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 SECURITIES EXCHANGE ACT OF
      1934
              
              For the
      quarterly period ended March 31,
2009




OR





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





Commission
file number 000-33393





Northwest
Biotherapeutics, Inc.


(Exact
Name of Registrant as Specified in its Charter)





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





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). Yes £ No £





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





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





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





As of May
14, 2009, the total number of shares of common stock, par value $0.001 per
share, outstanding was 45,069,872.









TABLE
OF CONTENTS





NORTHWEST
BIOTHERAPEUTICS, INC.





TABLE
OF CONTENTS





PagePART
      I — FINANCIAL INFORMATIONItem
      1. Financial StatementsCondensed
      Consolidated Balance Sheets as of December 31, 2008 and March 31, 2009
      (unaudited)
                3Condensed
      Consolidated Statements of Operations (unaudited) for the three months
      ended March 31, 2008 and 2009 and the period from March 18, 1996
      (inception) to March 31, 2009
                4Condensed
      Consolidated Statements of Cash Flows (unaudited) for the three months
      ended March 31, 2008 and 2009 and the period from March 18, 1996
      (inception) to March 31, 2009
                5Notes
      to Condensed Consolidated Financial Statements
                6Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
                15Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk
                22Item
      4T. Controls and Procedures
                22PART
      II — OTHER INFORMATIONItem
      1. Legal Proceedings
                24Item
      1A. Risk Factors
                25Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
                35Item
      3. Defaults Upon Senior Securities
                36Item
      4. Submission of Matters to a Vote of Security Holders
                36Item
      5. Other Information
                36Item
      6. Exhibits
                36SIGNATURES
                37INDEX
      TO EXHIBITS
                38


2


Part I — Financial
Information





NORTHWEST
BIOTHERAPEUTICS, INC.


(A
Development Stage Company)





Condensed
Consolidated Balance Sheets


(in
thousands)





December
      31,
                  2008
                
                
                March
      31,
                  2009(Unaudited)AssetsCurrent
      assets:Cash
                
                $
                16
                
                
                $
                566Accounts
      receivable
                
                
                1
                
                
                
                1Prepaid
      expenses and other current assets
                
                
                1,057
                
                
                
                709Total
      current assets
                
                
                1,074
                
                
                
                1,276Property
      and equipment:Laboratory
      equipment
                
                
                29
                
                
                
                29Office
      furniture and other equipment
                
                
                82
                
                
                
                82Construction
      in Progress
                
                
                387
                
                
                
                389498
                
                
                
                500Less
      accumulated depreciation and amortization
                
                
                (104
                )
                
                
                (104
                )Property
      and equipment, net
                
                
                394
                
                
                
                396Deposit
      and other non-current assets
                
                
                12
                
                
                
                6Total
      assets
                
                $
                1,480
                
                
                $
                1,678Liabilities
      And Stockholders’ Equity (Deficit)Current
      liabilities:Accounts
      payable
                
                $
                3,420
                
                
                $
                3,746Accounts
      payable, related party
                
                
                656
                
                
                
                2,178Accrued
      expenses
                
                
                1,298
                
                
                
                1,127Accrued
      expense, related party
                
                
                905
                
                
                
                1,362Notes
      payable, net of warrant related discount ($603 and $119 at December 31,
      2008 and March 31,   2009)
                
                
                2,047
                
                
                
                2,531Note
      payable to related parties, net of warrant related discount ($46 and $22
      at December 31, 2008 and March 31,   2009)
                
                
                5,454
                
                
                
                5,478Total
      current liabilities
                
                
                13,780
                
                
                
                16,422Long
      term liabilitiesConvertible
      notes payable, net of discount ($73)
                
                
                —
                
                
                
                687Total
      long term liabilities
                
                
                —
                
                
                
                687Total
      liabilities
                
                
                13,780
                
                
                
                17,109Stockholders’
      equity (deficit):Preferred
      stock, $0.001 par value; 20,000,000 shares authorized and none issued and
      outstanding
                  Common
      stock, $0.001 par value; 100,000,000 shares authorized at December 31,
      2008 and March 31, 2009 and 42,492,853 and 45,069,872 shares issued and
      outstanding at December 31, 2008 and March 31, 2009,
      respectively
                
                
                42
                
                
                
                44Common
      stock issuable 688,679 shares at March 31, 2009,
                
                
                —
                
                
                
                1Stock
      subscription receivable
                
                
                —
                
                
                
                (365
                )Additional
      paid-in capital
                
                
                152,308
                
                
                
                154,056Deficit
      accumulated during the development stage
                
                
                (164,626
                )
                
                
                (169,202
                )Cumulative
      translation adjustment
                
                
                (24
                )
                
                
                35Total
      stockholders’ equity (deficit)
                
                
                (12,300
                )
                
                
                (15,431
                )Total liabilities andstockholders’
      equity (deficit)
                
                $
                1,480
                
                
                $
                1,678





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
                  March 31,
                
                
                Period
      from
                  March
      18, 1996
                  (Inception)
      to
                  March
      31,2008
                
                
                2009
                
                
                2009Revenues:Research
      material sales
                
                $
                —
                
                
                $
                —
                
                
                $
                550Contract
      research and development from related parties
                
                
                —
                
                
                
                —
                
                
                
                1,128Research
      grants and other
                
                
                —
                
                
                
                —
                
                
                
                1,061Total
      revenues
                
                
                —
                
                
                
                —
                
                
                
                2,739Operating
      costs and expenses:Cost
      of research material sales
                
                
                —
                
                
                
                —
                
                
                
                382Research
      and development
                
                
                3,062
                
                
                
                2,492
                
                
                
                59,817General
      and administrative
                
                
                2,603
                
                
                
                1,333
                
                
                
                50,377Depreciation
      and amortization
                
                
                22
                
                
                
                —
                
                
                
                2,344Loss
      on facility sublease
                
                
                —
                
                
                
                —
                
                
                
                895Asset
      impairment loss and other (gain) loss
                
                
                —
                
                
                
                —
                
                
                
                2,056Total
      operating costs and expenses
                
                
                5,687
                
                
                
                3,825
                
                
                
                115,871Loss
      from operations
                
                
                (5,687
                )
                
                
                (3,825
                )
                
                
                (113,132
                )Other
      income (expense):Warrant
      valuation
                
                
                —
                
                
                
                —
                
                
                
                6,759Gain
      on sale of intellectual property and property and
equipment
                
                
                —
                
                
                
                —
                
                
                
                3,664Interest
      expense
                
                
                (12
                )
                
                
                (751
                )
                
                
                (22,902
                )Interest
      income and other
                
                
                74
                
                
                
                —
                
                
                
                1,218Net
      loss
                
                
                (5,625
                )
                
                
                (4,576
                )
                
                
                (124,393
                )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
                
                $
                (5,625
                )
                
                $
                (4,576
                )
                
                $
                (169,202
                )Net
      loss per share applicable to common stockholders — basic and
      diluted
                
                $
                (0.13
                )
                
                $
                (0.11
                )Weighted
      average shares used in computing basic and diluted net loss per
      share
                
                
                42,346
                
                
                
                43,385





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)





Three
      Months Ended
                  March 31,
                
                
                Period
      from
                  March
      18, 1996
                  (Inception)
      to
                  March
      31,2008
                
                
                2009
                
                
                2009Cash
      Flows from Operating Activities:Net
      Loss
                
                $
                (5,625
                )
                
                $
                (4,576
                )
                
                $
                (124,393
                )Reconciliation
      of net loss to net cash used in operating activities:Depreciation
      and amortization
                
                
                22
                
                
                
                —
                
                
                
                2,344Amortization
      of deferred financing costs
                
                
                —
                
                
                
                —
                
                
                
                320Amortization
      debt discount
                
                
                —
                
                
                
                509
                
                
                
                18,873Accrued
      interest converted to preferred stock
                
                
                —
                
                
                
                —
                
                
                
                260Accreted
      interest on convertible promissory note
                
                
                —
                
                
                
                —
                
                
                
                1,484Stock-based
      compensation costs
                
                
                1,097
                
                
                
                190
                
                
                
                6,982Warrant
      valuation
                
                
                —
                
                
                
                —
                
                
                
                (6,759
                )Asset
      impairment loss and loss (gain) on sale of properties
                
                
                —
                
                
                
                —
                
                
                
                (1,325
                )Loss
      on facility sublease
                
                
                —
                
                
                
                —
                
                
                
                895Increase
      (decrease) in cash resulting from changes in assets and
      liabilities:Accounts
      receivable
                
                
                —
                
                
                
                —
                
                
                
                (1
                )Prepaid
      expenses and other current assets
                
                
                28
                
                
                
                354
                
                
                
                11Accounts
      payable and accrued expenses
                
                
                (221
                )
                
                
                248
                
                
                
                4,888Related
      party accounts payable and accrued expenses
                
                
                (410
                )
                
                
                1,979
                
                
                
                3,540Accrued
      loss on sublease
                
                
                —
                
                
                
                —
                
                
                
                (265
                )Deferred
      rent
                
                
                —
                
                
                
                —
                
                
                
                410Net
      Cash used in Operating Activities
                
                
                (5,109
                )
                
                
                (1,296
                )
                
                
                (92,736
                )Cash
      Flows from Investing Activities:Purchase
      of property and equipment, net
                
                
                (128
                )
                
                
                (2
                )
                
                
                (5,003
                )Proceeds
      from sale of property and equipment
                
                
                —
                
                
                
                —
                
                
                
                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
                
                
                (128
                )
                
                
                (2
                )
                
                
                (1,967
                )Cash
      Flows from Financing Activities:Proceeds
      from issuance of note payable
                
                
                —
                
                
                
                
                
                
                
                2,650Proceeds
      from issuance of convertible notes payable
                
                
                
                
                
                
                760
                
                
                
                760Proceeds
      from issuance of note payable to related parties
                
                
                —
                
                
                
                —
                
                
                
                11,250Repayment
      of note payable to stockholder
                
                
                —
                
                
                
                —
                
                
                
                (6,700
                )Proceeds
      from issuance of convertible promissory note and warrants, net of issuance
      costs
                
                
                —
                
                
                
                —
                
                
                
                13,099Repayment
      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 Series A cumulative preferred stock, net
                
                
                —
                
                
                
                —
                
                
                
                28,708Proceeds
      from exercise of stock options and warrants
                
                
                —
                
                
                
                —
                
                
                
                228Proceeds
      from issuance common stock, net
                
                
                —
                
                
                
                1,029
                
                
                
                49,372Payment
      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
                
                
                —
                
                
                
                1,789
                
                
                
                95,234Effect
      of exchange rates on cash
                
                
                (46
                )
                
                
                59
                
                
                
                35Net
      increase (decrease) in cash
                
                
                (5,283
                )
                
                
                550
                
                
                
                566Cash
      at beginning of period
                
                
                7,861
                
                
                
                16
                
                
                
                —Cash
      at end of period
                
                $
                2,578
                
                
                $
                566
                
                
                $
                566Supplemental
      disclosure of cash flow information — Cash paid during the period for
      interest
                
                $
                12
                
                
                $
                —
                
                
                $
                1,879Supplemental
      schedule of non-cash financing activities:Issuance
      of common stock in connection with elimination of Series A and Series A-1
      preferred stock preferences
                
                $
                —
                
                
                $
                —
                
                
                $
                12,349Modification
      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
                
                
                —
                
                
                
                73
                
                
                
                8,332Conversion
      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
                
                
                —
                
                
                
                —
                
                
                
                7,707Conversion
      of convertible promissory notes and accrued interest to common
      stock
                
                
                —
                
                
                
                —
                
                
                
                269Issuance
      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
                
                
                —
                
                
                
                —
                
                
                
                35Issuance
      of common stock for finders fee
                
                
                —
                
                
                
                93
                
                
                
                93Deferred
      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
                
                
                —
                
                
                
                365
                
                
                
                845





See
accompanying notes to condensed consolidated financial
statements.


5


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 our 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
(“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 month periods ended March 31, 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 our
consolidated financial statements included in our Annual Report on Form 10-K for
the year ended December 31, 2008.





Recent
and adopted Accounting Pronouncements





In
December 2007, the Financial Accounting Standards Board (“FASB”) ratified the
consensus reached by the Emerging Issues Task Force (“EITF”) on Issue No. 07-1
(“EITF 07-1”), Accounting
for Collaborative
Arrangements. EITF 07-1 was effective for the Company beginning January
1, 2009 and will be applied retrospectively to all prior periods presented for
all collaborative arrangements existing as of the effective date. EITF 07-1
defines collaborative arrangements and establishes reporting requirements for
transactions between participants in a collaborative arrangement and between
participants in the arrangement and third parties. The Company adopted EITF 07-1
effective January 1, 2009 which had no effect on the consolidated financial
statements.





In
February 2008, the FASB issued FASB Staff Position (FSP No. 157-1) which
excludes SFAS No. 13, “Accounting for Leases”and
certain other accounting pronouncements that address fair value measurements
under SFAS 13, from the scope of SFAS 157.  In February 2008, the FASB
issued FSP No. 157-2 (FSP FAS 157-2), which provides a one-year delayed
application of  SFAS 157 “Fair Value
Measurements”  for nonfinancial 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).  Therefore the
Company was required to adopt SFAS 157 as amended by FSP FAS 157-1 and FSP FAS
157-2 on January 1, 2009, the beginning of the Company’s fiscal year, as related
to nonfinancial assets and liabilities, which did not have an impact on the
Company’s consolidated financial statements.





On April
9, 2009 the FASB issued several Staff Positions, as listed below, relating to
fair value accounting, impairment of securities, and disclosures.  All
of these FSP’s are effective for interim and annual periods ending after June
15, 2009; entities may early adopt the FSP’s for the interim and annual periods
ended after March 15, 2009.  The Company did not early adopt any of
these FSP’s and expect that adoption will not have a material impact on the
Company’s consolidated financial statements.





·
            FSP
      FAS 157-4 “Determining
      Fair Value When the Volume and Level of Activity for the Asset or
      Liability Have Significantly Decreased and Identifying Transactions that
      are Not Orderly.”


·
            FSP
      FAS 115-2 “Recognition
      and Presentation of Other-Than-Temporary
      Impairments;”and


·
            FSP
      FAS 107-1, “Interim
      Disclosures about Fair Value of Financial
    Statements.”




6





In May
2008, the FASB issued Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments that
may be Settled in Cash upon Conversion (Including Partial Cash
Settlement) (“FSP APB 14-1”). FSP APB 14-1 states that convertible debt
instruments that may be settled in cash upon conversion (including partial cash
settlement) are not addressed by paragraph 12 of Accounting Principles Board
Opinion No. 14 and that issuers of such instruments should account separately
for the liability and equity components of the instrument in a manner that will
reflect the entity’s nonconvertible debt borrowing rate when interest cost is
recognized in subsequent periods. FSP APB 14-1 was effective for financial
statements issued for fiscal years beginning after December 15, 2008, and must
be applied retrospectively to all periods presented. The Company adopted this
standard  on January 1, 2009 which had no effect on the consolidated
financial statements.




In June
2008, the FASB ratified EITF Issue No. 07-5, Determining Whether an Instrument
(or an Embedded Feature) is Indexed to an Entity’s Own Stock (“EITF
07-5”). EITF 07-5 provides that an entity should use a two-step approach to
evaluate whether an equity-linked financial instrument (or embedded feature) is
indexed to its own stock, including evaluating the instrument’s contingent
exercise and settlement provisions.  EITF 07-5 was effective for
fiscal years beginning after December 15, 2008.  The Company adopted
EITF 07-5 effective January 1, 2009, which had no effect on the consolidated
financial statements.





In June
2008, the FASB issued EITF Issue No. 08-4, Transition Guidance for Conforming
Changes to Issue No. 98-5 (“EITF 08-4”).  The objective of EITF
08-4 is to provide transition guidance for conforming changes made to EITF Issue
No. 98-5, Accounting for
Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios that result from EITF Issue No. 00-27, Application
of Issue No. 98-5 to Certain Convertible Instruments, and SFAS Issue
No.  150,  Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. EITF 08-4 was
effective for financial statements issued for fiscal years ending after December
15, 2008. The Company adopted EITF 08-4 effective January 1, 2009, which had no
effect on the consolidated financial statements.





In June
2008, the FASB issued FSP EITF Issue No. 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities
(“FSP EITF 03-6-1”).
FSP EITF 03-6-1 provides that unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and shall be included in the computation of
earnings per share pursuant to the two-class method.  FSP EITF 03-6-1
was effective for fiscal years beginning after December 15,
2008.   The Company adopted EITF 03-6-1 effective January 1,
2009, which had no effect on the consolidated financial statements.





3.
Fair Value Measurements





The
Company adopted SFAS 157  which applies to certain accounting
standards that require or permit fair value measurements on January 1,
2008.





SFAS 157
defines fair value, establishes a consistent framework for measuring fair value
and expands disclosures for each major asset and liability category measured at
fair value on either a recurring or nonrecurring basis. SFAS 157 clarifies that
fair value is an exit price, representing the amount that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between
market participants.  As such, fair value is a market-based
measurement that should be determined based on assumptions, SFAS 157 establishes
a three-tier fair value hierarchy, which prioritizes the inputs used in
measuring fair value 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





As of
March 31, 2009, the Company did not hold any assets and liabilities which were
required to be measured at fair value.





The
Company adopted SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities”,which provides entities the option to
measure many financial instruments and certain other items at fair
value.  The Company has currently chosen not to elect the fair value
option for any option for any items that are not already required to be measured
at fair value in accordance with generally accepted accounting
principles.


7


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 vesting period. For options and warrants
issued to non-employees, the Company recognizes stock compensation costs
utilizing the fair value methodology prescribed in SFAS 123 (revised 2004),
Share Based Payment(“SFAS 123(R)”) over the related period of benefit.





The
stock-based compensation expense related to stock-based awards under SFAS 123(R)
totaled approximately $1,096,700 and $190,000 for the three months ended March
31, 2008 and 2009, respectively. As of March 31, 2009, the Company had $4.3
million of total unrecognized compensation cost related to non-vested
stock-based awards granted under all equity compensation plans.





There
were no stock options granted during the three month periods ended March 31,
2009 and 2008.





Stock
Option Plans





The
Company established a stock option plan, which became effective on June 22, 2007
(the “2007 Stock Option Plan”). In April 2008, the Company increased the number
of shares reserved for issuance under the 2007 Stock Option Plan by an
additional 519,132 shares of its common stock for an aggregate of 6,000,000
shares of its common stock, par value $0.001 per share (“Common Stock”),
reserved for issue in respect of options granted under the plan. 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 March 31,
2009, had working capital deficit of $15.1 million and a deficit accumulated
during the development stage of $169.2 million.





Since
2004, the Company has undergone a significant recapitalization pursuant to which
Toucan Capital Fund II, L.P. (“Toucan Capital”) loaned the Company an aggregate
of $6.75 million and Toucan Partners, LLC (“Toucan Partners”) loaned the Company
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). The
Board’s Chairperson is the managing director of Toucan Capital and the managing
member of Toucan Partners. During this period of time, the Company also borrowed
funds from certain members of management. In addition, the Company raised
capital in March 2006 through a closed equity financing with unrelated investors
(the “PIPE Financing”) and in June 2007 sold shares of Common Stock to foreign
institutional investors. In May 2008, the Company borrowed $4 million from Al
Rajhi Holdings W.L.L. (“Al Rajhi”), which beneficially owns greater than 10% of
our issued and outstanding common stock. On August 19, 2008, the Company
borrowed $1 million from Toucan Partners. On October 1, 2008, the Company
borrowed $1 million from SDS Capital Group SPC, Ltd.
(“SDS”).   On November 6, 2008, the Company borrowed an
additional $1 million from SDS and $650,000 from a group of private investors.
Additionally on December 22, 2008, the Company borrowed $500,000 from Toucan
Partners. On February 10, 2009 the Company received $700,000 from Al Rajhi
through the purchase of 1,000,000 shares of common stock at $0.70 per
share.   During March 2009, the Company borrowed $760,000 from a group
of private lenders (“Private Lenders”).  On March 27, 2009, the
Company received $0.7 million from a group of investors (“2009 Private
Investors”) through the sale of approximately 1.4 million shares of its
common stock.




Toucan
Capital and Toucan Partners





Toucan
Capital loaned the Company an aggregate of $6.75 million during 2004 and
2005. 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, net of offering related costs
of approximately $24,000. 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”).




8





Toucan
Partners loaned the Company $4.825 million in a series of transactions.
From November 14, 2005 through March 9, 2006, the Company issued three
promissory notes to Toucan Partners, pursuant to which Toucan Partners loaned
the Company an aggregate of $950,000. In addition to the $950,000 of promissory
notes, Toucan Partners provided $3.15 million in cash advances from October
2006 through April 2007, which were converted into convertible notes (the “2007
Convertible Notes”) and related warrants (the “2007 Warrants”) in April 2007. In
April 2007, the three promissory notes were amended and restated to conform to
the 2007 Convertible Notes. Payment was due under the notes upon written demand
on or after June 30, 2007. Interest accrued at 10% per annum, compounded
annually, on a 365-day year basis. The principal amount of, and accrued interest
on, these notes, as amended, was convertible at Toucan Partners’ election into
common stock on the same terms as the 2007 Convertible Notes.





The
Company and Toucan Partners also entered into two promissory notes to fix the
terms of two additional cash advances provided by Toucan Partners to the Company
on May 14, 2007 and May 25, 2007 in the aggregate amount of $725,000,
and issued warrants to purchase shares of the Company’s capital stock to Toucan
Partners in connection with each such note. These notes and warrants are on the
same terms as the 2007 Convertible Notes and 2007 Warrants and the proceeds of
these notes enabled the Company to continue to operate and advance programs
while raising additional equity financing.





During
the fourth quarter of 2007, the Company repaid $5.3 million of principal
and related accrued interest due to Toucan Partners pursuant to the convertible
notes.





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, the terms
and  period of the extension are currently being negotiated by
management. The note may be paid at any time without a prepayment penalty and
the term may be extended in Toucan Partners discretion upon the Company’s
request. 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 March 31, 2009, the carrying value of the Loan was $1,073,000. The
Company amortizes the discount using the effective interest method over the term
of the loan. During the three month period ended March 31, 2009, the Company
recorded interest expense related to the amortization of the discount of
$29,000. Toucan Partners may elect to have the original issue discount amount
paid at maturity in shares of common stock, at a price per share equal to the
average closing price of the Company’s common stock on the NASD Over-The-Counter
Bulletin Board during the ten trading days prior to the execution of the loan
agreement. The intrinsic value of the Toucan Loan did not result in a beneficial
conversion feature.


On
December 22, 2008, the Company entered into a Loan Agreement and Promissory Note
with Toucan Partners.   Under the Note, Toucan has loaned the
Company $500,000 (the “Toucan December Loan”).  The Note is an
unsecured obligation of the Company and accrues interest at the rate of 12% per
year. The term of the Note is six months, with a maturity date of June 22,
2009.  The Note may be prepaid without the consent of
Toucan.   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 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, which was the closing price of the Company’s Common Stock on the NASD
Over-The-Counter Bulletin Board on December 22, 2008.  The warrant
expires 5 years from the date of issuance.





Upon
issuing the Note to Toucan Partners, the Company recognized the note and
warrants based on their relative fair values of $453,000 and $47,000,
respectively, in accordance with APB Opinion No. 14, Accounting for Convertible Debt and
Debt Issued with Stock Purchase Warrants ” (“APB 14”).  The
fair value of the note was determined using the Black-Scholes option pricing
model. The relative fair value of the warrants was classified as a component of
additional paid-in capital in accordance with SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity (“SFAS
150”) and EITF 00-19, Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company's Own Stock
("EITF 00-19"), with the corresponding amount reflected as a contra-liability to
the debt.  The fair value of the warrants was determined using the
Black Scholes model, assuming a term of five years, volatility of 197%, no
dividends, and a risk-free interest rate of 1.53%.





Conversion
of Preferred Stock and Related Matters





On
June 1, 2007, the Company issued to Toucan Capital a new warrant to
purchase the Company’s Series A-1 Preferred Stock (“Toucan Capital
Series A-1 Warrant”) in exchange for the cancellation of all previously
issued warrants to purchase Series A-1 Preferred Stock (or, at the election
of Toucan Capital, any other equity or debt security of the Company) held by
Toucan Capital. The new Toucan Capital Series A-1 Warrant is exercisable
for 6,471,333 shares of Series A-1 Preferred Stock plus shares of
Series A-1 Preferred Stock attributable to accrued dividends on the shares
of Series A-1 Preferred Stock held by Toucan Capital (with each such
Series A-1 Preferred Share convertible into 2.67 shares of common
stock at $0.60 per share), compared to the 3,062,500 shares of
Series A-1 Preferred Stock (with each such Series A-1 Preferred Share
convertible into 2.67 shares of common stock at $0.60 per share) that were
previously issuable to Toucan Capital upon exercise of the warrants being
cancelled.





Also on
June 1, 2007, the Company and Toucan Capital amended Toucan Capital’s
warrant to purchase Series A Preferred Stock (the “Toucan Capital
Series A Warrant”) to increase the number of shares of Series A
Preferred Stock that are issuable upon exercise of the warrant to
32,500,000 shares of Series A Preferred Stock (plus shares of
Series A Preferred Stock attributable to accrued dividends on the shares of
Series A Preferred Stock held by Toucan Capital) from
13,000,000 shares of Series A Preferred Stock.





In
connection with the modifications of the Series A and Series A-1
Preferred Stock warrants, the Company recognized reductions in earnings
applicable to common stockholders in June 2007 of $2.3 million and
$16.4 million, respectively. The fair value of the warrant modifications
were determined using the Black-Scholes option pricing model with the following
assumptions: expected dividend yield of 0%, risk-free interest rate of 5.0%
volatility of 398%, and a contractual life of seven years.





On
June 15, 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”) (“Admission”).





Pursuant
to the terms of the Conversion Agreement (i) Toucan Capital agreed to
convert and has converted all of its shares of the Company’s Series A
Preferred Stock and Series A-1 Preferred Stock (in each case, excluding any
accrued and unpaid dividends) into common stock and agreed to eliminate a number
of rights, preferences and protections associated with the Series A
Preferred Stock and Series A-1 Preferred Stock, including the liquidation
preference entitling Toucan Capital to certain substantial cash payments and
(ii) Toucan Partners agreed to eliminate all of its existing rights to
receive Series A-1 Preferred Stock under certain notes and warrants (and
thereafter to receive shares of common stock rather than shares of
Series A-1 Preferred Stock), and the rights, preferences and protections
associated with the Series A-1 Preferred Stock, including the liquidation
preference that would entitle Toucan Partners to certain substantial cash
payments. In return for these agreements, the Company issued to Toucan Capital
and Toucan Partners 4,287,851 and 2,572,710 shares of common stock,
respectively. In connection with the issuance of these shares, the Company
recognized a further reduction of earnings applicable to common stockholders of
$12.3 million in June 2007.





Under the
terms of the Conversion Agreement (i) the Toucan Capital Series A
Warrant is exercisable for 2,166,667 shares of common stock rather than
shares of Series A Preferred Stock (plus shares of common stock, rather
than shares of Series A Preferred Stock, attributable to accrued dividends
on the shares of Series A Preferred Stock previously held by Toucan Capital
that were converted into common stock upon Admission, subject to the further
provisions of the Conversion Agreement as described below) and (ii) the
Toucan Capital Series A-1 Warrant became exercisable for an aggregate of
17,256,888 shares of common stock rather than shares of Series A-1
Preferred Stock (plus shares of common stock, rather than shares of
Series A-1 Preferred Stock, attributable to accrued dividends on the shares
of Series A-1 Preferred Stock previously held by Toucan Capital that were
converted into common stock upon Admission), subject to further provisions of
the Conversion Agreement as described below.


9




As noted
above, the 32,500,000 shares of Series A Preferred Stock held by
Toucan Capital converted, in accordance with their terms, into
2,166,667 shares of common stock and the 4,816,863 shares of
Series A-1 Preferred Stock held by Toucan Capital converted, in accordance
with their terms, into 12,844,968 shares of common stock.





Under the
terms of the Conversion Agreement, Toucan Capital also agreed to temporarily
defer receipt of the accrued and unpaid dividends on its shares of Series A
Preferred Stock and Series A-1 Preferred Stock of an amount equal to
$334,340 and $917,451, respectively, until not later than September 30,
2007. In September 2007, we paid these dividends in full to Toucan
Capital.





As a
result of the financings described above, as of March 31, 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 March 31, 2009, Toucan
Partners and its managing member Ms. Linda Powers held:





•
            an
      aggregate of 2,572,710 shares of common
  stock;





•
            warrants
      to purchase 8,832,541 shares of common stock at an exercise price of
      $0.60 per share; and





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





The
investments made by Toucan Capital and Toucan Partners were made pursuant to the
terms and conditions of a Recapitalization Agreement originally entered into on
April 26, 2004 with Toucan Capital. The Recapitalization Agreement, as
amended, originally contemplated the investment of up to $40 million
through the issuance of new securities to Toucan Capital and a syndicate of
other investors to be determined.





The
Company and Toucan Capital amended the Recapitalization Agreement in conjunction
with each successive loan agreement. The amendments generally (i) updated
certain representations and warranties of the parties made in the
Recapitalization Agreement, and (ii) made certain technical changes in the
Recapitalization Agreement in order to facilitate the bridge loans described
therein.





Through
June 22, 2007, the Company accrued and reimbursed certain legal and other
administrative costs on Toucan Capital’s behalf pursuant to the Recapitalization
Agreement. Subsequent to June 22, 2007, Toucan Capital has incurred costs
on behalf of the Company, primarily related to travel expenses and fees incurred
in connection with efforts to investigate and establish DCVax®
businesses in other locations overseas. In addition, effective July 1,
2007, the Company commenced accruing rent expense related to the sublease for
its Bethesda, Maryland office space from Toucan Capital. During the year ended
December 31, 2007, the Company recognized approximately $1.0 million
of general and administrative costs related to this Recapitalization Agreement,
rent expense and other costs incurred by Toucan Capital on the Company’s behalf.
Approximately $175,000 of these costs relate to activities which took place
prior to 2007. During the year ended December 31, 2006 the Company
recognized $1.3 million of general and administrative costs related to the
Recapitalization Agreement. Pursuant to the terms of the Conversion Agreement,
the Recapitalization Agreement was terminated on June 22,
2007.





As of
March 31, 2009, Toucan Capital, including the holdings of Toucan Partners,
beneficially owned of 21,872,196 shares of our capital stock, representing
approximately 48.5% of our outstanding common stock.





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 PIPE Financing closed and
stock was issued to the new investors in early April and 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.




10





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 banker 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 financing closed
and stock was issued to the new investors in early April and 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.





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 are being used to fund clinical trials, product and process
development, working capital needs and repayment of certain existing
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. On November 14, 2008 Al Rajhi agreed to
extend the term of the Loan on terms that are currently being
negotiated.  Since November 14, 2008 and until the terms of
negotiation and execution of necessary documents are complete the 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 March 31, 2009, the carrying value of the Loan was
$4,440,000.  During the three month period ended March 31, 2009, the
Company recorded interest expense including amortization of the original
issue discount of $119,000. Al Rajhi may elect to have the original issue
discount amount paid at maturity in shares of Common Stock, at a price per share
equal to the average closing price of the Company’s Common Stock on the NASD
Over-The-Counter Bulletin Board during the ten trading days prior to the
execution of the Loan agreement. The intrinsic value of the Loan did not result
in a beneficial conversion feature on the maturity date of the
Loan.




11





Other
Loans





On
October 1, 2008, the Company entered into a Loan Agreement (the “SDS Loan”) and
Promissory Note (the “Note”) with SDS.   Under the Note, SDS
loaned the Company $1.0 million.  The Note is an unsecured obligation
of the Company and accrues interest at the rate of 12% per year. The term of the
Note is six months, with a maturity date of April 1, 2009. 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, in accordance
with APB 14.  The fair value of the note was determined using the
Black-Scholes option pricing model. The relative fair value of the warrants was
classified as a component of additional paid-in capital in accordance with SFAS
No. 150, and EITF 00-19, with the corresponding amount reflected as a
contra-liability to the debt.  The fair value of the warrants was
determined using the Black Scholes model, assuming a term of five years,
volatility of 194%, no dividends, and a risk-free interest rate of
2.87%.





On dates
between October 21, 2008 and November 6, 2008, the Company entered into Loan
Agreements (the “Private Investor Loans”) and Promissory Notes (the “Private
Investor Promissory Notes”) with SDS and a group of private investors (the
“Private Investors”).  Under the Private Investor Promissory Notes,
SDS loaned the Company $1 million and the Private Investors loaned the Company
$650,000 for an aggregate of $1.65 million. The Private Investor Promissory
Notes are unsecured obligations of the Company and accrue interest at the rate
of 12% per year. The term of the Private Investor Promissory Notes is six
months, with maturity dates in April 2009. Management is in discussion with the
Private Investors concerning extension of the Notes. 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.





In
connection with the Private Investor Promissory Notes, the Company issued to SDS
and the Private Investors warrants to purchase, in the aggregate, 2,132,927
shares of the Company’s Common Stock at an exercise price of $0.41 per
share.  The Warrants expire three years from the date of
issuance.





Upon
issuing the notes to SDS, the Company recognized the note and warrants based on
their relative fair values of $1,053,000 and $597,000, respectively, in
accordance with APB 14.  The fair value of the notes and warrants was
determined using the Black-Scholes option pricing model. The relative fair value
of the warrants was classified as a component of additional paid-in capital in
accordance with SFAS 150 and EITF 00-19, with the corresponding amount reflected
as a contra-liability to the debt.  The fair value of the warrants was
determined using the Black Scholes model, assuming a term of three years,
volatility of 158%, no dividends, and a risk-free interest rate of
1.86%.





During
March 2009, the Company entered into Convertible Loan Agreements and
Promissory Notes with a group of Private Lenders (“Private Lenders”). Under
the Note the Private Lenders  have  loaned the Company
$650,000.  The Notes are unsecured obligations of the Company and
accrue interest at the rate of 6% per year. 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 allow the holder to receive shares
of the Company’s common stock and not cash or other consideration. The Private
Lenders may 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 relative fair value of
$73,000 attributable to the beneficial conversion feature.





On March
26, 2009, the Company entered into 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 Note is an unsecured obligation of the Company and
accrues interest at the rate of 6% per year. 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 maturity.  The Company has assessed the note under the
terms of FASB Staff Position No. APB 14-1 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.


12


Going
Concern





As of May
9, 2009, the Company had approximately $0.1 million of cash on hand.
The Company will need to raise additional capital in the near future to
fund its clinical trials and other operating activities. The
Company is in discussions with multiple parties regarding potential funding
transaction. However, these parties are not obligated to provide such
financing.





The
Company will require additional funding before it 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 its
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 the Company with any additional funds, and
any such funding may be dilutive to stockholders and may contain restrictive
covenants. The Company is currently exploring additional financings with
several other parties; however, there can be no assurance that the Company will
be able to complete any such financings, or that the terms of such financings
will be attractive to the Company. If the Company’s capital raising
efforts are unsuccessful, its inability to obtain additional cash as needed
could have a material adverse effect on the Company’s financial
position, results of operations and the Company’s ability to
continue its existence. The Company’s 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 the
Company’s
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 all periods
presented in the accompanying condensed consolidated financial statements and
notes thereto.





For the
three months ended March 31, 2009 and 2008, respectively, options to purchase
940,000 and 4,760,000 shares of Common Stock and warrants to purchase 35 million
and 32 million shares of Common Stock 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. 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.





During
the three months ending March 31, 2009 and 2008, respectively, the Company
recognized approximately $2.0 million and $1.8 million of research and
development costs related to these service agreements. As of March 31, 2009 and
December 31, 2008, the Company owed Cognate approximately $2.6 million and $1.1
million respectively.




13





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 March 31, 2009 and 2008, respectively, the Company
recognized approximately $0 and $150,000 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
March 31, 2009 and December 31, 2008, accrued expense payable to Toucan Capital
amounted to $0.1 million and $0.4 million, 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.





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.





As of
April 30, 2009, the Company’s registration statement ceased to be effective. The
Company has not yet filed a post-effective amendment to the registration
statement. Liquidated damages will accrue at a rate of approximately $550 per
day until a post effective registration statement is filed and becomes
effective.  Liquidated damages accrued through March 31, 2009 for
previous periods during which the registration statement was not effective
amount to the aggregate of approximately $180,000.


14


Legal
Proceedings





SOMA
Arbitration





We signed
an engagement letter, dated October 15, 2003, with Soma Partners, LLC, or
Soma, a New Jersey-based investment bank, pursuant to which we 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 us with Toucan Capital. We vigorously disputed Soma’s claims on multiple
grounds. We contended that we 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 us 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. We strongly disputed Soma’s claims and defended
ourselves.





The
arbitration proceedings occurred from March 8-10, 2005 and on May 24, 2005,
the arbitrator ruled in our favor and denied all claims of Soma. In particular,
the arbitrator decided that we did not owe Soma the fees and warrants sought by
Soma, that we would not owe Soma fees in connection with future financings, if
any, and that we had no obligation to pay any of Soma’s attorneys’ fees or
expenses. The arbitrator agreed with us that the only amount we owed Soma was
$6,702.87, which payment we 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, we filed our 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, we 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 our motion to appeal. A new
arbitration hearing took place in New York on May 13-15,
2009.  Management is unable to assess the likelihood of an unfavorable
outcome resulting from the arbitration at this time. We intend to continue to
vigorously defend ourselves against the claims of Soma.





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 seek unspecified compensatory damages, costs and
expenses. On December 18, 2007, a consolidated complaint was filed in the U.S.
District Court for the Western District of Washington consolidating the
stockholder actions previously filed. The putative securities class action
lawsuit, In re Northwest
Biotherapeutics, Inc. Securities Litigation, No. C-07-1254-RAJ was
settled with prejudice January 8, 2009.  The Company has agreed to pay
in settlement US$1 million.  In accordance with the stipulation the
insurance company has directly deposited the $1,000,000 in a court
controlled escrow account. The settlement must be approved by the
Court.  Management is unable to determine when the Court will approve
the settlement.  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.  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
disputes the allegations of the lawsuit, and denies that there was any such
misrepresentation or that the shares of Northwest Biotherapeutics common stock
were artificially inflated.  Nevertheless the Company is settling the
lawsuit to avoid potentially expensive and protracted litigation.





We have
no other legal proceedings pending at this time.





9.
Subsequent Events





On May 2,
2009, the Company received $88,000 from Toucan Partners as a short term loan.
The terms of the short term loan are currently being negotiated. The
Company is exploring additional financing transactions with several other
parties, which it hopes to complete during 2009. However, there can be no
assurance that the Company will be able to complete any of the financings, or
that the terms for such financings will be favorable to the
Company.





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 cells that activate the immune system. Our primary
activities since incorporation have been focused on advancing a proprietary
dendritic cell immunotherapy 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.





As
described in further detail elsewhere in this report, since 2004 we have
undergone a significant recapitalization pursuant to which (i) Toucan Capital
Fund II, L.P. (“Toucan Capital”) loaned us an aggregate of $6.75 million, which
notes payable and accrued interest thereon were converted into shares of our
Series A-1 cumulative convertible preferred stock (the “Series A-1 Preferred
Stock”) in April 2006 and subsequently converted into common stock in June 2007;
and (ii) Toucan Partners, LLC (“Toucan Partners”) loaned us an aggregate of
$4.825 million (excluding $225,000 in proceeds from a demand note that was
received on June 13, 2007 and repaid on June 27, 2007), which borrowings have,
in a series of transactions, been converted into convertible notes with an
aggregate outstanding principal of $4.825 million and related warrant coverage.
In the fourth quarter of 2007, we repaid all of the remaining outstanding
principal and accrued interest pursuant to these convertible notes in the
aggregate amount of $5.3 million to Toucan Partners.





In
addition, on January 26, 2005, Toucan Capital purchased 32.5 million shares of
our Series A cumulative convertible preferred stock (the “Series A Preferred
Stock”) at a purchase price of $0.04 per share, for a net purchase price of
$1.276 million, net of offering related costs of approximately $24,000. In June
2007, this Series A Preferred Stock was converted into common
stock.





On March
30, 2006, we sold approximately 2.6 million shares of common stock at a purchase
price of $2.10 per share and raised aggregate gross proceeds of approximately
$5.5 million in a closed equity financing with unrelated investors (the “PIPE
Financing”). The total cost of the offering recorded, including both cash and
non-cash costs, was approximately $837,000.





On June
22, 2007, we placed 15,789,473 shares of our common stock with foreign
institutional investors at a price of £0.95 per share. The gross proceeds from
the placement were approximately £15.0 million, or $29.9 million, while net
proceeds from the offering, after deducting commissions and expenses, were
approximately £13.0 million, or $25.9 million.





On May
12, 2008, the Company entered into a loan agreement with Al Rajhi, 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. On November 14, 2008 Al Rajhi agreed to
extend the term of the Loan on terms that are currently being
negotiated.  Since November 14, 2008 and until the terms of
negotiation and execution of necessary documents are complete the 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 March 31, 2009, the carrying value of the Loan was
$4,440,000.  During the three month period ended March 31, 2009, the
Company recorded interest expense including amortization of the original
issue discount of $119,000. Al Rajhi may elect to have the original issue
discount amount paid at maturity in shares of Common Stock, at a price per share
equal to the average closing price of the Company’s Common Stock on the NASD
Over-The-Counter Bulletin Board during the ten trading days prior to the
execution of the Loan agreement. The intrinsic value of the Loan did not result
in a beneficial conversion feature on the maturity date of the
Loan.




15





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, the terms
and  period of the extension are currently being negotiated
bymanagement. The note may be paid at any time without a prepayment penalty and
the term may be extended in Toucan Partners discretion upon the Company’s
request. 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 March 31, 2009, the carrying value of the Loan was $1,073,000. The
Company amortizes the discount using the effective interest method over the term
of the loan. During the three month period ended March 31, 2009, the Company
recorded interest expense related to the amortization of the discount of
$29,000. Toucan Partners may elect to have the original issue discount amount
paid at maturity in shares of common stock, at a price per share equal to the
average closing price of the Company’s common stock on the NASD Over-The-Counter
Bulletin Board during the ten trading days prior to the execution of the loan
agreement. The intrinsic value of the Toucan Loan did not result in a beneficial
conversion feature.





On
October 1, 2008, the Company entered into a Loan Agreement (the “SDS Loan”) and
Promissory Note (the “Note”) with SDS.   Under the Note, SDS
loaned the Company $1.0 million.  The Note is an unsecured obligation
of the Company and accrues interest at the rate of 12% per year. The term of the
Note is six months, with a maturity date of April 1, 2009. 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, in accordance
with APB 14.  The fair value of the note was determined using the
Black-Scholes option pricing model. The relative fair value of the warrants was
classified as a component of additional paid-in capital in accordance with SFAS
No. 150, and EITF 00-19, with the corresponding amount reflected as a
contra-liability to the debt.  The fair value of the warrants was
determined using the Black Scholes model, assuming a term of five years,
volatility of 194%, no dividends, and a risk-free interest rate of
2.87%.





On dates
between October 21, 2008 and November 6, 2008, the Company entered into Loan
Agreements (the “Private Investor Loans”) and Promissory Notes (the “Private
Investor Promissory Notes”) with SDS and a group of private investors (the
“Private Investors”).  Under the Private Investor Promissory Notes,
SDS loaned the Company $1 million and the Private Investors loaned the Company
$650,000 for an aggregate of $1.65 million. The Private Investor Promissory
Notes are unsecured obligations of the Company and accrue interest at the rate
of 12% per year. The term of the Private Investor Promissory Notes is six
months, with maturity dates in April 2009. Management is in discussion with the
Private Investors concerning extension of the Notes. 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.





In
connection with the Private Investor Promissory Notes, the Company issued to SDS
and the Private Investors warrants to purchase, in the aggregate, 2,132,927
shares of the Company’s Common Stock at an exercise price of $0.41 per
share.  The Warrants expire three years from the date of
issuance.




16





Upon
issuing the notes to SDS, the Company recognized the note and warrants based on
their relative fair values of $1,053,000 and $597,000, respectively, in
accordance with APB 14.  The fair value of the notes and warrants was
determined using the Black-Scholes option pricing model. The relative fair value
of the warrants was classified as a component of additional paid-in capital in
accordance with SFAS 150 and EITF 00-19, with the corresponding amount reflected
as a contra-liability to the debt.  The fair value of the warrants was
determined using the Black Scholes model, assuming a term of three years,
volatility of 158%, no dividends, and a risk-free interest rate of
1.86%.




On
December 22, 2008, the Company entered into a Loan Agreement and Promissory Note
with Toucan Partners.   Under the Note, Toucan has loaned the
Company $500,000 (the “Toucan December Loan”).  The Note is an
unsecured obligation of the Company and accrues interest at the rate of 12% per
year. The term of the Note is six months, with a maturity date of June 22,
2009.  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 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, which
was the closing price of the Company’s Common Stock on the NASD Over-The-Counter
Bulletin Board on December 22, 2008.  The warrant expires 5 years from
the date of issuance.





Upon
issuing the Note to Toucan Partners, the Company recognized the note and
warrants based on their relative fair values of $453,000 and $47,000,
respectively, in accordance with APB 14  The fair value of the note
was determined using the Black-Scholes option pricing model. The relative fair
value of the warrants was classified as a component of additional paid-in
capital in accordance with SFAS No. 150, and EITF 00-19, , with the
corresponding amount reflected as a contra-liability to the debt.  The
fair value of the warrants was determined using the Black Scholes model,
assuming a term of five years, volatility of 197%, no dividends, and a risk-free
interest rate of 1.53%.





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.





During
March 2009, the Company entered into Convertible Loan Agreements and
Promissory Notes with a group of Private Lenders (“Private
Lenders”).  Under the Note the Private
Lenders  have  loaned the Company $650,000.  The
Notes are unsecured obligations of the Company and accrue interest at the rate
of 6% per year. 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 allow the holder to receive shares of the Company’s common
stock and not cash or other consideration. The Private Lenders may 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 relative fair value of $73,000 attributable to the beneficial
conversion feature.





On March
26, 2009, the Company entered into 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 Note is an unsecured obligation of the Company and
accrues interest at the rate of 6% per year. 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 under the terms of FASB Staff Position No. APB 14-1 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
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 financing closed
and stock was issued to the new investors in early April and 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.


17


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 10Q





Results
of Operations





Operating
costs:





Operating
costs and expenses consist primarily of research and development expenses,
including clinical trial expenses which increase when we are actively
participating in clinical trials, and 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 March 31, 2009 and 2008





We
recognized a net loss of $4.6 million for the three months ended March 31, 2009
compared to a net loss of $5.7 million for the three months ended March 31,
2008. The decrease in net loss was primarily attributable to an decrease in
research and development and general and administrative expenses for the three
months ended March 31, 2009 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 March 31, 2008 to $2.5 million for the three months ended
March 31, 2009. This decrease was primarily due to reduced staff and consequent
reversal of stock option expense related to pre-vesting forfeitures
of  stock options.





General and Administrative Expense.General and administrative expense decreased from $2.6 million for the
three months ended March 31, 2008 to $1.3 million for the three months ended
March 31, 2009. This decrease was primarily due to reduced staffing and stock
options expense.





Depreciation and Amortization.Depreciation and amortization decreased from $22,000 during the three
months ended March 31, 2008 to $0 for the three months ended March 31, 2009.
This decrease was caused by depreciable assets reaching the end of useful
lives.


18





Interest (Expense).Interest
expense increased from $12,000 for the three months ended March 31, 2008 to
$751,000 for the three months ended March 31, 2009. Interest expense for the
three-month period ended March 31, 2009 was primarily related to the debt
discount and interest expense associated with our outstanding notes payable that
were outstanding during the three month period ended March 31,
2009.,





Liquidity
and Capital Resources





Toucan
Capital and Toucan Partners





Since
2004, we have undergone a significant recapitalization pursuant to which Toucan
Capital loaned us an aggregate of $6.75 million and 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). Our
Chairperson, Linda F. Powers, is the managing director of Toucan Capital and the
managing member of Toucan Partners.





On
January 26, 2005, we entered into a securities purchase agreement with Toucan
Capital pursuant to which it purchased 32.5 million shares of our 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
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 Preferred
Stock.





Simultaneously
with Toucan Capital’s notes payable conversion, Alton L. Boynton, our President
and Chief Executive Officer, and Marnix Bosch, our Chief Technical Officer, each
elected to convert the principal and accrued interest on certain convertible
promissory notes held by each of them into 146,385 and 32,796 shares,
respectively, of our common stock. In conjunction with the PIPE Financing, Drs.
Boynton and Bosch exercised certain warrants held by each of them on a net
exercise basis for 126,365 and 28,311 shares of our common stock,
respectively.





The
$4.825 million loaned to us by Toucan Partners was advanced in a series of
transactions. From November 14, 2005 through March 9, 2006, we issued three
promissory notes to Toucan Partners, pursuant to which Toucan Partners loaned us
an aggregate of $950,000. In addition to the $950,000 of promissory notes,
Toucan Partners provided $3.15 million in cash advances from October 2006
through April 2007, which were converted into convertible notes (the “2007
Convertible Notes”) and related warrants (the “2007 Convertible Warrants”) in
April 2007. In April 2007, the three promissory notes were amended and restated
to conform to the 2007 Convertible Notes. Payment was due under the notes upon
written demand on or after June 30, 2007. Interest accrued at 10% per annum,
compounded annually, on a 365-day year basis. The principal amount of, and
accrued interest on, these notes, as amended, was convertible at Toucan
Partners’ election into common stock on the same terms as the 2007 Convertible
Notes.





Toucan
Partners also entered into two promissory notes with us to fix the terms of two
additional cash advances provided by Toucan Partners to us on May 14, 2007 and
May 25, 2007 in the aggregate amount of $725,000, and we issued warrants to
purchase shares of our common stock to Toucan Partners in connection with each
such note. These notes and warrants are on the same terms as the 2007
Convertible Notes and 2007 Warrants and the proceeds of these notes enabled us
to continue to operate and advance programs while raising additional equity
financing.





During
the fourth quarter of 2007, we repaid the entire $5.3 million in principal and
related accrued interest due to Toucan Partners pursuant to the convertible
notes.





Conversion
of Preferred Stock and Related Matters





On June
1, 2007, we issued to Toucan Capital a new warrant to purchase our Series A-1
Preferred Stock (“Toucan Capital Series A-1 Warrant”) in exchange for the
cancellation of all previously issued warrants to purchase Series A-1 Preferred
Stock (or, at the election of Toucan Capital, any other equity or debt security
of ours) held by Toucan Capital. The Toucan Capital Series A-1 Warrant was
exercisable for 6,471,333 shares of Series A-1 Preferred Stock plus shares of
Series A-1 Preferred Stock attributable to accrued dividends on the shares of
Series A-1 Preferred Stock held by Toucan Capital (with each such Series A-1
Preferred Share convertible into 2.67 shares of common stock at $0.60 per
share), compared to the 3,062,500 shares of Series A-1 Preferred Stock (with
each such Series A-1 Preferred Share convertible into 2.67 shares of common
stock at $0.60 per share) that were previously issuable to Toucan Capital upon
exercise of the warrants being cancelled.





Also on
June 1, 2007, we and Toucan Capital amended Toucan Capital’s warrant to purchase
Series A Preferred Stock (the “Toucan Capital Series A Warrant”) to increase the
number of shares of Series A Preferred Stock that were issuable upon exercise of
the warrant to 32,500,000 shares of Series A Preferred Stock (plus shares of
Series A Preferred Stock attributable to accrued dividends on the shares of
Series A Preferred Stock held by Toucan Capital) from 13,000,000 shares of
Series A Preferred Stock.


19





In
connection with the modifications of the Series A and Series A-1 Preferred Stock
warrants, we recognized reductions in earnings applicable to common stockholders
in June 2007 of $2.3 million and $16.4 million, respectively. The fair value of
the warrant modifications were determined using the Black-Scholes option pricing
model with the following assumptions: expected dividend yield of 0%, risk-free
interest rate of 5.0% volatility of 398%, and a contractual life of seven
years.





On June
15, 2007, we, Toucan Capital, and Toucan Partners entered into a conversion
agreement (“Conversion Agreement”) which became effective on June 22, 2007 upon
the admission of our common stock to trade on AIM (“Admission”).





Pursuant
to the terms of the Conversion Agreement (i) Toucan Capital agreed to convert
and has converted all of its shares of the Company’s Series A Preferred Stock
and Series A-1 Preferred Stock (in each case, excluding any accrued and unpaid
dividends) into common stock and agreed to eliminate a number of rights,
preferences and protections associated with the Series A Preferred Stock and
Series A-1 Preferred Stock, including the liquidation preference entitling
Toucan Capital to certain substantial cash payments and (ii) Toucan Partners
agreed to eliminate all of its existing rights to receive Series A-1 Preferred
Stock under certain notes and warrants (and thereafter to receive shares of
common stock rather than shares of Series A-1 Preferred Stock), and the rights,
preferences and protections associated with the Series A-1 Preferred Stock,
including the liquidation preference that would entitle Toucan Partners to
certain substantial cash payments. In return for these agreements, we issued to
Toucan Capital and Toucan Partners 4,287,851 and 2,572,710 shares of common
stock, respectively. In connection with the issuance of these shares, we
recognized a further reduction of earnings applicable to common stockholders of
$12.3 million in June 2007.





Under the
terms of the Conversion Agreement (i) the Toucan Capital Series A Warrant became
exercisable for 2,166,667 shares of common stock rather than shares of Series A
Preferred Stock (plus shares of common stock, rather than shares of Series A
Preferred Stock, attributable to accrued dividends on the shares of Series A
Preferred Stock previously held by Toucan Capital that were converted into
common stock upon Admission, subject to the further provisions of the Conversion
Agreement as described below) and (ii) the Toucan Capital Series A-1 Warrant
became exercisable for an aggregate of 17,256,888 shares of common stock rather
than shares of Series A-1 Preferred Stock (plus shares of common stock, rather
than shares of Series A-1 Preferred Stock, attributable to accrued dividends on
the shares of Series A-1 Preferred Stock previously held by Toucan Capital that
were converted into common stock upon Admission), subject to further provisions
of the Conversion Agreement as described below.





As noted
above, the 32,500,000 shares of Series A Preferred Stock held by Toucan Capital
converted, in accordance with their terms, into 2,166,667 shares of common stock
and the 4,816,863 shares of Series A-1 Preferred Stock held by Toucan Capital
converted, in accordance with their terms, into 12,844,968 shares of common
stock.





Under the
terms of the Conversion Agreement, Toucan Capital also agreed to temporarily
defer receipt of the accrued and unpaid dividends on its shares of Series A
Preferred Stock and Series A-1 Preferred Stock of an amount equal to $334,340
and $917,451, respectively, until not later than September 30, 2007. In
September 2007, we paid these dividends in full to Toucan Capital.





As a
result of the financings described above, as of March 31, 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 March 31, 2009, Toucan Partners
held:





•
            an
      aggregate of 2,572,710 shares of common stock;
  and





•
            warrants
      to purchase 8,832,541 shares of common stock at an exercise price of $0.60
      per share.




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




The
investments made by Toucan Capital and Toucan Partners were made pursuant to the
terms and conditions of a Recapitalization Agreement originally entered into on
April 26, 2004 with Toucan Capital (the “Recapitalization Agreement”). The
Recapitalization Agreement originally contemplated the investment of up to $40
million through the issuance of new securities to Toucan Capital and a syndicate
of other investors to be determined.


20





We and
Toucan Capital amended the Recapitalization Agreement in conjunction with each
successive loan agreement. The amendments generally (i) updated certain
representations and warranties of the parties made in the Recapitalization
Agreement, and (ii) made certain technical changes in the Recapitalization
Agreement in order to facilitate the bridge loans described
therein.





In
accordance with the Recapitalization Agreement, we accrued and paid certain
legal and other administrative costs on Toucan Capital’s behalf. During the
three months ended March 31, 2009 and 2008, respectively, we recognized
approximately $0 and $150,000 of general and administrative costs related to the
Recapitalization Agreement and certain other costs incurred by Toucan Capital on
our behalf. Pursuant to the terms of the Conversion Agreement, the
Recapitalization Agreement was terminated on June 22, 2007.





As of
March 31, 2009, Toucan Capital and Toucan Partners collectively, held 21,872,196
shares of our common stock, representing approximately 48.5% of our outstanding
common stock. Further, as of March 31, 2009, Toucan Capital and Toucan Partners
and Ms. Linda Powers collectively, beneficially owned (including unexercised
warrants) 52,872,326 shares of our common stock, representing a beneficial
ownership interest of approximately 69.5%.





Other
Financings





On
November 13, 2003, we borrowed an aggregate of $335,000 from certain members of
our current and former management. These notes were either been repaid or
converted into common stock prior to December 31, 2006.





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.


21





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.





As of May
9, 2009, we had approximately $0.1 million of cash on hand. 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.


Sources
of Cash





During
the three months ended March 31, 2009, we received $700,000 from Al Rajhi
Holdings for a  purchase of 1,000,000 shares of our common stock at
$0.70 per share; $760,000 from private lenders in the form of promissory notes
with a term of two years at 6% per annum; and  approximately $329,000,
net of funding costs, from a closed equity financing with unrelated
investors




Uses
of Cash





We used
$1.3 million in cash for operating activities during the three months ended
March 31, 2009, compared to $5.1 million for the three months ended March 31,
2008. The decrease in cash used in operating activities was a result of reduced
staffing and completion of initiation of manufacturing start-up, initiating the
Phase II clinical trial for DCVax®-Brain and preparations for the
commercialization of DCVax®-Brain in Switzerland.





We
utilized $2,000 in cash for investing activities during the three months ended
March 31, 2009 compared to $128,000 used in investing activities during the
three months ended March 31, 2008. The cash utilized during the three-month
period ended March 31, 2008 consisted of purchases of property and equipment
primarily for computer and other equipment.





On March
21, 2008, we executed a sublease agreement with Toucan Capital Corporation, an
affiliate of Toucan Capital and Toucan Partners, for our new corporate
headquarters located at 7600 Wisconsin Avenue, Suite 750, Bethesda, Maryland
20814. This sublease agreement was effective as of July 1, 2008 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, 2008. 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 three months ended
March 31, 2009 and March 31, 2008, we paid $0 and approximately $300,000 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 March 31, 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 f rate of interest Of interest between 6 and 12 % per annum. 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.





Item
4T. 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.


22





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 9A, as of
March 31, 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
as defined by the SEC.





(iii) Insufficient
segregation of duties in our finance and accounting functions due to limited
personnel. During the three month period ended March 31, 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.





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”).


23





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 first quarter of 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





We signed
an engagement letter, dated October 15, 2003, with Soma Partners, LLC, or
Soma, a New Jersey-based investment bank, pursuant to which we 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 us with Toucan Capital. We vigorously disputed Soma’s claims on multiple
grounds. We contended that we only owed Soma approximately
$6,000.


24





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 us 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. We strongly disputed Soma’s claims and defended
ourselves.





The
arbitration proceedings occurred from March 8-10, 2005 and on May 24, 2005,
the arbitrator ruled in our favor and denied all claims of Soma. In particular,
the arbitrator decided that we did not owe Soma the fees and warrants sought by
Soma, that we would not owe Soma fees in connection with future financings, if
any, and that we had no obligation to pay any of Soma’s attorneys’ fees or
expenses. The arbitrator agreed with us that the only amount we owed Soma was
$6,702.87, which payment we 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, we filed our 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, we 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 our motion to appeal. A new
arbitration hearing took place in New York on May 13-15,
2009.  Management is unable to assess the likelihood of an unfavorable
outcome resulting from the arbitration at this time. We intend to continue to
vigorously defend ourselves against the claims of Soma.





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 seek unspecified compensatory damages, costs and
expenses. On December 18, 2007, a consolidated complaint was filed in the U.S.
District Court for the Western District of Washington consolidating the
stockholder actions previously filed. The putative securities class action
lawsuit, In re Northwest
Biotherapeutics, Inc. Securities Litigation, No. C-07-1254-RAJ was
settled with prejudice January 8, 2009.  The Company has agreed to pay
in settlement US$1 million.  In accordance with the stipulation the
insurance company has directly deposited the $1,000,000 in a court
controlled escrow account. The settlement must be approved by the
Court.  Management is unable to determine when the Court will approve
the settlement.  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.  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
disputes the allegations of the lawsuit, and denies that there was any such
misrepresentation or that the shares of Northwest Biotherapeutics common stock
were artificially inflated.  Nevertheless the Company is settling the
lawsuit to avoid potentially expensive and protracted litigation.





We have
no other legal proceedings pending at this time





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 Annual
Report on Form 10-K. 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 May
9, 2009, we had approximately $0.1 million 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
$164.6 million as of December 31, 2008. 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 March 2009 of $8.9 million and
equity infusions in 2009 of $1.1 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 $0 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.


25





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.





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.


26


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.





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 below under
Item 3.” 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 and is more fully
described below. 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 below. 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.


27





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.





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.


28





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.





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.


29





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.


30





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.


31





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.


32


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.





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
April 14, 2009, Toucan Capital, its affiliate, Toucan Partners and its managing
member, Ms. Linda Powers, collectively beneficially owned an aggregate of
21,872,196 shares of our common stock, representing
approximately 48.5 percent of our outstanding common stock. In
addition, as of April 14, 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 9.0 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;





•
            limited
      news coverage;


33





•
            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.





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.


34





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, represent 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
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.





The
proceeds were used for general business purposes.




35




Item
3. Defaults upon Senior Securities


None





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





None





Item
5. Other Information





None





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)*31.1
                  
                  Certification
      of President (Principal Executive Officer and Principal Financial and
      Accounting Officer), Pursuant to Exchange Act Rules 13a-14(a) and
      15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.*32.1
                  
                  Certification
      of President, Chief Executive Officer and Principal Financial and
      Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
      of 2002.







(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.





*
            Filed
      herewith.


36




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:
      May
      20, 2009
                  By:
                  /s/ Alton L. BoyntonAlton
      L. BoyntonPresident
      and Chief Executive Officer(Principal
      Executive
Officer)




37


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)*31.1
              
              Certification
      of President (Principal Executive Officer and Principal Financial and
      Accounting Officer), Pursuant to Exchange Act Rules 13a-14(a) and
      15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.*32.1
              
              Certification
      of President, Chief Executive Officer and Principal Financial and
      Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
      of 2002.







(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.





*
            Filed
      herewith.


38