UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549










FORM
10-Q









R
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT
      OF 1934





For
the quarterly period ended September 30, 2009





OR





 ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT
      OF 1934





Commission
file number 000-33393





Northwest
Biotherapeutics, Inc.


(Exact
Name of Registrant as Specified in its Charter)





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





7600
Wisconsin Avenue, Suite 750


Bethesda,
Maryland 20814


(Address
of Principal Executive Offices)





(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 R
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). YesRNo ̈





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
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





Large accelerated filer 
       ̈
              Accelerated filer 
       ̈
              Non-accelerated filer 
       ̈
                (do not check if a smaller reporting company)
              Smaller reporting companyR





Indicate by check mark whether the
Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes£NoR





As of
November 18, 2009, the total number of shares of common stock, par value $0.001
per share, outstanding was 58,058,552









TABLE
OF CONTENTS





NORTHWEST
BIOTHERAPEUTICS, INC.





TABLE
OF CONTENTS





PagePART
      I — FINANCIAL INFORMATION
                  
                  3Item
      1. Financial Statements
                  
                  3Condensed
      Consolidated Balance Sheets as of December 31, 2008 and September 30, 2009
      (unaudited)
                  
                  3Condensed
      Consolidated Statements of Operations (unaudited) for the three and nine
      months ended September 30, 2008 and 2009 and the period from March 18,
      1996 (inception) to September 30, 2009
                  
                  4Condensed
      Consolidated Statements of Cash Flows (unaudited) for the nine months
      ended September 30, 2008 and 2009 and the period from March 18, 1996
      (inception) to September 30, 2009
                  
                  5-6Notes
      to Condensed Consolidated Financial Statements
                  
                  7Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
                  
                  23Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk
                  
                  28Item
      4. Controls and Procedures
                  
                  29PART
      II — OTHER INFORMATION
                  
                  30Item
      1. Legal Proceedings
                  
                  30Item
      1A. Risk Factors
                  
                  32Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
                  
                  42Item
      3. Defaults Upon Senior Securities
                  
                  44Item
      4. Submission of Matters to a Vote of Security Holders
                  
                  44Item
      5. Other Information
                  
                  44Item
      6. Exhibits
                  
                  45SIGNATURES
                  
                  46INDEX
      TO EXHIBITS
                  
                  47








Part
I — Financial Information





NORTHWEST
BIOTHERAPEUTICS, INC.


(A
Development Stage Company)





Condensed
Consolidated Balance Sheets


(in
thousands)





December31,
                                                2008
                                              
                                              
                                              September, 30
                                                2009(Unaudited)AssetsCurrent
      assets:Cash
                                              
                                              $
                                              16
                                              
                                              
                                              $
                                              115Accounts
      receivable
                                              
                                              
                                              1
                                              
                                              
                                              
                                              1Prepaid
      expenses and other current assets
                                              
                                              
                                              1,057
                                              
                                              
                                              
                                              111Total
      current assets
                                              
                                              
                                              1,074
                                              
                                              
                                              
                                              227Property
      and equipment:Laboratory
      equipment
                                              
                                              
                                              29
                                              
                                              
                                              
                                              29Office
      furniture and other equipment
                                              
                                              
                                              82
                                              
                                              
                                              
                                              82Construction
      in progress
                                              
                                              
                                              387
                                              
                                              
                                              
                                              —498
                                              
                                              
                                              
                                              111Less
      accumulated depreciation and amortization
                                              
                                              
                                              (104
                                              )
                                              
                                              
                                              (104
                                              )Property
      and equipment, net
                                              
                                              
                                              394
                                              
                                              
                                              
                                              7Deposit
      and other non-current assets
                                              
                                              
                                              12
                                              
                                              
                                              
                                              2Total
      assets
                                              
                                              $
                                              1,480
                                              
                                              
                                              $
                                              236Liabilities
      And Stockholders’ Equity (Deficit)Current
      liabilities:Accounts
      payable
                                              
                                              $
                                              3,420
                                              
                                              
                                              $
                                              3,601Accounts
      payable, related party
                                              
                                              
                                              656
                                              
                                              
                                              
                                              4,274Accrued
      expenses
                                              
                                              
                                              1,298
                                              
                                              
                                              
                                              1,561Accrued
      expense, related party
                                              
                                              
                                              905
                                              
                                              
                                              
                                              1,509Notes
      payable, net of warrant related discount ($603 and $0 at December 31, 2008
      and September 30, 2009, respectively)
                                              
                                              
                                              2,047
                                              
                                              
                                              
                                              2,650Note
      payable to related parties, net of warrant related discount ($46 and $0 at
      December 31, 2008 and September 30, 2009, respectively)
                                              
                                              
                                              5,454
                                              
                                              
                                              
                                              4,000Total
      current liabilities
                                              
                                              
                                              13,780
                                              
                                              
                                              
                                              17,595Long
      term liabilities:Convertible
      notes payable to related party, net of discount ($1,246 at September 30,
      2009)
                                              
                                              
                                              —
                                              
                                              
                                              
                                              129Convertible
      notes payable, net of discount ($612 at September 30,
2009)
                                              
                                              
                                              —
                                              
                                              
                                              
                                              728Total
      long term liabilities
                                              
                                              
                                              —
                                              
                                              
                                              
                                              857Total
      liabilities
                                              
                                              
                                              13,780
                                              
                                              
                                              
                                              18,452Stockholders’
      equity (deficit):Preferred
      stock, $0.001 par value; 20,000,000 shares authorized and none issued and
      outstandingCommon
      stock, $0.001 par value; 100,000,000 and 150,000,000 shares authorized at
      December 31, 2008 and September 30, 2009, respectively, and
      42,492,853 and 56,712,956 shares issued and outstanding at December 31,
      2008 and September 30, 2009, respectively
                                              
                                              
                                              42
                                              
                                              
                                              
                                              57Additional
      paid-in capital
                                              
                                              
                                              152,308
                                              
                                              
                                              
                                              167,317Deficit
      accumulated during the development stage
                                              
                                              
                                              (164,626
                                              )
                                              
                                              
                                              (185,538
                                              )Cumulative
      translation adjustment
                                              
                                              
                                              (24
                                              )
                                              
                                              
                                              (52
                                              )Total
      stockholders’ equity (deficit)
                                              
                                              
                                              (12,300
                                              )
                                              
                                              
                                              (18,216
                                              )Total liabilities and
      stockholders’ equity
      (deficit)
                                              
                                              $
                                              1,480
                                              
                                              
                                              $
                                              236





See
accompanying notes to condensed consolidated financial
statements.


3





NORTHWEST
BIOTHERAPEUTICS, INC.


(A
Development Stage Company)





Condensed
Consolidated Statements of Operations


(in
thousands, except per share data)


(Unaudited)





Three Months Ended
                September 30,
              
              
              Nine Months Ended
                September 30,
              
              
              Period from
                March 18,
                1996
                (inception) to
                September 30,2008
              
              
              2009
              
              
              2008
              
              
              2009
              
              
              2009Revenues:Research
      material sales
              
              $
              10
              
              
              $
              10
              
              
              $
              10
              
              
              $
              10
              
              
              $
              560Contract
      research and development from related parties
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              1,128Research
      grants and other
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              1,061Total
      revenues
              
              
              10
              
              
              
              10
              
              
              
              10
              
              
              
              10
              
              
              
              2,749Operating
      cost and expenses:Cost
      of research material sales
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              382Research
      and development
              
              
              3,129
              
              
              
              2,465
              
              
              
              9,334
              
              
              
              7,437
              
              
              
              64,762General
      and administrative
              
              
              2,171
              
              
              
              2,356
              
              
              
              7,629
              
              
              
              4,475
              
              
              
              53,519Depreciation
      and amortization
              
              
              —
              
              
              
              —
              
              
              
              22
              
              
              
              —
              
              
              
              2,344Loss
      on facility sublease
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              895Asset
      impairment loss
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              389
              
              
              
              2,445Total
      operating costs and expenses
              
              
              5,300
              
              
              
              4,821
              
              
              
              16,985
              
              
              
              12,301
              
              
              
              124,347Loss
      from operations
              
              
              (5,290
              )
              
              
              (4,811
              )
              
              
              (16,975
              )
              
              
              (12,291
              )
              
              
              (121,598
              )Other
      income (expense):Warrant
      valuation
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              6,759Loan
      conversion inducement
              
              
              —
              
              
              
              (5,617
              )
              
              
              —
              
              
              
              (5,617
              )
              
              
              (5,617
              )Gain
      on sale of intellectual property and property and
equipment
              
              
              8
              
              
              
              —
              
              
              
              8
              
              
              
              —
              
              
              
              3,664Interest
      expense
              
              
              (143
              )
              
              
              (1,813
              )
              
              
              (224
              )
              
              
              (3,004
              )
              
              
              (25,155
              )Interest
      income and other
              
              
              11
              
              
              
              —
              
              
              
              102
              
              
              
              —
              
              
              
              1,218Net
      loss
              
              
              (5,414
              )
              
              
              (12,241
              )
              
              
              (17,089
              )
              
              
              (20,912
              )
              
              
              (140,729
              )Issuance
      of common stock in connection with elimination of Series A and Series A-1
      preferred stock preferences
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (12,349
              )Modification
      of Series A preferred stock warrants
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (2,306
              )Modification
      of Series A-1 preferred stock warrants
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (16,393
              )Series
      A preferred stock dividends
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (334
              )Series
      A-1 preferred stock dividends
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (917
              )Warrants
      issued on Series A and Series A-1 preferred stock
dividends
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (4,664
              )Accretion
      of Series A preferred stock mandatory redemption
obligation
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (1,872
              )Series
      A preferred stock redemption fee
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (1,700
              )Beneficial
      conversion feature of Series D preferred stock
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (4,274
              )Net
      loss applicable to common stockholders
              
              $
              (5,414
              )
              
              $
              (12,241
              )
              
              $
              (17,089
              )
              
              $
              (20,912
              )
              
              $
              (185,538
              )Net
      loss per share applicable to common stockholders — basic and
      diluted
              
              $
              (0.13
              )
              
              $
              (0.27
              )
              
              $
              (0.40
              )
              
              $
              (0.47
              )Weighted
      average shares used in computing basic and diluted net loss per
      share
              
              
              42,493
              
              
              
              45,276
              
              
              
              42,405
              
              
              
              44,583





See
accompanying notes to condensed consolidated financial statements.





4





NORTHWEST
BIOTHERAPEUTICS, INC.


(A
Development Stage Company)





Condensed
Consolidated Statements of Cash Flows


(in
thousands)


(Unaudited)


Nine Months Ended
                                          September 30,
                                        
                                        
                                        Period from
                                          March 18,
                                          1996
                                          (Inception) to
                                          September 30,2008
                                        
                                        
                                        2009
                                        
                                        
                                        2009Cash
      Flows from Operating Activities:Net
      Loss
                                        
                                        $
                                        (17,089
                                        )
                                        
                                        $
                                        (20,912
                                        )
                                        
                                        $
                                        (140,729
                                        )Reconciliation
      of net loss to net cash used in operating activities:Depreciation
      and amortization
                                        
                                        
                                        22
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        2,344Amortization
      of deferred financing costs
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        320Amortization
      of debt discount
                                        
                                        
                                        —
                                        
                                        
                                        
                                        819
                                        
                                        
                                        
                                        19,183Accrued
      interest converted to preferred stock
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        260Accreted
      interest on convertible promissory note
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        1,484Stock-based
      compensation costs
                                        
                                        
                                        2,434
                                        
                                        
                                        
                                        1,909
                                        
                                        
                                        
                                        8,701Stock
      and warrants issued for services and financing costs
                                        
                                        
                                        —
                                        
                                        
                                        
                                        2,576
                                        
                                        
                                        
                                        2,576Loan
      conversion inducement
                                        
                                        
                                        —
                                        
                                        
                                        
                                        5,617
                                        
                                        
                                        
                                        5,617Warrant
      valuation
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        (6,759
                                        )Asset
      impairment and loss (gain) on sale of properties
                                        
                                        
                                        (8
                                        )
                                        
                                        
                                        389
                                        
                                        
                                        
                                        (936
                                        )Loss
      on facility sublease
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        895Increase
      (decrease) in cash resulting from changes in assets and
      liabilities:Accounts
      receivable
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        (1
                                        )Prepaid
      expenses and other current assets
                                        
                                        
                                        (617
                                        )
                                        
                                        
                                        956
                                        
                                        
                                        
                                        613Accounts
      payable and accrued expenses
                                        
                                        
                                        1,973
                                        
                                        
                                        
                                        444
                                        
                                        
                                        
                                        5,084Related
      party accounts payable and accrued expenses
                                        
                                        
                                        682
                                        
                                        
                                        
                                        4,222
                                        
                                        
                                        
                                        5,783Accrued
      loss on sublease
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        (265
                                        )Deferred
      rent
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        410Net
      Cash used in Operating Activities
                                        
                                        
                                        (12,603
                                        )
                                        
                                        
                                        (3,980
                                        )
                                        
                                        
                                        (95,420
                                        )Cash
      Flows from Investing Activities:Purchase
      of property and equipment, net
                                        
                                        
                                        (251
                                        )
                                        
                                        
                                        (2
                                        )
                                        
                                        
                                        (5,003
                                        )Proceeds
      from sale of property and equipment
                                        
                                        
                                        8
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        258Proceeds
      from sale of intellectual property
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        1,816Proceeds
      from sale of marketable securities
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        2,000Refund
      of security deposit
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        (3
                                        )Transfer
      of restricted cash
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        (1,035
                                        )Net
      Cash used in Investing Activities
                                        
                                        
                                        (243
                                        )
                                        
                                        
                                        (2
                                        )
                                        
                                        
                                        (1,967
                                        )Cash
      Flows from Financing Activities:Proceeds
      from issuance of note payable
                                        
                                        
                                        5,000
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        2,650Proceeds
      from issuance of convertible notes payable, convertible promissory note
      and warrants, net of issuance costs
                                        
                                        
                                        —
                                        
                                        
                                        
                                        1,340
                                        
                                        
                                        
                                        14,439Proceeds
      from issuance of convertible notes payable to related
    parties
                                        
                                        
                                        —
                                        
                                        
                                        
                                        1,375
                                        
                                        
                                        
                                        1,375Proceeds
      from issuance of note payable to related parties
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        11,250Repayment
      of note payable to stockholder
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        (6,700
                                        )Repayment
      of convertible promissory note
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        (119
                                        )Borrowing
      under line of credit, Northwest Hospital
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        2,834Repayment
      of line of credit, Northwest Hospital
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        (2,834
                                        )Payment
      on capital lease obligations
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        (323
                                        )Payments
      on note payable
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        (420
                                        )Proceeds
      from issuance of Series A cumulative preferred stock, net
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        28,708Proceeds
      from exercise of stock options and warrants
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        228Proceeds
      from issuance of common stock, net
                                        
                                        
                                        —
                                        
                                        
                                        
                                        1,394
                                        
                                        
                                        
                                        49,737Payment
      of preferred stock dividends
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        (1,251
                                        )Mandatorily
      redeemable Series A preferred stock redemption fee
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        (1,700
                                        )Deferred
      financing costs
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        (320
                                        )Net
      Cash provided by Financing Activities
                                        
                                        
                                        5,000
                                        
                                        
                                        
                                        4,109
                                        
                                        
                                        
                                        97,554


5





Nine Months Ended
                                          September 30,
                                        
                                        
                                        Period from
                                          March 18,
                                          1996
                                          (Inception) to
                                          September 30,2008
                                        
                                        
                                        2009
                                        
                                        
                                        2009Effect
      of exchange rates on cash
                                        
                                        
                                        8
                                        
                                        
                                        
                                        (28
                                        )
                                        
                                        
                                        (52
                                        )Net
      increase (decrease) in cash
                                        
                                        
                                        (7,846
                                        )
                                        
                                        
                                        99
                                        
                                        
                                        
                                        115Cash
      at beginning of period
                                        
                                        
                                        7,861
                                        
                                        
                                        
                                        16
                                        
                                        
                                        
                                        —Cash
      at end of period
                                        
                                        $
                                        23
                                        
                                        
                                        $
                                        115
                                        
                                        
                                        $
                                        115Supplemental
      disclosure of cash flow information — Cash paid during the period for
      interest
                                        
                                        $
                                        8
                                        
                                        
                                        
                                        —
                                        
                                        
                                        $
                                        1,879Supplemental
      schedule of non-cash investing and financing activities:Issuance
      of common stock in connection with elimination of Series A and Series A-1
      preferred stock preferences
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        12,349Issuance
      of common stock in connection conversion of related party notes payable
      and accrued interest and convertible promissory notes and accrued
      interest
                                        
                                        
                                        —
                                        
                                        
                                        
                                        1,500
                                        
                                        
                                        
                                        1,769Modification
      of Series A preferred stock warrants
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        2,306Modification
      of Series A-1 preferred stock warrants
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        16,393Warrants
      issued on Series A and Series A-1 preferred stock
dividends
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        4,664Equipment
      acquired through capital leases
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        285Common
      stock warrant liability
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        11,841Accretion
      of mandatorily redeemable Series A preferred stock redemption
      obligation
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        1,872Beneficial
      conversion feature of convertible promissory notes
                                        
                                        
                                        —
                                        
                                        
                                        
                                        2,028
                                        
                                        
                                        
                                        10,287Conversion
      of convertible promissory notes and accrued interest to Series D preferred
      stock
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        5,324Conversion
      of convertible promissory notes and accrued interest to Series A-1
      preferred stock
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        7,707Issuance
      of Series C preferred stock warrants in connection with lease
      agreement
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        43Issuance
      of common stock for license rights
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        4Issuance
      of common stock and warrants to Medarex
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        840Issuance
      of common stock to landlord
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        35Deferred
      compensation on issuance of stock options and restricted stock
      grants
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        759Cancellation
      of options and restricted stock
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        849Financing
      of prepaid insurance through note payable
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        491Stock
      subscription receivable
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        480





See
accompanying notes to condensed consolidated financial
statements.


6





Northwest
Biotherapeutics, Inc.


(A
Development Stage Company)





Notes
to Condensed Consolidated Financial Statements


(unaudited)





1.
Basis of Presentation





The
accompanying unaudited condensed consolidated financial statements include the
accounts of Northwest Biotherapeutics, Inc. and its subsidiary, NW Bio Europe
Sarl (collectively, the “Company”). All material intercompany balances and
transactions have been eliminated. The accompanying unaudited condensed
consolidated financial statements should be read in conjunction with the
financial statements included in the Company’s Annual Report on Form 10-K for
the year ended December 31, 2008. The year-end condensed 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 (“U.S. 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 three and nine month periods ended September
30, 2009 and 2008 are not necessarily indicative of results to be expected for a
full year.





The
independent registered public accounting firm’s report on the financial
statements for the fiscal year ended December 31, 2008 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.





2.
Summary of Significant Accounting Policies





The
significant accounting policies used in the preparation of the Company’s
condensed consolidated financial statements are disclosed in Note 3 to the
consolidated financial statements included in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2008.  Certain amounts in
the 2008 Financial Statements have been reclassified to conform to the 2009
Financial Statement presentation.





Impairment
of long-lived assets





In
accordance with U.S. GAAP, long-lived assets including property and equipment
are reviewed for possible impairment whenever significant events or changes in
circumstances, including changes in our business strategy and plans, indicate
that an impairment may have occurred. An impairment is indicated when the sum of
the expected future undiscounted net cash flows identifiable to that asset or
asset group is less than its carrying value. Long-lived assets to be held and
used, including assets to be disposed of other than by sale, for which the
carrying amount is not recoverable are adjusted to their estimated fair value at
the date an impairment is indicated, which establishes a new basis for the
assets for depreciation purposes. Long-lived assets to be disposed of by sale
are reported at the lower of carrying amount or fair value less cost to sell.
Impairment losses are determined from actual or estimated fair values, which are
based on market values, net realizable values or projections of discounted net
cash flows, as appropriate.





During
2009, the Company determined that the carrying value of its construction in
progress was not recoverable, and recorded an impairment charge of $389,000 to
reduce the carrying value to $0. Property and equipment are stated at cost, as
adjusted for any prior impairments. Property and equipment are depreciated or
amortized over their estimated useful lives using the straight-line
method.





Recent
Accounting Pronouncements





Accounting for Collaborative
Arrangements





In
January 2009 the Company adopted new U.S. GAAP related to accounting for
collaborative arrangements. The adoption had no effect on the consolidated
financial statements.  The new guidance defines collaborative
arrangements and establishes reporting requirements for transactions between
participants in a collaborative arrangement and between participants in the
arrangement and third parties.





Fair
Value





In
January 2009 the Company adopted new U.S. GAAP related to the measurement
of the fair value of non-financial assets and liabilities, except for items that
are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). The adoption had no effect on the
consolidated financial statements. The new guidanceprovides information on
how to determine the fair value of non-financial assets and
liabilities.


7





Accounting
for Convertible Debt Instruments





In
January 2009 the Company adopted new U.S. GAAP related to the accounting
for convertible debt. The adoption had no effect on the consolidated financial
statements.  Under the new guidance an entity issuing convertible debt
instruments that may be settled in cash upon conversion (including partial cash
settlement) is required to 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.





Determination
of Whether an Instrument (or an Embedded Feature) is Indexed to an Entity’s Own
Stock





In
January 2009 the Company adopted new U.S. GAAP related to the determination
of whether an instrument (or an embedded feature) is indexed to an entity’s own
stock. The adoption had no effect on the consolidated financial
statements.  The new guidance 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.




Determination
of Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities





In
January 2009 the Company adopted new U.S. GAAP related to the determination
of whether instruments granted in share-based payment transactions are
participating securities. The adoption had no effect on the consolidated
financial statements.  The new guidance provides that unvested
share-based payment awards that contain non forfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating securities and
must be included in the computation of earnings per share pursuant to the
two-class method.





Reporting
of Subsequent Events





In April
2009 the Company adopted new U.S. GAAP related to subsequent events. The
adoption of this guidance resulted in additional disclosures with respect to
subsequent events. The new guidance provides general standards of accounting
for, and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued.




Interim
Disclosures about Fair Value of Financial Instruments




In April
2009 the Company adopted new U.S. GAAP related to interim disclosures about
the fair value of financial instruments. The adoption of this guidance resulted
in additional disclosures with respect to the fair value of the Company’s
financial instruments.  The guidance requires an entity to make
disclosures about fair value of financial instruments in interim as well as
annual financial statements.




Transfers
of Financial Assets




In June
2009, the Financial Accounting Standards Board (“FASB”) issued new guidance
concerning the transfer of financial assets. This guidance amends the criteria
for a transfer of a financial asset to be accounted for as a sale, creates more
stringent conditions for reporting a transfer of a portion of a financial asset
as a sale, changes the initial measurement of a transferor’s interest in
transferred financial assets, eliminates the qualifying special-purpose entity
concept and provides for new disclosures. This new guidance will be effective
for the Company for transfers of financial assets beginning in its first quarter
of fiscal year 2010, with earlier adoption prohibited. The Company does not
expect the impact of this guidance to be material to its consolidated financial
statements.




Determining
the Primary Beneficiary of a Variable Interest Entity




In June
2009, the FASB issued new guidance concerning the determination of the primary
beneficiary of a variable interest entity (“VIE”). This new guidance amends
current U.S. GAAP by: requiring ongoing reassessments of whether an enterprise
is the primary beneficiary of a VIE; amending the quantitative approach
previously required for determining the primary beneficiary of the VIE;
modifying the guidance used to determine whether an entity is a VIE; adding an
additional reconsideration event (e.g. troubled debt restructurings) for
determining whether an entity is a VIE; and requiring enhanced disclosures
regarding an entity’s involvement with a VIE.




This new
guidance will be effective for the Company beginning in its first quarter of
fiscal year 2010, with earlier adoption prohibited. The Company does not expect
the impact of this new guidance to be material to its consolidated financial
statements.




FASB
Accounting Standards Codification




In June
2009, the FASB issued new guidance concerning the organization of authoritative
guidance under U.S. GAAP. This new guidance created the FASB Accounting
Standards Codification (“Codification”). The Codification has become the source
of authoritative U.S. GAAP recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative U.S. GAAP
for SEC registrants. The Codification became effective for the Company for the
quarter ended September 30, 2009. As the Codification is not intended to change
or alter existing U.S. GAAP, it did not have any impact on the Company’s
consolidated financial statements. On its effective date, the Codification
superseded all then-existing non-SEC accounting and reporting standards. All
other non grandfathered non-SEC accounting literature not included in the
Codification will become non authoritative.


8





Non-controlling
Interests


In
January 2009, the Company adopted guidance on non controlling interests in
consolidated financial statements. This guidance establishes accounting and
reporting standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. This guidance clarifies that a non-controlling
interest in a subsidiary is an ownership interest in the consolidated entity
that should be reported as equity in the consolidated financial statements. This
guidance requires consolidated net income to be reported at amounts that include
the amounts attributable to both the parent and the non-controlling interest.
The adoption of this guidance did not have a material impact on the Company’s
consolidated financial statements.





Business
Combinations


In
January 2009, the Company adopted guidance on business combinations. This
guidance defines the acquirer as the entity that obtains control of one or more
businesses in the business combination, establishes the acquisition date as the
date that the acquirer achieves control and requires the acquirer to recognize
the assets acquired, liabilities assumed and any non-controlling interest at
their fair values as of the acquisition date. This guidance requires, among
other things, that acquisition-related costs be recognized separately from the
acquisition. The adoption of this guidance did not have a material impact on the
Company’s consolidated financial statements.





In April
2009, the FASB issued guidance on the accounting for assets acquired and
liabilities assumed in a business combination that arise from contingencies,
which amends the provisions related to the initial recognition and measurement,
subsequent measurement and disclosure of assets and liabilities arising from
contingencies in a business combination. For the Company, this guidance applies
prospectively to business combinations for which the acquisition date is on or
after April 1, 2009. The adoption of this guidance did not have a material
impact on the Company’s consolidated financial statements.


9





3.
Fair Value Measurements




Under
U.S. GAAP, fair value is defined as the price that would be received to sell an
asset or paid to transfer a liability (i.e., “the exit price”) in an orderly
transaction between market participants at the measurement date. In determining
fair value, the Company uses various valuation approaches, including quoted
market prices and discounted cash flows. U.S. GAAP also establishes a hierarchy
for inputs used in measuring fair value that maximizes the use of observable
inputs and minimizes the use of unobservable inputs by requiring that the most
observable inputs be used when available. Observable inputs are obtained from
independent sources and can be validated by a third party, whereas, unobservable
inputs reflect assumptions regarding what a third party would use in pricing an
asset or liability. The fair value hierarchy is broken down into three levels
based on the reliability of inputs as follows:





Level 1:
  Observable market inputs such as quoted prices in active
markets.





Level 2:
  Observable market inputs, other than the quoted prices in active
markets, that are observable either directly or
indirectly;    and





Level 3: Unobservable
inputs where there is little or no market data, which require the reporting
entity to develop its own assumptions.





As of
September 30, 2009, the Company did not hold any assets and liabilities which
were required to be measured at fair value.





The
following table summarizes the carrying value of the Company's financial
instruments as of September 30, 2009 (in thousands):





September 30, 2009Carrying
                              Amount
                            
                            
                            Fair ValueAssetsCash
                            
                            $
                            115
                            
                            
                            $
                            115Accounts
      receivable
                            
                            
                            1
                            
                            
                            
                            1LiabilitiesAccounts
      payable
                            
                            
                            3,601
                            
                            
                            
                            3,601Accounts
      payable, related party
                            
                            
                            4,274
                            
                            
                            
                            4,274Accrued
      expenses
                            
                            
                            1,561
                            
                            
                            
                            1,561Accrued
      expenses, related parties
                            
                            
                            1,509
                            
                            
                            
                            1,509Notes
      payable, net
                            
                            
                            2,650
                            
                            
                            
                            2,650Notes
      payable to related parties, net
                            
                            
                            4,000
                            
                            
                            
                            4,000Convertible
      notes payable, net
                            
                            
                            728
                            
                            
                            
                            728Convertible
      note to related parties, net
                            
                            
                            129
                            
                            
                            
                            129


10





For cash,
accounts payable and accrued expenses, the carrying amount approximates fair
value because of the relative short maturity of these
instruments.  There are no direct market comparables for the notes
payable, notes payable to related parties, or the convertible
notes.  Due to the short term nature of the notes payable and notes
payable to related parties, management believes that their fair value
approximates the carrying value.   In determining the fair value
of the convertible notes payable management has considered both their net
present value and the conversion price of the notes relative to the current
market price for the Company’s stock and concluded that as the conversion price
is below the current price of the Company’s carrying value of the notes
approximates fair market value.





4.
Stock-Based Compensation Plans





The
Company has share-based compensation plans under which employees and
non-employee directors may be granted options to purchase shares of Company
common stock at the fair market value at the time of grant. Stock-based
compensation cost is measured by the Company at the grant date, based on the
fair value of the award, and is recognized as an expense over the requisite
service period which is generally the service period. For options and warrants
issued to non-employees, the Company recognizes stock compensation  at
fair value, over the related period of benefit.





The
stock-based compensation expense totaled approximately $1,251,000 and $220,000
for the three months ended September 30, 2009 and 2008, respectively. The
stock-based compensation expense totaled approximately $1,909,000 and $2,434,000
for the nine months ended September 30, 2009 and 2008, respectively. As of
September 30, 2009, the Company had $3.5 million of total unrecognized
compensation cost related to non-vested stock-based awards granted under all
equity compensation plans.





Options
to purchase 870,000 shares of the Company’s common stock were granted to
employees in April and May 2008. Options to purchase 1,680,486 shares of the
Company’s common stock were granted in August 2009. The fair value of each
option grant is estimated on the grant date using the Black-Scholes option
pricing model.





Stock
Option Plans





The
Company established a stock option plan, which became effective on June 22, 2007
(the “2007 Stock Option Plan”).  The total number of shares reserved
for issuance under the 2007 Stock Option Plan is 6,000,000.  The plan
provides for the grant to employees of the Company, its parents and
subsidiaries, including officers and employee directors, of “incentive stock
options” within the meaning of Section 422 of the U.S. Internal Revenue Code of
1986, as amended, and for the grant of non-statutory stock options to the
employees, officers, directors, including non-employee directors, and
consultants of the Company, its parents and subsidiaries. To the extent an
optionee would have the right in any calendar year to exercise for the first
time one or more incentive stock options for shares having an aggregate fair
market value, under all of the Company’s plans and determined as of the grant
date, in excess of $100,000, any such excess options will be treated as
non-statutory options.





5.
Liquidity





The
Company has experienced recurring losses from operations, and, as of September
30, 2009, had a working capital deficit of $17.4 million and a deficit
accumulated during the development stage of $185.5 million.





Between
2004 and 2009, the Company has undergone a significant recapitalization through
the transactions described below.





Toucan
Capital and Toucan Partners





Toucan
Capital Fund II, L.P. (“Toucan Capital”) loaned the Company an aggregate of
$6.75 million during 2004 and 2005. In April 2006, the $6.75 million of notes
payable plus all accrued interest due to Toucan Capital were converted into
shares of the Company’s Series A-1 cumulative convertible Preferred Stock (the
“Series A-1 Preferred Stock”). In connection with these loans the Company issued
Toucan Capital a warrant to purchase 6,471,333 shares of Series A-1 Preferred
Stock.


11





On
January 26, 2005, the Company entered into a securities purchase agreement with
Toucan Capital pursuant to which it purchased 32.5 million shares of the
Company’s 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. In connection with these loans the Company issued
Toucan Capital a warrant to purchase 2,166,667 shares of Series A Preferred
Stock.





From
November 14, 2005 through March 9, 2006, Toucan Partners, LLC (“Toucan
Partners”) loaned the Company $4.825 million.  In connection with
these loans the Company issued a warrant to purchase 3,198,555 shares of Series
A-1 Preferred Stock. In April 2007 this amount was converted into convertible
demand notes (the “2007 Convertible Notes”) and related warrants (the “2007
Warrants”) carrying an interest rate of 10% per annum. The notes and related
interest were repaid in full in the fourth quarter of 2007.





In May
2007 Toucan Partners loaned the Company an aggregate amount of $725,000, and
issued warrants to purchase shares of the Company’s capital stock to Toucan
Partners in connection with the notes. These notes and warrants are on the same
terms as the 2007 Convertible Notes and 2007 Warrants.  The notes and
related interest were repaid in full in the fourth quarter of 2007.





On June
1, 2007, the Company, Toucan Capital, and Toucan Partners entered into a
conversion agreement (“Conversion Agreement”) which became effective on June 22,
2007 upon the admission of the Company’s Common Stock to trade on Alternative
Investment Market (“AIM”) of the London Stock Exchange (“Admission”). Under the
conversion agreement Toucan Capital and Toucan Partners agreed to eliminate a
number of rights, preferences and protections associated with the Series A
Preferred Stock and the Series A-1 Preferred Stock in exchange for 4,287,851 and
2,572,710 shares of common stock, respectively and Toucan Capital converted its
preferred shares into 15,011,635 shares of common stock. Additionally under the
conversion agreement the Company exchanged the warrants issued to purchase
Series A-1 Preferred Stock and Series A Preferred Stock (discussed above) for
warrants to purchase common stock of the Company. As a result of the conversion
Toucan Capital holds warrants to purchase 14,150,732 shares of Common Stock at
an exercise price of $0.60 per share and 7,884,357 shares of Common Stock at an
exercise price of $0.15 per share and Toucan Partners holds warrants to purchase
8,832,541 shares of Common Stock at an exercise price of $0.60 per
share.  Toucan Capital and Toucan Partners also hold additional
warrants.





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 had a term of six months. On February 19,
2009, Toucan Partners agreed to extend the term of the loan. Since February 20,
2009 the Company has been accruing interest related to the Toucan Loan on the
same terms as those included in the original agreement. At September 28, 2009,
the carrying value (inclusive of interest accrued and default penalties) of the
Loan was $1,156,718. During the three and nine month periods ended September 30,
2009, the Company recorded interest expense related to the amortization of the
discount of $53,439 and $112,783 respectively. The intrinsic value of the Toucan
Loan did not result in a beneficial conversion feature. Toucan Partners agreed
to extend the term of the Toucan Loan through September 28, 2009 at which date
the outstanding principal and accrued interest, including a default penalty of
0.25 % per month, calculated on the principal and interest accrued during the
initial six month term, for the duration of the default period (February 19,
2009 through September 28, 2009) were converted into 5,783,589 shares of the
Company’s common stock using a conversion rate of $0.20 per share.  In
connection with the conversion agreement, Toucan Partners also received a
warrant to purchase 690,000 shares of the Company’s common stock at an exercise
price of $0.20 per share. The fair value of the warrant, $474,840, was charged
against income as an inducement cost. The fair value of the warrant was
determined using the Black Scholes model, assuming a term of three years,
volatility of 156%, no dividends, and a risk-free interest rate of
1.47%.


12





On
December 22, 2008, the Company entered into an unsecured 12% Loan Agreement and
Promissory Note with Toucan Partners.   Under the Note, Toucan
loaned the Company $500,000 (the “Toucan December Loan”).   The term
of the Note was six months, with a maturity date of June 22, 2009.  
Toucan Partners has agreed to extend the term of the loan.   In
connection with the Note, the Company issued to Toucan Partners a warrant to
purchase 132,500 shares of the Company’s common stock at an exercise price equal
to $0.40 per share.  The warrant expires 8 years from the date of
issuance. Toucan Partners agreed to extend the term of the Toucan December Loan
through September 28, 2009 at which date the outstanding principal and accrued
interest, including a default penalty of 0.25 % per month, calculated on the
principal and interest accrued during the initial six month term, for the
duration of the default period (June 22, 2009 through September 28, 2009) were
converted into 2,763,691 shares of the Company’s common stock using a conversion
rate of $0.20 per share. In consideration for the extension, the Company also
agreed issue to Toucan Partners a warrant (“Additional Warrant”) to
purchase 513,841 shares of the Company’s common stock at an exercise price equal
to $0.41 per share.  In connection with the conversion agreement
Toucan Partners also received a warrant to purchase 152,375 shares of the
Company’s common stock at an exercise price of $0.20 per share. The fair value
of the warrants, $337,015 and $104,861, was charged against income as an
inducement cost. The fair value of the warrants were  determined
using the Black Scholes model, assuming a term of three years, volatility of
156%, no dividends, and a risk-free interest rate of 1.47%.The warrants expire 3
years from the date of issuance.





Upon
issuing the note and warrants to Toucan Partners, during 2008, the Company
recognized the notes and warrant based on their relative fair values of $453,000
and $47,000, respectively.   The relative fair value of the warrants
was classified as a component of additional paid-in capital with the
corresponding amount charged to income.  The fair value of the
warrants was determined using the Black Scholes model, assuming a term of five
years, volatility of 197%, no dividends, and a risk-free interest rate of
1.53%.





On July
2, 2009 and July 17, 2009, the Company entered into unsecured 6%
convertible Loan Agreements and Promissory Notes in the amount of $1,250,000,
with Toucan Partners.  The term of the Notes is two years, with a maturity
dates of July 1, 2011 and July 16, 2011.   The Notes may not be
prepaid without the consent of Private Lenders.  The Notes contain
customary representations and warranties, and affirmative and negative covenants
regarding the operation of the Company’s business during the term of the Notes.
The conversion feature of the Loan Agreements allows the holder  to
elect, in its sole discretion, to have the total principal and accrued interest,
or any fraction thereof, paid at any time or times during the term of the
note, at a price of $0.20 per share. The intrinsic value of the Loans resulted
in a beneficial conversion feature of $1,250,000 which was recorded as a
discount on issuance of the convertible loan agreements to be amortized over the
term of the loans.


13





As a
result of the financings described above, as of September 30, 2009, Toucan
Capital held:





•
            an aggregate of 19,299,486 shares
      of Common Stock;





•
            warrants to purchase 14,150,732
      shares of Common Stock at an exercise price of $0.60 per share;
      and





•
            warrants to purchase 7,884,357
      shares of Common Stock at an exercise price of $0.15 per
      share.





As a
result of the financings described above, as of September 30, 2009, Toucan
Partners and its managing member Ms. Linda Powers held:





•
            an aggregate of 13,624,024 shares
      of Common Stock;





•
            warrants
      to purchase 8,832,541 shares of Common Stock at an exercise price of $0.60
      per share;





•
            warrants to purchase
      513,841 shares of common stock at an exercise price of
      $0.41;





•
            warrants
      to purchase 132,500 shares of common stock at an exercise price of
      $0.40; and





•
            warrants
      to purchase 842,375 shares of common stock at an exercise price of
      $0.20.





As of
September 30, 2009, Toucan Capital, including the holdings of Toucan Partners,
held 32,923,510 shares of the Company’s common stock, representing approximately
58.1% of the outstanding Common Stock. Further, as of September 30, 2009, Toucan
Capital, including the holdings of Toucan Partners, beneficially owned
(including unexercised warrants) 65,279,856 shares of the Company’s common
stock, representing a beneficial ownership interest of approximately
69.9%.





Private
Placement





On March
30, 2006, the Company entered into a securities purchase agreement (the
“Purchase Agreement”) with a group of accredited investors pursuant to which the
Company agreed to sell an aggregate of approximately 2.6 million shares of its
Common Stock, at a price of $2.10 per share, and to issue, for no additional
consideration, warrants to purchase up to an aggregate of approximately 1.3
million shares of the Company’s Common Stock. The Company received gross
proceeds of approximately $5.5 million, before cash offering expenses of
approximately $442,000. The total cost of the offering recorded, including both
cash and non-cash costs, was approximately $837,000. The relative fair value of
the Common Stock was estimated to be approximately $3.7 million and the relative
fair value of the warrants was estimated to be $1.8 million as determined based
on the relative fair value allocation of the proceeds received. The warrants
were valued using the Black-Scholes option pricing model.





In
connection with the securities purchase agreement, the Company issued
approximately 67,000 warrants to its investment bank valued at approximately
$395,000. The fair value of the warrants issued to the investment bank was
determined using the Black-Scholes option pricing model based on the following
assumptions: risk free interest rate of 4.8%, contractual life of five years,
expected volatility of 382% and a dividend yield of 0%.





The
warrants expire five years after issuance, and are initially exercisable at a
price of $2.10 per share, subject to adjustments under certain
circumstances.





On
January 16, 2009, the Company received $700,000 from Al Rajhi Holdings through
the purchase of 1,000,000 shares of its common stock at $0.70 per
share.  The Company granted Al Rajhi Holdings piggyback registration
rights for the shares issued under the sale of securities.  The
Securities Purchase Agreement contains the usual representations, warranties and
covenants.





On
March 27, 2009, the Company entered into a securities purchase agreement
(the “2009 Purchase Agreement”) with a group of accredited investors pursuant to
which the Company agreed to sell an aggregate of approximately 1.4 million
shares of its common stock, at a price of $0.53 per share, and to issue, for no
additional consideration, warrants to purchase up to an aggregate of
approximately 207,000 shares of the Company’s common stock. The Company received
gross proceeds of approximately $0.7 million, before cash offering expenses
of approximately $36,000. The total cost of the offering recorded, including
both cash and non-cash costs, was approximately $176,000. The relative fair
value of the common stock was estimated to be approximately $0.6 million
and the relative fair value of the warrants was estimated to be $140,000 as
determined based on the relative fair value allocation of the proceeds received.
The warrants were valued using the Black-Scholes option pricing
model.


14





Placement
of Common Stock with Foreign Institutional Investors





On June
22, 2007, the Company placed 15,789,473 shares of its 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. The net proceeds from the
placement were used to fund clinical trials, product and process development,
working capital needs and repayment of certain debt.





Shareholder
Loan





On May
12, 2008, the Company entered into a loan agreement with 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
had an original term of six months. Since November 14, 2008 Company has been
accruing costs related to the Loan on the same terms as those included in the
original loan agreement. 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, 2009, the carrying value (inclusive of interest
accrued through September 30, 2009) of the Loan was
$4,681,820.  During the three and nine month periods ended September
30, 2009, the Company recorded interest expense including amortization of
the original issue discount of $120,986 and $360,986 respectively. 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
September 28, 2009 the Company and Al Rajhi reached agreement on the extension
terms.  In consideration for extending the term of the Loan on the
same terms as those included in the original loan agreement through December 31,
2009 the Company issued Al Rajhi two warrants to purchase 673,016 and 1,070,095
shares of the Company’s common stock at an exercise price equal to $0.63 per
share. The warrants expire 3 years from the date of issuance.





Upon
issuing the warrants to Al Rajhi, the Company recognized the fair value of the
warrants of $1,100,694, as a charge against income.    The
fair value of the warrants was determined using the Black Scholes model,
assuming a term of three years, volatility of 156%, no dividends, and
a risk-free interest rate of 1.47%.





Other
Loans





On
October 1, 2008, the Company entered into a $1 million unsecured 12% Loan
Agreement (the “SDS Loan”) and Promissory Note (the “Note”) with
SDS.    The term of the Note is six months, with a maturity date
of April 1, 2009. In April 2009, SDS agreed to extend the term of the Note on
terms that are currently being negotiated.   Since April 2, 2009
the Company has been accruing interest related to the SDS Loan on the same terms
as those included in the original agreement. 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
the AIM on October 1, 2008.  The Investment Warrant expires 5 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 $625,000 and $375,000, respectively.  
The relative fair value of the warrants was classified as a component of
additional paid-in capital 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%.


15





On dates
between October 21, 2008 and November 6, 2008, the Company entered into
unsecured 12% 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 loaned the Company $1 million and the Private Investors
loaned the Company $650,000 for an aggregate of $1.65 million. The term of the
Private Investor Promissory Notes is six months, with maturity dates in April
2009. Since the maturity dates of the Notes the Company has been accruing
interest related to the Private Investor Loans on the same terms as those
included in the original agreements. 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, and affirmative and negative covenants regarding
the operation of the Company’s business during the term of the Private Investor
Promissory Notes.  The Company granted SDS and the Private Investors
piggyback registration rights for any shares 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 received certain rights relating to subsequent financings, subject to the
Company’s right to pre-pay SDS and avoid the rights being triggered. On
September 28, 2009 the Company and the Private Investors other than SDS reached
agreement on the extension terms.  In consideration for extending the
term of the Loan on the same terms as those included in the original loan
agreements through June 2010 the Company issued The Private Investors warrants
(“Extension Warrants”) to purchase 861,250 shares of the Company’s common stock
at an exercise price equal to $0.20 per share. The Extension Warrants expire 3
years from the date of issuance.





In
connection with the original 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 three years from the date of
issuance.





Upon
issuing the notes to the Private Investors in 2008, the Company recognized the
note and warrants based on their relative fair values of $1,053,000 and
$597,000, respectively.   The relative fair value of the warrants was
classified as a component of additional paid-in capital 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
three years, volatility of 158%, no dividends, and a risk-free interest rate of
1.86%.





Upon
issuing the Extension Warrants to the Private Investors, the Company recognized
their fair value of $568,458 as a charge to income.   The fair
value of the warrants was determined using the Black Scholes model, assuming a
term of three years, volatility of 150%, no dividends, and a risk-free interest
rate of 1.47%.





During
March 2009, the Company entered into an unsecured 6% convertible Loan
Agreements and Promissory Notes with a group of private lenders (“Private
Lenders”).  Under the Notes the Private Lenders have loaned
the Company $650,000 .   The term of the Notes is two years, with a
maturity dates in March 2011.   The Notes may not be prepaid
without the consent of Private Lenders.  The Notes contain customary
representations and warranties, and affirmative and negative covenants regarding
the operation of the Company’s business during the term of the Notes. The
conversion feature of the Loan Agreements allows the holder to elect to have the
total principal and accrued interest or any fraction thereof 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 five trading days prior to the execution of the Loan
agreement. The intrinsic value of the Loans resulted in a beneficial conversion
feature with a fair value of $73,000 which was recorded as a discount on
issuance of the convertible loan agreement to be amortized over the term of the
loan.





On March
26, 2009, the Company entered into an unsecured 6% convertible Loan
Agreement and Promissory Note with a private lender (“Private
Lender”). Under the Note the Private Lender has loaned the Company
$110,000.   The term of the Note is two years, with a maturity date of
March 25, 2011.   The Note may not be prepaid without the consent
of Private Lender.  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. Upon receiving a request
from the Private Lender for conversion the Company may elect to settle the
instrument in cash or pay the total principal and accrued interest or any
fraction thereof 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 five trading days prior to the
execution of the Loan agreement.  The Company has assessed the note
and concluded that the amount of the loan attributable to equity is
immaterial.  The intrinsic value of the note did not result in a
material beneficial conversion feature.





On dates
between August 13, 2009 and September 24, 2009, the Company entered into
unsecured 6% convertible Loan Agreements and Promissory Notes with a group of
private lenders (“Private Lenders”).  Under the Notes the Private
Lenders have loaned the Company $580,000.   The term of the
Notes is two years, with a maturity dates between August 12, 2011 and September
13, 2011.   The Notes may not be prepaid without the consent of
Private Lenders.  The Notes contain customary representations and
warranties, and affirmative and negative covenants regarding the operation of
the Company’s business during the term of the Notes. The conversion feature of
the Loan Agreements allows the holder to elect to have the total principal and
accrued interest or any fraction thereof paid at maturity in shares of
Common Stock, at a price of $0.20 per share. The intrinsic value of the Loans
resulted in a beneficial conversion feature with a value of $580,000 which was
recorded as a discount on issuance of the convertible loan agreement to be
amortized over the term of the loan.


16


On
September 28, 2009 the Company entered into retention agreements, with two key
employees Drs. Alton Boynton and Marnix Bosch.  Under these
agreements, Drs. Boynton and Bosch each received convertible notes in the
amounts of $75,000 and $50,000, respectively.  The notes are
convertible at the discretion of the holder during the term of the notes which
expire on September 29, 2011.  The note for Dr. Boynton requires that
he continue his employment at the Company as either the Chief Executive Officer
or the Chief Scientific Officer, as determined by the Company, until at least
September 30, 2010.  The note for Dr. Bosch was issued as an amendment to
his employment agreement as Chief Technology Officer of the
Company.  Pursuant to the retention agreements, Drs. Boynton and Bosch
must elect, on or before November 1, 2009, one of three alternative structures
for their respective convertible notes:  (a) payment in
cash;  (b) payment in common stock of the Company at the same price
per share as the Private Lender Notes issued in August and September
2009  ($0.20 per share), with the taxes being paid by the recipient
and the amount of the common stock being equal to the full gross amount of the
retention bonus, or (c) payment in common stock of the Company at $0.20 per
share with the taxes being paid by the Company and the amount of the common
stock being equal to the net after-tax amount of the retention
bonus.  Dr. Boynton elected option “b” and Dr. Bosch
elected option “c.” Also pursuant to the retention agreements, the Company has
agreed with Drs. Boynton and Bosch that each of them may elect to receive common
stock in lieu of salary for up to a maximum of four (4) pay periods during Q4
of  2009, at the same price per share as the New Funding being
received by the Company ($0.20 per share).   The intrinsic value of
these convertible notes resulted in a beneficial conversion feature with a fair
value of $125,000 which was recorded as a discount on issuance of the
convertible loan agreement to be amortized over the term of the
loan.


17





Short-term
debt consists of the following at December 31, 2008 and September 30, 2009 (in
thousands):





December31,
                                2008
                              
                              
                              September30,
                                2009Unsecured
      note payable to SDS, interest rate 12% per annum
                              
                              $
                              1,000
                              
                              
                              $
                              1,000Unsecured
      notes payable to SDS and Private Investors, interest rate 12% per annum
      (net of warrant related discount $603 and $0 at December 31, 2008 and
      September 30, 2009)
                              
                              
                              1,047
                              
                              
                              
                              1,650Total
      notes payable (net)
                              
                              $
                              2,047
                              
                              
                              $
                              2,650Notes
      payable to Al Rajhi, interest rate 12% per annum (net of warrant related
      discount $0 and $323 at December 31, 2008 and September 30,
      2009)
                              
                              $
                              4,000
                              
                              
                              $
                              4,000Notes
      payable to Toucan Partners, interest rate 12% per annum
                              
                              
                              1,000
                              
                              
                              
                              –Note
      payable Toucan Partners, interest rate 12% per annum (net of warrant
      related discount $46 and $0 at December 31, 2008 and September 30,
      2009)
                              
                              
                              454
                              
                              
                              
                              –Total
      notes payable related parties (net)
                              
                              $
                              5,454
                              
                              
                              $
                              4,000





Long-term
debt consists of the following at December 31, 2008 and September 30, 2009 (in
thousands):





December31,
                                2008
                              
                              
                              September30,
                                2009Unsecured
      convertible notes payable to Toucan Partners, interest rate 6% per annum,
      maturing in  July, 2011, convertible into the Company’s common
      stock (net of discount related to beneficial conversion feature $1,122 at
      September 30, 2009)
                              
                              $
                              –
                              
                              
                              $
                              128Unsecured
      convertible notes payable to Drs Boynton and Bosch, interest rate 6% per
      annum, maturing in  September, 2011, convertible into the
      Company’s common stock (net of discount related to beneficial conversion
      feature $124 at September 30, 2009)
                              
                              
                              –
                              
                              
                              
                              1Total
      long-term debt related parties (net)
                              
                              $
                              –
                              
                              
                              $
                              129Unsecured
      convertible notes payable to Private Lenders, interest rate 6% per annum,
      maturing in August and September 2011, convertible into the Company’s
      common stock (net of discount related to beneficial conversion feature
      $557 at September 30, 2009)
                              
                              
                              –
                              
                              
                              
                              23Unsecured
      convertible notes payable to Private Lenders, interest rate 6% per annum,
      maturing on March 25, 2011, convertible into the Company’s common stock
      (net of discount related to beneficial conversion feature $55 at September
      30, 2009)
                              
                              
                              –
                              
                              
                              
                              595Unsecured
      convertible note payable to Private Lender, interest rate 6% per annum,
      matures March 25, 2011, convertible into the Company’s common stock at
      Company’s option
                              
                              
                              –
                              
                              
                              
                              110Total
      -long-term debt (net)
                              
                              $
                              –
                              
                              
                              $
                              728





Going
Concern





On
November 19, 2009, the Company had approximately $156,000 of cash on hand and
through its efforts continues to receive additional capital from private
investors on an ongoing basis. Management is in discussions with multiple
parties regarding potential funding transactions. However, these parties are not
obligated to provide such financing.





The
Company will require additional funding before the Company achieves
profitability and there can be no assurance that its efforts to seek such
funding will be successful. The Company may raise additional funds by issuing
additional common stock or securities (equity or debt) convertible into shares
of Common Stock, in which case, the ownership interest of the Company’s
stockholders will be diluted. Any debt financing, if available, is likely to
include restrictive covenants that could limit the Company’s ability to take
certain actions. Further, 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 any additional funds, and any such funding may be
dilutive to stockholders and may contain restrictive covenants. The Company
currently is exploring additional financings with several other parties;
however, there can be no assurance that the Company will be able to complete any
such financing, or that the terms of such financings will be attractive to us.
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 its ability to continue
in existence. Its independent registered public accounting firm has indicated in
its report on the Company’s consolidated financial statements included in the
Annual Report on Form 10-K for the year ended December 31, 2008 that there is
substantial doubt about its ability to continue as a going concern.





6.
Net Income (Loss) Per Share Applicable to Common Stockholders





Effective
June 19, 2007, all shares of Common Stock issued and outstanding were combined
and reclassified on a one-for-fifteen basis (the “Reverse Stock Split”). The
effect of the Reverse Stock Split has been retroactively applied to prior
periods.


18





For the
three and nine months ended September 30, 2009 and 2008, respectively, options
to purchase 4,100,000 and 5,600,000 shares of Common Stock and warrants to
purchase 33 million and 32 million shares of Common Stock respectively were not
included in the computation of diluted net loss per share because they were
antidilutive.





7.
Related Party Transactions





Cognate
Agreement





On July
30, 2004, the Company entered into a service agreement with Cognate
Therapeutics, Inc. (now known as Cognate BioServices, Inc., or 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, on May 17, 2007, the managing
director of Toucan Capital was appointed to serve as a director of the Company
and to serve as the non-executive Chairperson of the Company’s Board of
Directors. Under the service agreement, the Company agreed to utilize Cognate’s
services for an initial two-year period, related primarily to manufacturing
DCVax® product candidates, regulatory advice, research and development
preclinical activities and managing clinical trials. The agreement expired on
July 30, 2006; however, the Company continued to utilize Cognate’s services
under the same terms as set forth in the expired agreement. On May 17, 2007, the
Company entered into a new service agreement with Cognate pursuant to which
Cognate will provide certain consulting and, when needed, manufacturing services
to the Company for its DCVax®-Brain Phase II clinical trial. Under the terms of
the new contract, the Company paid a non-refundable contract initiation fee of
$250,000 and committed to pay budgeted monthly service fees of $400,000, subject
to quarterly true-ups, and monthly facility fees of $150,000. The Company may
terminate this agreement with 180 days notice and payment of all reasonable
wind-up costs and Cognate may terminate the contract in the event that the brain
cancer clinical trial fails to complete enrollment by July 1, 2009. As of
November 23, 2009 Cognate has not terminated the service agreement. However, if
such termination by the Company occurs at any time prior to the earlier of the
submission of an FDA biological license application/new drug application on the
Company’s brain cancer clinical trial or July 1, 2010 or, such termination by
Cognate results from failure of the brain cancer clinical trial to complete
patient enrollment by July 1, 2009, the Company is obligated to make an
additional termination fee payment to Cognate equal to $2 million. As of
November 23, 2009 the Company had not submitted an FDA biological license
application/new drug application  or completed patient
enrollment  in the brain cancer clinical trial but as neither Cognate
nor the Company had terminated the agreement no termination fee has been
accrued.





During
the three months ending September 30, 2009 and 2008, the Company recognized
approximately $2.5 million and $3.1 million, respectively, of research and
development costs related to these service agreements. During the nine months
ending September 30, 2009 and 2008, respectively, the Company recognized
approximately $6.5 million and $6.0 million of research and development costs
related to these service agreements. As of September 30, 2009 and December 31,
2008, the Company owed Cognate approximately $4.7 and $1.1 million,
respectively.





In July
2009 Cognate consolidated its manufacturing operations at its Memphis,
Tennessee, facility.  The move has a number of advantages including
increased capacity for manufacturing DCVax and reduced internal
costs.  The move also offers distribution efficiencies:  Memphis
is a nationwide and worldwide air shipping hub for both Federal Express and UPS,
and Cognate’s facility is located within minutes of the
airport.  Cognate has been fully operational under cGMP conditions in
this facility since July 2009.





Toucan
Capital





In
accordance with a recapitalization agreement dated April 26, 2004 between the
Company and Toucan Capital, as amended and restated on July 30, 2004 and further
amended ten times between October 22, 2004 and November 14, 2005, pursuant to
which Toucan Capital agreed to recapitalize the Company by making loans to the
Company, the Company accrued and paid certain legal and other administrative
costs on Toucan Capital’s behalf. Pursuant to the terms of the Conversion
Agreement discussed above, the recapitalization agreement was terminated on June
22, 2007. Subsequent to the termination of the recapitalization agreement,
Toucan Capital continues to incur costs on behalf of the Company. These costs
primarily relate to consulting costs and travel expenses incurred in support of
the Company’s international expansion efforts. In addition, since July 1, 2007,
the Company has paid and recorded rent expense due to Toucan Capital
Corporation, an affiliate of Toucan Capital and Toucan Partners, for its office
space in Bethesda, Maryland.





During
the three months ending September 30, 2009 and 2008, respectively, the Company
recognized approximately $102,000 and $103,875 of general and administrative
costs related to the recapitalization agreement, rent expense, as well as legal,
travel and other costs incurred by Toucan Capital on the Company’s
behalf.  At September 30, 2009 and December 31, 2008, accrued expenses
payable to Toucan Capital amounted to $150,000 and $50,000, respectively, and
are included in the accompanying consolidated balance sheets.





Toucan
Partners





See
“Toucan Capital and Toucan Partners” in Note 5 above.





Al
Rajhi





See
“Shareholder Loan” in Note 5 above.


19





8.
Contingencies





Private
Placement





On March
30, 2006, the Company entered into a securities purchase agreement (the
“Purchase Agreement”) with a group of accredited investors pursuant to which the
Company sold an aggregate of approximately 2.63 million shares of its Common
Stock, at a price of $2.10 per share (the “PIPE Shares”), and issued, for no
additional consideration, warrants to purchase up to an aggregate of
approximately 1.3 million shares of Company’s Common Stock (the “Warrant
Shares”).





Under the
Purchase Agreement, the Company agreed to register for resale under the
Securities Act of 1933, as amended (the “Securities Act”), both the PIPE Shares
and the Warrant Shares. The Company also agreed to other customary obligations
regarding registration, including matters relating to indemnification,
maintenance of the registration statement, payment of expenses, and compliance
with state “blue sky” laws. The Company may be liable for liquidated damages if
the registration statement (after being declared effective) ceases to be
effective in a manner, and for a period of time, that violates the Company’s
obligations under the Purchase Agreement. The amount of the liquidated damages
payable to the investors is, in aggregate, one percent (1%) of the aggregate
purchase price of the shares per month, subject to a cap of ten percent (10%) of
the aggregate purchase price of the shares. The Company’s obligation to maintain
an effective registration statement in respect of this stock ended on October 8,
2008.





Legal
Proceedings





Soma
Arbitration





The
Company signed an engagement letter, dated October 15, 2003, with Soma Partners,
LLC, or Soma, a New Jersey-based investment bank, pursuant to which the Company
engaged them to locate potential investors. Pursuant to the terms of the
engagement letter, any disputes arising between the parties would be submitted
to arbitration in the New York metropolitan area. A dispute arose between the
parties. Soma filed an arbitration claim against us with the American
Arbitration Association in New York, NY claiming unpaid commission fees of
$186,000 and seeking declaratory relief regarding potential fees for future
transactions that may be undertaken by the Company with Toucan Capital. The
Company vigorously disputed Soma’s claims on multiple grounds. The Company
contended that it only owed Soma approximately $6,000.





Soma
subsequently filed an amended arbitration claim, claiming unpaid commission fees
of $339,000 and warrants to purchase 6% of the aggregate securities issued to
date, and seeking declaratory relief regarding potential fees for future
financing transactions which may be undertaken by the Company with Toucan
Capital and others, which could potentially be in excess of $4 million. Soma
also requested the arbitrator award its attorneys’ fees and costs related to the
proceedings. The Company strongly disputed Soma’s claims and defended
itself.





The
arbitration proceedings occurred from March 8-10, 2005 and on May 24, 2005; the
arbitrator ruled in the Company’s favor and denied all claims of Soma. In
particular, the arbitrator decided that the Company did not owe Soma the fees
and warrants sought by Soma, that the Company would not owe Soma fees in
connection with future financings, if any, and that the Company had no
obligation to pay any of Soma’s attorneys’ fees or expenses. The arbitrator
agreed that the only amount owed Soma was $6,702.87, the payment of which was
made on May 27, 2005.





On August
29, 2005, Soma filed a notice of petition to vacate the May 24, 2005 arbitration
award with the Supreme Court of the State of New York. On December 30, 2005, the
Supreme Court of the State of New York dismissed Soma’s petition.





On
February 3, 2006, Soma filed another notice of appeal with the Supreme Court of
the State of New York. On December 6, 2006, the Company filed its brief for this
appeal and on December 12, 2006, Soma filed its reply brief. On June 19, 2007,
the Appellate Division, First Department of the Supreme Court of the State of
New York, reversed the December 30, 2005 decision and ordered a new arbitration
proceeding. On July 26, 2007, the Company filed a Motion for Leave to Appeal
with the Court of Appeals of the State of New York and on August 3, 2007 Soma
filed its reply brief. On October 16, 2007, the Court of Appeals of the State of
New York denied the Company's motion to appeal.




A new
arbitration hearing was held in New York on May 13-15, 2009 and June 24,
2009.  On September 4, 2009 the Arbitrators again denied all of Soma’s
claims. The only amount awarded to Soma by the arbitrators was $2,650 in
reimbursement for overpayment of arbitrator fees by Soma. The arbitrators’
decision in NWBT’s favor covered and disposed of all claims and counterclaims
made by the parties. Soma Partners, LLC has the right until December 6, 2009 to
appeal the decision.


20





Lonza
Patent Infringement Claim





No change
from previous filings.





Stockholder
Class Action Lawsuits





On August
13, 2007, a complaint was filed in the U.S. District Court for the Western
District of Washington naming the Company, the Chairperson of its Board of
Directors, Linda F. Powers, and its Chief Executive Officer, Alton L. Boynton,
as defendants in a class action for violation of federal securities laws. After
this complaint was filed, five additional complaints were filed in other
jurisdictions alleging similar claims. The complaints were filed on behalf of
purchasers of the Company’s Common Stock between July 9, 2007 and July 18, 2007
and allege violations of Section 10(b) of the Exchange Act and Rule 10b-5
thereunder. The complaints sought  unspecified compensatory damages,
costs and expenses. On December 18, 2007, a consolidated complaint (In re Northwest Biotherapeutics,
Inc. Securities Litigation, No. C-07-1254-RAJ) was filed in the U.S.
District Court for the Western District of Washington consolidating the
stockholder actions previously filed. The case alleged that the Company
misrepresented certain facts that resulted in the artificial inflation of the
price of Northwest Biotherapeutics publicly-traded common stock between April
17, 2007 and July 18, 2007.  The Company strongly disputed the
allegations of the lawsuit, and denied that there was any such misrepresentation
or that the shares of Northwest Biotherapeutics common stock were artificially
inflated.  Nevertheless the Company settled the lawsuit to avoid
expensive and protracted litigation. The consolidated case (covering all six
complaints) was settled with prejudice on January 8, 2009, for a total aggregate
settlement of $1 million, which was paid by the Company’s insurer. The Class
Action Lawsuit final settlement was approved by the Court, and the case was
dismissed with prejudice on June 16, 2009.  Additional details about
the settlement can be found in the formal settlement documents, which are
available from the United States District Court for the Western District of
Washington.





9.
Common Stock





During 2008,
the Company issued 24,578 shares of common stock upon the cashless exercise of
options to purchase 33,334 shares of common stock.





On June
17, 2008, the Company issued 122,190 shares of common stock pursuant to a letter
agreement under which it received an exclusive right to negotiate the terms of a
potential transaction in which the Company would obtain the rights, title and
interest to and under a certain license agreement. The fair value of the stock
issued amounting to $225,000 was expensed on March 31, 2009 as the Company had
failed to negotiate a transaction in the time frame specified in the letter
agreement.





On
January 16, 2009, the Company entered into a securities purchase agreement for
$700,000 with Al Rajhi Holdings who purchased 1,000,000 shares of our common
stock at $0.70 per share.





On
March 27, 2009, the Company sold approximately 1.4 million shares of
common stock at a purchase price of $0.53 per share and raised aggregate gross
proceeds of approximately $0.7 million in a closed equity financing with
unrelated investors.





On
September 28, 2009 the Company issued 8,547,280 shares of common stock to Toucan
Partners in settlement of $1,710,000 of principal and accrued interest on loans
made by Toucan Capital to the Company.





On
September 28, 2009 the Company issued 194,270 shares of common stock to 2
employees in respect of unpaid salaries.





On
September 28, 2009 the Company issued 750,000 shares of common stock to Linda
Powers in lieu of Directors fees due for the period July 1, 2008 through
December 31, 2009.





On
September 30, 2009 the Company issued 1,762,500 shares of common stock to Toucan
Partners in respect of advisory services related to capital fundraising
activities between October 2008 and October 2009.





On
September 28, 2009 the Company issued 397,500 shares of common stock to a
consultant in respect of advisory services related to capital fundraising
activities in September 2009.





10.
Subsequent Events





The
Company has evaluated subsequent events for the period from September 30, 2009,
the date of these financial statements, through November 23, 2009, which
represents the date these financial statements are being filed with the SEC.
There are no events or transactions occurring during this subsequent event
reporting period which require recognition or disclosure in the financial
statements.  With respect to this disclosure, the Company has not
evaluated subsequent events occurring after November 23, 2009.


21





In
October 2009, the Company entered into unsecured 6% convertible Loan
Agreements and Promissory Notes with Private Investors (“October 2009 Private
Investors”). Under the Notes the October 2009 Private Investors have loaned
the Company $215,000.   The terms of the Notes are two years, with
maturity dates in October and November 2011.   The Notes may not
be prepaid without the consent of the October 2009 Private
Investors.  The Notes contain customary representations and
warranties, and affirmative and negative covenants regarding the operation of
the Company’s business during the terms of the Notes. The conversion feature of
the Loan Agreements allows the holder to receive shares of the Company’s common
stock and not cash or other consideration. The October 2009 Private Investors
may elect to have the total principal and accrued interest or any fraction
thereof paid at maturity in shares of Common Stock at a conversion price of
$0.20 per share.  The Company has assessed the note and concluded that
the amount of the loan attributable to equity is immaterial.  The
intrinsic value of the Notes resulted in a beneficial conversion feature with a
fair value of $215,000 which will be recorded as a discount on the issuance of
the convertible loan to be amortized over the term of the loan.





In November 2009, the Company
entered into unsecured 6% convertible Loan Agreements and Promissory Notes with
Private Investors (“November 2009 Private Investors”). Under the Notes the
November 2009 Private Investors have loaned the Company $175,000.  
The terms of the Notes are two years, with maturity dates in November
2011.   The Notes may not be prepaid without the consent of the
November 2009 Private Investors.  The Notes contain customary
representations and warranties, and affirmative and negative covenants regarding
the operation of the Company’s business during the terms of the Notes. The
conversion feature of the Loan Agreements allows the holder to receive shares of
the Company’s common stock and not cash or other consideration. The November
2009 Private Investors may elect to have the total principal and accrued
interest or any fraction thereof paid at maturity in shares of Common Stock
at a conversion price of $0.50 per share.  The Company has assessed
the note and concluded that the amount of the loan attributable to equity is
immaterial.  The intrinsic value of the Notes resulted in a beneficial
conversion feature with a fair value of $115,000 which will be recorded as a
discount on the issuance of the convertible loan to be amortized over the term
of the loan.






22





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” elsewhere in this report. These
factors, among others, could cause results to differ materially from those
presently anticipated by us. You should not place undue reliance on these
forward-looking statements.





Overview





Northwest
Biotherapeutics, Inc. was formed in 1996 and incorporated in Delaware in July
1998. We are a development stage biotechnology company focused on discovering,
developing, and commercializing immunotherapy products that safely generate and
enhance immune system responses to effectively treat cancer. Currently approved
cancer treatments are frequently ineffective, can cause undesirable side effects
and provide marginal clinical benefits. Our approach in developing cancer
therapies utilizes our expertise in the biology of dendritic cells, which are a
type of white blood cell that activate the immune system. Our primary activities
since incorporation have been focused on advancing proprietary dendritic cell
immunotherapies for prostate and brain cancer, together with strategic and
financial planning, and raising capital to fund our operations.





We have
two basic technology platforms applicable to cancer therapeutics: dendritic
cell-based cancer vaccines, which we call DCVax®, and monoclonal antibodies for
cancer therapeutics. DCVax® is our registered trademark. Our DCVax® dendritic
cell-based cancer vaccine program is our main technology platform.





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.


23





As
described in detail in Note 5 of the financial statements above between 2004 and
September 2009 the Company has 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 9,
2008 the Company entered into a loan agreement with Al Rajhi Holdings, under
which 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) for a period of six (6)
months.





On August
19, 2008, the Company entered into a loan agreement with Toucan Partners, under
which 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) for a period of six months.





On
October 1, 2008 we entered into a loan agreement with SDS Capital for $1.0
million for a term of six (6) months at 12%. In connection with the loan the
Company issued SDS warrants to purchase shares of the Company’s common
stock.  The warrants have a term of five years from the issuance
date.





On
October 22, 2008 we entered into a loan agreement with a group of private
investors and SDS Capital for $1.65 million for a term of six (6) months at 12%.
In connection with the loan the Company issued the private investors and SDS
warrants to purchase shares of the Company’s common stock.  The
warrants have a term of five years from the issuance date.





On
December 22, 2008, we entered into a loan agreement with Toucan
Partners for $500,000 with a term of six months at 12% interest. In
connection with the loan the Company issued Toucan Partners warrants to
purchase shares of the Company’s common stock.  The warrants have a
term of five years from the issuance date.





On
January 16, 2009 we entered into a securities purchase agreement for $700,000
with Al Rajhi Holdings who purchased 1,000,000 shares of our common stock at
$0.70 per share.





During
March 2009, we entered into loan agreements with a group of private lenders for
$760,000 for a term of two years at 6% per annum.





On
March 27, 2009, we sold approximately 1.4 million shares of common
stock at a purchase price of $0.53 per share and raised aggregate gross proceeds
of approximately $0.7 million in a closed equity financing with unrelated
investors.





In July
2009 we entered into a loan agreement with Toucan Partners for $1,250,000
with a term of two years at 6% interest.





In August
and September 2009 we entered into loan agreements with a group of Private
Investors for $580,000 with a term of two years at 6%
interest.


24





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, 2008.





Recent
Accounting Pronouncements





See Note
2 to Condensed Consolidated Financial Statements in this Form 10-Q.





Results
of Operations





Operating
expenses:





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 general and administrative
expenses.





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. We shifted our
focus, starting in 2002, from discovering, developing, and commercializing
immunotherapy products to conserving cash and primarily concentrating on
securing new working capital to re-activate our two DCVax® clinical trial
programs.





General
and administrative:





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





Three
Months Ended September 30, 2008 and 2009





We
recognized a net loss of $12.2 million for the three months ended September 30,
2009 compared to a net loss of $5.4 million for the three months ended September
30, 2008. The increase in net loss for the three months ended September 30, 2009
was primarily attributable to non-cash expenses related to the conversion of a
loan into equity and an increase in interest expense compared to the same period
in 2008.





Research and Development
Expense. Research and development expense decreased from $3.1 million for
the three months ended September 30, 2008 to $2.5 million for the three months
ended September 30, 2009. This decrease was primarily due to:





•
            reduced personnel costs;
      and





•
            reduced activity in Switzerland
      as we await a decision from Swissmedic related to the Market Authorization
      for DCVax®-Brain.





General and Administrative
Expense. General and administrative expense increased from $2.2 million
for the three months ended September 30, 2008 to $2.4 million for the three
months ended September 30, 2009. This increase was primarily due
to:


25





•
            finders
      fees related to recent debt financings, which were partially offset
      by:





•
            reduced staffing costs
      and





•
            reduced legalcosts due to settlement of
      litigation.





Total Other Income (Expense),
Net. Other income (expense) increased from an expense of $0.1 million in
the quarter ended September 30, 2008 to $7.4 million in the quarter ended
September 30, 2009.  During the quarter ended September 30, 2009 the
Company incurred costs of $5.6 million in connection with conversion of certain
related party loans payable into equity. Interest expense net of interest income
increased from $0.1 million for the three months ended September 30, 2008 to
$1.8 million for the three months ended September 30, 2009. Interest expense for
the three-month period ended September 30, 2009 increased over the same period
in 2008 due to higher average balances of notes and convertible notes
payable.





Nine
Months Ended September 30, 2008 and 2009





We
recognized a net loss of $20.9 million for the nine months ended September 30,
2009 compared to a net loss of $17.1 million for the nine months ended September
30, 2008. The increase in net loss for the nine months ended September 30, 2009
was primarily attributable to non-cash expenses related to the conversion of a
loan into equity and increased interest costs compared to the same period in
2008.





Research and Development
Expense. Research and development expense decreased from $9.3 million for
the nine months ended September 30, 2008 to $7.4 million for the nine months
ended September 30, 2009. This decrease was primarily due to:





•
            reduced activity in Switzerland
      as we await a decision from Swissmedic related to the Market Authorization
      for DCVax®-Brain; and





•
            reduced personnel
      costs.


26





General and Administrative
Expense. General and administrative expense decreased from $7.6 million
for the nine months ended September 30, 2008 to $4.5 million for the nine months
ended September 30, 2009. This decrease was primarily due to:





•
            reduced staffing costs;
      and





•
            reduced legal costs due to
      settlement of litigation.





Asset Impairment Loss– In
July 2009 the Company’s contract manufacturer, Cognate Bioservices, Inc.,
consolidated its Sunnyvale, California and Memphis, Tennessee manufacturing
facilities and closed the Sunnyvale facility housing the Company’s clean
room.  As the clean room cannot be relocated the Company provided an
impairment allowance of $389,000 reducing the carrying value of the clean room
to $0.





Depreciation and
Amortization. Depreciation and amortization decreased from $22,000 during
the nine months ended September 30, 2008 to $0 for the nine months ended
September 30, 2009.  This decrease was due to assets reaching the end
of their useful lives.





Total Other Income (Expense),
Net. Other income (expense) increased from an expense of $0.1 million in
the nine months ended September 30, 2008 to $8.6 million in the nine months
ended September 30, 2009.  During the nine months ended September 30,
2009 the Company incurred costs of $5.6 million in connection with conversion of
certain related party loans receivable into equity. Net interest expense
increased from ($0.2) million for the nine months ended September 30, 2008 to
$3.0 million for the nine months ended September 30, 2009. The increase over the
same period in 2008 was due to higher average balances of notes payable and
convertible notes payable.





Liquidity
and Capital Resources





As
described in Note 5 above since 2004 the Company has undergone a significant
restructuring consisting of equity and debt infusions.





On
November 19, 2009, the Company had approximately $156,000 of cash on hand and
through its efforts continues to receive additional capital from private
investors on an ongoing basis. We need to raise additional capital to fund our
clinical trials and other operating activities. We are exploring 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.





We are
seeking additional funds through the issuance of additional common stock or
other securities (equity or debt) convertible into shares of common stock, which
could dilute the ownership interest of our stockholders. We may seek funding
from Toucan Capital or Toucan Partners or their affiliates or other third
parties. Such parties are under no obligation to provide us any additional
funds, and any such funding may be dilutive to stockholders and may contain
restrictive covenants that could limit our ability to take certain actions. If
our capital raising efforts are unsuccessful, our inability to obtain additional
cash as needed could have a material adverse effect on our financial position,
results of operations and our ability to continue our existence. Our independent
registered public accounting firm has indicated in its report on our financial
statements included in the Annual Report on Form 10-K for the year ended
December 31, 2008 that there is substantial doubt about our ability to continue
as a going concern.


27





Sources
of Cash





During
the nine months ending September 30, 2009, we received $4.1 million in equity
infusions and loan advances from both related party and third party
investors.





Uses
of Cash





We used
$3.9 million in cash for operating activities during the nine months ended
September 30, 2009, compared to $12.6 million for the nine months ended
September 30, 2008. The decrease in cash used in operating activities was a
result of reduced activity in the U.S. and Switzerland due to reduced staffing
and cash resources.





We
utilized $2,000 in cash for investing activities during the nine months ended
September 30, 2009 compared to $243,000 used in investing activities during the
nine months ended September 30, 2008. The cash utilized during the nine-month
periods ended September 30, 2008 consisted of purchases of property and
equipment primarily required to expand production capacity.





On March
21, 2008, we executed a sublease agreement with Toucan Capital Corporation, an
affiliate of Toucan Capital and Toucan Partners, for our corporate headquarters
located at 7600 Wisconsin Avenue, Suite 750, Bethesda, Maryland 20814. This
sublease agreement was effective as of July 1, 2007 and expires on October 31,
2016, unless sooner terminated according to its terms. Previously, we had been
occupying our Bethesda headquarters under an oral arrangement with Toucan
Capital Corporation, whereby we were required to pay base rent of $32,949 per
month through December 31, 2007. Under the sublease agreement, we are required
to pay base rent of $34,000 per month during 2008, which monthly amount
increases by $1,000 on an annual basis, to a maximum of $42,000 per month during
2016, the last year of the term of the lease. In addition to monthly base rent,
we are obligated to pay operating expenses allocable to the subleased premises
under Toucan Capital Corporation’s master lease. During the nine months ended
September 30, 2008 and 2009, the Company incurred expense of $306,000 and
$432,000 respectively to Toucan Capital Corporation pursuant to this sublease
agreement.





Item
3. Quantitative and Qualitative Disclosures About Market Risk





Market Interest Rate
Risk





Our
exposure to market risk is presently limited to the interest rate sensitivity of
our cash which is affected by changes in the general level of U.S. and Swiss
interest rates. We are exposed to interest rate changes primarily as a result of
our investment activities. The primary objective of our investment activities is
to preserve principal while at the same time maximizing the income we receive
without significantly increasing risk. To minimize risk, we maintain our cash in
interest-bearing instruments, primarily money market funds. Due to the
short-term nature of our cash, we believe that our exposure to market interest
rate fluctuations is minimal. A hypothetical 10% change in short-term interest
rates from those in effect at September 30, 2009 would not have a significant
impact on our financial position or our expected results of operations. Our
interest rate risk management objective with respect to our borrowings is to
limit the impact of interest rate changes on earnings and cash flows. Our debt
is carried at an annual rate of interest between 6 and 12 percent. We do not
have any foreign currency or other derivative financial
instruments.





Foreign Currency Exchange
Rate Risk





As a
corporation with contractual arrangements overseas, we are exposed to changes in
foreign exchange rates. These exposures may change over time and could have a
material adverse impact on our financial results. At this time we do not have a
program to hedge this exposure.


28


Item
4. Controls and Procedures





Controls and
Procedures





We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed by us in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the SEC’s rules and forms and that such
information is accumulated and communicated to our management, including our
President and Chief Executive Officer, as appropriate, to allow timely decisions
regarding required disclosures. In designing and evaluating these disclosure
controls and procedures, management recognizes that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives, and management necessarily is
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.





Evaluation
of disclosure controls and procedures





We
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures as of the end of the period covered by this Quarterly
Report on Form 10-Q. Disclosure controls and procedures are designed to
ensure that information required to be disclosed in our reports filed under the
Exchange Act, such as this Quarterly Report on Form 10-Q are recorded,
processed, summarized and reported within the time periods specified by the SEC.
Disclosure controls are also designed to ensure that such information is
accumulated and communicated to our management as appropriate, to allow timely
decisions regarding required disclosure.





Based on
the evaluation, our President and Chief Executive Officer after evaluating the
effectiveness of our “disclosure controls and procedures” (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)), have concluded that, subject
to the inherent limitations noted in this Part II, Item 4, as of
September 30, 2009, our disclosure controls and procedures were not effective
due to the existence of several material weaknesses in our internal control over
financial reporting, as discussed below.





Material
Weaknesses Identified





In
connection with the preparation of our financial statements for the year ended
December 31, 2008, certain significant deficiencies in internal control became
evident to management that, in the aggregate, represent material weaknesses,
including:





(i) Lack
of a sufficient number of independent directors for our board and audit
committee. We currently only have one independent director on our board, which
is comprised of two directors, and on our audit committee, which is comprised of
one director. Although we are considered a controlled company, whereby a group
holds more than 50% of the voting power, and as such are not required to have a
majority of our board of directors be independent. It is our intention to have
an majority of independent directors in due course.





(ii) Lack
of a financial expert on our audit committee. We currently do not have an audit
committee financial expert, as defined by SEC regulations on our audit
committee.





(iii) Insufficient
segregation of duties in our finance and accounting functions due to limited
personnel. During the nine month period ended September 30, 2009, we had one
person on staff that performed nearly all aspects of our financial reporting
process, including, but not limited to, access to the underlying accounting
records and systems, the ability to post and record journal entries and
responsibility for the preparation of the financial statements. This creates
certain incompatible duties and a lack of review over the financial reporting
process that would likely result in a failure to detect errors in spreadsheets,
calculations, or assumptions used to compile the financial statements and
related disclosures as filed with the SEC. These control deficiencies could
result in a material misstatement to our interim or annual consolidated
financial statements that would not be prevented or detected.





(iv) Insufficient
corporate governance policies. Although we have a code of ethics which provides
broad guidelines for corporate governance, our corporate governance activities
and processes are not always formally documented. Specifically, decisions made
by the board to be carried out by management should be documented and
communicated on a timely basis to reduce the likelihood of any misunderstandings
regarding key decisions affecting our operations and management.





(v) Inadequate
approval and control over transactions and commitments made on our behalf by
related parties. Specifically, during the year certain related party
transactions were not effectively communicated to all internal personnel who
needed to be involved to account for and report the transaction in a timely
manner. This resulted in material adjustments during the quarterly reviews and
annual audit, respectively, that otherwise would have been avoided if effective
communication and approval processes had been maintained.


29





As part
of the communications by Peterson Sullivan, LLP, (“Peterson Sullivan”), with our
Audit Committee with respect to Peterson Sullivan’s audit procedures for fiscal
2008, Peterson Sullivan informed the audit committee that these deficiencies
constituted material weaknesses, as defined by Auditing Standard No. 5, “An
Audit of Internal Control Over Financial Reporting that is Integrated with an
Audit of Financial Statements and Related Independence Rule and Conforming
Amendments,” established by the Public Company Accounting Oversight Board
(“PCAOB”).





Plan
for Remediation of Material Weaknesses





We intend
to take appropriate and reasonable steps to make the necessary improvements to
remediate these deficiencies. We intend to consider the results of our
remediation efforts and related testing as part of our year-end 2009 assessment
of the effectiveness of our internal control over financial
reporting.





We have
implemented certain remediation measures and are in the process of designing and
implementing additional remediation measures for the material weaknesses
described in this Quarterly Report on Form 10-Q. Such remediation
activities include the following:





•
            We plan to recruit one or more
      additional independent board members to join our board of directors in due
      course. Such recruitment will include at least one person who qualifies as
      an audit committee financial expert to join as an independent board member
      and as an audit committee
member.





•
            We  are attempting to
      hire additional qualified and experienced accounting personnel to perform
      the month-end review and closing processes as well as provide additional
      oversight and supervision within the accounting department. We are in the
      process of establishing more rigorous review procedures. In addition, we
      have changed our accounting system to make it simpler and more appropriate
      for a company our size.





•
            We are initiating a formal
      commitment review process to establish and document the accounting events
      and methodology at the time the transactions are entered into, so that
      there is a clear understanding of what events will trigger an accounting
      event and establish the amounts to be recognized for each
      event.





•
            We are initiating a formal
      monthly reporting and approval process with our related parties to ensure
      timely provision of information affecting our quarterly and annual
      consolidated financial
statements.





In
addition to the foregoing remediation efforts, we will continue to update the
documentation of our internal control processes, including formal risk
assessment of our financial reporting processes.





Changes
in Internal Controls over Financial Reporting





There
were no significant changes in internal control over financial reporting during
the nine months ended September 30, 2009 that materially affected, or are
reasonably likely to materially affect, our internal control over financing
reporting.





Part
II — Other Information





Item
1. Legal Proceedings





From time
to time, we are involved in claims and suits that arise in the ordinary course
of our business. Although management currently believes that resolving any such
claims against us will not have a material adverse impact on our business,
financial position or results of operations, these matters are subject to
inherent uncertainties and management’s view of these matters may change in the
future. In addition to any such claims and suits, we are involved in the
following legal proceedings.





SOMA
Arbitration





See
Section 8


30


Lonza
Patent Infringement Claim





No change
from previous filings.





Stockholder
Class Action Lawsuits





See
section 8 above.





We have
no other legal proceedings pending at this time.


31


Item
1A. Risk Factors





Our
business, operations and financial condition are subject to various risks and
uncertainties, including those described below and elsewhere in this Quarterly
Report on Form 10-Q. This section discusses factors that, individually or
in the aggregate, we think could cause our actual results to differ materially
from expected and historical results. Our business, operations or financial
condition could be materially adversely affected by the occurrence of any of
these risks.





We
will need to raise additional capital, which may not be available.





As of
November 19, 2009, we had approximately $156,000 of cash on hand. We will need
additional capital to support and fund the research, development and
commercialization of our product candidates and to fund our other operating
activities. We are negotiating additional financing with several other parties,
which we hope to complete later this year. 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 attractive. If we are unable to obtain additional funds on a
timely basis or on acceptable terms, we may be required to curtail or cease
certain of our operations. We may raise additional funds by issuing additional
common stock or securities (equity or debt) convertible into shares of common
stock, in which case, the ownership interest of our stockholders will be
diluted. Any financing, if available, is likely to include restrictive
covenants that could limit our ability to take certain actions. Further, we may
seek funding from Toucan Capital or Toucan Partners or their affiliates or other
third parties. Such parties are under no obligation to provide us any additional
funds, and any such funding may be dilutive to stockholders and may contain
restrictive covenants. If we are unable to obtain sufficient additional capital
in the near term, we may cease operations at any time.




We are likely to continue to incur
substantial losses, and may never achieve profitability.





We have
incurred net losses every year since our formation in March 1996 and had a
deficit accumulated during the development stage of approximately $185.5 million
as of September 30, 2009. We expect that these losses will continue and
anticipate negative cash flows from operations for the foreseeable future.
Despite the receipt of approximately $25.9 million of net proceeds from an
offering of our common stock on AIM in June 2007, receipt of loan proceeds
between May 2008 and September 2009 of $9.3million and equity in 2009 of $2.9
million we will need additional funding, and over the medium term we will need
to generate revenue sufficient to cover operating expenses, clinical trial
expenses and some research and development costs to achieve profitability. We
may never achieve or sustain profitability.





Our
auditors have issued a “going concern” audit opinion.





Our
independent auditors have indicated in their report on our December 31,
2008 financial statements that there is substantial doubt about our ability to
continue as a going concern. A “going concern” opinion indicates that the
financial statements have been prepared assuming we 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. Therefore, you should not rely on our consolidated balance sheet as
an indication of the amount of proceeds that would be available to satisfy
claims of creditors, and potentially be available for distribution to
stockholders, in the event of liquidation.





As a company in the early stage of
development with an unproven business strategy, our limited history of operations
makes an evaluation of our business and prospects difficult.





We have
had a limited operating history and we are at an early stage of development. We
may not be able to achieve revenue growth in the future. We have generated the
following limited revenues: $529,000 in 2003; $390,000 in 2004; $124,000 in
2005; $80,000 in 2006; $10,000 in 2007; $10,000 in 2008; and $10,000 in 2009. We
have derived most of these limited revenues from the sale of research products
to a single customer, contract research and development for related parties,
research grants and royalties from licensing fees generated from a licensing
agreement. Our limited operating history makes it difficult to assess our
prospects for generating revenues.





We
may not be able to retain existing personnel.





We employ
four full-time employees. The uncertainty of our business prospects and the
volatility in the price of our common stock may create anxiety and uncertainty,
which could adversely affect employee morale and cause us to lose employees whom
we would prefer to retain. To the extent that we are unable to retain existing
personnel, our business and financial results may suffer.


32


We
may not be able to attract expert personnel.





In order
to pursue our product development and marketing plans, we will need additional
management personnel and personnel with expertise in clinical testing,
government regulation, manufacturing and marketing. Attracting and retaining
qualified personnel, consultants and advisors will be critical to our success.
There can be no assurance that we will be able to attract personnel on
acceptable terms given the competition for such personnel among biotechnology,
pharmaceutical and healthcare companies, universities and non-profit research
institutions. The failure to attract any of these personnel could impede the
achievement of our development objectives.





We must rely at present on a single
relationship with a third-party contract manufacturer, which will limit our
ability to control the availability of our product candidates in the
near-term.





We rely
upon a single contract manufacturer, Cognate. The majority owner of Cognate is
Toucan Capital, one of our majority stockholders. Cognate provides consulting
services and is the manufacturer of our product candidates. We have an agreement
in place with Cognate pursuant to which Cognate has agreed to provide
manufacturing and other services in connection with our pivotal Phase II
clinical trial for DCVax ® -Brain.
The agreement requires us to make minimum monthly payments to Cognate
irrespective of whether any DCVax ® products
are manufactured. The agreement does not extend to providing services in respect
of commercialization of the DCVax ® -Brain
product, nor for other clinical trials or commercialization of any of our other
product candidates. If and to the extent we wish to engage Cognate to
manufacture our DCVax ® -Brain
for commercialization or any of our other product candidates (including DCVax
®
-Prostate) for clinical trials or commercialization, we will need to enter into
a new agreement with Cognate or another third-party manufacturer which might not
be feasible on a timely or favorable basis. The failure to timely enroll
patients in our clinical trials will have an adverse impact on our financial
results due, in part, to the minimum monthly payments that we make to
Cognate.





Problems
with our contract manufacturer’s facilities or processes could result in a
failure to produce, or a delay in production, of adequate supplies of our
product candidates. Any prolonged interruption in the operations of our contract
manufacturer’s facilities could result in cancellation of shipments or a
shortfall in availability of a product candidate. A number of factors could
cause interruptions, including the inability of a supplier to provide raw
materials, equipment malfunctions or failures, damage to a facility due to
natural disasters, changes in FDA regulatory requirements or standards that
require modifications to our manufacturing processes, action by the FDA or by us
that results in the halting or slowdown of production of components or finished
products due to regulatory issues, the contract manufacturer going out of
business or failing to produce product as contractually required or other
similar factors. Because manufacturing processes are highly complex and are
subject to a lengthy FDA approval process, alternative qualified production
capacity may not be available on a timely basis or at all. Difficulties or
delays in our contract manufacturer’s manufacturing and supply of components
could delay our clinical trials, increase our costs, damage our reputation and,
if our product candidates are approved for sale, cause us to lose revenue or
market share if it is unable to timely meet market demands.





Our
success partly depends on existing and future collaborators.





We work
with scientists and medical professionals at academic and other institutions,
including UCLA, the University of Pennsylvania, M.D. Anderson Cancer Centre
and the H. Lee Moffitt Cancer Centre, among others, some of whom have conducted
research for us or have assisted in developing our research and development
strategy. We do not employ these scientists and medical professionals. They may
have commitments to, or contracts with, other businesses or institutions that
limit the amount of time they have available to work with us. We have little
control over these individuals. We can only expect that they devote time to us
as required by our license, consulting and sponsored research agreements. In
addition, these individuals may have arrangements with other companies to assist
in developing technologies that may compete with our products. If these
individuals do not devote sufficient time and resources to our programs, or if
they provide substantial assistance to our competitors, our business could be
seriously harmed.





The
success of our business strategy may partially depend upon our ability to
develop and maintain our collaborations and to manage them effectively. Due to
concerns regarding our ability to continue our operations or the commercial
feasibility of our personalized DCVax ® product
candidates, these third parties may decide not to conduct business with us or
may conduct business with us on terms that are less favorable than those
customarily extended by them. If either of these events occurs, our business
could suffer significantly.


33


We may
have disputes with our collaborators, which could be costly and time consuming.
Failure to successfully defend our rights could seriously harm our business,
financial condition and operating results. We intend to continue to enter into
collaborations in the future. However, we may be unable to successfully
negotiate any additional collaboration and any of these relationships, if
established, may not be scientifically or commercially successful.





We are involved in legal proceedings
that could result in an adverse outcome, or that could otherwise harm our business. In
addition, future litigation could be costly to defend or pursue and uncertain in its
outcome.





We are
party to various legal actions, as more fully described above under “Legal
Proceedings.” These pending legal proceedings include a dispute with Soma
Partners, LLC, an investment bank, regarding certain fees Soma claims it is
entitled to under an engagement letter with us.  The patent
infringement claim filed against us by Lonza Group AG alleging infringement of
certain patents relating to recombinant DNA methods, sequences, vectors, cell
lines and host cells was settled May 6, 2008. In addition, a consolidated class
action complaint has been filed against us alleging violations of
Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder, based on
certain of our public announcements regarding the status of certain regulatory
approvals for our DCVax ® -Brain
vaccine in Switzerland was also settled and more fully described above. We
also cooperated in a formal SEC investigation into the same matter
which after thorough investigation by the SEC was closed by the SEC without
action. We can provide no assurances as to the outcome of the pending Soma
Partners legal proceedings.





The
defense of these or future legal proceedings could divert management’s attention
and resources from the needs of our business. We may be required to make
substantial payments or incur other adverse effects, in the event of adverse
judgments or settlements of any such claims, investigations, or proceedings. Any
legal proceeding, even if resolved in our favor, could result in negative
publicity or cause us to incur significant legal and other expenses. Actual
costs incurred in any legal proceedings may differ from our expectations and
could exceed any amounts for which we have made reserves.





Clinical trials for our product
candidates are expensive and time consuming and their outcome is
uncertain.





The
process of obtaining and maintaining regulatory approvals for new therapeutic
products is expensive, lengthy and uncertain. It can vary substantially, based
upon the type, complexity and novelty of the product involved. Accordingly, any
of our current or future product candidates could take a significantly longer
time to gain regulatory approval than we expect or may never gain approval,
either of which could reduce our anticipated revenues and delay or terminate the
potential commercialization of our product candidates.





We
have limited experience in conducting and managing clinical trials.





We rely
on third parties to assist us in managing and monitoring all our clinical
trials. Our reliance on these third parties may result in delays in completing,
or failure to complete, these trials if the third parties fail to perform under
the terms of our agreements with them. We may not be able to find a sufficient
alternative supplier of these services in a reasonable time period, or on
commercially reasonable terms, if at all. If we were unable to obtain an
alternative supplier of these services, we might be forced to curtail our
Phase II clinical trial for DCVax ®
-Brain.





Our product candidates will require a
different distribution model than conventional therapeutic
products.





The
nature of our product candidates means that different systems and methods will
need to be followed for the distribution and delivery of the products than is
the case for conventional therapeutic products. The personalized nature of these
products, the need for centralized storage, and the requirement to maintain the
products in frozen form may mean that we are not able to take advantage of
distribution networks normally used for conventional therapeutic products. If
our product candidates are approved, it may take time for hospitals and
physicians to adapt to the requirements for handling and storage of these
products, which may adversely affect their sales.





We lack sales and marketing
experience and as a result may experience significant difficulties commercializing our
research product candidates.





The
commercial success of any of our product candidates will depend upon the
strength of our sales and marketing efforts. We do not have a sales force and
have no experience in sales, marketing or distribution. To fully commercialize
our product candidates, we will need a substantial marketing staff and sales
force with technical expertise and the ability to distribute these products. As
an alternative, we could seek assistance from a third party with a large
distribution system and a large direct sales force. We may be unable to put
either of these plans in place. In addition, if we arrange for others to market
and sell our products, our revenues will depend upon the efforts of those
parties. Such arrangements may not succeed.


34


Even if
one or more of our product candidates is approved for marketing, if we fail to
establish adequate sales, marketing and distribution capabilities, independently
or with others, our business will be seriously harmed.





Competition in the biotechnology and
biopharmaceutical industry is intense and most of our competitors have substantially
greater resources than us.





The
biotechnology and biopharmaceutical industries are characterized by rapidly
advancing technologies, intense competition and a strong emphasis on proprietary
products. Several companies, such as Dendreon Corporation, Immuno-Designed
Molecules, Inc., Celldex Therapeutics, Inc., Ark Therapeutics plc, Oxford
Biomedica plc, Argos Therapeutics, Inc. and Antigenics, are actively involved in
the research and development of immunotherapies or cell-based cancer
therapeutics. Of these companies, we believe that only Dendreon and Ark
Therapeutics are carrying-out Phase III clinical trials with a cell-based
therapy. To our knowledge no DC-based therapeutic product is currently approved
for commercial sale. Additionally, several companies, such as Medarex, Inc.,
Amgen, Inc., Agensys, Inc., and Genentech, Inc., are actively involved in the
research and development of monoclonal antibody-based cancer therapies.
Currently, at least seven antibody-based products are approved for commercial
sale for cancer therapy. Genentech is also engaged in several Phase III
clinical trials for additional antibody-based therapeutics for a variety of
cancers, and several other companies are in early stage clinical trials for such
products. Many other third parties compete with us in developing alternative
therapies to treat cancer, including: biopharmaceutical companies; biotechnology
companies; pharmaceutical companies; academic institutions; and other research
organizations.





Most of
our competitors have significantly greater financial resources and expertise in
research and development, manufacturing, pre-clinical testing, conducting
clinical trials, obtaining regulatory approvals and marketing than we do. In
addition, many of these competitors are actively seeking patent protection and
licensing arrangements in anticipation of collecting royalties for use of
technology they have developed. Smaller or early-stage companies may also prove
to be significant competitors, particularly through collaborative arrangements
with large and established companies. These third parties compete with us in
recruiting and retaining qualified scientific and management personnel, as well
as in acquiring technologies complementary to our programs.





We expect
that our ability to compete effectively will be dependent upon our ability to:
obtain additional funding; successfully complete clinical trials and obtain all
requisite regulatory approvals; maintain a proprietary position in our
technologies and products; attract and retain key personnel; and maintain
existing or enter into new partnerships.





Our
competitors may develop more effective or affordable products, or achieve
earlier patent protection or product marketing and sales. As a result, any
products developed by us may be rendered obsolete and
non-competitive.





Our intellectual property rights may
not provide meaningful commercial protection for our research products or product
candidates, which could enable third parties to use our technology, or very similar
technology, and could reduce our ability to compete in the market.





We rely
on patent, copyright, trade secret and trademark laws to limit the ability of
others to compete with us using the same or similar technology in the United
States and other countries. However, as described below, these laws afford only
limited protection and may not adequately protect our rights to the extent
necessary to sustain any competitive advantage we may have. The laws of some
foreign countries do not protect proprietary rights to the same extent as the
laws of the United States, and we may encounter significant problems in
protecting our proprietary rights in these countries.





We have
33 issued and licensed patents (9 in the United States and 23 in other
jurisdictions) and 134 patent applications pending (19 in the United States and
115 in other jurisdictions) which cover the use of dendritic cells in DCVax
® as
well as targets for either our dendritic cell or fully human monoclonal antibody
therapy candidates. The issued patents expire at various dates from 2015 to
2026.





We will
only be able to protect our technologies from unauthorized use by third parties
to the extent that they are covered by valid and enforceable patents or are
effectively maintained as trade secrets. The patent positions of companies
developing novel cancer treatments, including our patent position, generally are
uncertain and involve complex legal and factual questions, particularly
concerning the scope and enforceability of claims of such patents against
alleged infringement. Recent judicial decisions in the United States are
prompting a reinterpretation of the limited case law that exists in this area,
and historical legal standards surrounding questions of infringement and
validity may not apply in future cases. A reinterpretation of existing
U.S. law in this area may limit or potentially eliminate our patent
position and, therefore, our ability to prevent others from using our
technologies. The biotechnology patent situation outside the United States is
even more uncertain. Changes in either the patent laws or the interpretations of
patent laws in the United States and other countries may, therefore, diminish
the value of our intellectual property.


35


We own or
have rights under licenses to a variety of issued patents and pending patent
applications. However, the patents on which we rely may be challenged and
invalidated, and our patent applications may not result in issued patents.
Moreover, our patents and patent applications may not be sufficiently broad to
prevent others from using our technologies or from developing competing
products. We also face the risk that others may independently develop similar or
alternative technologies or design around our patented
technologies.





We have
taken security measures to protect our proprietary information, especially
proprietary information that is not covered by patents or patent applications.
These measures, however, may not provide adequate protection for our trade
secrets or other proprietary information. We seek to protect our proprietary
information by entering into confidentiality agreements with employees, partners
and consultants. Nevertheless, employees, collaborators or consultants may still
disclose our proprietary information, and we may not be able to protect our
trade secrets in a meaningful way. In addition, others may independently develop
substantially equivalent proprietary information or techniques or otherwise gain
access to our trade secrets.





Our success will depend substantially
on our ability to operate without infringing or misappropriating the proprietary
rights of others.





Our
success will depend to a substantial degree upon our ability to develop,
manufacture, market and sell our research products and product candidates
without infringing the proprietary rights of third parties and without breaching
any licenses entered into by us regarding our product candidates.





There is
a substantial amount of litigation involving patent and other intellectual
property rights in the biotechnology and biopharmaceutical industries generally.
Infringement and other intellectual property claims, with or without merit, can
be expensive and time-consuming to litigate and can divert management’s
attention from our core business. For example, Lonza Group AG filed a complaint
against us in the United States District Court for the District of Maryland
alleging patent infringement which was recently settled with prejudice without
any monetary consideration (more detailed description under Legal Proceedings).
In addition, we may be exposed to future litigation by third parties based on
claims that our products infringe their intellectual property rights. This risk
is exacerbated by the fact that there are numerous issued and pending patents in
the biotechnology industry and the fact that the validity and breadth of
biotechnology patents involve complex legal and factual questions for which
important legal principles remain unresolved.





Competitors
may assert that our products and the methods we employ are covered by
U.S. or foreign patents held by them. In addition, because patents can take
many years to issue, there may be currently pending applications, unknown to us,
which may later result in issued patents that our products may infringe. There
could also be existing patents of which we are not aware that one or more of our
products may inadvertently infringe.





If we
lose a patent infringement claim, we could be prevented from selling our
research products or product candidates unless we can obtain a license to use
technology or ideas covered by such patent or we are able to redesign our
products to avoid infringement. A license may not be available at all or on
terms acceptable to us, or we may not be able to redesign our products to avoid
infringement. If we are not successful in obtaining a license or redesigning our
products, we may be unable to sell our products and our business could
suffer.





We may not receive regulatory
approvals for our product candidates or there may be a delay in obtaining such
approvals.





Our
products and our ongoing development activities are subject to regulation by
governmental and other regulatory authorities in the countries in which we or
our collaborators and distributors wish to test, manufacture or market our
products. For instance, the FDA will regulate the product in the U.S. and
equivalent authorities, such as the European Medicines Agency (“EMEA”), will
regulate in other jurisdictions. Regulatory approval by these authorities will
be subject to the evaluation of data relating to the quality, efficacy and
safety of the product for its proposed use.


36


The time
taken to obtain regulatory approval varies between countries. Different
regulators may impose their own requirements and may refuse to grant, or may
require additional data before granting, an approval, notwithstanding that
regulatory approval may have been granted by other regulators. Regulatory
approval may be delayed, limited or denied for a number of reasons, including
insufficient clinical data, the product not meeting safety or efficacy
requirements or any relevant manufacturing processes or facilities not meeting
applicable requirements.





Further trials and other costly and
time-consuming assessments of the product may be required to obtain or maintain
regulatory approval.





Medicinal
products are generally subject to lengthy and rigorous pre-clinical and clinical
trials and other extensive, costly and time-consuming procedures mandated by
regulatory authorities. We may be required to conduct additional trials beyond
those currently planned, which could require significant time and expense. For
example, the field of cancer treatment is evolving, and the standard of care for
a particular cancer could change while we are in the process of conducting the
clinical trials for our product candidates. Such a change in standard of care
could make it necessary for us to conduct additional clinical trials, which
could delay our opportunities to obtain regulatory approval of our product
candidates.





As for
all biological products, we may need to provide pre-clinical and clinical data
evidencing the comparability of products before and after any changes in
manufacturing process both during and after product approval. Regulators may
require that we generate data to demonstrate that products before or after any
change are of comparable safety and efficacy if we are to rely on studies using
earlier versions of the product. DCVax ® -Brain
has been the subject of process changes during the early clinical phase of its
development and regulators may require comparability data unless they are
satisfied that changes in process do not affect the quality, and hence efficacy
and safety, of the product.





We plan
to rely on our current DCVax ® -Brain
Phase II clinical trial as a single study in support of regulatory
approval. While under certain circumstances, both EMEA and the FDA will accept a
Phase II study as a single study in support of approval, it is not yet
known whether they will do so in this case. If the regulators do not consider
the Phase II study adequate on its own to support a finding of efficacy, we
may be required to perform additional clinical trials in DCVax ® -Brain.
There is some possibility that changes requested by the FDA could complicate the
licensing application process.





Only the
data for DCVax ® -Brain
has been discussed with European regulators. On an informal basis, a number of
European national regulators have indicated that additional pre-clinical and
clinical data could be required before the DCVax ® -Brain
product would be approved. However, it is not clear whether such data will be
required until formal scientific advice is sought from the EMEA, which is the
regulator that will ultimately review any application for approval of this
product. Unless the EMEA grants a deferral or a waiver, we may also be obliged
to generate clinical data in pediatric populations.





The FDA
previously identified a number of deficiencies regarding the design of our
original proposed Phase III clinical trial for DCVax ®
-Prostate. We believe we remedied these deficiencies in the new trial design for
a 600-patient Phase III clinical trial, which was cleared by the FDA in
January 2005. However, we now intend to split this single 600-patient
Phase III trial into two separate 300-patient Phase III trials. These
revisions in trial design may cause delay in the development process for DCVax
®
-Prostate. It is not yet known whether the FDA will consider the two-trial
design sufficient for marketing approval, or whether the agency will require us
to design and carry out additional studies. If, after the Phase III studies
are carried out, the FDA is not satisfied that its concerns were adequately
addressed, those studies could be insufficient to demonstrate efficacy and
additional clinical studies could be required at that time.





Any delay
in completing sufficient trials or other regulatory requirements will delay our
ability to generate revenue from product sales and we may have insufficient
capital resources to support its operations. Even if we do have sufficient
capital resources, our ability to generate meaningful revenues or become
profitable may be delayed.





Regulatory
approval may be withdrawn at any time.





After
regulatory approval has been obtained for medicinal products, the product and
the manufacturer are subject to continual review and there can be no assurance
that such approval will not be withdrawn or restricted. Regulators may also
subject approvals to restrictions or conditions, or impose post-approval
obligations on the holders of these approvals, and the regulatory status of such
products may be jeopardized if we do not comply. Extensive post-approval safety
studies are likely to be a condition of the approval and will commit us to
significant time and expense.


37


We
may fail to comply with regulatory requirements.





Our
success will be dependent upon our ability, and our collaborative partners’
abilities, to maintain compliance with regulatory requirements, including
regulators’ current good manufacturing practices (“cGMP”) and safety reporting
obligations. The failure to comply with applicable regulatory requirements can
result in, among other things, fines, injunctions, civil penalties, total or
partial suspension of regulatory approvals, refusal to approve pending
applications, recalls or seizures of products, operating and production
restrictions and criminal prosecutions.





We may be subject to sanctions if we
are determined to be promoting our investigational products prior to
regulatory approval or for unapproved uses.





Laws in
both the U.S. and Europe prohibit us from promoting any product that has
not received approval from the appropriate regulator, or from promoting a
product for an unapproved use. If any regulator determines that we have engaged
in such pre-approval, or off-label promotion, through our website, press
releases, or other communications, the authority could require us to change the
content of those communications and could also take regulatory enforcement
action, including the issuance of a warning letter, requirements for corrective
action, civil fines, and criminal penalties. In the event of a product liability
lawsuit, materials that appear to promote a product for unapproved uses may
increase our product liability exposure.





We may not obtain or maintain orphan
drug status and the associated benefits, including marketing
exclusivity.





We may
not receive the benefits associated with orphan drug designation. This may
result from a failure to achieve or maintain orphan drug status or the
development of a competing product that has an orphan designation for the same
indication. In Europe, the orphan status of DCVax ® -Brain
will be reassessed shortly prior to the product receiving any regulatory
approval. The EMEA will need to be satisfied that there is evidence that DCVax
®
-Brain offers a significant benefit relative to existing therapies for the
treatment of glioma if DCVax ® -Brain
is to maintain its orphan drug status.





New
legislation may have an adverse effect on our business.





Changes
in applicable legislation and/or regulatory policies or discovery of problems
with the product, production process, site or manufacturer may result in delays
in bringing products to market, the imposition of restrictions on the product’s
sale or manufacture, including the possible withdrawal of the product from the
market, or may otherwise have an adverse effect on our business.





The availability and amount of
reimbursement for our product candidates and the manner in which government and
private payers may reimburse for our potential products is
uncertain.





In many
of the markets where we intend to operate, the prices of pharmaceutical products
are subject to direct price controls (by law) and to drug reimbursement programs
with varying price control mechanisms.





We expect
that many of the patients in the United States who may seek treatment with our
products that may be approved for marketing will be eligible for coverage under
Medicare, the federal program that provides medical coverage for the aged and
disabled. Other patients may be covered by private health plans or may be
uninsured. The Medicare program is administered by the Centers for
Medicare & Medicaid Services (“CMS”), an agency within the
U.S. Department of Health and Human Services. Coverage and reimbursement
for products and services under Medicare are determined pursuant to regulations
promulgated by CMS and pursuant to CMS’s subregulatory coverage and
reimbursement determinations. It is difficult to predict how CMS will apply
those regulations and subregulatory determinations to novel products such as
ours.





Moreover,
the methodology under which CMS makes coverage and reimbursement determinations
is subject to change, particularly because of budgetary pressures facing the
Medicare program. For example, the Medicare Prescription Drug, Improvement, and
Modernization Act (the “Medicare Modernization Act”), enacted in 2003, provided
for a change in reimbursement methodology that has reduced the Medicare
reimbursement rates for many drugs, including oncology therapeutics. Even if our
product candidates are approved for marketing in the U.S., if we are unable to
obtain or retain coverage and adequate levels of reimbursement from Medicare or
from private health plans, our ability successfully to market such products in
the U.S. will be adversely affected. The manner and level at which the
Medicare program reimburses for services related to our product candidates
(e.g., administration services) also may adversely affect our ability to market
or sell any of our product candidates that may be approved for marketing in the
U.S.


38


In the
U.S., efforts to contain or reduce health care costs have resulted in many
legislative and regulatory proposals at both the federal and state level, and it
is difficult to predict which, if any, of these proposals will be enacted, and,
if so, when. Cost control initiatives by governments or third party payers could
decrease the price that we receive for any one or all of our potential products
or increase patient coinsurance to a level that makes our product candidates
unaffordable for patients. In addition, government and private health plans are
more persistently challenging the price and cost-effectiveness of therapeutic
products. If third-party payers were to determine that one or more of our
product candidates is not cost-effective, this could result in refusal to cover
those products or in coverage at a low reimbursement level. Any of these
initiatives or developments could prevent us from successfully marketing and
selling any of our potential products.





In the
E.U. governments influence the price of pharmaceutical products through their
pricing and reimbursement rules and control of national health care systems that
fund a large part of the cost of such products to consumers. The approach taken
varies from member state to member state. Some jurisdictions operate positive
and/or negative list systems under which products may only be marketed once a
reimbursement price has been agreed. Other member states allow companies to fix
their own prices for medicines, but monitor and control company profits. The
downward pressure on health care costs in general, particularly prescription
drugs, has become very intense. As a result, increasingly high barriers are
being erected to the entry of new products, as exemplified by the role of the
National Institute for Health and Clinical Excellence in the U.K. which
evaluates the data supporting new medicines and passes reimbursement
recommendations to the government. In addition, in some countries cross-border
imports from low-priced markets (parallel imports) exert commercial pressure on
pricing within a country.





DCVax
® is
our only technology in clinical development.





Unlike
many pharmaceutical companies that have a number of products in development and
which utilize many technologies, we are dependent on the success of our DCVax
®
platform and, potentially, our CXCR4 antibody technology. While DCVax ®
technology has a number of potentially beneficial uses, if that core technology
is not commercially viable, we would have to rely on the CXCR4 technology, which
is at an early pre-clinical stage of development, for our success. If the CXCR4
technology also fails, we currently do not have other technologies to fall back
on and our business could fail.





We
may be prevented from using the DCVax ® name in
Europe.





The EMEA
has indicated that DCVax ® may not
be an acceptable name because of the suggested reference to a vaccine. Failure
to obtain the approval for the use of the DCVax ® name in
Europe would require us to market our potential products in Europe under a
different name which could impair the successful marketing of our product
candidates and may have a material adverse effect on our results of operations
and financial condition.





Competing
generic medicinal products may be approved.





In the
E.U., there exists a process for the approval of generic biological medicinal
products once patent protection and other forms of data and market exclusivity
have expired. If generic medicinal products are approved, competition from such
products may reduce sales of our products. Other jurisdictions, including the
U.S., are considering adopting legislation that would allow the approval of
generic biological medicinal products.





We may be exposed to potential
product liability claims, and insurance against these claims may not be available to us at
a reasonable rate in the future, if at all.





Our
business exposes us to potential product liability risks that are inherent in
the testing, manufacturing, marketing and sale of therapeutic products. Our
insurance coverage may not be adequate to cover claims against us or may not be
available to us at an acceptable cost, if at all. Regardless of their merit or
eventual outcome, product liability claims may result in decreased demand for a
product, injury to our reputation, withdrawal of clinical trial volunteers and
loss of revenues. Thus, whether or not we are insured, a product liability claim
or product recall may result in losses that could be material.





We store,
handle, use and dispose of controlled hazardous, radioactive and biological
materials in our business. Our current use of these materials generally is below
thresholds giving rise to burdensome regulatory requirements. Our development
efforts, however, may result in our becoming subject to additional requirements,
and if we fail to comply with applicable requirements we could be subject to
substantial fines and other sanctions, delays in research and production, and
increased operating costs. In addition, if regulated materials were improperly
released at our current or former facilities or at locations to which we send
materials for disposal, we could be liable for substantial damages and costs,
including cleanup costs and personal injury or property damages, and incur
delays in research and production and increased operating
costs.


39


Insurance
covering certain types of claims of environmental damage or injury resulting
from the use of these materials is available but can be expensive and is limited
in its coverage. We have no insurance specifically covering environmental risks
or personal injury from the use of these materials and if such use results in
liability, our business may be seriously harmed.





Toucan Capital and Toucan Partners
beneficially own a majority of our shares of common stock and, as a result, the
trading price for our common stock may be depressed and these stockholders can
take actions that may be adverse to the interests of other
investors.





As of
November 13, 2009, Toucan Capital, its affiliate, Toucan Partners and its
managing member, Ms. Linda Powers, collectively beneficially owned an aggregate
of 32,923,510 shares of our common stock, representing
approximately 58.1 percent of our outstanding common stock. In
addition, as of November 13, 2009, Toucan Capital may acquire an aggregate of
approximately 22.0 million shares of common stock upon exercise of warrants
and Toucan Partners may acquire an aggregate of approximately 10.3 million
shares of common stock upon the exercise of warrants. This significant
concentration of ownership may adversely affect the trading price of our common
stock because investors often perceive disadvantages in owning stock in
companies with controlling stockholders. Toucan Capital has the ability to exert
substantial influence over all matters requiring approval by our stockholders,
including the election and removal of directors and any proposed merger,
consolidation or sale of all or substantially all of our assets. In addition, a
managing member of Toucan Capital is a member of the Board. In light of the
foregoing, Toucan Capital can significantly influence the management of our
business and affairs. This concentration of ownership could have the effect of
delaying, deferring or preventing a change in control, or impeding a merger or
consolidation, takeover or other business combination that could be favorable to
investors.





Our Certificate of Incorporation and
Bylaws and stockholder rights plan may delay or prevent a change in our
management.





Our
Seventh Amended and Restated Certificate of Incorporation, as amended (the
“Certificate of Incorporation”), Third Amended and Restated Bylaws (the
“Bylaws”) and stockholder rights plan contain provisions that could delay or
prevent a change in our management team. Some of these provisions:





•
            authorize the issuance of
      preferred stock that can be created and issued by the Board without prior
      stockholder approval, commonly referred to as “blank check” preferred
      stock, with rights senior to those of the common
    stock;





•
            allow the Board to call special
      meetings of stockholders at any time but restrict the stockholders from
      calling special meetings;





•
            authorize the Board to issue
      dilutive common stock upon certain
  events; and





•
            provide for a classified
      Board.





These
provisions could allow our Board to affect the rights of an investor since the
Board can make it more difficult for holders of common stock to replace members
of the Board. Because the Board is responsible for appointing the members of the
management team, these provisions could in turn affect any attempt to replace
the current management team.





There
may not be an active, liquid trading market for our common stock.





Our
common stock is currently listed on the Over-The-Counter Bulletin Board, or
OTCBB, and on AIM, which are generally recognized as being less active markets
than NASDAQ, the stock exchange on which our common stock previously was listed.
You may not be able to sell your shares at the time or at the price desired.
There may be significant consequences associated with our stock trading on the
OTCBB rather than a national exchange. The effects of not being able to list our
securities on a national exchange include:





•
            limited release of the market
      price of our securities;


40


•
            limited news
      coverage;





•
            limited interest by investors in
      our securities;





•
            volatility of our stock price due
      to low trading volume;





•
            increased difficulty in selling
      our securities in certain states due to “blue sky”
      restrictions; and





•
            limited ability to issue
      additional securities or to secure additional
      financing.





The resale, or the availability for
resale, of the shares placed in the PIPE Financing could have a material
adverse impact on the market price of our common stock.





The PIPE
Financing, completed in March 2006, included the private placement of an
aggregate of approximately 2.6 million shares of common stock and
accompanying warrants to purchase an aggregate of approximately 1.3 million
shares of common stock. In connection with the PIPE Financing, we agreed to
register, and subsequently did register, the resale of the shares of common
stock sold in the PIPE Financing and the shares underlying the warrants issued
in the PIPE Financing. The resale of a substantial number of the shares placed
in the PIPE Financing or even the availability of these shares for resale could
have a material adverse impact on our stock price.





Because our common stock is subject
to “penny stock” rules, the market for the common stock may be
limited.





Because
our common stock is subject to the SEC’s “penny stock” rules, broker-dealers may
experience difficulty in completing customer transactions and trading activity
in our securities may be adversely affected. Under the “penny stock” rules
promulgated under the Exchange Act, broker-dealers who recommend such securities
to persons other than institutional accredited investors must:





•
            make a special written
      suitability determination for the
  purchaser;





•
            receive the purchaser’s written
      agreement to a transaction prior to
sale;





•
            provide the purchaser with risk
      disclosure documents which identify certain risks associated with
      investing in “penny stocks” and which describe the market for these “penny
      stocks” as well as a purchaser’s legal
      remedies; and





•
            obtain a signed and dated
      acknowledgment from the purchaser demonstrating that the purchaser has
      actually received the required risk disclosure document before a
      transaction in a “penny stock” can be
  completed.





As a
result of these rules, broker-dealers may find it difficult to effectuate
customer transactions and trading activity in our common stock may be adversely
affected. As a result, the market price of our common stock may be depressed,
and stockholders may find it more difficult to sell our common
stock.





The
price of our common stock may be highly volatile.





The share
price of publicly traded biotechnology and emerging pharmaceutical companies,
particularly companies without earnings and consistent product revenues, can be
highly volatile and are likely to remain highly volatile in the future. The
price at which our common stock is quoted and the price which investors may
realize in sales of their shares of our common stock will be influenced by a
large number of factors, some specific to us and our operations and some
unrelated to our operating performance. These factors could include the
performance of our marketing programs, large purchases or sales of the shares,
currency fluctuations, legislative changes and general economic conditions. In
the past, share class action litigation has often been brought against companies
that experience volatility in the market price of their shares. Whether or not
meritorious, litigation brought against us following fluctuations in the trading
price of our common stock could result in substantial costs, divert management’s
attention and resources and harm our financial condition and results of
operations.


41


Our
business could be adversely affected by animal rights activists.





Our
business activities have involved animal testing. These types of activities have
been the subject of controversy and adverse publicity. Some organizations and
individuals have attempted to stop animal testing by pressing for legislation
and regulation in these areas. To the extent the activities of such groups are
successful; our business could be adversely affected. Negative publicity about
us, our pre-clinical trials and our product candidates could have an adverse
impact on our sales and profitability.





The requirements of the
Sarbanes-Oxley Act of 2002 and other U.S. securities laws reporting requirements impose cost
and operating challenges on us.





We are
subject to certain of the requirements of the Sarbanes-Oxley Act of 2002 in the
U.S. and the reporting requirements under the Exchange Act. These laws
require, among other things, an attestation report of our independent auditor on
the effectiveness of our internal control over financial reporting, currently
expected to begin with our annual report for the year ended December 31,
2009, as well as the filing of annual reports on Form 10-K, quarterly
reports on Form 10-Q and periodic reports on Form 8-K following the
happening of certain material events. To meet these compliance deadlines, we
will need to have our internal controls designed, tested and operational by
early 2009 to ensure compliance with applicable standards. We initiated the
process of documenting and evaluating our internal controls and financial
reporting procedures in early 2008. This process is ongoing and will continue to
likely be time consuming and will result in us having to significantly change
our controls and reporting procedures due to our small number of employees and
lack of governance controls. Most similarly-sized companies registered with the
SEC have had to incur significant costs to ensure compliance. Moreover, any
failure by us to comply with such provisions would be required to be disclosed
publicly, which could lead to a loss of public confidence in our internal
controls and could harm the market price of our common stock.





Our management has identified
significant internal control deficiencies, which management and our independent
auditor believe constitute material weaknesses.




In
connection with the preparation of our financial statements for the year ended
December 31, 2008, certain significant internal control deficiencies became
evident to management that, in the aggregate, represents material weaknesses,
including:





•
            lack of a sufficient number of
      independent directors on our audit
  committee;





•
            lack of a financial expert on our
      audit committee





•
            insufficient segregation of
      duties in our finance and accounting function due to limited
      personnel;





•
            insufficient corporate governance
      policies; and





•
            inadequate approval and control
      over transactions and commitments made on our behalf by related
      parties.





As part
of the communications by our independent auditors with our audit committee with
respect to audit procedures for the year ended December 31, 2008, our
independent auditors informed the audit committee that these deficiencies
constituted material weaknesses, as defined by Auditing Standard No. 5, “An
Audit of Internal Control Over Financial Reporting that is Integrated with an
Audit of Financial Statements and Related Independence Rule and Conforming
Amendments,” established by the Public Company Accounting Oversight Board, or
PCAOB. We intend to take appropriate and reasonable steps to make the necessary
improvements to remediate these deficiencies but we cannot be certain that we
will have the necessary financing to address these deficiencies or that we will
be able to attract qualified individuals to serve on our Board and to take on
key management roles within the Company. Our failure to successfully remediate
these issues could lead to heightened risk for financial reporting mistakes and
irregularities and a further loss of public confidence in our internal controls
that could harm the market price of our common stock.





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





On June
17, 2008, the Company issued 122,190 shares of common stock pursuant to a letter
agreement under which we received an exclusive right to negotiate the terms of a
potential transaction in which we would obtain the rights, title and interest to
and under a certain license agreement.


42


On
January 16, 2009 we entered into a securities purchase agreement for $700,000
with Al Rajhi Holdings who purchased 1,000,000 shares of our common stock at
$0.70 per share.





On
March 27, 2009, we sold approximately 1.4 million shares of common
stock at a purchase price of $0.53 per share and raised aggregate gross proceeds
of approximately $0.7 million in a closed equity financing with unrelated
investors.





On
September 28, 2009 we issued 8,547,280 shares of common stock to Toucan Partners
in settlement of $1,710,000 of principal and accrued interest on loans made by
Toucan Capital to the Company.





On
September 28, 2009 we issued 750,000 shares of common stock to Linda Powers in
lieu of Directors fees due for the period July 1, 2008 through December 31,
2009.





On
September 30, 2009 we issued 1,762,500 shares of common stock to Toucan Partners
in respect of advisory services related to capital fundraising activities
between October 2008 and October 2009.





On
September 28, 2009 we issued 397,500 shares of common stock to a consultant in
respect of advisory services related to capital fundraising activities in
September 2009.





The
Company claimed exemption from registration under the Securities Act for the
issuance of such shares of common stock under Section 4(2) of the Securities Act
and/or Regulation D thereunder, as a transaction not involving any public
offering. The acquirer of the unregistered shares for which the Company relied
on Section 4(2) and/or Regulation D represented to the Company that it was an
accredited investor, as defined under the Securities Act. The Company claimed
such exemption on the basis that (i) the acquirer represented that it intended
to acquire the shares for investment only and not with a view to the
distribution thereof and that it either received adequate information about the
Company or had access to such information and (ii) appropriate legends were
affixed to the stock certificates issued in such transaction.


43


Item
3. Defaults upon Senior Securities





None





Item
4. Submission of Matters to a Vote of Security Holders





The
Company’s annual meeting of stockholders was held on September 4, 2009. The
following are the proposals voted upon at the meeting, and the number of votes
cast for, against or withheld, as well as the number of abstentions, as
applicable, for each proposal:





Proposal 1: Election of Linda Powers
as Class II Director for a term of three years





For:
            25,339,388
            Withheld
            389,742





Proposal
2: Approval of the amendment of the Company’s Seventh Amended and Restated
Certificate of Incorporation to increase the authorized shares from 100,000,000
to 150,000,000





For
            25,184,798
            Against
            538,487
            Abstain
            5,845
            Broker
              non-vote
            19,283,360





Linda F.
Powers term as a director will expire at the 2012 Annual Meeting of Stockholders
and Alton L. Boynton terms will expire at the 2010 Annual Meeting of
Stockholders.





Proposal
3: De-listing of the Company from the London Stock Exchange’s AIM
Market





For:
            29,552,061
            Against:
            120,816
            Abstain:
            56,253
            Broker Non-Votes:
            19,283,360





Item 5. Other Information





None


44


Item
6. Exhibits





3.1
                Seventh
      Amended and Restated Certificate of Incorporation
  (3.1)(1)3.2
                Third
      Amended and Restated Bylaws (3.1)(2)3.3
                Amendment
      to the Seventh Amended and Restated Certificate of Incorporation
      (3.2)(2)3.4
                Amendment
      to Seventh Amended and Restated Certificate of Incorporation
      (3.4)(3)*3.5
                Amendment
      to Seventh Amended and Restated Certificate of
    Incorporation*10.1
                Conversion
      Agreement effective September 28, 2009 between the Company and Toucan
      Partners, LLC*10.2
                Form
      of Loan Extension Agreement dated September 28, 2009*10.3
                Retention
      Agreement between Dr. Alton L. Boynton and the Company dated September 28,
      2009*31.1
                Certification
      of President and Chief Executive Officer (Principal executive officer and
      principal financial officer) Pursuant to Exchange Act Rules 13a-14(a) and
      15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.*32.1
                Certification
      of President and Chief Executive Officer (Principal executive officer and
      principal financial officer) Pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002.







(1)
            Incorporated by reference to the
      exhibit shown in the preceding parentheses filed with the Registrant’s
      Registration Statement on Form S-1 (File No. 333-67350) on July 17,
      2006.





(2)
            Incorporated by reference to the
      exhibit shown in the preceding parentheses filed with the Registrant’s
      Current Report on Form 8-K on June 22,
  2007.





(3)
            Incorporated by reference to the
      exhibit shown in the preceding parentheses filed with the Post-Effective
      Amendment No. 2 to the Registrant’s Registration Statement on Form S-1
      (File No. 333-134320) on January 28,
  2008.





(4)
            Incorporated by reference to the
      exhibit shown in the preceding parentheses filed with the Registrant’s
      Current Report on Form 8-K on May 15,
  2008.





*
            Filed
      herewith.


45


SIGNATURES





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





NORTHWEST
      BIOTHERAPEUTICS, INCDated:
      November 23, 2009
              By:
              /s/ Alton L. BoyntonAlton
      L. BoyntonPresident
      and Chief Executive Officer(Principal
      Executive, Financial and Accounting Officer)


46


NORTHWEST
BIOTHERAPEUTICS, INC.


(A
Development Stage Company)





EXHIBIT
INDEX





3.1
                  Seventh
      Amended and Restated Certificate of Incorporation
  (3.1)(1)3.2
                  Third
      Amended and Restated Bylaws (3.1)(2)3.3
                  Amendment
      to the Seventh Amended and Restated Certificate of Incorporation
      (3.2)(2)3.4
                  Amendment
      to Seventh Amended and Restated Certificate of Incorporation
      (3.4)(3)*3.5
                  Amendment
      to Seventh Amended and Restated Certificate of
    Incorporation*10.1
                  Conversion
      Agreement effective September 28, 2009 between the Company and Toucan
      Partners, LLC.*10.2
                  Form
      of Loan Extension Agreement dated September 28, 2009*10.3
                  Retention
      Agreement between Dr. Alton L. Boynton and the Company dated September 28,
      2009*31.1
                  Certification
      of President and Chief Executive Officer (Principal executive officer and
      principal financial officer) Pursuant to Exchange Act Rules 13a-14(a) and
      15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.*32.1
                  Certification
      of President and Chief Executive Officer (Principal executive officer and
      principal financial officer) Pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002.









(1)
            Incorporated by reference to the
      exhibit shown in the preceding parentheses filed with the Registrant’s
      registration statement Form S-1 (File No. 333-67350) on July 17,
      2006.





(2)
            Incorporated by reference to the
      exhibit shown in the preceding parentheses filed with the Registrant’s
      Current Report on Form 8-K on June 22,
  2007.





(3)
            Incorporated by reference to the
      exhibit shown in the preceding parentheses filed with the Post-Effective
      Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 on
      January 28, 2008.





(4)
            Incorporated by reference to the
      exhibit shown in the preceding parentheses filed with the Registrant’s
      Current Report on Form 8-K on May 15,
  2008.





*
            Filed
      herewith.


47