##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q

|                                             |  |                                                                                         
|-------------------------------------------- |  | ----------------------------------------------------------------------------------------
|(Mark One)                                   |  |                                                                                         
|[X]                                          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 
|                                             |  |                                                                                         
|For The Quarterly Period Ended June 30, 2003
|                                             |  |                                                                                         
|OR                                          
|                                             |  |                                                                                         
|[   ]                                        |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-26825

NORTHWEST BIOTHERAPEUTICS, INC.

(Exact Name Of Registrant As Specified In Its Charter)

|                                |  |                                
|------------------------------- |  | -------------------------------
|DELAWARE                        |  | 94-3306718                     
|(State or Other Jurisdiction of |  | (I.R.S. Employer Identification
|Incorporation or Organization)  |  | No.)                           

Canyon Park Building 8, 22322 20th
Avenue S.E., Suite 150, Bothell, Wa. 98021
(Address of Principal Executive Offices, Including Zip Code)

(425) 608-3000
(Registrants Telephone Number, Including Area Code)

21720 23rd Dr. S.E., Suite 100,
Bothell, Wa. 98021
(Registrants Former Address)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]  No [   ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [   ]  No [X]

As of
August 8, 2003, the registrant had outstanding 19,030,776 shares of
common stock, $0.001 par value.





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TABLE OF CONTENTS



|                            |                                                                                                |                                    |  |  |  |  |  | 
|--------------------------- | ---------------------------------------------------------------------------------------------- | ---------------------------------- |  |  |  |  |  | 
|                            | PART I  FINANCIAL INFORMATION                                                                
|                            | Item 1. Financial Statements                                                                  
|                            |                                                                                                | Condensed Balance Sheets          
|                            |                                                                                                | Condensed Statements of Operations
|                            |                                                                                                | Condensed Statement of Cash Flows 
|                            | Notes to Condensed Financial Statements                                                       
|                            | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
|                            | Item 3. Quantitative and Qualitative Disclosures About Market Risk                            
|                            | Item 4. Controls and Procedures                                                               
|PART II  OTHER INFORMATION
|                            | Item 1. Legal Proceedings                                                                     
|                            | Item 2. Changes in Securities and Use of Proceeds                                             
|                            | Item 3. Defaults upon Senior Securities                                                       
|                            | Item 4. Submission of Matters to a Vote of Security Holders                                   
|                            | Item 5. Other Information                                                                     
|                            | Item 6. Exhibits and Reports on Form 8-K                                                      
|SIGNATURES                 
|INDEX TO EXHIBITS          
|Exhibit 10.1               
|Exhibit 10.2               
|Exhibit 31.1               
|Exhibit 31.2               
|Exhibit 32.1               
|Exhibit 32.2               



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##### Table of Contents



NORTHWEST BIOTHERAPEUTICS, INC.

TABLE OF CONTENTS

|                               |                                                                                               |                                         |    |      |   | 
|------------------------------ | --------------------------------------------------------------------------------------------- | --------------------------------------- | -- | ---- | - | 
|                               |                                                                                               |                                         |    | Page
|                               |                                                                                               |                                         |    |     
|PART I  FINANCIAL INFORMATION |                                                                                               |                                         |    |     
|                               | Item 1. Financial Statements (unaudited) and Supplementary Data                               |                                         |    | 3    |  
|                               |                                                                                               | Condensed Balance Sheets                |    |      | 3 | 
|                               |                                                                                               | Condensed Statements of Operations      |    |      | 4 | 
|                               |                                                                                               | Condensed Statement of Cash Flows       |    |      | 5 | 
|                               |                                                                                               | Notes to Condensed Financial Statements |    |      | 6 | 
|                               | Item 2. Managements Discussion and
Analysis of Financial Condition and
Results of Operations |                                         |    | 8    |  
|                               | Item 3. Quantitative and Qualitative
Disclosures About Market Risk                            |                                         |    | 21   |  
|                               | Item 4. Controls and Procedures                                                               |                                         |    | 21   |  
|PART II  OTHER INFORMATION    |                                                                                               |                                         |    |     
|                               | Item 1. Legal Proceedings                                                                     |                                         |    | 21   |  
|                               | Item 2. Changes in Securities and Use
of Proceeds                                             |                                         |    | 21   |  
|                               | Item 3. Defaults Upon Senior Securities                                                       |                                         |    | 22   |  
|                               | Item 4. Submission of Matters to a Vote
of Security Holders                                   |                                         |    | 22   |  
|                               | Item 5. Other Information                                                                     |                                         |    | 22   |  
|                               | Item 6. Exhibits and Reports on Form 8-K                                                      |                                         |    | 22   |  
|SIGNATURES                     |                                                                                               |                                         | 22 |     
|INDEX TO EXHIBITS              |                                                                                               |                                         | 23 |     
|Exhibit
10.1                   |                                                                                               |                                         |    |     
|Exhibit
10.2                   |                                                                                               |                                         |    |     
|Exhibit
31.1                   |                                                                                               |                                         |    |     
|Exhibit
31.2                   |                                                                                               |                                         |    |     
|Exhibit
32.1                   |                                                                                               |                                         |    |     
|Exhibit
32.2                   |                                                                                               |                                         |    |     

2



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##### Table of Contents






PART I  FINANCIAL INFORMATION




Item 1. Financial Statements

NORTHWEST BIOTHERAPEUTICS, INC.

(A Development Stage Company)




Condensed Balance Sheets
(unaudited)

(in thousands)

|                        |  |                                                                                                                                                                                |                                            |                      |         |          |       |              |         |       |       | 
|----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | -------------------- | ------- | -------- | ----- | ------------ | ------- | ----- | ----- | 
|                        |  |                                                                                                                                                                                |                                            |                      |         | June 30, |       | December 31,
|                        |  |                                                                                                                                                                                |                                            |                      |         | 2003     |       | 2002        
|                        |  |                                                                                                                                                                                |                                            |                      |         |          |       |             
|                        |  |                                                                                                                                                                                |                                            | Assets               |         |          |       |              |         |       |       | 
|Current assets:         |  |                                                                                                                                                                                |                                            |                      |         |          |       |             
|                        |  | Cash and cash equivalents                                                                                                                                                      |                                            | $                    | 709     |          |       | $            | 2,539   |      
|                        |  | Marketable securities                                                                                                                                                          |                                            |                      |        |          |       |              | 704     |      
|                        |  | Accounts receivable                                                                                                                                                            |                                            |                      | 88      |          |       |              |        |      
|                        |  | Accounts receivable from affiliates                                                                                                                                            |                                            |                      |        |          |       |              | 3       |      
|                        |  | Receivable from Medarex                                                                                                                                                        |                                            |                      | 816     |          |       |              | 1,124   |      
|                        |  | Prepaid expenses and other current assets                                                                                                                                      |                                            |                      | 319     |          |       |              | 745     |      
|                        |  |                                                                                                                                                                                |                                            |                      |         |          |       |             
|                        |  |                                                                                                                                                                                |                                            | Total current assets |         |          | 1,932 |              |         |       | 5,115 | 
|                        |  |                                                                                                                                                                                |                                            |                      |         |          |       |             
|Property and equipment: |  |                                                                                                                                                                                |                                            |                      |         |          |       |             
|                        |  | Leasehold improvements                                                                                                                                                         |                                            |                      | 66      |          |       |              | 739     |      
|                        |  | Laboratory equipment                                                                                                                                                           |                                            |                      | 566     |          |       |              | 952     |      
|                        |  | Office furniture and other equipment                                                                                                                                           |                                            |                      | 133     |          |       |              | 272     |      
|                        |  |                                                                                                                                                                                |                                            |                      |         |          |       |             
|                        |  |                                                                                                                                                                                | 765                                        |                      |         |          | 1,963 |             
|                        |  | Less accumulated depreciation and amortization                                                                                                                                 |                                            |                      | 368     |          |       |              | 615     |      
|                        |  |                                                                                                                                                                                |                                            |                      |         |          |       |             
|                        |  | Property and equipment, net                                                                                                                                                    |                                            |                      | 397     |          |       |              | 1,348   |      
|Restricted cash         |  |                                                                                                                                                                                | 105                                        |                      |         |          | 1,109 |             
|                        |  |                                                                                                                                                                                |                                            |                      |         |          |       |             
|                        |  |                                                                                                                                                                                |                                            | Total assets         |         | $        | 2,434 |              |         | $     | 7,572 | 
|                        |  |                                                                                                                                                                                |                                            |                      |         |          |       |              |         |      
|                        |  |                                                                                                                                                                                | Liabilities And Stockholders Equity       |                      |         |          |       |              |         |       |      
|Current liabilities:    |  |                                                                                                                                                                                |                                            |                      |         |          |       |             
|                        |  | Note payable                                                                                                                                                                   |                                            | $                    | 105     |          |       | $            | 420     |      
|                        |  | Current portion of capital lease obligations                                                                                                                                   |                                            |                      | 52      |          |       |              | 73      |      
|                        |  | Accounts payable                                                                                                                                                               |                                            |                      | 235     |          |       |              | 497     |      
|                        |  | Accrued expenses                                                                                                                                                               |                                            |                      | 341     |          |       |              | 241     |      
|                        |  | Accrued loss on facility sublease,
current portion                                                                                                                             |                                            |                      |        |          |       |              | 418     |      
|                        |  |                                                                                                                                                                                |                                            |                      |         |          |       |              |         |      
|                        |  |                                                                                                                                                                                | Total current
liabilities                  |                      |         | 733      |       |              |         | 1,649 |      
|Long-term liabilities:  |  |                                                                                                                                                                                |                                            |                      |         |          |       |             
|                        |  | Capital lease obligations, net of
current portion                                                                                                                              |                                            |                      | 69      |          |       |              | 98      |      
|                        |  | Deferred rent                                                                                                                                                                  |                                            |                      |        |          |       |              | 158     |      
|                        |  | Due to Medarex                                                                                                                                                                 |                                            |                      |        |          |       |              | 280     |      
|                        |  | Accrued
loss on facility sublease, net of current portion                                                                                                                      |                                            |                      |        |          |       |              | 511     |      
|                        |  |                                                                                                                                                                                |                                            |                      |         |          |       |              |         |      
|                        |  |                                                                                                                                                                                | Total liabilities                          |                      |         | 802      |       |              |         | 2,696 |      
|                        |  |                                                                                                                                                                                |                                            |                      |         |          |       |              |         |      
|Stockholders equity:   |  |                                                                                                                                                                                |                                            |                      |         |          |       |             
|                        |  | Common stock, $0.001 par value;
125,000,000 shares authorized and
18,940,776 and 17,930,276 shares issued
and outstanding at June 30, 2003 and
December 31, 2002, respectively |                                            |                      | 19      |          |       |              | 18      |      
|                        |  | Additional paid-in capital                                                                                                                                                     |                                            |                      | 63,998  |          |       |              | 63,794  |      
|                        |  | Deferred compensation                                                                                                                                                          |                                            |                      | (200    | )        |       |              | (444    | )    
|                        |  | Deficit accumulated during the
development stage                                                                                                                               |                                            |                      | (62,185 | )        |       |              | (58,492 | )    
|                        |  |                                                                                                                                                                                |                                            |                      |         |          |       |             
|                        |  |                                                                                                                                                                                | Total stockholders
equity                 |                      |         | 1,632    |       |              |         | 4,876 |      
|                        |  |                                                                                                                                                                                |                                            |                      |         |          |       |             
|                        |  |                                                                                                                                                                                | Total liabilities
and stockholders
equity |                      | $       | 2,434    |       |              | $       | 7,572 |      
|                        |  |                                                                                                                                                                                |                                            |                      |         |          |       |             

See accompanying notes to condensed financial statements.

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NORTHWEST BIOTHERAPEUTICS, INC.

(A Development Stage Company)




Condensed Statements of Operations
(unaudited)

(in thousands, except per share data)

|                                                                           |                                                        |                          |        |                    |        |                  |        |                |        |      |        |               |        |   |        |       |        |   |         |        |         |  
|-------------------------------------------------------------------------- | ------------------------------------------------------ | ------------------------ | ------ | ------------------ | ------ | ---------------- | ------ | -------------- | ------ | ---- | ------ | ------------- | ------ | - | ------ | ----- | ------ | - | ------- | ------ | ------- | -
|                                                                           |                                                        |                          |        | Three Months Ended |        | Six Months Ended |        | Period from   
|                                                                           |                                                        |                          |        | June 30,           |        | June 30,         |        | March 18, 1996
|                                                                           |                                                        |                          |        |                    |        |                  |        | (inception) to
|                                                                           |                                                        |                          |        | 2003               |        | 2002             |        | 2003           |        | 2002 |        | June 30, 2003
|                                                                           |                                                        |                          |        |                    |        |                  |        |                |        |      |        |              
|Revenues:                                                                  |                                                        |                          |        |                    |        |                  |        |                |        |      |        |               |        |   |        |       |        |   |         |       
|                                                                           | Research material sales                                |                          | $      | 7                  |        |                  | $      | 6              |        |      | $      | 7             |        |   | $      | 9     |        |   | $       | 343    |        
|                                                                           | Contract research and development from
related parties |                          |        |                   |        |                  |        |               |        |      |        |              |        |   |        |      |        |   |         | 1,128  |        
|                                                                           | Research grants                                        |                          |        | 180                |        |                  |        |               |        |      |        | 249           |        |   |        |      |        |   |         | 348    |        
|                                                                           | Other                                                  |                          |        |                   |        |                  |        |               |        |      |        |              |        |   |        |      |        |   |         | 33     |        
|                                                                           |                                                        |                          |        |                    |        |                  |        |                |        |      |        |               |        |   |        |       |        |   |         |       
|                                                                           |                                                        | Total revenues           |        |                    | 187    |                  |        |                | 6      |      |        |               | 256    |   |        |       | 9      |   |         |        | 1,852   |  
|                                                                           |                                                        |                          |        |                    |        |                  |        |                |        |      |        |               |        |   |        |       |        |   |         |        |        
|Operating expenses:                                                        |                                                        |                          |        |                    |        |                  |        |                |        |      |        |               |        |   |        |       |        |   |         |       
|                                                                           | Cost of research material sales                        |                          |        | 40                 |        |                  |        | 5              |        |      |        | 40            |        |   |        | 8     |        |   |         | 291    |        
|                                                                           | Research and development                               |                          |        | 500                |        |                  |        | 2,243          |        |      |        | 1,008         |        |   |        | 3,596 |        |   |         | 23,358 |        
|                                                                           | General and administrative                             |                          |        | 1,437              |        |                  |        | 2,078          |        |      |        | 2,503         |        |   |        | 3,764 |        |   |         | 24,288 |        
|                                                                           | Depreciation and amortization                          |                          |        | 50                 |        |                  |        | 163            |        |      |        | 137           |        |   |        | 305   |        |   |         | 2,001  |        
|                                                                           | Loss
on facility sublease and lease cancellation       |                          |        | 174                |        |                  |        |               |        |      |        | 174           |        |   |        |      |        |   |         | 895    |        
|                                                                           | Asset impairment loss                                  |                          |        | 904                |        |                  |        |               |        |      |        | 904           |        |   |        |      |        |   |         | 1,936  |        
|                                                                           |                                                        |                          |        |                    |        |                  |        |                |        |      |        |               |        |   |        |       |        |   |         |        |        
|                                                                           |                                                        | Total operating expenses |        |                    | 3,105  |                  |        |                | 4,489  |      |        |               | 4,766  |   |        |       | 7,673  |   |         |        | 52,769  |  
|                                                                           |                                                        |                          |        |                    |        |                  |        |                |        |      |        |               |        |   |        |       |        |   |         |       
|                                                                           |                                                        | Loss from operations     |        |                    | (2,918 | )                |        |                | (4,483 | )    |        |               | (4,510 | ) |        |       | (7,664 | ) |         |        | (50,917 | )
|                                                                           |                                                        |                          |        |                    |        |                  |        |                |        |      |        |               |        |   |        |       |        |   |         |       
|Other income (expense):                                                    |                                                        |                          |        |                    |        |                  |        |                |        |      |        |               |        |   |        |       |        |   |         |       
|                                                                           | Gain on sale of royalty rights                         |                          |        | 816                |        |                  |        |               |        |      |        | 816           |        |   |        |      |        |   |         | 3,656  |        
|                                                                           | Interest expense                                       |                          |        | (8                 | )      |                  |        | (10            | )      |      |        | (19           | )      |   |        | (22   | )      |   |         | (7,801 | )      
|                                                                           | Interest income                                        |                          |        | 8                  |        |                  |        | 46             |        |      |        | 20            |        |   |        | 111   |        |   |         | 725    |        
|                                                                           |                                                        |                          |        |                    |        |                  |        |                |        |      |        |               |        |   |        |       |        |   |         |        |        
|Net loss                                                                   |                                                        |                          | (2,102 | )                  |        |                  | (4,447 | )              |        |      | (3,693 | )             |        |   | (7,575 | )     |        |   | (54,337 | )     
|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                                 |                                                        | $                        | (2,102 | )                  |        | $                | (4,447 | )              |        | $    | (3,693 | )             |        | $ | (7,575 | )     |        | $ | (62,183 | )     
|                                                                           |                                                        |                          |        |                    |        |                  |        |                |        |      |        |               |        |   |        |       |        |   |         |        |         |  
|Net loss per share
applicable to
common stockholders
- basic and diluted   |                                                        | $                        | (0.11  | )                  |        | $                | (0.26  | )              |        | $    | (0.20  | )             |        | $ | (0.45  | )     |        |   |         |       
|                                                                           |                                                        |                          |        |                    |        |                  |        |                |        |      |        |               |        |   |        |       |        |   |         |        |         |  
|Weighted average
shares used in
computing basic and
diluted loss per
share |                                                        |                          | 18,933 |                    |        |                  | 16,885 |                |        |      | 18,286 |               |        |   | 16,882 |       |        |   |         |       
|                                                                           |                                                        |                          |        |                    |        |                  |        |                |        |      |        |               |        |   |        |       |        |   |         |        |         |  

See accompanying notes to condensed financial statements.

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##### Table of Contents






Northwest Biotherapeutics, Inc.
(A Development Stage Company)
Condensed Statement of Cash Flows
(unaudited)(in thousands)

|                                                                                             |                                                                                           |                                                          |                                                     |       |                  |        |                |      |               |        |         |        |        |         |  
|-------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------- | -------------------------------------------------------- | --------------------------------------------------- | ----- | ---------------- | ------ | -------------- | ---- | ------------- | ------ | ------- | ------ | ------ | ------- | -
|                                                                                             |                                                                                           |                                                          |                                                     |       | Six Months Ended |        | Period from   
|                                                                                             |                                                                                           |                                                          |                                                     |       | June 30,         |        | March 18, 1996
|                                                                                             |                                                                                           |                                                          |                                                     |       |                  |        | (Inception) to
|                                                                                             |                                                                                           |                                                          |                                                     |       | 2003             |        | 2002           |      | June 30, 2003
|                                                                                             |                                                                                           |                                                          |                                                     |       |                  |        |                |      |              
|Cash Flows from Operating Activities:                                                        |                                                                                           |                                                          |                                                     |       |                  |        |                |      |               |        |         |       
|Net Loss                                                                                     |                                                                                           | $                                                        | (3,693                                              | )     |                  | $      | (7,575         | )    |               | $      | (54,337 | )     
|                                                                                             | Reconciliation
of net loss to net cash used in operating activities:                      |                                                          |                                                     |       |                  |        |                |      |               |        |         |        |       
|                                                                                             |                                                                                           | Depreciation and amortization                            |                                                     |       | 137              |        |                |      | 305           |        |         |        | 2,000  |        
|                                                                                             |                                                                                           | Amortization of deferred financing costs                 |                                                     |       |                 |        |                |      |              |        |         |        | 320    |        
|                                                                                             |                                                                                           | Amortization debt discount                               |                                                     |       |                 |        |                |      |              |        |         |        | 5,749  |        
|                                                                                             |                                                                                           | Accrued interest converted to preferred stock            |                                                     |       |                 |        |                |      |              |        |         |        | 260    |        
|                                                                                             |                                                                                           | Stock-based compensation costs                           |                                                     |       | 169              |        |                |      | 317           |        |         |        | 969    |        
|                                                                                             |                                                                                           | Loss on sale and disposal of property and equipment      |                                                     |       | 904              |        |                |      |              |        |         |        | 1,386  |        
|                                                                                             |                                                                                           | Gain on sale of intellectual property and royalty rights |                                                     |       | (816             | )      |                |      |              |        |         |        | (3,656 | )      
|                                                                                             |                                                                                           | Asset impairment loss                                    |                                                     |       |                 |        |                |      |              |        |         |        | 1,032  |        
|                                                                                             |                                                                                           | Loss
on facility sublease and lease cancellation         |                                                     |       | 174              |        |                |      |              |        |         |        | 895    |        
|                                                                                             | Increase (decrease) in cash resulting from changes in assets and liabilities              |                                                          |                                                     |       |                  |        |                |      |               |        |         |        |       
|                                                                                             |                                                                                           | Accounts receivable                                      |                                                     |       | (85              | )      |                |      | 55            |        |         |        | (88    | )      
|                                                                                             |                                                                                           | Prepaid expenses and other current assets                |                                                     |       | 426              |        |                |      | 19            |        |         |        | 291    |        
|                                                                                             |                                                                                           | Accounts payable and accrued expenses                    |                                                     |       | (197             | )      |                |      | (296          | )      |         |        | 940    |        
|                                                                                             |                                                                                           | Accrued loss on sublease                                 |                                                     |       | (266             | )      |                |      |              |        |         |        |       |        
|                                                                                             |                                                                                           | Deferred rent                                            |                                                     |       | 44               |        |                |      | 73            |        |         |        |       |        
|                                                                                             |                                                                                           |                                                          |                                                     |       |                  |        |                |      |               |        |         |       
|                                                                                             |                                                                                           |                                                          | Net Cash used in Operating Activities               |       |                  | (3,203 | )              |      |               | (7,102 | )       |        |        | (44,239 | )
|                                                                                             |                                                                                           |                                                          |                                                     |       |                  |        |                |      |               |        |         |       
|Cash Flows from Investing Activities:                                                        |                                                                                           |                                                          |                                                     |       |                  |        |                |      |               |        |         |       
|                                                                                             | Purchase of property and equipment, net                                                   |                                                          |                                                     | (134  | )                |        |                | (515 | )             |        |         | (4,522 | )     
|                                                                                             | Proceeds from sale of property and equipment                                              |                                                          |                                                     | 44    |                  |        |                |     |               |        |         | 44     |       
|                                                                                             | Proceeds from sale of intellectual property and royalty rights                            |                                                          |                                                     |      |                  |        |                |     |               |        |         | 1,000  |       
|                                                                                             | Proceeds from sale of marketable securities                                               |                                                          |                                                     | 1,828 |                  |        |                |     |               |        |         | 2,000  |       
|                                                                                             | Restricted cash                                                                           |                                                          |                                                     |      |                  |        |                | (104 | )             |        |         | (1,109 | )     
|                                                                                             |                                                                                           |                                                          |                                                     |       |                  |        |                |      |               |        |         |       
|                                                                                             |                                                                                           |                                                          | Net
Cash provided by (used in) Investing Activities |       |                  | 1,738  |                |      |               | (619   | )       |        |        | (2,587  | )
|                                                                                             |                                                                                           |                                                          |                                                     |       |                  |        |                |      |               |        |         |       
|Cash Flows from Financing Activities:                                                        |                                                                                           |                                                          |                                                     |       |                  |        |                |      |               |        |         |       
|                                                                                             | Proceeds from issuance of note payable to stockholder                                     |                                                          |                                                     |      |                  |        |                |     |               |        |         | 1,650  |       
|                                                                                             | Repayment of note payable to stockholder                                                  |                                                          |                                                     |      |                  |        |                |     |               |        |         | (1,650 | )     
|                                                                                             | Proceeds from issuance of convertible promissory note and warrants, net of issuance costs |                                                          |                                                     |      |                  |        |                |     |               |        |         | 5,064  |       
|                                                                                             | Borrowing under line of credit, Northwest Hospital                                        |                                                          |                                                     |      |                  |        |                |     |               |        |         | 2,834  |       
|                                                                                             | Repayment of line of credit to Northwest Hospital                                         |                                                          |                                                     |      |                  |        |                |     |               |        |         | (2,834 | )     
|                                                                                             | Payment on capital lease obligations                                                      |                                                          |                                                     | (50   | )                |        |                | (34  | )             |        |         | (215   | )     
|                                                                                             | Payments on note payable                                                                  |                                                          |                                                     | (315  | )                |        |                |     |               |        |         | (315   | )     
|                                                                                             | Proceeds from issuance preferred stock, net                                               |                                                          |                                                     |      |                  |        |                |     |               |        |         | 27,432 |       
|                                                                                             | Proceeds from exercise of stock options and warrants                                      |                                                          |                                                     |      |                  |        |                | 216  |               |        |         | 220    |       
|                                                                                             | Proceeds from issuance common stock, net                                                  |                                                          |                                                     |      |                  |        |                |     |               |        |         | 17,369 |       
|                                                                                             | Series A preferred stock redemption fee                                                   |                                                          |                                                     |      |                  |        |                |     |               |        |         | (1,700 | )     
|                                                                                             | Deferred financing costs                                                                  |                                                          |                                                     |      |                  |        |                |     |               |        |         | (320   | )     
|                                                                                             |                                                                                           |                                                          |                                                     |       |                  |        |                |      |               |        |         |       
|                                                                                             |                                                                                           |                                                          | Net
Cash (used in) provided by Financing Activities |       |                  | (365   | )              |      |               | 182    |         |        |        | 47,535  |  
|                                                                                             |                                                                                           |                                                          |                                                     |       |                  |        |                |      |               |        |         |       
|Net increase (decrease) in cash and cash equivalents                                         |                                                                                           |                                                          | (1,830                                              | )     |                  |        | (7,539         | )    |               |        | 709     |       
|Cash and cash equivalents at beginning of period                                             |                                                                                           |                                                          | 2,539                                               |       |                  |        | 14,966         |      |               |        |        |       
|                                                                                             |                                                                                           |                                                          |                                                     |       |                  |        |                |      |               |        |         |       
|Cash and cash equivalents at end of period                                                   |                                                                                           |                                                          | 709                                                 |       |                  |        | 7,427          |      |               |        | 709     |       
|                                                                                             |                                                                                           |                                                          |                                                     |       |                  |        |                |      |               |        |         |       
|Supplemental disclosure of cash flow information   cash paid during the period for interest |                                                                                           |                                                          | 18                                                  |       |                  |        | 22             |      |               |        | 1,366   |       
|                                                                                             |                                                                                           |                                                          |                                                     |       |                  |        |                |      |               |        |         |       
|Supplemental schedule of non-cash financing activities                                       |                                                                                           |                                                          |                                                     |       |                  |        |                |      |               |        |         |       
|Equipment acquired through capital leases                                                    |                                                                                           |                                                          |                                                    |       |                  |        | 59             |      |               |        | 285     |       
|Accretion of Series A preferred stock mandatory redemption obligation                        |                                                                                           |                                                          |                                                    |       |                  |        |               |      |               |        | 1,872   |       
|Beneficial conversion feature of convertible promissory notes                                |                                                                                           |                                                          |                                                    |       |                  |        |               |      |               |        | 1,026   |       
|Conversion of convertible promissory notes and accrued interest to Series D preferred stock  |                                                                                           |                                                          |                                                    |       |                  |        |               |      |               |        | 5,324   |       
|Issuance of Series C preferred stock warrants in connection with lease agreement             |                                                                                           |                                                          |                                                    |       |                  |        |               |      |               |        | 43      |       
|Issuance of common stock for license rights                                                  |                                                                                           |                                                          |                                                    |       |                  |        |               |      |               |        | 4       |       
|Issuance
of common stock and warrants to Medarex                                             |                                                                                           |                                                          | 280                                                 |       |                  |        |               |      |               |        | 560     |       
|Deferred compensation on issuance of stock options and restricted stock grants               |                                                                                           |                                                          |                                                    |       |                  |        |               |      |               |        | 471     |       
|Cancellation of options and restricted stock                                                 |                                                                                           |                                                          |                                                    |       |                  |        |               |      |               |        | 693     |       
|Financing of prepaid insurance through note payable                                          |                                                                                           | $                                                        |                                                    |       |                  | $      |               |      |               | $      | 420     |       
|                                                                                             |                                                                                           |                                                          |                                                     |       |                  |        |                |      |               |        |         |       

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Northwest Biotherapeutics, Inc.

(A Development Stage Company)




Notes to Condensed Financial Statements

(unaudited)

1. Basis of Presentation

The accompanying unaudited financial statements for Northwest
Biotherapeutics, Inc. (the Company) have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six-month period ended June 30, 2003
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2003.

For further information, refer to the financial statements and footnotes
thereto included in the Companys Annual Report on Form 10-K for the year ended
December 31, 2002, as filed with the Securities and Exchange Commission.

The auditors report on the foregoing financial statements of the Company
for the fiscal year ended December 31, 2002 states that because of operating
losses and an accumulated deficit, 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.

Stock-Based Compensation

The Company accounts for its stock option plans for employees in
accordance with the provisions of Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees, and related interpretations. As
such, compensation expense related to employee stock options is recorded if, on
the date of grant, the fair value of the underlying stock exceeds the exercise
price. The Company applies the disclosure-only requirements of SFAS No. 123,
Accounting for Stock-Based Compensation, which allows entities to continue to
apply the provisions of APB Opinion No. 25 for transactions with employees, and
to provide pro forma results of operations disclosures for employee stock
option grants as if the fair-value-based method of accounting in SFAS No. 123
had been applied to those transactions.

Stock compensation costs related to fixed employee awards with pro rata
vesting are recognized on a straight-line basis over the period of benefit,
generally the vesting period of the options. For options and warrants issued to
non-employees, the Company recognizes stock compensation costs utilizing the
fair value methodology prescribed in SFAS No. 123 over the related period of
benefit.

Had the Company recognized the compensation cost of employee stock options
based on the fair value of the options on the date of grant as prescribed by
SFAS No. 123, the pro forma net loss applicable to common stockholders and
related loss per share would have been adjusted to the pro forma amounts
indicated below:

The per share weighted average fair value of stock options granted during
the six months ended June 30, 2003 and 2002 was $1.74 and $1.32, respectively,
on the date of grant with the following assumptions:

|                                           |                                                                                                   |  |                             |         |                           |  |      |         |      |  |  |         |   |  |  |         |  
|------------------------------------------ | ------------------------------------------------------------------------------------------------- |  | --------------------------- | ------- | ------------------------- |  | ---- | ------- | ---- |  |  | ------- | - |  |  | ------- | -
|                                           |                                                                                                   |  | Three months ended June 30, |         | Six months ended June 30,
|                                           |                                                                                                   |  |                             |         |                          
|                                           |                                                                                                   |  | 2003                        |         | 2002                      |  | 2003 |         | 2002
|                                           |                                                                                                   |  |                             |         |                           |  |      |         |     
|Net loss applicable to common stockholders |                                                                                                   |  |                             |         |                           |  |      |         |      |  |  |         |   |  |  |        
|                                           | As reported                                                                                       |  |                             | (2,102) |                           |  |      | (4,447) |      |  |  | (3,693) |   |  |  | (7,575) |  
|                                           | Add: Stock-based employee compensation expense included in reported net loss, net                 |  |                             | 84      |                           |  |      | 97      |      |  |  | 169     |   |  |  | 317     |  
|                                           | Deduct: Stock-based employee compensation determined under fair value based method for all awards |  |                             | (100    | )                         |  |      | (254    | )    |  |  | (226    | ) |  |  | (519    | )
|                                           |                                                                                                   |  |                             |         |                           |  |      |         |      |  |  |         |   |  |  |         |  
|                                           | Pro forma                                                                                         |  |                             | (2,118  | )                         |  |      | (4,604  | )    |  |  | (3,750  | ) |  |  | (7,777  | )
|                                           |                                                                                                   |  |                             |         |                           |  |      |         |      |  |  |         |   |  |  |         |  
|Net loss per share-basic and diluted:      |                                                                                                   |  |                             |         |                           |  |      |         |      |  |  |         |   |  |  |        
|                                           | As reported                                                                                       |  |                             | (0.11   | )                         |  |      | (0.26   | )    |  |  | (0.20   | ) |  |  | (0.45   | )
|                                          
|                                           | Pro forma                                                                                         |  |                             | (0.11   | )                         |  |      | (0.27   | )    |  |  | (0.21   | ) |  |  | (0.46   | )

The per share weighted average fair value of stock
options granted during the three months ended June 30, 2003 and
2002 was $0.02 and $3.88,
respectively and for the six months ended June 30, 2003 and 2002
was $0.09 and $4.44, respectively.

|                        |  |         |                             |         |                           |         |      |         |      |  |      |  | 
|----------------------- |  | ------- | --------------------------- | ------- | ------------------------- | ------- | ---- | ------- | ---- |  | ---- |  | 
|                        |  |         | Three months ended June 30, |         | Six months ended June 30,
|                        |  |         |                             |         |                          
|                        |  |         | 2003                        |         | 2002                      |         | 2003 |         | 2002
|                        |  |         |                             |         |                           |         |      |         |     
|Risk-free interest rate |  |         | 3.11                        |         |                           |         | 4.43 |         |      |  | 3.11 |  | 
|Expected life           |  | 5 years |                             | 5 years |                           | 5 years |      | 5 years |     
|Expected volatility     |  |         | 207                         |         |                           |         | 95   |         |      |  | 207  |  | 
|Dividend yield          |  |         | 0                           |         |                           |         | 0    |         |      |  | 0    |  | 

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2. Liquidity

We
currently expect that our cash and other assets will be sufficient to
satisfy our liabilities as they come due through September 30,
2003. Unless we receive significant additional funding in the future,
operations after September 30, 2003 will require us to use
assets that otherwise would be required to successfully liquidate the
business and pay our liabilities. For this reason, we may be required
to shut down our operations on or before September 30, 2003.
From September 30, 2003 through December 31, 2003, we
expect to receive an additional $135,384 in research grant revenues
and $17,500 in expense reimbursements.

Expected
grant revenue of $135,384 includes $115,464, which may be used to fund our
facilities and administrative overhead costs if our June 23,
2003 Facilities and Administrative Rate Proposal is approved by the
National Institutes of Health (NIH) before December 31, 2003.
If not approved, the expected facilities and administrative grant revenue
will be $13,986 in 2003. Revenue from research grants includes only
that amount that is receivable to the Company based on the rate
proposal not being approved.

We
believe that these nominal revenues will be insufficient to fund our
continued operations, and we do not have any additional commitments
for funding at this time.

3. Sale of Unregistered Securities

On December 9, 2002, we entered into an Assignment and License Agreement
wherein we sold certain intellectual property to Medarex, acquired certain
intellectual property from Medarex and acquired the rights to certain
additional intellectual property from Medarex. Pursuant to this agreement, we
issued to Medarex 2.0 million unregistered shares of common stock and warrants
to purchase 800,000 shares of our unregistered common stock, at an average
price of $0.165, all of which had been issued at March 31, 2003.

Also pursuant to this agreement, we received $3.0 million consisting of
$1.0 million in cash and two payments of $1.0 million each payable in Medarex
(MEDX) common stock. Medarex guaranteed the value of each payment of common
stock at $1.0 million if sold within 30 days of issuance. Remaining Medarex
common stock that had not been sold at December 31, 2002 was recorded as
marketable securities and the $1.0 million issued in January 2003 was included
as a receivable from Medarex at December 31, 2002. The Company has realized a
total of $3.0 million in cash as all such securities were sold by February 10,
2003.

On
June 30, 2003, we entered into a Settlement Agreement with Nexus Canyon
Park, our prior landlord. Under this Settlement Agreement, Nexus Canyon Park agreed to permit premature termination of our prior lease
and excuse future performance by the Company of lease obligations in
exchange for 90,000 shares of our unregistered
common stock  with a fair value of $35,000 and its retention of
$1.0 million of restricted cash related to the lease.  The Settlement Agreement resulted in an additional loss on facility sublease and lease
termination of $174,000, net of deferred rent of $203,000. In June
2003, we moved from our previous facilities and signed a new lease
commencing July 1, 2003 for a term of 39 months with a future
lease obligation of approximately $788,000.

4. Net Loss Per Share Applicable to Common Stockholders

Basic and diluted net loss per share applicable to common stockholders has
been computed using the weighted-average number of shares of common stock
outstanding during the period, less, for the three months ended June 30, 2003,
8,004 issued and outstanding restricted shares of common stock that are subject
to repurchase. Options to purchase 1,681,817 shares of common stock and
warrants to purchase 1,368,525 shares of common and preferred stock were
excluded from the calculation of diluted net loss per share for the three
and six months ended June 30, 2003 as such securities were antidilutive. Options to
purchase 1,490,297 shares of common stock and warrants to purchase 568,525
shares of common and preferred
stock were excluded from the calculation of diluted net loss per share for
the three and six months ended June 30, 2002 as such securities were antidilutive.

5. Sale of Future Royalty Rights

On June 20, 2003, we entered into the First
Amendment to Assignment and License Agreement with Medarex wherein
the purchase price of $816,000 was negotiated based on the expected discounted net present value (NPV) of the future 2% royalty
obligation under that certain Assignment and License Agreement dated
December 9, 2002. The $816,000 was received on
July 1, 2003 and is included as a receivable from Medarex at
June 30, 2003.

6. Asset Impairment Loss

In December 31, 2002, when vacating approximately 22,000 square feet of
laboratory and administrative space at our prior offices, we made certain estimates in allocating the cost
of tenant improvements to the remaining square feet of impaired space and made
certain cost estimates related to the impairment of certain equipment. As a
result of that analysis, we recognized an asset impairment loss of
approximately $1.0 million in December 2002. With the lease
cancellation with respect to the entire leased space on June 30, 2003, we recorded an additional loss on disposal of
assets of approximately $904,000 primarily related to leasehold
improvements and equipment that will not be utilized in our new
location.

7. New Accounting Pronouncements

In July 2002, the FASB issued Statement No. 146, Accounting for Costs
Associated with Exit or Disposal Activities,which addresses financial
accounting and reporting for costs associated with exit or disposal activities.
Statement No. 146 nullifies EITF Issue No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). The principal
difference between Statement No. 146 and Issue No. 94-3 relates to the
recognition of a liability for a cost associated with an exit or disposal
activity. Statement No. 146 requires that a liability be recognized for those
costs only when the liability is incurred, that is, when it meets the
definition of a liability in the FASBs conceptual

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framework. In contrast,
under Issue No. 94-3, a company recognized a liability for an exit cost when it
committed to an exit plan. Statement No. 146 also establishes fair value as the
objective for initial measurement of liabilities related to exit or disposal
activities. The Statement is effective for exit or disposal activities that are
initiated after December 31, 2002 although earlier application is encouraged.
The Company adopted SFAS 146 on January 1, 2003. The adoption of SFAS 146 did
not have any effect on the Companys financial statements.




Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our financial
statements and the notes to those statements included with this report. In
addition to historical information, this report contains forward-looking
statements that 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 Factors That May Affect Results of Operations and
Financial Condition. 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., a development-stage biotechnology
company, restructured its operations in the fourth quarter of the fiscal year
ended December 31, 2002 to focus on discovering and developing potential cancer
immunotherapy products and commercializing products for scientific research. As
part of our strategy, we are further developing diagnostic and therapeutic
antibodies against proprietary cancer targets and we are continuing refinement
of our next generation system for cost effectively producing high purity
dendritic cells and dendritic cell precursors for potential cancer products.

From our formation in 1996 to restructuring in 2002, our activities were
primarily limited to the research and development of a dendritic cell-based
immunotherapy platform and monoclonal antibody-based cancer therapies.

We have a limited history of operations. Since inception, we have incurred
significant losses and, as of June 30, 2003, we had a deficit accumulated
during the development stage of approximately $62.2 million. In late 2002, we
initiated actions to conserve cash including reducing and eliminating certain
future commitments, the sale of certain fixed assets, and restructuring as a
pre-clinical antibody and dendritic cell development company. Without
additional funding, we believe we will only have sufficient funds to operate
through the third quarter 2003, which raises substantial doubt about our
ability to continue as a going concern. In addition, if we are unable to obtain
additional capital, we may choose to cease operations prior to that date in an
effort to maximize the value, if any, to be paid to our stockholders following
a potential liquidation.

Operating costs and expenses consist primarily of research and development
expenses, including clinical trial expenses, and general and administrative
expenses.

Research and development expenses include salary expenses and costs of
supplies used in our internal research and development projects.

From our inception in March 1996 through June 30, 2003, we incurred costs
of approximately $23.4 million associated with the research into and
development of our product candidates. At this time, because our technologies
are unproven, we are unable to estimate with any certainty the costs we will
incur in the continued development of our product candidates for
commercialization.

General and administrative expenses include compensation expenses related
to executive, information technology, finance and administrative personnel, the
cost of facilities, insurance and legal support, as well as amortization costs
of stock options and warrants issued to consultants and for entering into commercial
arrangements.

To date, our revenues have primarily been derived from the manufacture and
sale of research materials, contract research and development services and
research grants from the federal government. For the six months ended June 30,
2003, we earned approximately $7,000 in revenues from the manufacture and sale
of research materials. To date, we have never generated annual revenues in
excess of $129,000 from such sales and these sales were made to one customer.
If we are to rely exclusively on revenues from the sale of our research
products to fund our operations, we will need to significantly increase both
the number of customers and

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the size of such sales. We lack
high-volume manufacturing, sales and marketing experience and, as a result, we may
experience significant difficulties in funding our operations through the
manufactured sale of research products.

Critical Accounting Policies and Estimates

Accounting principles generally accepted in the United States require our
management to make estimates and assumptions that affect the amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date
of our financial statements, as well as the amounts of revenues and expenses
during periods covered by our financial statements. The actual amounts of these
items could differ materially from those estimates.

For example, under EITF 94-3, Accounting for Costs Associated with Exit or
Disposal Activities, if an entity remains responsible, without realizing
ongoing economic benefit, for continued rental payments for premises being
vacated, an estimate of the loss over the remaining life of the primary lease
must be made. Sublease rental income is an allowable offset against the total
accrued cost of the rental payments that the entity continues to be liable for
related to the vacated space.

Consequently, we recognized, for the year ended December 31, 2002, a
liability of approximately $929,000 and a loss on facility sublease of
$721,000, net of deferred rent write off in estimating the loss of economic
benefit from vacating approximately 22,000 square feet of laboratory and
administrative space at our prior offices. Our payments, as of December 31, 2002, over the remaining
lease term of this primary lease, with Nexus Canyon Park (Landlord), totaled
approximately $9.1 million.

On June 30, 2003, we entered into a Settlement
Agreement with Nexus Canyon Park, our prior landlord.  Under this Settlement Agreement, Nexus Canyon Park
agreed to permit premature termination of our prior lease and excuse future performance by the
Company of lease obligations in exchange for 90,000 shares of our unregistered common stock  with a
fair value of $35,000 and its retention of $1.0 million of
restricted cash related to the lease.
The Settlement Agreement resulted in an additional loss on facility sublease and lease termination of
$174,000, net of deferred rent of $203,000.

We also determine our employee stock option compensation costs as the
difference between the estimated fair value of our common stock and the
exercise price of options on their date of grant. Prior to our initial public
offering, our common stock was not actively traded. The fair value of our
common stock for purposes of determining compensation expense for this period
was determined based on our review of the primary business factors underlying
the value of our common stock on the date such option grants were made, viewed
in light of the expected initial public offering price per share prior to the
initial public offering of our common stock. The actual initial public offering
price was significantly lower than the expected price used in determining
compensation expense.

Additionally, we estimate the fair value of stock options and warrants
issued to non-employees using an option valuation method that considers market
indicators.

Related Party Transactions

On December 9, 2002, we entered into an agreement to sell certain rights,
title, and interest in certain antigen targets pertaining to our fully human
monoclonal antibodies to Medarex. Pursuant to this agreement, we received $3.0
million in working capital, forgiveness of $400,000 payable to Medarex, and
were to receive a royalty of 2% of net sales with respect to products deriving
from certain intellectual property. Under the terms of our agreement with
Medarex, we also acquired the rights to certain other cancer targets in
exchange for 2.0 million newly issued unregistered shares of our common stock
and warrants to purchase 800,000 shares of our common stock that are dilutive
to our stockholders.

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On June 20, 2003, we entered into the First Amendment to Assignment and
License Agreement with Medarex wherein Medarex agreed to purchase the
expected discounted net present value (NPV) of the future 2% royalty obligation under
that certain Assignment and License Agreement dated December 9, 2002 for
$816,000. The $816,000 was received on July 1, 2003 and is included as a
receivable from Medarex at June 30, 2003.

Results of Operations

Three Months Ended June 30, 2003 and 2002

Total
Revenues.Revenues increased from $6,000 for
the three months ended June 30, 2002 to $187,000 for the three months ended June 30, 2003.
This increase in revenue is primarily related to research grant revenue
attributable to the receipt of a research grant award in the first
quarter of 2003. While we continue to seek funding through research
grants, we do not anticipate receiving grant revenue sufficient to
fund our operations.

Cost of Research Material Sales.Cost of research material sales
increased from $5,000 for the three months ended June 30, 2002 to $40,000 for the three months ended June 30,
2003. This increase was due to increased direct labor costs attributed to our entry into the sale of research reagents.

Research and Development Expense.Research and development expense
decreased 77.2% from $2.2 million for the three months ended
June 30, 2002 to $500,000 for the three months ended June 30, 2003. This decrease was primarily due to the November
2002 suspension of all clinical trial activity for our DCVax product candidates and the
withdrawal of our Investigational New Drug Application (IND) for DCVax-Prostate, a potential treatment
for prostate cancer, and for DCVax-Lung, a potential treatment for non-small cell lung cancer.

General and Administrative Expense.General and administrative expense
decreased 30% from $2.0 million for the three months ended
June 30, 2002 to $1.4 million for the three months ended
June 30, 2003. This decrease was primarily due to the
October 9, 2002 directive from our Board of Directors to initiate immediate actions
to conserve cash and resulting staff reductions.

Depreciation and Amortization.Depreciation and amortization
decreased 69.3% from $163,000 for the three months ended
June 30, 2002 to $50,000 for the three months ended June 30, 2003. This decrease was primarily due to the
disposal or impairment of $1.0 million of equipment and leasehold improvements in the fourth quarter 2002 and
approximately $904,000 of equipment and leasehold improvements
disposed of during the three months ending June 30, 2003.

Loss on Facility Sublease and Lease Cancellation Loss.Lease
cancellation costs of $174,000 are associated with the June 30, 2003 premature termination of the Company's primary lease
and release from future lease obligations.

Asset Impairment loss.Asset disposal
costs of $904,000 are primarily related to the write-off of leasehold improvements and equipment associated
with the June 30, 2003 premature termination of the Company's
primary lease and the resulting move from a 38,000 square foot facility to a facility of approximately 14,
000 whereby such assets will not be utilized.

Total Other Income (Expense), Net.Other income
(expense), net, consists primarily of interest expense and interest income. Interest expense
decreased 20% from $10,000 for the three months ended June 30,
2002 to $8,000 for the three months ended June 30,
2003. This decrease was primarily due to several capital leases reaching the end of their respective
lease terms with the elimination of the interest component of each lease payment. Interest income decreased
82.6% from $46,000 for the three months ended June 30, 2002 compared to $8,000 for the three months
ended June 30, 2003. This decrease was primarily due to the decline in market interest rates and having lower average
cash balances during the three months ended June 30, 2003.

Gain on Sale of Royalty Rights.The $816,000
gain realized on the sale of royalty rights was negotiated based on the expected discounted net present value (NPV) of the
future 2% royalty obligation under that certain Assignment and
License Agreement dated December 9, 2002 with Medarex and was
received in cash on July 1, 2003.

Six Months Ended June 30, 2003 and 2002

Total Revenues.Revenues increased from $9,000 for the six months ended
June 30, 2002 to $256,000 for the six months ended June 30, 2003. One component
of revenue consisted of research material sales which decreased from $9,000 for
the six months ended June 30, 2002 to $7,000 for the six months ended June 30,
2003. The rest of our revenues for the period consisted of research grant
revenue, which increased from $0 for the six months ended June 30, 2002 to
$249,000 for the six months ended June 30, 2003. This increase
in grant revenue was
attributable to the receipt of a research grant award in the first quarter of
2003. While we continue to seek funding through research grants, we do not
anticipate receiving grant revenue sufficient to fund our operations.

Cost of Research Material Sales.Cost of research material sales increased
from $8,000 for the six months ended June 30, 2002 to $40,000 for the six months
ended June 30, 2003. This increase was due to increased direct labor costs
attributed to our entry into the sale of research reagents.

Research and Development Expense.Research and development expense
decreased 72% from $3.6 million for the six months ended June 30, 2002 to $1.0
million for the six months ended June 30, 2003. This decrease was primarily due
to the November 2002 suspension of all clinical trial activity for our DCVax
product candidates and the withdrawal of our Investigational New Drug
Application (IND) for DCVax-Prostate, a potential treatment for prostate
cancer, and for DCVax-Lung, a potential treatment for non-small cell lung
cancer.

General and Administrative Expense.General and administrative expense
decreased 34% from $3.8 million for the six months ended June 30, 2002 to $2.5
million for the six months ended June 30, 2003. This decrease was primarily due
to the October 9, 2002 directive from our Board of Directors to initiate
immediate actions to conserve cash and resulting staff reductions.

Depreciation
and Amortization.Depreciation and amortization decreased 55%
from $305,000 for the six months ended June 30, 2002 to $137,000 for the six
months ended June 30, 2003. This decrease was primarily due to the disposal or
impairment of $1.0 million of equipment and leasehold improvements in the
fourth quarter 2002 and approximately $904,000, net of equipment and leasehold
improvements write-offs during the six months ending June 30, 2003.

Loss
on Facility Sublease and Lease Cancellation.Lease cancellation costs of $174,000 are
associated with the June 30, 2003 termination of the Companys
primary lease of its prior offices and release from future lease obligations.

Asset
Impairment Loss.Asset disposal costs of $904,000 are primarily
related to the write-off of leasehold improvements and equipment
associated with the June 30, 2003 termination of the Companys
primary lease and the resulting move from a 38,000 square foot facility to a
facility of approximately 14,000 square feet whereby such assets will
not be utilized.

Total Other Income (Expense), Net.Other income (expense), net, consists
primarily of interest expense and interest income. Interest expense decreased
14% from $22,000 for the six months ended June 30, 2002 to $19,000 for the six
months ended June 30, 2003. This decrease was primarily due to several capital
leases reaching the end of their respective lease terms with the elimination of
the interest component of each lease payment. Interest income decreased 82%
from $111,000 for the six months ended June 30, 2002 compared to $20,000 for
the six months ended June 30, 2003. This decrease was primarily due to the
decline in market interest rates and having lower average cash balances during
the six months ended June 30, 2003.

Gain on Sale of Royalty Rights.The $816,000 gain realized on the sale of
royalty rights was negotiated based on the expected discounted net
present value (NPV) of the future
2% royalty obligation under that certain Assignment and License Agreement dated
December 9, 2002 with Medarex and was received in cash on
July 1, 2003.

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Liquidity and Capital Resources

General Discussion

We currently expect that our cash and other assets will be sufficient to
satisfy our liabilities as they come due through September 30, 2003. Unless we
receive significant additional funding in the future, operations after
September 30, 2003 will require us to use assets that otherwise would be
required to successfully liquidate the business and pay our liabilities. For
this reason, we may be required to shut down our operations on or before
September 30, 2003. From September 30, 2003 through December 31, 2003, we
expect to receive an additional $135,384 in research grant revenues and $17,500
in expense reimbursements.

Expected
grant revenue of $135,384 includes $115,464, which may be used to fund
our facilities and administrative overhead costs if our June 23, 2003
Facilities and Administrative Rate Proposal is approved by the National
Institutes of Health (NIH) before December 31, 2003. If not
approved, the expected
facilities and administrative grant revenue will be $13,986 in 2003.
Revenue from research grants includes only that amount that is
receivable to the Company based on the rate proposal not being
approved.

We believe that these nominal revenues will be insufficient to fund our
continued operations, and we do not have any additional commitments for funding
at this time.

Our independent auditors have indicated in their report on our financial
statements included in our December 31, 2002 annual report on Form 10-K, that
there is substantial doubt about our ability to continue as a going
concern. We
need to raise significant additional funding to continue our operations,
conduct research and development activities, pre-clinical studies and clinical
trials necessary to bring our product candidates to market. However,
additional funding may not be available on terms acceptable to us or at all.
The alternative of issuing additional equity or convertible debt securities
also may not be available and, in any event, would result in additional
dilution to our stockholders.

On October 9, 2002, we initiated a series of substantial steps to conserve
cash, including: (i) the suspension of all clinical trial activities; (ii) the
sale of certain fixed assets; (iii) the relocation and consolidation of our
facilities; (iv) a significant reduction in force (including the termination of
our Chief Financial Officer and Chief Medical Officer and the conversion of our
Chief Executive Officer to non-employee status); and (v) the sale of
significant portions of our intellectual property portfolio. On June 30, 2003,
after all personnel adjustments, our remaining staff of 12 consisted of 4
employees in administration and 8 employees in research and development. We
are currently considering implementing additional cost-cutting measures, which
may postpone or prevent a liquidation of the Company. Any such measures,
however, may be unsuccessful and may also have the undesirable consequence of
further reducing our ability to generate future revenues.

Asset Sales and Sources of Cash

On December 9, 2002, we entered into an agreement to sell certain rights,
title, and interest in certain antigen targets pertaining to our fully human
monoclonal antibodies to Medarex, Inc. Pursuant to this agreement, we received
$3.0 million in working capital and were to receive a royalty of 2% of net
sales with respect to any products derived from certain intellectual property.
Under the terms of our agreement with Medarex, we acquired the rights to
certain other cancer targets in exchange for 2.0 million

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unregistered shares of our common stock and warrants to purchase 800,000
unregistered shares of our common stock. On June 30, 2003, we amended this
agreement and Medarex purchased the expected discounted net present value (NPV)
of the future 2% royalty obligation for $816,000. The $816,000 was received on
July 1, 2003 and is included as a receivable from Medarex at June 30, 2003.

On April 8, 2003, we were awarded a National Institutes of Health (NIH)
cancer research grant, for research to be conducted from February 1, 2003
through January 31, 2004. The total award for fiscal 2003 is $318,137,
comprised of approximately $191,649 authorized for direct grant research
expenditures and approximately $126,488 authorized for use to cover our
facilities and administrative overhead costs. The total award for fiscal 2004
is $327,681, comprised of approximately $197,398 authorized for direct grant
research expenditures and approximately $130,283 authorized for use to cover
our facilities and administrative overhead costs. Only 10% of the fiscal 2003
portion of the salary and wage cost expended on the grants authorized research
may be released at this time. The remaining portion of the fiscal 2003 award
may be released upon agreement on our facilities and administrative costs. As
of June 30, 2003, total revenue of $122,000 has been earned under the grant
and was recognized in revenue through the six months ended June 30, 2003.

We were also awarded, as a subcontractor to the University of Washingtons
award from NIH, a cancer research subcontract on February 26, 2003. This
subcontract is from January 1, 2003 through December 31, 2003. The total award
for fiscal 2003 is $146,563 consisting of $104,688 authorized for direct grant
research expenditures and with approximately $41,875 authorized for use to
cover our facilities and administrative overhead costs. As of June 30, 2003,
total revenue of $112,000 has been earned under the grant and is recognized
in revenue through the six months ended June 30, 2003.

On April 21, 2003, because we had received frequent requests from
researchers for access to our cancer-associated monoclonal antibodies, human
dendritic cells, and dendritic cell precursors (monocytes), we announced our
entry into the Research Reagents Market. We earned approximately $7,000 in
revenue for the six months ended June 30, 2003 from the manufacture and sale of
research materials. However, we have limited manufacturing facilities and
expertise to produce our research products and the commercial success of any of
our research products will depend upon the strength of our sales and marketing
efforts.

Uses of Cash

We used $7.1 million in cash for the operating activities during the six
months ended June 30, 2002, compared to $3.2 million during the six months
ended June 30, 2003. The change in cash used in operating activities from 2002
to 2003 was primarily a result of the November 2002 suspension of all clinical
trial activity.

We used $619,000 in cash for investing activities during the six months
ended June 30, 2002 compared to $1.7 million provided by investing activities
during the six months ended June 30, 2003. The cash provided during the six
months ended June 30, 2003 consisted of $1.8 million received from Medarex and
the sale of Medarex common stock held as marketable securities on December 31,
2002 arising from the December 9, 2002 Assignment and License Agreement.

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FACTORS THAT MAY AFFECT RESULTS OF OPERATIONS AND FINANCIAL CONDITION

This section briefly discusses certain risks that should be considered by
our stockholders and prospective investors. You should carefully consider the
risks described below, together with all other information included in this
Quarterly Report on Form 10-Q and the information incorporated by reference. If
any of the following risks actually occur, our business, financial condition or
operating results could be harmed. In such case, you could lose all of your
investment.

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

Other than nominal research grant awards, we do not have committed
external sources of funding as of August 8, 2003 and we may be unable to obtain
additional funds on acceptable terms, if at all. Although the Company is actively
pursuing financing alternatives, no definite arrangements exist at
this time. The Company has limited options, beyond those already
implemented, to further reduce cost expenditures.

We will need to raise more money to continue our operations. We may seek
additional funds from public and private stock offerings, strategic
partnerships and licenses, borrowing under lease lines of credit or other
sources. These additional forms of capital may not be available on terms
acceptable to us, or at all. Any additional equity financing may be dilutive to
stockholders, and debt financing, if available, may include restrictive
covenants.

Unless
we receive significant additional funding in the future, operations
after September 30, 2003 will require us to use assets that otherwise
would be required to successfully liquidate the business and pay our
liabilities. For this reason, we may be required to shut down our
operations on or before September 30, 2003.

We are
currently considering further reductions in our capital expenditures,
scaling back our development of new product candidates, further
reducing our workforce, and licensing to others product candidates
that we otherwise would seek to commercialize ourselves. These
additional cost-cutting measures, which may postpone or prevent a
liquidation of the Company, may be unsuccessful and may also have the
undesirable consequence of further reducing our ability to generate
future revenues.

Our auditors have issued a going concern audit opinion.

Our
independent auditors have indicated in their report on our
December 31, 2002 financial statements included in our Form 10-K 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.

As a result of questions concerning our status as a going concern, potential
customers and strategic partners may decide not to do business with us.

The success of our restructured operations will depend on our ability to
attract customers to our research products and our ability to attract strategic
partners to our research initiatives. Due to concerns regarding our ability to
continue operations, these third parties

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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 occur, our
business will suffer significantly.

We expect to continue to incur substantial losses, and we may never achieve
profitability.

We have incurred net losses every year since our inception in March 1996
and, as of June 30, 2003, we had a deficit accumulated during the development
stage of approximately $62.2 million. We have had net losses applicable to
common stockholders as follows:



| |  | $5.0 million in 1998;                              
|- |  | ---------------------------------------------------
| 
| |  | $6.0 million in 1999;                              
| 
| |  | $13.2 million in 2000;                             
| 
| |  | $17.3 million in 2001;                             
| 
| |  | $12.8 million in 2002; and                         
| 
| |  | $3.7 million for the six months ended June 30, 2003

We expect that these losses will continue and anticipate negative cash
flows from operations for the foreseeable future. Because of our current cash
position, we will need to secure additional funding to continue operations. In
addition, we will need to generate revenue sufficient to cover operating
expenses and research and development costs to achieve profitability. We may
never achieve or sustain profitability.

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 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:



| |  | $385,000 in 1998;                                 
|- |  | --------------------------------------------------
| 
| |  | $211,000 in 1999;                                 
| 
| |  | $156,000 in 2000;                                 
| 
| |  | $129,000 in 2001;                                 
| 
| |  | $9,000 in 2002 ; and                              
| 
| |  | $256,000 in for the six months ended June 30, 2003

We have derived most of these limited revenues from:



| |  | the sale of research products to a single customer;        
|- |  | -----------------------------------------------------------
| 
| |  | contract research and development from related parties; and
| 
| |  | research grants.                                           

In the future, we anticipate that our revenues will be derived primarily
through the sale of research products. Because this represents a shift in our
business focus, it is difficult to evaluate our prospects. Additionally, our
future success is more uncertain than if we had a longer or more proven history
of operations.

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We may not be able to retain existing personnel.

From approximately July 2002 through June 30, 2003, we significantly
reduced the number of our employees as part of an extensive cost containment
initiative. Our cash position, workforce reductions, the volatility in our stock price and our
recent asset sales may create anxiety and uncertainty, which may 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 our existing personnel, our
business and financial results may suffer.

Because we lack sales and marketing experience, we may experience significant
difficulties commercializing our research products.

The commercial success of any of our research products will depend upon
the strength of our sales and marketing efforts. We do not have a sales force
and have no experience in the sales, marketing or distribution of our research
products. To fully commercialize our research products, we will need to create
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. If we fail to establish adequate sales, marketing and distribution
capabilities, independently or with others, our business will be seriously
harmed.

We have limited manufacturing capabilities, which could adversely impact our
ability to commercialize our research products.

We have limited manufacturing facilities and expertise to produce our
research products. We have never manufactured, on a commercial scale, any of
our research products. We may be unable to manufacture these products at a
reasonable cost or in sufficient quantities to be profitable.

Our success partially depends on existing and future strategic partners.

The success of our business strategy partially depends upon our ability to
develop and maintain multiple strategic partnerships and to manage them
effectively. Therefore, our success depends partially upon the performance of
our strategic partners. Currently, our primary strategic partner is
DakoCytomation. We cannot directly control the amount and timing of resources
that our existing or future strategic partners devote to the research,
development or marketing of our products. As a result, those strategic
partners:



| |  | may not commit sufficient resources to our programs or products;                                                                                
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | may not conduct their agreed activities on time, or at all,
resulting in delay or termination of the development of our products and
technology;
| 
| |  | may not perform their obligations as expected;                                                                                                  
| 
| |  | may pursue product candidates or alternative technologies in
preference to ours; or                                                             
| 
| |  | may dispute the ownership of products or technology developed
under our strategic partnerships.                                                 

We may have disputes with our strategic partners, which could be costly
and time consuming. Our failure to successfully defend our rights could
seriously harm our business, financial condition and operating results.

We intend to continue to enter into strategic partnerships in the future.
However, we may be unable to successfully negotiate any additional strategic
partnerships and any of these relationships, if established, may not be
scientifically or commercially successful.

We also work with scientists and medical professionals at academic and
other institutions, including the University of California, Los Angeles, M.D.
Anderson Cancer Center, and the H. Lee Moffitt Cancer Center some of whom
conduct research for us or assist us in developing our research and development
strategy. These scientists and medical professionals are not our employees.
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 them to
devote to our projects the amount of time 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 ours. If these individuals do not devote sufficient time and
resources to our programs, our business could be seriously harmed.

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Competition in our industry is intense and most of our competitors have
substantially greater resources than we have.

The research products market recently entered by the Company is very
competitive with many well-established large and small distribution companies,
such as BioWhittaker, a Cambrex Company, DakoCytomation, and Cellsignalling
Technology.

Currently, our Company is marketing its research products through direct
mail, the internet, and select participation in trade shows frequented by
researchers who could be interested in our research products. We are also
seeking distribution relationships with established and well-positioned
distribution companies. There can be no assurances that we will be successful
in establishing a market demand for our research products nor that we will be
successful in finding a suitable distributor interested in selling our research
products.

The biotechnology and biopharmaceutical industries are characterized by
rapidly advancing technologies, intense competition and a strong emphasis on
proprietary products. Several companies, such as Cell Genesys, Inc., Dendreon
Corporation and Genzyme Molecular Oncology, a division of Genzyme Corporation,
are actively involved in the research and development of cell-based cancer
therapeutics. Of these companies, we believe that only Dendreon is carrying-out
Phase III clinical trials with a cell-based therapy. No dendritic
cell-based therapeutic
product is currently approved for commercial sale. Additionally, several
companies, such as Abgenix, Inc., Agensys, Inc., IDEC Pharmaceuticals
Corporation and Genentech, Inc., are actively involved in the research and
development of monoclonal antibody-based cancer therapies. Currently, at least
six 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.

Many 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 have become active in 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:



| |  | 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 strategic partnerships.                         

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Our competitors may develop more effective or affordable products, or
achieve earlier patent protection or product marketing and sales than we may.
As a result, any products we develop may be rendered obsolete and
noncompetitive.

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 seven issued patents (four in the United States and six in foreign
jurisdictions) and 68 patent applications pending (18 in the United States and
50 in foreign 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 dates from 2015 to
2017.

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 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 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 in 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 practicing 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 of
our trade secrets or other proprietary information. We seek to protect our
proprietary information by entering into confidentiality agreements with
employees, strategic partners and consultants. Nevertheless, employees,
strategic partners or consultants may still disclose our proprietary
information, and we may not be able to protect our trade secrets in a
meaningful way. If we lose any employees, we may not be able to prevent the
unauthorized disclosure or use of our technical knowledge or other trade
secrets by those former employees despite the existence of nondisclosure and
confidentiality agreements and other contractual restrictions to protect our
proprietary technology. In addition, others may independently develop
substantially equivalent proprietary information or techniques or otherwise
gain access to our trade secrets.

Our success will depend partly 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 we have entered into 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. 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

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biotechnology patents involve complex legal and factual questions for
which important legal principles remain unresolved. Our 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 patent applications 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 lawsuit, 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 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 any 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.

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We use hazardous materials and must comply with environmental, health and
safety laws and regulations, which can be expensive and restrict how we do
business.

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
strictly 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.

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Our principal stockholders, executive officers and directors own a significant
percentage of our stock and, as a result, the trading price for our shares may
be depressed and these stockholders can take actions that may be adverse to
your interests.

Our principal stockholders, executive officers, and directors and entities
affiliated with them, in the aggregate, beneficially own
approximately 41.6% of
our common stock as of August 8, 2003. This significant concentration of
share ownership may adversely affect the trading price for our common stock
because investors often perceive disadvantages in owning stock in companies
with controlling stockholders. These stockholders, acting together, will have
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, they could dictate 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 you.

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

Prior to December 14, 2001, there was no public market for our common
stock. On December 23, 2002, we were delisted from the NASDAQ National Market
and subsequently listed on the Over The Counter Bulletin Board (OTCBB). You may
not be able to sell your shares quickly or at the market price if trading in
our stock is not active.

Our common stock may experience extreme price and volume fluctuations, which
could lead to costly litigation for us and make an investment in us less
appealing.

The market price of our common stock may fluctuate substantially due to a
variety of factors, including:



| |  | announcements of technological innovations or new products by us
or our competitors;
|- |  | ------------------------------------------------------------------------------------
| 
| |  | development and introduction of new cancer therapies;                               
| 
| |  | media reports and publications about cancer therapies;                              
| 
| |  | announcements concerning our competitors or the biotechnology
industry in general;  
| 
| |  | new regulatory pronouncements and changes in regulatory
guidelines;                 
| 
| |  | general and industry-specific economic conditions;                                  
| 
| |  | changes in financial estimates or recommendations by securities
analysts; and       
| 
| |  | changes in accounting principles.                                                   

The market prices of the securities of biotechnology companies,
particularly companies like ours without earnings and consistent product
revenues, have been highly volatile and are likely to remain highly volatile in
the future. This volatility has often been unrelated to the operating
performance of particular companies. In the past, securities class action
litigation has often been brought against companies that experience volatility
in the market price of their securities. Moreover, market prices for stocks of
biotechnology-related and technology companies can occasionally reach levels
that bear no relationship to the operating performance of such companies. These
market prices generally are not sustainable and are subject to wide variations.
Whether or not meritorious, litigation brought against us could result in
substantial costs, divert managements attention and resources and harm our
financial condition and results of operations.

Our incorporation documents, bylaws and stockholder rights plan may delay or
prevent a change in our management.

Our amended and restated certificate of incorporation, 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 of directors without prior stockholder approval,
commonly referred to as blank check preferred stock, with rights senior
to those of common stock;
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | authorize our board of directors to issue dilutive shares of
common stock upon certain events; and
|- |  | --------------------------------------------------------------------------------------------------
| 
| |  | provide for a classified board of directors.                                                      

These provisions could allow our board of directors to affect your rights
as a stockholder since our board of directors can make it more difficult for
common stockholders to replace members of the board. Because our board of
directors is responsible for appointing the members of our management team,
these provisions could in turn affect any attempt to replace our current
management team.




Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk is presently limited to the interest rate
sensitivity of our cash and cash equivalents which is affected by changes in
the general level of U.S. 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 and cash equivalents in
interest-bearing instruments, primarily money market funds. 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. Due to the nature of our
cash and cash equivalents, we believe that we are not subject to any material
market risk exposure. We do not have any foreign currency or other derivative
financial instruments.




Item 4. Controls and Procedures

(a)  Evaluation of disclosure controls, procedures, and internal controls

Our President (Principal Executive Officer) and our Controller (Principal
Financial and Accounting Officer), after evaluating the effectiveness of the
Companys disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14(c) and 15d-14(c)) and internal control over financial reporting,
as of the date of
this quarterly report, have concluded that, as of the Evaluation Date, our
disclosure controls and procedures were adequate to ensure that material
information relating to the registrant and its consolidated subsidiaries would
be made known to them by others within those entities. In addition, our
President and our Controller have determined that our internal control over
financial reporting is sufficient to provide reasonable assurance
that; (i) our
records accurately and fairly reflect our transaction and our disposition of
our assets; (ii) allow transactions to be recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles and that receipts and expenditures of our Company are
only being made in accordance with authorizations of management and Company
Directors; and (iii) the Company prevents or timely detects the unauthorized
acquisition, use, or disposition of assets that could have a material effect on
our financial statements.

(b)  Changes in internal controls.

To our knowledge, there were no significant changes in the Companys internal
controls or in other factors that could significantly affect internal
controls during the quarter ended June 30, 2003.




PART II  OTHER INFORMATION




Item 1. Legal Proceedings

None.




Item 2. Changes in Securities and Use of Proceeds

The Registration Statement (SEC File No. 333-67350) for our initial public
offering, or IPO, was declared effective by the Securities and Exchange
Commission on December 14, 2001, covering an aggregate of 4,000,000 shares of
our common stock, and on December 19, 2001, we issued 4,000,000 shares of our
common stock at an initial public offering price of $5.00 per share.
Approximately $2.8 million of the aggregate $20,000,000 IPO proceeds was used
to pay underwriting discounts and commissions and offering expenses resulting
in net IPO proceeds of approximately $17.2 million. C.E. Unterberg, Towbin was
the managing underwriter of our IPO, and Fahnestock & Co., Inc. and Roth
Capital Partners, LLC were the co-managers, all such proceeds have been
expended as of June 30, 2003.

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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 and Reports on Form 8-K

a) Exhibits:

|     |  |                                                                                                                                                                                                        
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1 |  | Settlement Agreement Between Nexus Canyon Park, LLC and the Company,
effective June 30, 2003.                                                                                                          
|     |  |                                                                                                                                                                                                        
|10.2 |  | Industrial Lease  Multiple Tenant, The Lease Agreement between
Benaroya Capital Co., LLC and the Company, effective June 18,
2003.                                                                    
|     |  |                                                                                                                                                                                                        
|31.1 |  | Certification of President (Principal Executive 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.                
|     |  |                                                                                                                                                                                                        
|31.2 |  | Certification of Controller (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 Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.                                                                                                                  
|     |  |                                                                                                                                                                                                        
|32.2 |  | Certification of Controller Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.                                                                                                                 




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, INC
|                       |  |                                |  |                                                                          
|Dated: August 13, 2003 |  | By:                            |  | /s/ Alton L. Boynton                                                     
|                       |  |                                |  |                                                                          
|                       |  |                                |  | Alton L. Boynton
President (Principal Executive Officer)                 
|                       |  |                                |  |                                                                          
|Dated: August 13, 2003 |  | By:                            |  | /s/ Larry L. Richards                                                    
|                       |  |                                |  |                                                                          
|                       |  |                                |  | Larry L. Richards
Controller
(Principal Financial and
Accounting Officer)

22



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INDEX TO EXHIBITS

|        |  |                                                                                                                                                                                                        
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                        
|Number  |  | Description                                                                                                                                                                                            
|        |  |                                                                                                                                                                                                        
|10.1    |  | Settlement Agreement
Between Nexus Canyon Park, LLC and the Company, effective
June 30, 2003.                                                                                                          
|        |  |                                                                                                                                                                                                        
|10.2    |  | Industrial Lease  Multiple Tenant, The Lease Agreement between
Benaroya Capital Co., LLC and the Company, effective June 18,
2003.                                                                    
|        |  |                                                                                                                                                                                                        
|31.1    |  | Certification of President (Principal Executive 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.                
|        |  |                                                                                                                                                                                                        
|31.2    |  | Certification of Controller (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 Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.                                                                                                                  
|        |  |                                                                                                                                                                                                        
|32.2    |  | Certification of Controller Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.                                                                                                                 

23