors.

On a going forward basis, commencing with August 2013, the Company and Cognate agreed to establish a regular ongoing arrangement for payment of at least half of each invoice in common stock of the Company, and the remainder in cash, at $4.00 per share subject to a most favored nation provision with respect to terms provided to other investors. The arrangement will continue until terminated by mutual agreement.

The financial statements for the fiscal year ended December 31, 2012 states that because of recurring operating losses, net operating cash flow deficits, and a deficit accumulated during the development stage, there is substantial doubt about the Company’s ability to continue as a going concern. A “going concern” opinion indicates that 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 may result from the outcome of this uncertainty.

3. Stock-based Compensation

Compensation expense for all stock-based awards is measured on the grant date based on the fair value of the award and is recognized as an expense, on a straight-line basis, over the employee's requisite service period (generally the vesting period of the equity award). The fair value of each option award is estimated on the grant date using a Black-Scholes option valuation model. Stock-based compensation expense is recognized only for those awards that are expected to vest using an estimated forfeiture rate. We estimate pre-vesting option forfeitures at the time of grant and reflect the impact of estimated pre-vesting option forfeitures in compensation expense recognized. For options and warrants issued to non-employees, the Company recognizes stock compensation costs utilizing the fair value methodology over the related period of benefit.

Stock-based compensation expense was as follows for the three and six months ended June 30, 2013 and 2012 (in thousands):

There were no options to purchase common stock granted during the six month ended June 30, 2013, although certain options previously granted were vested. 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a three tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs). Level 1, 2, and 3 inputs are defined as follows:

NORTHWEST BIOTHERAPEUTICS, INC

(A Development Stage Company)

The Company's liability for reclassified equity contracts was measured using significant unobservable (Level 3) inputs.

In 2011, as a result of the Company entering into convertible promissory notes and issuing stock options and warrants to purchase common stock, the Company's total potential outstanding common stock exceeded the Company’s authorized shares by approximately 6.8 million shares as of December 31, 2011. As a result, the Company was required to value a number of shares equal to the excess issuable on exercise of warrants and options and on conversion of convertible notes and recognize the value as a liability. Effective February 6, 2012, the Company’s stockholders approved an increase in the number of authorized shares sufficient to cover the excess. At that time, the liability was re-measured, with changes in value included in other income (expense), and then reclassified to additional paid-in capital (thereby removing it from the Company’s liabilities).

The Company concluded that certain conversion features and warrant agreements included down-round provisions that were not indexed to the Company’s stock (and are therefore recorded as derivative liabilities). The Company recognized the derivative liabilities at their respective fair values using a binomial model adjusted for the probability of issuance using a Monte Carlo simulation. Changes in the fair value were recorded in derivative valuation gain (loss) in the condensed consolidated statements of operations. Key assumptions for determining fair values during the periods presented included expected terms ranging from 3 to 15 months, volatility ranging from 95% to 190% and risk-free interest rate of 0.18%.

The Company's embedded derivative liability was measured using significant unobservable (Level 3) inputs. The following table represents the Company’s embedded derivative liability activity for the three months and six months ended June 30, 2013 and 2012:

5. Notes Payable

The Company regularly issues notes and the proceeds from the notes are used to finance operations. The notes may contain conversion features and may be issued along with warrants to purchase common stock. For convertible notes, the Company allocates the proceeds received between convertible notes payable and warrants on a relative fair value basis or the residual method, whichever is applicable. The resulting discount for warrants is amortized using the effective interest method over the life of the debt instrument. After allocating a portion of the proceeds to the warrants, the effective conversion price of the convertible note payable can be determined. If the effective conversion price is lower than the market price of the Company's common stock on the date of issuance, a beneficial conversion feature is recorded as an additional discount to the convertible notes payable. The beneficial conversion feature discount is also amortized using the effective interest method over the life of the debt instrument. The amortization is recorded as interest expense on the condensed consolidated statements of operations. During the six months ended June 30, 2013 and June 30, 2012, the Company received proceeds from the issuance of notes of $0.4 million and $8.5 million, respectively. The notes are payable on various dates through May 2015 and have interest rates between 0% and 12%. During the six months ended June 30, 2013 and June 30, 2012, the Company recorded a debt discount related to the beneficial conversion feature for convertible notes and detachable warrants of $0 million and $3.2 million, respectively.

During the six months ended June 30, 2013, the Company converted notes payable of $1.9 million into approximately 0.7 million shares of common stock. During the six months ended June 30, 2012 $3.7 million notes were converted into 0.6 million shares of common stock.

During the six months ended June 30, 2013, the Company repaid $0.7 million of notes payable.

The Company is past due on several notes and as a consequence has triggered cross-default provisions on its remaining indebtedness including its remaining convertible note obligations.  As a result all of the company’s debt obligations are in default and demands could be made for payment at any time.

NORTHWEST BIOTHERAPEUTICS, INC

(A Development Stage Company)

Notes payable consist of the following at June 30, 2013 and December 31, 2012 (in thousands):

6. Net Loss per Share Applicable to Common Stockholders

Options, warrants, and convertible debt outstanding were all considered anti-dilutive for the six months ended June 30, 2013, and 2012, due to net losses.

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

7. Related Party Transactions

a. Cognate BioServices

In April, 2011, the Company entered into a new service agreement with Cognate Bioservices, Inc. (“Cognate”), a contract manufacturing and services organization in which Toucan Capital has a majority interest. In addition, two of the principals of Toucan Capital are members of Cognate’s board of directors and Linda Powers who is a director of Cognate and managing director of Toucan Capital is Chairperson of the Company’s Board of Directors and Chief Executive Officer of the Company. This agreement replaces the agreement dated May 17, 2007 between the Company and Cognate, which had expired. Under the service agreement, the Company agreed to continue to utilize Cognate’s services, for certain consulting and manufacturing services to the Company for its ongoing DCVax®-Brain Phase III clinical trial. The scope of services is comparable to the prior agreement, and the structure and process for payments are simplified. Under the terms of the current agreement the Company pays Cognate a monthly facility fee and a fixed fee (in lieu of cost-plus charges) for each patient in the study, subject to specified minimum number of patients per month, plus charges for certain patient and product data services if such services are requested by the Company, and charges for the 2-year processes of technology transfer to third parties, training of such parties’ personnel, drafting of Standard Operating procedures (SOPs) tailored to such third parties, and collaboration to obtain regulatory approvals and certifications relating to the product and manufacturing. The current service agreement will expire on March 31, 2016.

NORTHWEST BIOTHERAPEUTICS, INC

(A Development Stage Company)

During the six months ended June 30, 2013, at the Company’s request Cognate and third party sub-contractors carried out an intensive development program relating to the DCVax-Direct product. The program proceeded on accelerated timetables in connection with the launch of the Company’s Phase I/II clinical trial with DCVax-Direct for all solid tumor cancers. The development program included design, engineering, sourcing, production, testing, modification and validation of the manufacturing automation equipment, disposables sets to be used with the manufacturing automation equipment, manufacturing processes, product ingredients, product release assays, and other matters, as well as development of Standard Operating Procedures (SOPs), batch production records, and other necessary materials.

During the three months ended June 30, 2013 and 2012, respectively, the Company recognized approximately $5.2 million and $3.8 million, respectively, of research and development costs related to these service agreements. For the six months ended June 30, 2013 and 2012, the Company recognized approximately $14.2 million and $6.0 million, respectively, of research and development costs related to these service agreements. As of June 30, 2013 and December 31, 2012, the Company owed Cognate (including third party sub-contract amounts) approximately $10.0 million and $1.8 million, respectively.

On July 31, 2013, Cognate BioServices agreed to convert an aggregate of $11.6 million in accounts payable, $10.0 million which was accrued as of June 30, 2013, into shares of common stock at a conversion price of $4.00 per share which resulted in the issuance in August 2013 of an aggregate of 2.9 million shares of common stock. The conversion shares are subject to a lock-up period of 18 months from the date of their issuance. Under the lock-up, the shares cannot be sold or traded. The conversions and lock-up are subject to a most favored nation provision with respect to terms provided to other investors.

On a going forward basis, commencing with August 2013, the Company and Cognate agreed to establish a regular ongoing arrangement for payment of at least half of each invoice in common stock of the Company, and the remainder in cash, at $4.00 per share subject to a most favored nation provision with respect to terms provided to other investors. The arrangement will continue until terminated by mutual agreement.

In July 2013, the Company received a short-term loan of $0.6 million from Cognate. The terms are in the process of being determined.

b. Toucan Capital and Toucan Partners

In March 2013, the Company received a short-term loan of $0.2 million from Toucan. The short-term loan was paid-in-full during the three months ended June 30, 2013.

c. Other Related Parties

In March 2013, the Company received a short-term loan of $0.2 million from an executive officer. The short-term loan was paid-in-full during the three months ended June 30, 2013.

8.   Stockholders’ Deficit

a. Common Stock Issuances

Issuances of common stock during the three and six months ended June 30, 2013 were as follows (shares and dollars in thousands):

* Includes the issuance of 1,025,641 investors’ warrants exercisable for 1,025,641 shares of common stock. The warrants have an exercise price of $4.29 per share.

NORTHWEST BIOTHERAPEUTICS, INC

(A Development Stage Company)

During the first quarter ended March 31, 2013, the Company issued approximately 0.2 million shares of common stock to existing stockholders in connection with an agreement with the stockholders and a consultant. The shares of common stock were valued at the closing price of the Company’s common stock on the date issued and amounted to approximately $0.6 million.

In April 2013, we entered into an agreement with one healthcare-dedicated institutional investor for a registered direct placement of $10.0 million of common stock at the closing market price of $3.90 per share. We issued to the investor warrants exercisable for 1,025,641 shares of common stock. The warrants have an exercise price of $4.29 per share and are exercisable beginning six months after closing, with a term of five years after closing.

b. Stock Purchase Warrants

Through June 30, 2013, the Company has issued warrants to strategic partners, consultants and investors with exercise prices ranging from $2.40 to $51.84 and with terms ranging from three to five years. Each warrant is exercisable into one share of common stock. The following is a summary of warrant activity for the six months ended June 30, 2013:

9.  Subsequent Events

In July 2013, the Company received a short-term loan of $0.6 million from Cognate. The terms are in the process of being determined.

On July 31, 2013, Cognate BioServices agreed to convert an aggregate of $11.6 million in accounts payable into shares of common stock at a conversion price of $4.00 per share, which resulted in the issuance in August 2013 of an aggregate of 2.9 million shares of common stock. The conversion shares are subject to a lock-up period of 18 months from the date of their issuance. Under the lock-up, the shares cannot be sold or traded. The conversions and lock-up are subject to a most favored nation provision with respect to terms provided to other investors.

On a going forward basis, commencing with August 2013, the Company and Cognate agreed to establish a regular ongoing arrangement for payment of at least half of each invoice in common stock of the Company, and the remainder in cash, at $4.00 per share subject to a most favored nation provision with respect to terms provided to other investors. The arrangement will continue until terminated by mutual agreement.

On August 8, 2013, the Company entered into a securities purchase agreement with institutional investors for the sale of an aggregate of $15.0 million of units in a registered direct offering. Each unit consists of one share of common stock, one long-term warrant to purchase 0.25 of a share of common stock and one over-allotment warrant to purchase 0.25 of a share of common stock. The offering closed on August 14, 2013. The purchase price paid by the investors was $3.35 per unit. The long-term warrants have an exercise price of $4.00 per share and are exercisable commencing six months from the date of issuance and for five years thereafter. The over-allotment warrants have an exercise price of $3.35 per share and are exercisable immediately for one year from date of issuance. The Company to received aggregate gross offering proceeds of $15.0 million and net offering proceeds of approximately $13.7 million, after deducting placement agent fees and estimated offering fees and expenses.

NORTHWEST BIOTHERAPEUTICS, INC

(A Development Stage Company)

Management’s Evaluation of Subsequent Events

Management evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, management did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the consolidated financial statements.

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/A for the year ended December 31, 2012. 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

We are a development stage biotechnology company focused on developing immunotherapy products to treat cancers more effectively than current treatments, without toxicities of the kind associated with chemotherapies, and, through a proprietary batch manufacturing process, on a cost-effective affordable basis initially in both the United States and Europe.

We have developed a platform technology, DCVax, which uses activated dendritic cells to mobilize a patient's own immune system to attack their cancer. The DCVax technology is expected to be applicable to most cancers, and is embodied in several distinct product lines. One of the product lines (DCVax-L) is designed to cover all solid tumor cancers in which the tumors can be surgically removed. Another product line (DCVax-Direct) is designed for all solid tumor cancers which are considered inoperable and cannot be surgically removed. The broad applicability of DCVax to many cancers provides multiple opportunities for commercialization and partnering. As of June 30, 2013, our Phase III clinical trial in GBM is being conducted at over 50 sites across the United States and at one site in the U.K. We are also in the process of adding further U.S. sites and up to 30 European sites.

In parallel with these developments in our Phase III brain cancer program, during the quarter ended June 30, 2013, we launched the Phase I/II clinical trial with DCVax-Direct for solid tumor cancers. The lead site is MDAnderson in Houston.

Our DCVax immunotherapies are based on a platform technology involving dendritic cells, the master cells of the immune system, and are designed to reinvigorate and educate the immune system to attack cancers. The dendritic cells are able to mobilize all parts of the immune system, including T cells, B cells and antibodies, natural killer cells and many others. Mobilizing the overall immune system provides a broader attack on the cancer than mobilizing just a particular component, such as T cells alone, or a particular antibody alone. Likewise, our DCVax technology is designed to attack the full set of biomarkers, or antigens on a patient’s cancer, rather than just a particular selected target or several targets. Clinical experience indicates that when just one or a few biomarkers on a cancer are targeted by a drug or other treatment, sooner or later the cancer usually develops a way around that drug, and the drug stops working. We believe that mobilizing all agents of the immune system, and targeting all biomarkers on the patient’s cancer, contributes to the effectiveness of DCVax.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these 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/A for the year ended December 31, 2012. Our critical accounting policies and significant estimates have not changed substantially from those previously disclosed in our Annual Report on Form 10-K/A for the year ended December 31, 2012.

Recent Accounting Pronouncements

Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.

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 are especially high when we are in a large ongoing international phase III trial, as we now are and when we also have an additional clinical trial program, under way in parallel, as we now have with our 60-patient Phase I/II trial with DCVax-Direct for all types of inoperable solid tumors and general and administrative expenses.

Our operating costs include the development work relating to the DCVax-Direct product and its manufacturing, such as the design, engineering, sourcing, production, testing, modification and validation of the manufacturing automation equipment, disposables sets to be used with the manufacturing automation equipment, manufacturing processes, product ingredients, product release assays, and other matters, as well as development of Standard Operating Procedures (SOPs), batch production records, and other necessary materials.

Our operating costs also include the costs of preparations for the launch of new or expanded clinical trial programs including the Phase III trial in the US and UK (with DCVax-L for brain cancer) and the Phase I/II trial (with DCVax-Direct for all inoperable solid tumor cancers). The preparation costs include upfront payments to the clinical trial sites and the CROs managing the trials and other service providers, and expenses related to institutional approvals, training of medical and other site personnel, trial supplies and other.

Research and development:

Discovery and preclinical research and development expenses include scientific personnel-related salary and benefit expenses, 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 a development stage 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.

General and administrative:

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

Three Months Ended June 30, 2013 and 2012

We recognized a net loss of $8.2 million in cash outlays and $3.4 million in non-cash accounting charges (i.e. increase in accounts payable, stock-based compensation, issuance of warrants and debt discount charges etc.), for a combined (cash and non-cash) total net loss of $11.6 million for the three months ended June 30, 2013 compared to a net loss of $10.2 million for the three months ended June 30, 2012.

Research and Development Expense. Research and development expense was a combined (cash and non-cash) total of $8.4 million for the three months ended June 30, 2013 compared to $7.0 million for the three months ended June 30, 2012. The increase was primarily attributable to the DCVax-Direct manufacturing and product development work described above, and the preparation costs for the launch of two clinical trial programs, one in the US and one in the UK, as described above, as well as expansion of the ongoing Phase III trial in the US, and increased manufacturing of DCVax®-L for the Phase III trial.

As of June 30, 2013 we had over 50 clinical trial sites in operation in the U.S in our Phase III trial with DCVax-L, compared to 25 clinical trial sites at June 30, 2012. At June 30, 2013, we also had substantially expanded other clinical trial related operations compared with June 30, 2012 including, for example, extensive preparations and launch of the Phase III DCVax-L clinical trial in the UK as described above, and launch of the Phase I/II DCVax-Direct trial in the US as described above, in addition to costs related to fully operational and approved manufacturing in Germany, cost of an established wholly owned German subsidiary, manufacturing activity in the U.K. and nearly 30 clinical trial sites in the U.K. and Germany in varying stages of preparation.

General and Administrative Expense. General and administrative expense included $1.9 million of cash expenses, and $1.4 million of non-cash charges (i.e. amortization of previously issued stock based compensation and restricted stock and warrants issued for services), for a combined total of $3.3 million for the three months ended June 30, 2013 compared to $2.0 million for the three months ended June 30, 2012. The increase in general and administrative expenses from the prior period is as a result of increased administrative costs for the Company’s expanded product programs, and increased public relations and investor relations services and other consulting expenses of $1.5 million, offset by a $0.2 million decrease in stock based compensation expense.

Interest (Expense). Interest expense (including non-cash elements such as amortization of debt discount) decreased to $0.2 million for the three months ended June 30, 2013 from $1.6 million for the three months ended June 30, 2012. The decrease in interest expense is primarily related to the retirement of $27.8 million in notes payable during 2012.

Six Months Ended June 30, 2013 and 2012

We recognized a net loss of $26.0 million for the six months ended June 30, 2013 compared to a net loss of $20.3 million for the six months ended June 30, 2012.

Research and Development Expense. Research and development expense was $20.0 million for the six months ended June 30, 2013 compared to $10.6 million for the six months ended June 30, 2012. The increase was primarily attributable to an increased number of clinical trial sites open and recruiting across the United States in our ongoing Phase III clinical trial of DCVax®-L immune therapy for Glioblastoma multiform (GBM) brain cancer and initiation of this trial in Europe.

General and Administrative Expense. General and administrative expense was $5.8 million for the six months ended June 30, 2013 compared to $4.2 million for the six months ended June 30, 2012. The increase was primarily due to an increase of $2.3 million in consulting and professional services offset by a decrease of $0.5 million in stock based compensation.

Valuation of reclassified equity contracts. During the six months ended June 30, 2013 and June 30, 2012, the Company recognized a non-cash gain amounting to $0 and $0.5 million from the decrease in value of reclassified equity contracts, respectively.

Derivative valuation gain and loss. During the six months ended June 30, 2013 and June 30, 2012 we recognized a gain on derivative liabilities of $0 and $ 0.5 million due to the change in value of the financial instruments, respectively.

Interest (Expense). Interest expense decreased to $0.6 million for the six months ended June 30, 2013 from $6.8 million for the six months ended June 30, 2012. Interest expense decreased for the six month period ended June 30, 2013 primarily related to the repayment or conversions of debt into equity that were initiated during the six month period ended June 30, 2012.

Liquidity and Capital Resources

We have experienced recurring losses from operations. Net cash outflows from operations were $15.3 million for the six months ended June 30, 2013.

At June 30, 2013, cash and cash equivalents totaled $2.0 million, compared to $7.4 million at December 31, 2012. Working capital was a deficit of $16.3 million at June 30, 2013, compared to a deficit of $3.3 million at December 31, 2012 (excluding redeemable common stock amounting to $11.0 million). The working capital deficit increase as of June 30, 2013 as compared to December 31, 2012 is primarily related to a $8.2 million increase in related party accounts payable for expansion manufacturing and development work relating to DCVax-Direct, including the work by third party sub-contractors.

On July 31, 2013, Cognate BioServices agreed to convert an aggregate of $11.6 million in accounts payable into shares of our common stock at a conversion price of $4.00 per share, which resulted in the issuance in August 2013 of an aggregate of 2.9 million shares of common stock. The conversion shares are subject to a lock-up period of 18 months from the date of their issuance. Under the lock-up, the shares cannot be sold or traded. The conversions and lock-up are subject to a most favored nation provision with respect to terms provided to other investors.

On a going forward basis, commencing with August 2013, we and Cognate agreed to establish a regular ongoing arrangement for payment of at least half of each invoice in common stock of the Company, and the remainder in cash, at $4.00 per share subject to a most favored nation provision with respect to terms provided to other investors. The arrangement will continue until terminated by mutual agreement.

Since 2004, Toucan Capital Fund II, L.P. (“Toucan Capital”), Toucan Partners LLC (“Toucan Partners”), entities controlled by Ms. Linda Powers, our CEO and the managing director of Toucan Capital and managing member of Toucan Partners, and Ms. Linda Powers (collectively “Toucan”) have provided substantial funding to us. From 2004 through June 30, 2013, Toucan provided ongoing financings to us through the purchase of common stock, preferred stock (which was all converted to common stock), and debt securities. Toucan (other than Cognate BioServices) held approximately 17% of common stock outstanding as of June 30, 2013.

Operating Activities

We used $15.3 million in cash for operating activities during the six months ended June 30, 2013. The increase in cash used in operating activities was primarily attributable to the DCVax-Direct manufacturing and product development work described above, the preparations for launch of the Phase I/II clinical trial with DCVax-Direct for solid tumor cancers, increased manufacturing of DCVax®-L for the ongoing Phase III brain cancer trial in the US, an increased number of clinical trial sites open and recruiting across the United States in our ongoing Phase III brain cancer trial and the preparation costs for the launch of two clinical trial programs: the 60-patient Phase I/II trial with DCVax-Direct in the U.S., and the Phase III trial with DC-Vax-L for brain cancer in the UK, as described above.

As of June 30, 2013 we had over 50 clinical trial sites in operation in the U.S. in our Phase III trial with DCVax-L, compared to 25 clinical trial sites at June 30, 2012. At June 30, 2013, we also had substantially expanded other clinical trial related operations compared with June 30, 2012 including, for example, extensive preparations for launch of the Phase III DCVax-L clinical trial in the UK as described above, and launch of the Phase I/II DCVax-Direct trial in the U.S. as described above, in addition to costs related to fully operational and approved manufacturing in Germany, an established wholly owned German subsidiary, manufacturing activity in the U.K. preparations for up to 30 clinical trial sites in the U.K. and Germany.

Financing Activities

During the six months ended June 30, 2013, our financing activities primarily consisted of proceeds from the issuance of common stock and warrants amounting to $11.0 million offset by the repayment of $0.7 million of notes payable and deferred financing costs of $0.8 million.

In April 2013, we entered into an agreement with one healthcare-dedicated institutional investor for a registered direct placement of $10.0 million of common stock at the closing market price of $3.90 per share. We issued to the investor warrants exercisable for 1,025,641 shares of common stock. The warrants have an exercise price of $4.29 per share and are exercisable beginning six months after closing, with a term of five years after closing.

Our financial statements indicate there is substantial doubt about our ability to continue as a going concern as we are dependent on our ability to obtain short term financing and ultimately to generate sufficient cash flow to meet our obligations on a timely basis, as well as successfully obtain financing on favorable terms to fund our long term plans.  We can give no assurance that our plans and efforts to achieve the above steps will be successful.

In order to continue with our current activities under our DCVax®-L program, we will have to obtain substantial amounts of further funding, as described in the Risk Factors section in our annual report on Form 10-K/A for the year ended December 31, 2012. Our on-going funding requirements will depend on many factors, including the extent to which we realize and draw upon various sources of non-dilutive funding. One such source of non-dilutive funding is a $5.5 million German grant awarded on May 1, 2012, by the German government through its Saxony Development Bank.  The grant will provide funding on a matching basis for up to 50% of the costs incurred by us for the DCVax-L clinical trial and manufacturing in Germany. We anticipate beginning to draw upon the grant in the next several months.

Other factors affecting our ongoing funding requirements include the number of staff we employ, the number of sites and pace of patient enrollment in our Phase III brain cancer trial and our Phase I/II clinical trial with DCVax-Direct, the costs of further development work relating to DCVax-Direct, the costs of expansion of manufacturing of both DCVax-L and DCVax-Direct, the cost of establishing clinical studies and compassionate use/named patient programs in other countries, and unanticipated developments. The extent of resources available to us will determine the pace at which we can move forward with both our DCVax-L program and our DCVax-Direct program.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive, financial and accounting officer, 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 this evaluation, our principal executive, financial and accounting officer concluded that as of the end of the period covered by this report, in light of certain material weaknesses in our internal control over financial reporting described in our annual report on Form 10-K/A for the year ended December 31, 2012, our disclosure controls and procedures were not effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our chief executive officer, financial and accounting officer, to allow timely decisions regarding required disclosure, and that such information is recorded, processed, summarized and reported within the time periods prescribed by the SEC.

Changes in Internal Control over Financial Reporting

There has been no change in our internal controls over financial reporting that occurred during the fiscal quarter ended June 30, 2013, that has materially affected, or is reasonably expected to materially affect, our internal controls over financial reporting.

Part II - Other Information

Item 6. Exhibits

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.