UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549











FORM
10-Q/A








þ
            QUARTERLY REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
              
              For
      the quarterly period ended June 30,
2010





OR





 ̈
            TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
              
              For
      the transition period from ____ to
____





Commission
file number 000-33393





Northwest
Biotherapeutics, Inc.


(Exact
Name of Registrant as Specified in its Charter)





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




4800
      Montgomery Lane, Suite 800
            20814Bethesda,
      Maryland 20814
            (Zip
      Code)(Address
      of Principal Executive Offices)




(240)
497-9024


(Registrant’s
Telephone Number, Including Area Code)





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





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted  pursuant to Rule 405 of Regulation S-T(§232.405
of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes þ No  ̈




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





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





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





As of
July 29, 2010, the total number of shares of common stock, par value $0.001 per
share, outstanding was 70,286,110.





Explanatory Note:
This Form 10-Q/A was amended to correct the dates and titles of the signature
page and certifications included herein.








NORTHWEST
BIOTHERAPEUTICS, INC.





TABLE
OF CONTENTS





PagePART
      I — FINANCIAL INFORMATIONItem
      1. Financial StatementsCondensed
      Consolidated Balance Sheets as of December 31, 2009 and June 30, 2010
      (unaudited)
                  3Condensed
      Consolidated Statements of Operations (unaudited) for the three and six
      months ended June 30, 2009 and 2010 and the period from March 18, 1996
      (inception) to June 30, 2010
                  4Condensed
      Consolidated Statements of Cash Flows (unaudited) for the six months ended
      June 30, 2009 and 2010 and the period from March 18, 1996 (inception) to
      June 30, 2010
                  5Notes
      to Condensed Consolidated Financial Statements
                  6Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
                  14Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk
                  17Item
      4. Controls and Procedures
                  17PART
      II — OTHER INFORMATIONItem
      1. Legal Proceedings
                  18Item
      1A. Risk Factors
                  20Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
                  20Item
      3. Defaults Upon Senior Securities
                  21Item
      4. (Removed and Reserved)
                  21Item
      5. Other Information
                  21Item
      6. Exhibits
                  21SIGNATURES
                  22INDEX
      TO EXHIBITS
                  23




2





Part
I — Financial Information





NORTHWEST
BIOTHERAPEUTICS, INC.


(A
Development Stage Company)





Condensed
Consolidated Balance Sheets


(in
thousands)





December 31,
                  2009
                
                
                June 30,
                  2010(Unaudited)AssetsCurrent
      assets:Cash
                
                $
                65
                
                
                $
                180Prepaid
      expenses and other current assets
                
                
                36
                
                
                
                201Total
      current assets
                
                
                101
                
                
                
                381Property
      and equipment:Laboratory
      equipment
                
                
                29
                
                
                
                29Office
      furniture and other equipment
                
                
                82
                
                
                
                121111
                
                
                
                150Less
      accumulated depreciation and amortization
                
                
                (111
                )
                
                
                (111
                )Property
      and equipment, net
                
                
                —
                
                
                
                39Deposit
      and other non-current assets
                
                
                2
                
                
                
                16Total
      assets
                
                $
                103
                
                
                $
                436Liabilities
      And Stockholders’ Equity (Deficit)Current
      liabilities:Accounts
      payable
                
                $
                3,249
                
                
                $
                3,360Accounts
      payable, related party
                
                
                6,328
                
                
                
                6,755Accrued
      expenses
                
                
                1,874
                
                
                
                2,042Accrued
      expense, related party
                
                
                1,329
                
                
                
                1,404Notes
      payable
                
                
                2,650
                
                
                
                1,650Note
      payable to related parties
                
                
                4,000
                
                
                
                4,000Convertible
      notes payable, net
                
                
                —
                
                
                
                733Total
      current liabilities
                
                
                19,430
                
                
                
                19,944Long
      term liabilities:Convertible
      notes payable, net
                
                
                1,061
                
                
                
                1,022Convertible
      notes payable to related party, net
                
                
                298
                
                
                
                621Total
      long term liabilities
                
                
                1,359
                
                
                
                1,643Total
      liabilities
                
                
                20,789
                
                
                
                21,587Stockholders’
      equity (deficit):Preferred
      stock, $0.001 par value; 20,000,000 shares authorized and none issued and
      outstandingCommon
      stock, $0.001 par value; 150,000,000 shares authorized at December 31,
      2009 and June 30, 2010 and 58,877,087 and 69,557,778 shares issued and
      outstanding at December 31, 2009 and June 30, 2010,
      respectively
                
                
                58
                
                
                
                70Additional
      paid-in capital
                
                
                169,202
                
                
                
                183,258Deficit
      accumulated during the development stage
                
                
                (189,897
                )
                
                
                (204,469
                )Cumulative
      translation adjustment
                
                
                (49
                )
                
                
                (10
                )Total
      stockholders’ equity (deficit)
                
                
                (20,686
                )
                
                
                (21,151
                )Total liabilities and
      stockholders’ equity
      (deficit)
                
                $
                103
                
                
                $
                436





See
accompanying notes to condensed consolidated financial
statements.


3





NORTHWEST
BIOTHERAPEUTICS, INC.


(A
Development Stage Company)





Condensed
Consolidated Statements of Operations


(in
thousands, except per share data)


(Unaudited)




Three Months Ended
                    June 30,
                  
                  
                  Six Months Ended
                    June 30,
                  
                  
                  Period from
                    March 18,
                    1996
                    (Inception)
                    to June 30,2009
                  
                  
                  2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2010Revenues:Research
      material sales
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  560Contract
      research and development from related parties
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  1,128Research
      grants and other
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  1,061Total
      revenues
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  2,749Operating
      cost and expenses:Cost
      of research material sales
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  382Research
      and development
                  
                  
                  2,480
                  
                  
                  
                  1,194
                  
                  
                  
                  4,972
                  
                  
                  
                  3,185
                  
                  
                  
                  70,098General
      and administrative
                  
                  
                  786
                  
                  
                  
                  1,912
                  
                  
                  
                  2,119
                  
                  
                  
                  3,268
                  
                  
                  
                  58,111Depreciation
      and amortization
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  2,351Loss
      on facility sublease
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  895Asset
      impairment loss and other (gain) loss
                  
                  
                  389
                  
                  
                  
                  —
                  
                  
                  
                  389
                  
                  
                  
                  —
                  
                  
                  
                  2,445Total
      operating costs and expenses
                  
                  
                  3,655
                  
                  
                  
                  3,106
                  
                  
                  
                  7,480
                  
                  
                  
                  6,453
                  
                  
                  
                  134,282Loss
      from operations
                  
                  
                  (3,655
                  )
                  
                  
                  (3,106
                  )
                  
                  
                  (7,480
                  )
                  
                  
                  (6,453
                  )
                  
                  
                  (131,533
                  )Other
      income (expense):Warrant
      valuation
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  6,759Loan
      conversion inducement
                  
                  
                  —
                  
                  
                  
                  (4,522
                  )
                  
                  
                  —
                  
                  
                  
                  (4,522
                  )
                  
                  
                  (10,139
                  )Gain
      on sale of intellectual property and property and
equipment
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  3,664Interest
      expense
                  
                  
                  (440
                  )
                  
                  
                  (1,099
                  )
                  
                  
                  (1,191
                  )
                  
                  
                  (3,597
                  )
                  
                  
                  (29,629
                  )Interest
      income and other
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  1,218Net
      loss
                  
                  
                  (4,095
                  )
                  
                  
                  (8,727
                  )
                  
                  
                  (8,671
                  )
                  
                  
                  (14,572
                  )
                  
                  
                  (159,660
                  )Issuance
      of common stock in connection with elimination of Series A and Series A-1
      preferred stock preferences
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (12,349
                  )Modification
      of Series A preferred stock warrants
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (2,306
                  )Modification
      of Series A-1 preferred stock warrants
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (16,393
                  )Series
      A preferred stock dividends
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (334
                  )Series
      A-1 preferred stock dividends
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (917
                  )Warrants
      issued on Series A and Series A-1 preferred stock
dividends
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (4,664
                  )Accretion
      of Series A preferred stock mandatory redemption
obligation
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (1,872
                  )Series
      A preferred stock redemption fee
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (1,700
                  )Beneficial
      conversion feature of Series D preferred stock
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (4,274
                  )Net
      loss applicable to common stockholders
                  
                  $
                  (4,095
                  )
                  
                  $
                  (8,727
                  )
                  
                  $
                  (8,671
                  )
                  
                  $
                  (14,572
                  )
                  
                  $
                  (204,469
                  )Net
      loss per share applicable to common stockholders — basic and
      diluted
                  
                  $
                  (0.09
                  )
                  
                  $
                  (0.14
                  )
                  
                  $
                  (0.20
                  )
                  
                  $
                  (0.23
                  )Weighted
      average shares used in computing basic and diluted net loss per
      share
                  
                  
                  45,069
                  
                  
                  
                  63,853
                  
                  
                  
                  44,232
                  
                  
                  
                  62,957





See
accompanying notes to condensed consolidated financial
statements.


4





NORTHWEST
BIOTHERAPEUTICS, INC.


(A
Development Stage Company)





Condensed
Consolidated Statements of Cash Flows


(in
thousands)


(Unaudited)





Six Months Ended
                    June 30,
                  
                  
                  Period from
                    March 18,
                    1996
                    (Inception)
                    to June 30,2009
                  
                  
                  2010
                  
                  
                  2010Cash
      Flows from Operating Activities:Net
      Loss
                  
                  $
                  (8,671
                  )
                  
                  $
                  (14,572
                  )
                  
                  $
                  (159,660
                  )Reconciliation
      of net loss to net cash used in operating activities:Depreciation
      and amortization
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  2,351Amortization
      of deferred financing costs
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  320Amortization
      debt discount
                  
                  
                  659
                  
                  
                  
                  721
                  
                  
                  
                  20,422Accrued
      interest converted to stock
                  
                  
                  —
                  
                  
                  
                  1,047
                  
                  
                  
                  1,307Accreted
      interest on convertible promissory note
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  1,484Stock-based
      compensation costs
                  
                  
                  658
                  
                  
                  
                  1,020
                  
                  
                  
                  10,524Stock
      and warrants issued for services and other expenses
                  
                  
                  —
                  
                  
                  
                  3,057
                  
                  
                  
                  6,056Loan
      conversion inducement
                  
                  
                  —
                  
                  
                  
                  4,522
                  
                  
                  
                  10,139Warrant
      valuation
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (6,759
                  )Asset
      impairment loss and loss (gain) on sale of properties
                  
                  
                  389
                  
                  
                  
                  —
                  
                  
                  
                  (936
                  )Loss
      on facility sublease
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  895Increase
      (decrease) in cash resulting from changes in assets and
      liabilities:Prepaid
      expenses and other current assets
                  
                  
                  931
                  
                  
                  
                  (179
                  )
                  
                  
                  509Accounts
      payable and accrued expenses
                  
                  
                  391
                  
                  
                  
                  283
                  
                  
                  
                  5,328Related
      party accounts payable and accrued expenses
                  
                  
                  3,510
                  
                  
                  
                  502
                  
                  
                  
                  8,159Accrued
      loss on sublease
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (265
                  )Deferred
      rent
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  410Net
      Cash used in Operating Activities
                  
                  
                  (2,133
                  )
                  
                  
                  (3,599
                  )
                  
                  
                  (99,716
                  )Cash
      Flows from Investing Activities:Purchase
      of property and equipment, net
                  
                  
                  (2
                  )
                  
                  
                  (39
                  )
                  
                  
                  (5,042
                  )Proceeds
      from sale of property and equipment
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  258Proceeds
      from sale of intellectual property
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  1,816Proceeds
      from sale of marketable securities
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  2,000Refund
      of security deposit
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (3
                  )Transfer
      of restricted cash
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (1,035
                  )Net
      Cash used in Investing Activities
                  
                  
                  (2
                  )
                  
                  
                  (39
                  )
                  
                  
                  (2,006
                  )Cash
      Flows from Financing Activities:Proceeds
      from issuance of note payable
                  
                  
                  760
                  
                  
                  
                  875
                  
                  
                  
                  5,585Proceeds
      from issuance of convertible notes payable to related
    parties
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  1,300Proceeds
      from issuance of note payable to related parties
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  11,250Repayment
      of note payable to related party
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (6,700
                  )Proceeds
      from issuance of convertible promissory note and warrants, net of issuance
      costs
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  13,099Repayment
      of convertible promissory note
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (119
                  )Borrowing
      under line of credit, Northwest Hospital
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  2,834Repayment
      of line of credit, Northwest Hospital
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (2,834
                  )Payment
      on capital lease obligations
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (323
                  )Payments
      on note payable
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (420
                  )Proceeds
      from issuance preferred stock, net
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  28,708Proceeds
      from exercise of stock options and warrants
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  228Proceeds
      from issuance common stock, net
                  
                  
                  1,394
                  
                  
                  
                  2,839
                  
                  
                  
                  52,575Payment
      of preferred stock dividends
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (1,251
                  )Series
      A preferred stock redemption fee
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (1,700
                  )Deferred
      financing costs
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (320
                  )Net
      Cash provided by Financing Activities
                  
                  
                  2,154
                  
                  
                  
                  3,714
                  
                  
                  
                  101,912Effect
      of exchange rates on cash
                  
                  
                  15
                  
                  
                  
                  39
                  
                  
                  
                  (10
                  )Net
      increase in cash
                  
                  
                  34
                  
                  
                  
                  115
                  
                  
                  
                  180Cash
      at beginning of period
                  
                  
                  16
                  
                  
                  
                  65
                  
                  
                  
                  —Cash
      at end of period
                  
                  $
                  50
                  
                  
                  $
                  180
                  
                  
                  $
                  180Supplemental
      disclosure of cash flow information — Cash paid during the period for
      interest
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  1,879Supplemental
      schedule of non-cash financing activities:Equipment
      acquired through capital leases
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  285Issuance
      of common stock in connection with elimination of Series A and Series A-1
      preferred stock preferences
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  12,349Issuance
      of common stock in connection with conversion of notes payable,
      convertible promissory notes and accrued interest
                  
                  
                  —
                  
                  
                  
                  1,004
                  
                  
                  
                  2,504Modification
      of Series A preferred stock warrants
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  2,306Modification
      of Series A-1 preferred stock warrants
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  16,393Warrants
      issued on Series A and Series A-1 preferred stock
dividends
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  4,664Common
      stock warrant liability
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  11,841Accretion
      of mandatorily redeemable Series A preferred stock redemption
      obligation
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  1,872Debt
      discount on promissory notes
                  
                  
                  73
                  
                  
                  
                  579
                  
                  
                  
                  11,416Conversion
      of convertible promissory notes and accrued interest to Series D preferred
      stock
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  5,324Conversion
      of convertible promissory notes and accrued interest to Series A-1
      preferred stock
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  7,707Conversion
      of convertible promissory notes and accrued interest to common
      stock
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  269Issuance
      of Series C preferred stock warrants in connection with lease
      agreement
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  43Issuance
      of common stock for license rights
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  4Liability
      for and issuance of common stock and warrants to Medarex
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  840Issuance
      of common stock to landlord
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  35Deferred
      compensation on issuance of stock options and restricted stock
      grants
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  759Cancellation
      of options and restricted stock
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  849Financing
      of prepaid insurance through note payable
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  491Stock
      subscription receivable
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  480





See
accompanying notes to condensed consolidated financial
statements.


5





Northwest
Biotherapeutics, Inc.


(A
Development Stage Company)





Notes
to Condensed Consolidated Financial Statements


(unaudited)





1.
Basis of Presentation





The
accompanying unaudited condensed consolidated financial statements include the
accounts of Northwest Biotherapeutics, Inc. and its subsidiary, NW Bio Europe
Sarl (collectively, the “Company”, “we”, “us”, and “our”). All material
intercompany balances and transactions have been eliminated. The accompanying
unaudited condensed consolidated financial statements should be read in
conjunction with the financial statements included in our Annual Report on Form
10-K for the year ended December 31, 2009. The year-end condensed balance sheet
data was derived from audited financial statements, but does not include all
disclosures required by accounting principles generally accepted in the United
States of America (“GAAP”). All normal recurring adjustments which are necessary
for the fair presentation of the results for the interim periods are reflected
herein. Operating results for the three and six month periods ended June 30,
2009 and 2010 are not necessarily indicative of results to be expected for a
full year.





The
independent registered public accounting firm’s report on the financial
statements for the fiscal year ended December 31, 2009 states that because of
recurring operating losses, net operating cash flow deficits, and a deficit
accumulated during the development stage, there is substantial doubt about the
Company’s ability to continue as a going concern. A “going concern” opinion
indicates that the financial statements have been prepared assuming the Company
will continue as a going concern and do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets
or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.





2.
Summary of Significant Accounting Policies





The
significant accounting policies used in the preparation of the Company’s
condensed consolidated financial statements are disclosed in Note 3 to our
consolidated financial statements included in our Annual Report on Form 10-K for
the year ended December 31, 2009.





Recent
and Adopted Accounting Pronouncements





In March
2010, The Financial Accounting Standards Board ("FASB") issued new authoritative
guidance regarding revenue recognition to define a milestone and clarify that
the milestone method of revenue recognition is a valid application of the
proportional performance model when applied to research or development
arrangements.  Accordingly, a company can make an accounting policy
election to recognize a payment that is contingent upon the achievement of a
substantive milestone in its entirety in the period in which the milestone is
achieved.  This guidance begins phasing in during the third quarter of
2010.  We do not expect the implementation of this guidance to have a
material impact on our consolidated financial statements.





In
January 2010, the FASB issued new authoritative guidance regarding the
disclosure of fair value measurements, which clarifies certain existing
disclosure requirements as well as requiring new disclosures related to
significant transfers between each fair value level as well as requiring
additional information about Level 3 activity. We adopted the guidance in
2010 without material impact on our consolidated financial
statements.





3.
Stock-Based Compensation





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


6





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





Three months ended
                  June 30
                
                
                Six Months ended
                  June 302009
                
                
                2010
                
                
                2009
                
                
                2010Research
      and Development
                
                $
                139
                
                
                $
                177
                
                
                $
                —
                
                
                $
                363General
      and Administrative
                
                
                329
                
                
                
                329
                
                
                
                658
                
                
                
                657Total
      stock-based compensation
                
                $
                468
                
                
                $
                506
                
                
                $
                658
                
                
                $
                1,020




During
the three month periods ended June 30, 2009 and 2010 options to purchase 850,000
and 50,000, respectively, shares of common stock were issued. During the six
month periods ended June 30, 2009 and 2010 options to purchase 850,000 and
100,000, respectively, shares of common stock were issued





At June
30, 2010, the unrecognized compensation expense related to stock options was
$2.6 million which is to be recognized over a weighted average period of 1.72
years.





4.
Liquidity





The
Company has experienced recurring losses from operations, and, as of June 30,
2010, had a working capital deficit of $19.6 million and a deficit accumulated
during the development stage of $204.5 million. Of this $204.5 million
deficit, $99.7 million (about half) reflects cash used in operations, and the
remaining $104.8 million reflects non-cash accounting measures.





Between
2004 and 2010, the Company has undergone a significant recapitalization through
the transactions described below.





Toucan
Capital and Toucan Partners





Toucan
Capital Fund II, L.P. (“Toucan Capital”) loaned the Company $6.75 million during
2004 and 2005.  The Board’s Chairperson is the managing director of
Toucan Capital. In April 2006, the $6.75 million of notes payable plus all
accrued interest were converted into shares of Series A-1 cumulative convertible
Preferred Stock (the “Series A-1 Preferred Stock”). In connection with these
loans the Company issued Toucan Capital a warrant to purchase 8,166,667 shares
of Series A-1 Preferred Stock.  The warrants to purchase Series A-1
Preferred Stock were later converted into warrants to purchase 17,256,888 shares
of common stock in connection with the Conversion Agreement, described
below.





On
January 26, 2005, Toucan Capital purchased 32.5 million shares of Series A
cumulative convertible preferred stock (the “Series A Preferred Stock”) at $0.04
per share, for a total of $1.276 million. In connection with the securities
purchase agreement, the Company issued Toucan Capital a warrant to purchase
2,166,667 million shares of Series A Preferred Stock.  The warrants to
purchase Series A Preferred Stock were later converted into warrants to purchase
4,778,201 shares of common stock in connection with the Conversion Agreement,
described below.





From
November 14, 2005 through May 25, 2007, Toucan Partners, LLC (“Toucan Partners”)
loaned the Company $4.825 million under various promissory note
agreements.  The Board’s Chairperson is the managing member of Toucan
Partners.  The promissory note agreements were amended and restated
into the 2007 Convertible Notes.  The 2007 Convertible Notes also
included warrants to purchase shares of Series A-1 Preferred Stock ("2007
Warrants").  The Company repaid $5.3 million of principal and accrued
interest due to Toucan Partners during 2007.  The warrants to purchase
Series A-1 Preferred Stock were later converted into warrants to purchase
8,832,541 shares of common stock in connection with the Conversion Agreement,
described below.





Under the
June 22, 2007 Conversion Agreement, Toucan Capital and Toucan Partners agreed to
eliminate a number of rights, preferences and protections associated with the
Series A Preferred Stock and the Series A-1 Preferred Stock and Toucan Capital
received 4,287,851 shares of common stock and Toucan Partners received 2,572,710
shares of common stock.  Also, Toucan Capital converted its preferred
shares into 15,011,635 shares of common stock. Additionally under the conversion
agreement the Company exchanged the warrants to purchase Series A-1 Preferred
Stock and Series A Preferred Stock (discussed above) for warrants to purchase
common stock. As a result of the conversion Toucan Capital received warrants to
purchase 14,150,732 shares of Common Stock at an exercise price of $0.60 per
share and warrants to purchase 7,884,357 shares of Common Stock at an exercise
price of $0.15 per share and Toucan Partners received warrants to purchase
8,832,541 shares of Common Stock at an exercise price of $0.60 per
share.





Toucan
Partners loaned the Company $1.0 million on August 19, 2008 under the terms of
an unsecured promissory note (the “Toucan Partners August Loan”) with a
principal amount of $1,060,000 (reflecting an original issue discount of
$60,000).  On September 28, 2009, the note principal and accrued
interest (including a default penalty of 0.25% per month) amounting to
$1,156,718 was converted to 5,783,589 shares of common stock at a
conversion price of $0.20.  In connection with the conversion,
the Company issued Toucan Partners a warrant to purchase 690,000 shares of
common stock at an exercise price of $0.20 per share.


7





Toucan
Partners loaned the Company $500,000 on December 22, 2008 under the terms of an
unsecured 12% promissory note (the “Toucan Partners December
Loan”).  In connection with the promissory note, the Company issued to
Toucan Partners a warrant to purchase 132,500 shares of common stock at an
exercise price of $0.40 per share and a term of 5 years.  On September
28, 2009, the note principal and accrued interest (including a default penalty
of 0.25% per month) amounting to $552,738 was converted to 2,763,691 shares of
common stock at a conversion rate of $0.20.  To bring the December
Loan into conformity with the SDS and Private Lender notes issued in
October and November 2008, as agreed by the parties at the time of the
Toucan Partners December Loan, the Company issued Toucan Partners a warrant to
purchase 513,841 shares of common stock at an exercise price of $0.41 per
share.  In connection with the conversion, the Company issued Toucan
Partners a warrant to purchase 152,375 shares of common stock at an exercise
price of $0.20 per share.




Toucan
Partners and the Board's Chairperson also received a total of 2,504,034 shares
of common stock as compensation for services rendered during 2008 and
2009.





Toucan
Partners loaned the Company a total of $1,300,000 on June 30, 2009, July 2, 2009
and July 17, 2009 under unsecured 6% convertible promissory notes due June 29,
2011, July 1, 2011 and July 16, 2011.  The conversion feature of the
notes allows Toucan Partners to convert the principal into shares of
common stock at a conversion price of $0.20.





As a
result of the financings described above, as of June 30, 2010 Toucan Capital
held:





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





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





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





As a
result of the financings described above, as of June 30, 2010, Toucan Partners
and its managing member Ms. Linda Powers held:





•
            an aggregate of 12,882,490 shares
      of Common Stock (net of the sale of 750,000 shares by Toucan Partners in
      2010 in open market
transactions);





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





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





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





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





As of
June 30, 2010, Toucan Capital, including the holdings of Toucan Partners, held
32,181,976 shares of common stock, representing approximately 46.3% of the
common stock outstanding.  Further, as of June 30, 2010, Toucan
Capital, including the holdings of Toucan Partners, beneficially owned
(including unexercised warrants) 64,538,322 shares of common stock, representing
a beneficial ownership interest of approximately 56.8%.





Other
Financings





In April
2006, the Company completed the PIPE Financing and raised approximately
$5.5 million from the issuance of 2.6 million shares of common
stock.





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





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





On March
27, 2009, we completed a private placement of 1.4 million shares of our common
stock and received $700,000.


8





Between
February 22, 2010 and March 31, 2010, we sold 1,451,666 shares of common stock
at $0.75 per share for net proceeds of $1,088,750.





During
the three months ended June 30, 2010 we issued 2,333,333 shares of common stock
at $0.75 per share plus ten percent warrant coverage for net proceeds of
$1,750,000.  As a result, the Company issued warrants to purchase 233,333
shares of common stock at an exercise price of $0.75 per share for a period of
three years from the date of issue.





Shareholder
Loan





Al Rajhi
loaned the Company $4.0 million on May 12, 2008 under the terms of an unsecured
promissory note with a principal amount of $4,240,000 (reflecting an original
issue discount of $240,000).  The note was initially due on November
12, 2008.  Al Rajhi agreed to extend the term of the note of the loan
until December 31, 2009.  On February 22, 2010, Al Rajhi agreed to
extend the term of the note to December 31, 2010. Additionally,  Al Rajhi agreed to
convert the interest accrued pursuant to the promissory note into shares of
common stock.  A total of $853,952 was converted into 1,138,603 shares
of common stock at a conversion price of $0.75.  In consideration of
the extension the Company agreed to extend the term of the warrants issued to Al
Rajhi to September 30, 2013.





Other
Loans





On
October 1, 2008, the Company entered into a $1 million unsecured 12% Loan
Agreement with SDS (the “SDS Loan”).  The SDS Loan was initially due
April 1, 2009. On May 27, 2010 SDS agreed to extend the term of the note to June
2, 2011.  In consideration of the extension the Company issued SDS a
warrant to purchase 474,000 shares of the Company’s stock with an exercise price
of $0.53 per share. The warrants have a five year term.





On dates
between October 21, 2008 and November 6, 2008, the Company entered into
unsecured 12% Loan Agreements (the “Private Investor Loans”) and Promissory
Notes (the “Private Investor Promissory Notes”) with SDS and a group of private
investors (the “Private Investors”).  Under the Private Investor
Promissory Notes, SDS loaned the Company $1 million and the Private Investors
loaned the Company $650,000 for a total of $1.65 million. The Private Investor
Promissory Notes were initially due in April 2009, and the Private Investors
(excluding SDS) agreed to extend the maturity date to June 2010.  The
Private Investors agreed to further extend the maturity of the loans, maturing
in June 2010, on terms that are currently being negotiated. Under the terms of a
conversion and extension agreement, SDS converted the November 2008 $1 million
unsecured 12% loan and accrued interest payable into 5,024,400 shares of common
stock during May 2010.  The value of the stock issued to SDS in excess of
the carrying amount of the loan principal and accrued interest payable that was
converted was $4,521,960.  This amount was charged to loan conversion
inducement expense in the accompanying consolidated statements of operations
during the quarter ended June 30, 2010.





During
March 2009, the Company received $650,000 upon issuing unsecured 6% convertible
loan agreements and promissory notes due in March 2011 to a group of private
lenders (“Private Lenders”).





During
March 2009, the Company received $110,000 upon issuing a unsecured 6%
convertible loan agreement and promissory note due in March 2011 to a private
lender (“Private Lender”).





On dates
between August 13, 2009 and September 24, 2009, the Company received $580,000
upon issuing unsecured 6% convertible loan agreements and promissory notes due
in August and September 2011 to a group of Private Lenders.





On dates
between October 6, 2009 and December 31, 2009, the Company received $720,000
upon issuing unsecured 6% convertible loan agreements and promissory notes due
in October through December 2011 to a group of Private Lenders.





On dates
between January 8, 2010 and March 29, 2010, the Company received $875,000 upon
issuing unsecured 6% convertible loan agreements and promissory notes due
between January and March 2012 to a group of Private Lenders.





Going
Concern





As of
August 9, 2010,   the Company had approximately $0.7 million of cash
on hand. The Company will need to raise additional capital in the near
future to fund its clinical trials and other operating activities. The
Company is in late stage discussions with multiple parties regarding
potential funding transaction. However, these parties are not obligated to
provide any financing.


9





The
Company will require additional funding before it achieves
profitability and there can be no assurance that its efforts to seek such
funding will be successful. The Company may raise additional funds by
issuing additional common stock or securities (equity or debt) convertible into
shares of Common Stock, in which case, the ownership interest of its
stockholders will be diluted. Any debt financing, if available, is likely to
include restrictive covenants that could limit the Company’s ability
to take certain actions. Further, the Company may seek funding from Toucan
Capital or Toucan Partners or their affiliates or other third parties. Such
parties are under no obligation to provide the Company with any additional
funds, and any such funding may be dilutive to stockholders and may contain
restrictive covenants. The Company is currently exploring additional
financings with several other parties; however, there can be no assurance that
the Company will be able to complete any such financings or that the terms of
such financings will be attractive to the Company. If the Company’s capital
raising efforts are unsuccessful, its inability to obtain additional cash
as needed could have a material adverse effect on the Company’s financial
position, results of operations and the Company’s ability to continue its
existence. The Company’s independent registered public accounting firm has
indicated in its report on the Company’s consolidated financial statements
included in the Annual Report on Form 10-K for the year ended December 31, 2009
that there is substantial doubt about the Company’s ability to continue as a
going concern.





5.
   Notes Payable





Notes
Payable Originating During 2010





On dates
between January 8, 2010 and March 29, 2010, the Company received $875,000 upon
issuing unsecured 6% convertible loan agreements and promissory notes due
between January and March 2012 to a group of Private Lenders.  The
conversion feature allows the holders to elect in their discretion to receive
shares of common stock at a conversion price of $0.50.  The intrinsic
value of the convertible notes resulted in a beneficial conversion feature
amounting to $579,000 which was recorded as a debt discount to be amortized over
the term of the notes.





Notes
payable to related parties consist of the following at December 31, 2009 and
June 30, 2010 (in thousands):




December 31,
                  2009
                
                
                June 30,
                  201012%
      note payable to Al Rajhi, due December 31, 2010
                
                $
                4,000
                
                
                $
                4,0006%
      unsecured convertible note payable to Toucan Partners, due July, 2011 and
      November 2011, (net of discount of $1,002 and $679 in 2009 and 2010,
      respectively)
                
                
                298
                
                
                
                6214,298
                
                
                
                4,621Less
      current portion
                
                
                (4,000
                )
                
                
                (4,000
                )Long-term
      notes payable to related parties (net)
                
                $
                298
                
                
                $
                621





Notes
payable consist of the following at December 31, 2009 and June 30, 2010 (in
thousands):




December  31,
                  2009
                
                
                June 30,
                  201012%
      unsecured note payable to SDS
                
                $
                1,000
                
                
                $
                1,00012%
      unsecured notes payable to SDS and Private Investors
                
                
                1,650
                
                
                
                6506%
      unsecured convertible notes payable to Private Lenders, due in August and
      September 2011, (net of discount of $485 and $341 in 2009 and 2010,
      respectively)
                
                
                95
                
                
                
                2396%
      unsecured convertible notes payable to Private Lenders, due March 25,
      2011, (net of discount of $46 and $27 in 2009 and 2010,
      respectively)
                
                
                604
                
                
                
                6236%
      unsecured convertible note payable to Private Lender, due March 25,
      2011
                
                
                110
                
                
                
                1106%
      unsecured convertible notes payable to Private Lenders, due October, 2011,
      (net of discount of $194 and $141 in 2009 and 2010,
      respectively)
                
                
                21
                
                
                
                746%
      unsecured convertible notes payable to Private Lenders, due October and
      December 2011, (net of discount of $274 and $205 in 2009 and 2010,
      respectively)
                
                
                231
                
                
                
                3006%
      unsecured convertible notes payable to Private Lenders, due between
      January and March 2012, (net of discount of $466 in 2010)
                
                
                -
                
                
                
                4093,711
                
                
                
                3,405Less
      current portion
                
                
                (2,650
                )
                
                
                (2,383
                )Long-term
      notes payable (net)
                
                $
                1,061
                
                
                $
                1,022





The
current portion of notes payable at June 30, 2010, is reported in the
accompanying consolidated balance sheet as follows (in thousands):




Notes
      payable, net
                
                $
                1,650Convertible
      notes payable, net
                
                
                733$
                2,383




10





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





Basic net
loss per share is calculated based on the weighted average number of common
shares outstanding during the reporting period. Diluted loss per share is
computed on the basis of the weighted average number of common shares plus
dilutive potential common shares outstanding using the treasuy stock method. The
potentially dilutive securities are antidilutive due to the Company's net losses
and are as follows for all periods presented (in thousands):





Three Months Ended
                                June 30
                              
                              
                              Six Months Ended
                                June 302009
                              
                              
                              2010
                              
                              
                              2009
                              
                              
                              2010Common
      stock options
                              
                              
                              2,400
                              
                              
                              
                              4,096
                              
                              
                              
                              2,400
                              
                              
                              
                              4,096Common
      stock warrants
                              
                              
                              35,000
                              
                              
                              
                              38,200
                              
                              
                              
                              35,000
                              
                              
                              
                              38,200Convertible
      Notes
                              
                              
                              1,200
                              
                              
                              
                              16,200
                              
                              
                              
                              1,200
                              
                              
                              
                              16,200Excluded
      potentially dilutive securities
                              
                              
                              38,600
                              
                              
                              
                              58,496
                              
                              
                              
                              38,600
                              
                              
                              
                              58,496





7.
Related Party Transactions





Cognate
Agreement





On
July 30, 2004, the Company entered into a service agreement with Cognate
Therapeutics, Inc. (now known as Cognate BioServices, Inc., or Cognate), a
contract manufacturing and services organization in which Toucan Capital has a
majority interest. In addition, two of the principals of Toucan Capital are
members of Cognate’s board of directors and, on May 17, 2007, the managing
director of Toucan Capital was appointed to serve as a director of the Company
and to serve as the non-executive Chairperson of the Company’s Board of
Directors. Under the service agreement, the Company agreed to utilize Cognate’s
services for an initial two-year period, related primarily to manufacturing
DCVax ® product
candidates, regulatory advice, research and development preclinical activities
and managing clinical trials. The agreement expired on July 30, 2006;
however, the Company continued to utilize Cognate’s services under the same
terms as set forth in the expired agreement. On May 17, 2007, the Company
entered into a new service agreement with Cognate pursuant to which Cognate will
provide certain consulting and, when needed, manufacturing services to the
Company for its DCVax ® -Brain
Phase II clinical trial. Under the terms of the new contract, the Company
paid a non-refundable contract initiation fee of $250,000 and committed to pay
budgeted monthly service fees of $400,000, subject to quarterly true-ups, and
monthly facility fees of $150,000. Under the terms of the contract unless the
contract is terminated earlier the contract will expire at the earlier of (i)
the submission of an FDA biological license application/new drug application on
the Company’s brain cancer clinical trial or (ii) July 1, 2010. The Company
may terminate this agreement with 180 days notice and payment of all
reasonable wind-up costs and Cognate may terminate the contract in the event
that the brain cancer clinical trial fails to complete enrollment by
July 1, 2009. However, if such termination by the Company occurs at any
time prior to the earlier of the submission of an FDA biological license
application/new drug application on the Company’s brain cancer clinical trial or
July 1, 2010 or, such termination by Cognate results from failure of the
brain cancer clinical trial to complete patient enrollment by July 1, 2009,
the Company is obligated to make an additional termination fee payment to
Cognate equal to $2 million.  Although the Company failed to
complete enrollment for the brain cancer clinical trial by July 1, 2009 and
as of July 1, 2010 has not submitted an FDA biological license application/new
drug application on the Company’s brain cancer clinical trial, Cognate has
elected not to terminate the agreement and as such the $2 million termination
penalty has not been triggered.    Since July 1, 2009, with the mutual
agreement of Cognate and the Company, the agreement has continued on the same
terms as included in the original agreement.





Cognate
has moved its operations from Sunnyvale, California to its newer facility
in Memphis, Tennessee. The current capacity in Memphis (using only
part of the facility) is approximately 600 patients per year, which we believe
will be sufficient for our Phase II clinical trial for DCVax ® -Brain.
We have made arrangements with Cognate to accommodate an increase in production
capacity in the current facility on a stepwise or modular basis based on demand
from approximately 600 patients to over 9,000 patients per
year.





During
the three months ending June 30, 2009 and 2010, respectively, the Company
recognized approximately $2.0 million and $0.8 million of research and
development costs related to three service agreements. During the six months
ending June 30, 2009 and 2010, respectively, the Company recognized
approximately $4.0 million and $2.0 million of research and development costs
related to these service agreements. As of December 31, 2009 and June 30, 2010,
accounts payable to Cognate amounted to approximately $5.9 and $5.8 million,
respectively. The parties have agreed  to review charges and adjust as
needed.




During
2009, the Company and Cognate agreed that most of the accounts payable owed by
the Company to Cognate, will be converted into shares of common stock instead of
paid in cash.  The conversion price will be no less favorable than the
conversion price applied to any other creditor of the Company. The lowest
conversion price applied to any other creditor of the Company to date following
the agreement is $0.20 per share. Accordingly, if no lower conversion
price is applied to any other creditor prior to completion of the Cognate
conversion, the Cognate conversion will take place at $0.20 per share. The
impact of the conversion will result in a reduction of liabilities for the
amount converted.  In addition, the Company will recognize the value of
common stock issued in excess of the amount of accounts payable converted, if
any, as a charge to operations when the conversion takes place.  Initial
review of the payables by both parties indicated a difference in the parties’
respective understanding of the amounts due. The parties are in the process of
reviewing the accounts payable in order to reach agreement about such amounts
and conversion arrangements.


11





Toucan
Capital Management





In
accordance with a recapitalization agreement dated April 26, 2004 between
the Company and Toucan Capital, as amended and restated on July 30, 2004
and further amended ten times between October 22, 2004 and
November 14, 2005, pursuant to which Toucan Capital agreed to recapitalize
the Company by making loans to the Company, the Company accrued and paid certain
legal and other administrative costs on Toucan Capital’s behalf. Pursuant to the
terms of the Conversion Agreement discussed above, the recapitalization
agreement was terminated on June 22, 2007. Subsequent to the termination of
the recapitalization agreement, Toucan Capital continues to incur costs on
behalf of the Company. These costs primarily relate to consulting costs and
travel expenses incurred in support of the Company’s international expansion
efforts. In addition, during 2007, 2008 and 2009 the Company accrued and
recorded rent expense due to Toucan Capital Corp. an affiliate of Toucan Capital
for its office space in Bethesda, Maryland.





During
the three months ending June 30, 2009 and 2010, respectively, the Company
recognized approximately $102,000 and nil of general and administrative costs
for rent expense, as well as legal, travel and other costs incurred by Toucan
Capital on the Company’s behalf. At December 31, 2009 and June 30, 2010, accrued
expenses payable to Toucan Capital amounted to $0.5 million and
$1.4 million, respectively, and are included in the accompanying
consolidated balance sheets.





Also
during 2009, the Company agreed with Toucan Capital, Toucan Partners and Linda
Powers (the Board’s Chairperson) that a portion of the accrued expenses owed by
the Company to these parties for certain expense reimbursements will be
converted into shares of common stock instead of paid in cash.  The parties
agreed that these accrued expenses will be converted into common stock (at a
conversion rate of $0.20 per share).  The impact of the conversion will
result in a reduction of liabilities for the amount converted.  In
addition, the Company will recognize the value of common stock issued in excess
of the amount of the accrued expenses converted, if any, as a charge to
operations when the conversion takes place.  Finalization of these
arrangements is in process.





8.
Contingencies and Commitments





The Company terminated its lease with Toucan Capital Corporation on December 31,
2009.  The Company is obligated to make monthly payments of approximately
$5,000 during 2010 and 2011 and other amounts thereafter under the terminated
lease.  Management is not able to estimate the amount of obligations
subsequent to 2011.





On March
17, 2010, we entered into a non-cancelable operating lease for 7,097 square feet
of office space in Bethesda, Maryland, which expires in September 2012. Future
minimum lease payments under the lease are $73,188, $163,475 and $126,027, in
2010, 2011 and 2012, respectively. Rent expense for the three and six months
ended June 30, 2009 and 2010 amounted to nil and $35,674 and nil and
$41,649 respectively. The Company expects to lease part of this space to Toucan
and proceeds of this sublease, if any, will be offset against the minimum lease
payments specified above.





As of
June 30, 2010, the Company has no other contractual commitments which result in
material financial obligations other than the month to month agreement with
Cognate, an office lease, and other contracts and obligations associated with
the Company ’ s clinical trials.





9.  Stockholders’
Equity (Deficit)





Common
Stock Issuances





Between
February 22, 2010 and March 31, 2010, we sold 1,451,666 shares of common stock
at $0.75 per share for net proceeds of $1,088,750.





During
the three months ended March 31, 2010, accrued interest payable to Al Rajhi
under the promissory note dated May 12, 2008 amounting to $853,952 was converted
into 1,138,603 shares of common stock at a conversion rate of $0.75 per
share.  The fair value of the common stock issued in excess of the
accrued interest payable converted into common stock amounted to $194,761 and is
recorded to interest expense in the accompanying consolidated financial
statements.





During
the three and six months ended June 30, 2010, we issued nil and 358,850 shares
of common stock valued at nil and $278,390 based on the closing market price on
the date of issuance of the shares to employees in lieu of cash payment of
salaries earned in 2009.





During
three and six months ended June 30, 2010, we issued 60,210 and 365,367 shares of
common stock for services valued at $30,380 and $210,000, respectively based on
the closing market price on the date of issuance of the shares.




12




During
the three months ended June 30, 2010, we sold to private investors 2,333,333
shares of common stock at $0.75 per share for net proceeds of $1,750,000. In
connection with this private placement, the Company issued warrants to purchase
233,333 shares of common stock, as described below.




On May
27, 2010 we issued 5,024,400 shares of common stock upon the conversion of a
note payable and accrued interest payable due to SDS. The note payable and
accrued interest payable converted amounted to $1,004,880. T he value of the
stock issued to SDS in excess of the carrying amount of the loan principal and
accrued interest payable that was converted was $4,521,960. This amount was
charged to loan conversion inducement expense in the accompanying consolidated
statements of operations during the quarter ended June 30, 2010.





Stock
Purchase Warrants





During
2009, Al Rajhi agreed to extend the due date of the May 12, 2008 promissory
note in the amount of $4 million, to December 31, 2009.  As
consideration for the extension of the due date to December 31, 2009, the
Company issued Al Rajhi warrants to purchase 1,743,111 shares of common stock at
an exercise price of $0.63 with an exercise period of three
years.  During February 2010, Al Rajhi agreed to extend the due date
of the promissory note to December 31, 2010.  As consideration for the
extension of the due date of the promissory note to December 31, 2010, the
Company extended the term of the warrants by one year.  The warrants
now expire in September 2013.  Upon extending the term of the
warrants, the Company recognized the increase in the fair value of the warrants
amounting to $53,018 as a charge to interest expense in the accompanying
consolidated financial statements.  The fair value of the warrants was
determined using the Black-Scholes option pricing model with the following
assumptions: expected dividend yield of 0%, risk-free interest rate of 1.98%
volatility of 201%, and a contractual life of 4 years.





During
the three months ended March 31, 2010, the Company, Toucan Partners, and Toucan
Capital agreed to extend the term of certain warrants held by Toucan
parties an additional three years.  The extension of the term applies
to 7,884,357 warrants with an exercise price of $0.15 held by Toucan Capital,
132,500 warrants with an exercise price of $0.40 held by Toucan Partners,
14,150,732 warrants with an exercise price of $0.60 held by Toucan Capital, and
8,832,541 warrants with an exercise price of $0.60 held by Toucan
Partners.  Upon extending the term of the warrants, the Company
recognized the increase in the fair value of the warrants amounting to
$1,500,722 as a charge to interest expense in the accompanying consolidated
financial statements.  The fair value of the warrants was determined
using the Black-Scholes option pricing model with the following assumptions:
expected dividend yield of 0%, risk-free interest rate of 2.46% volatility of
217%, and a contractual life of 5 years.





During
the three months ended March 31, 2010, the Company issued warrants to purchase
100,000 shares of common stock at an exercise price of $0.75 with a three year
exercise period to a consultant.  The fair value of the warrants
amounting to $72,494 was charged to general and administrative expense in the
accompanying consolidated financial statements and was determined using the
Black-Scholes option pricing model with the following assumptions: expected
dividend yield of 0%, risk-free interest rate of 1.7%, volatility of 198%, and a
contractual life of 3 years.





During
the three months ended June 30, 2010, the Company issued warrants to purchase
250,000 shares of common stock at an exercise price of $1.00 per share with a
three year exercise period to a consultant.  The fair value of the
warrants amounting to $169,448 was charged to general and administrative expense
in the accompanying consolidated financial statements and was determined using
the Black-Scholes option pricing model with the following assumptions: expected
dividend yield of 0%, risk-free interest rate of 1.41%, volatility of 199%, and
a contractual life of 3 years.





During
the three months ended June 30, 2010, the Company issued warrants to purchase
300,000 shares of common stock at an exercise price of $0.75 per share with a
three year exercise period to a consultant.  The fair value of the
warrants amounting to $203,054 was charged to general and administrative expense
in the accompanying consolidated financial statements and was determined using
the Black-Scholes option pricing model with the following assumptions: expected
dividend yield of 0%, risk-free interest rate of 1.0%, volatility of 198%, and a
contractual life of 3 years.





In
connection with the extension of the SDS October 2008 $1 million unsecured 12%
loan, the Company issued warrants to purchase 474,000 shares of common stock at
an exercise price of $0.53 per share with a three year exercise period. 
The fair value of the warrants amounting to $472,931 was charged to interest
expense in the accompanying consolidated financial statements and was determined
using the Black-Scholes option pricing model with the following assumptions:
expected dividend yield of 0%, risk-free interest rate of 1.28%, volatility of
198%, and a contractual life of 5 years.





In
connection with the issuance of 2,333,333 shares of common stock for proceeds of
$1,750,000 during the three months ended June 30, 2010, the Company issued
warrants to purchase 233,333 shares of common stock at an exercise price of
$0.75 per share with a three year exercise period from the date of issue. 
The fair value of the warrants amounting to $240,288 was determined using the
Black-Scholes option pricing model with the following assumptions: expected
dividend yield of 0%, risk-free interest rate of 1.51%, volatility of 198%, and
a contractual life of 3 years.  The $1,750,000 proceeds from the issuance
of the common stock and warrants were allocated on a relative fair value
basis.  The relative fair value of the stock was estimated to be $1,540,000
and the relative fair value of the warrants was estimated to be
$210,000.


13





10.
Subsequent Events





On July
2, 2010 the Company entered into a securities purchase agreement with Ms. Linda
F. Powers, the Chair of the Company’s Board of Directors, under which Ms. Powers
purchased 866,667 shares of common stock for $650,000.  In connection with
this private placement the Company issued warrants to purchase 86,667 shares of
common stock at an exercise price of $0.75 per share with an exercise period of
three years. The fair value of the warrants amounted to $115,072 and was
determined using the Black-Scholes option pricing model with the following
assumptions: expected dividend yield of 0%, risk-free interest rate of 1.04%
volatility of 191%, and a contractual life of 3 years.





On July
14, 2010, the Company entered into unsecured 6% convertible Loan Agreements
and Promissory Notes with a three private lenders (“Private
Lenders”). Under the Notes the Private Lenders have provided bridge
funding (“Bridge Funding”) to the Company in the amount of
$1,750,000.   The Bridge Funding is to be to be repaid on the earlier
of 5 business days from the date on which the Company receives $1,600,000 in
additional funding or February 14, 2012.   The conversion feature
allows the holders to receive shares of common stock only and not cash or other
consideration, at a conversion price of $0.50. Additionally the Private lenders
received warrants to purchase 116,667 shares of the Company’s common stock at a
price of $0.75 per share.





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





The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited condensed
consolidated financial statements and the notes to those statements included
with this report. In addition to historical information, this report contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the “Securities Act”), and Section 21E of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those projected. The words
“believe,” “expect,” “intend,” “anticipate,” and similar expressions are used to
identify forward-looking statements, but some forward-looking statements are
expressed differently. Many factors could affect our actual results, including
those factors described under “Risk Factors” elsewhere in this report. These
factors, among others, could cause results to differ materially from those
presently anticipated by us. You should not place undue reliance on these
forward-looking statements.





Overview





We are a
development stage biotechnology company focused on discovering, developing and
commercializing immunotherapy products that generate and enhance immune system
responses to treat cancer. Data from our clinical trials suggest that our cancer
therapies significantly extend both the time to recurrence and survival, while
providing a superior quality of life with no debilitating side effects when
compared with current therapies.




Our
financing activities are described below under “— Liquidity and Capital
Resources”. We will need to raise additional capital to fund our operations,
including our Phase II DCVax ® -Brain
clinical trial. Depending on the trial results, we plan to seek product approval
for DCVax ® -Brain,
our leading product candidate, in both the U.S. and E.U.





We have
experienced recurring losses from operations and have a deficit accumulated
during the development stage of $204.5 million at June 30, 2010 of which
$99.7 million reflects cash expenditures and the remainder reflects non-cash
charges. In addition, our independent registered public accounting firm has
indicated in its report on our financial statements included in this Annual
Report on Form 10-K that there is substantial doubt about our ability to
continue as a going concern.





Critical
Accounting Policies and Estimates





Our
discussion and analysis of our financial condition and results of operations is
based upon our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses and
related disclosure of contingent assets and liabilities. The critical accounting
policies that involve significant judgments and estimates used in the
preparation of our financial statements are disclosed in our Annual Report on
Form 10-K for the year ended December 31, 2009.





Recent
Accounting Pronouncements





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


14





Results
of Operations





Operating
costs:





Operating
costs and expenses consist primarily of research and development expenses,
including clinical trial expenses which increase when we are actively
participating in clinical trials, and general and administrative
expenses.





Research
and development:





Discovery
and preclinical research and development expenses include scientific
personnel-related salary and benefit expenses, costs of laboratory supplies used
in our internal research and development projects, travel, regulatory
compliance, and expenditures for preclinical and clinical trial operation and
management when we are actively engaged in clinical trials.





Because
we are a development stage company, we do not allocate research and development
costs on a project basis. We adopted this policy, in part, due to the
unreasonable cost burden associated with accounting at such a level of detail
and our limited number of financial and personnel resources. We shifted our
focus, starting in 2002, from discovering, developing, and commercializing
immunotherapy products to conserving cash and primarily concentrating on
securing new working capital to re-activate our two DCVax® clinical trial
programs.





General
and administrative:





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





Three
Months Ended June 30, 2010 and 2009





We
recognized a net loss of $8.7 million for the three months ended June 30, 2010
compared to a net loss of $4.1 million for the three months ended June 30, 2009.
The increase in net loss was primarily attributable to loan conversion
inducement costs related to the conversion of the SDS loan into equity and an
increase in debt discount amortization and interest expense associated with
notes payable that were outstanding during the three month period ended June 30,
2010.





Loss from Operations . 
The loss from operations decreased from $3.7 million for the three months ended
June 30, 2009 to $3.1 million for the three months ended June 30, 2010. The
decrease was due to reduced research and developement staffing and contract
manufacturing costs offset by higher legal costs related to management of
intellectual property and higher consulting costs.





Research and Development
Expense. Research and development expense decreased from $2.5 million for
the three months ended June 30, 2009 to $1.2 million for the three months ended
June 30, 2010. This decrease was primarily due to reduced staffing and lower
contract manufacturing costs in 2010.





General and Administrative
Expense. General and administrative expense was $1.9 million for the
three months ended June 30, 2010 compared to $0.8 million for the three months
ended June 30, 2009.  The increase was due to higher legal costs
related to intellectual property and an increase in consulting
costs.





Interest (Expense).
Interest expense increased from $0.4 million for the three months ended June 30,
2009 to $1.1 million for the three months ended June 30, 2010. Interest expense
includes interest payable on notes payable, debt discount amortization and
other financing costs. Interest expense for the three-month periods ended
June 30, 2009 and June 30, 2010 was $0.3 million and $0.3 million
respectively and debt discount amortization and other costs for the three
month periods ended June 30, 2009 and June 30, 2010 was $0.1 million and $0.8
million respectively.  The increase in debt discount amortization and other
costs was primarily due to the higher amount of notes payable that were
outstanding during the three month period ended June 30, 2010 and modification
of the terms for common stock purchase warrants.





Six
Months Ended June 30, 2010 and 2009





We
recognized a net loss of $14.6 million for the six months ended June, 2010
compared to a net loss of $8.7 million for the six months ended June 30, 2009.
The increase in net loss was primarily attributable to loan conversion
inducement costs related to the conversion of the SDS loan into equity and an
increase in debt discount amortization and interest associated with notes
payable that were outstanding during the six month period ended June 30,
2010.





Loss from Operations . The
loss from operations decreased from $7.5 million for the six months ended June
30, 2009 to $6.4 million for the six months ended June 30, 2010. The decrease
was due to reduced research and development staffing and contract manufacturing
costs offset by higher legal costs related to management of intellectual
property and higher consultant costs.


15





Research and Development
Expense. Research and development expense decreased from $5.0 million for
the six months ended June 30, 2009 to $3.2 million for the six months ended June
30, 2010. This decrease was primarily due to reduced staffing and lower contract
manufacturing costs in 2010.





General and Administrative
Expense. General and administrative expense was $3.3 million for the six
months ended June 30, 2010 compared to $2.1 million for the three months ended
June 30, 2009. The increase was due to higher legal costs related to
intellectual property and an increase in consulting costs.





Interest (Expense).
Interest expense increased from $1.2 million for the six months ended June 30,
2009 to $3.6 million for the three months ended June 30, 2010. Interest expense
includes interest payable on notes payable, debt discount amortization and other
financing costs. Interest expense for the six month period ended June 30, 2009
and June 30, 2010 was $0.5 million and $0.6 million respectively and debt
discount amortization and other costs for the six months ended June
30, 2009 and June 30, 2010 was $0.7 million and $3.0 million respectively. The
increase in debt amortization and other costs for the six month period
ended June 30, 2010 was primarily due to an increase in the  notes payable
that were outstanding during the six month period ended June 30, 2010.  In
addition, interest expense includes $1.6 million of expense from the
modification of warrant agreements during the 2010 period.





Liquidity
and Capital Resources





At June
30, 2010, cash totaled $180,000, compared to $65,000 at December 31, 2009.
   Working capital was a deficit of $19.6 million at June 30,
2010, compared to a deficit of $19.3 million at December 31, 2009.
   The working capital deficit increased as of June 30, 2010 primarily
due to an increase in current liabilities due to an increase in accounts payable
and accrued liabilities in 2010.    Cash balances increased during the
quarter ended June 30, 2010 due primarily to the financing transactions
discussed below that were executed in 2010.





The
change in cash for the six month periods presented was comprised of the
following (in thousands):





Six Months EndedJune 30,
                    2009
                  
                  
                  June 30,
                    2010
                  
                  
                  ChangeNet
      cash provided by (used in):Operating
      activities
                  
                  $
                  (2,133
                  )
                  
                  $
                  (3,599
                  )
                  
                  $
                  (1,466
                  )Investing
      activities
                  
                  
                  (2
                  )
                  
                  
                  (39
                  )
                  
                  
                  (37
                  )Financing
      activities
                  
                  
                  2,154
                  
                  
                  
                  3,714
                  
                  
                  
                  1,560Effect
      of exchange rates on cash
                  
                  
                  15
                  
                  
                  
                  39
                  
                  
                  
                  24Increase
      in cash
                  
                  $
                  34
                  
                  
                  $
                  115
                  
                  
                  $
                  81





Operating
Activities





We used
$3.6 million in cash for operating activities during the six months
ended June 30, 2010.    The increase in cash used in operating
activities was a result of the increase in operating expenses.





Investing
Activities





The cash used in investing activities was related to equipment used in the new
leased headquarters building.





Financing
Activities





During
the six months ended June 30, 2010, our financing activities consisted of
proceeds from notes payable amounting to $0.9 million and proceeds from the
issuance of common stock amounting to $2.8 million.  The 2010
financing transactions consisted of:





Between
February 22, 2010 and March 31, 2010, we sold 1,451,666 shares of common stock
at $0.75 per share for net proceeds of $1,088,750.





Between
April and June 2010 we completed a private placement of 2.3 million shares of
our common stock and received $1,750,000 and the purchase carried 10%
warrants.





On dates
between January 8, 2010 and March 29, 2010, the Company received $875,000 upon
issuing unsecured 6% convertible loan agreements and promissory notes due
between January and March 2012 to a group of Private Lenders.


16





During
the six months ended June 30, 2009, our financing activities consisted of
proceeds from notes payable amounting to $0.8 million and proceeds from the
issuance of common stock amounting to $1.4 million.  The 2009
financing transactions consisted of:





During
the six months ended June 30, 2009 we received $1.4 million from the issuance of
2.4 million shares of common stock.





During
March 2009, the Company received $760,000 upon issuing unsecured 6% convertible
loan agreements and promissory notes due in March 2011 to a group of private
lenders.





We
estimate that our current funding is sufficient to enable us to proceed with our
current (reduced) activities under our DCVax ® -Brain
program.  Our ongoing funding requirements will depend on many
factors, including the number of staff we employ, the pace of patient enrollment
in our brain cancer trial, the cost of establishing clinical studies and
compassionate use/named patient programs in other countries, and unanticipated
developments.  Without additional capital, we will not be able to
proceed with significant enrollment in our DCVax ® -Brain
clinical trial or move forward with compassionate use/named patients programs or
with any of our other product candidates for which investigational new drug
applications have been cleared by the FDA. We will also be constrained in
developing our second generation manufacturing processes, which offer the
potential for significant reduction in product costs.




Additional
funding will be required in the near future and there can be no assurance that
our efforts to seek such funding will be successful. If our capital raising
efforts are unsuccessful, our inability to obtain additional cash as needed
could have a material adverse effect on our financial position, results of
operations and our ability to continue our existence. Our independent registered
public accounting firm has indicated in its report on our financial statements
included in the Annual Report on Form 10-K for the year ended
December 31, 2009 that there is substantial doubt about our ability to
continue as a going concern. We may seek additional funds through the issuance
of additional common stock or other securities (equity or debt) convertible into
shares of common stock, which could dilute the ownership interest of our
stockholders. We may seek funding from Toucan Capital or Toucan Partners or
their affiliates or other third parties. Such parties are under no obligation to
provide us any additional funds, and any such funding may be dilutive to
stockholders and may contain restrictive covenants that could limit our ability
to take certain actions.





Item
3. Quantitative and Qualitative Disclosures about Market Risk





Not
required for smaller reporting companies.





Item
4. Controls and Procedures





Conclusion
Regarding the Effectiveness of Disclosure Controls and Procedures





Under the
supervision and with the participation of our management, including our
principal executive, financial and accounting officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as
amended.  Based on this evaluation, our principal executive, financial
and accounting officer concluded that, as of June 30, 2010, in light of the
material weaknesses described below, our disclosure controls and procedures were
not effective to ensure that the information required to be disclosed by us in
the reports that we file or submit under the Securities Exchange Act of 1934 is
accumulated and communicated to management, including our chief executive
officer, financial and accounting officer, to allow timely decisions regarding
required disclosure, and that such information is recorded, processed,
summarized and reported within the time periods prescribed by the
SEC.





Management's
Report on Internal Controls Over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
controls over financial reporting, as such term is defined in Exchange Act Rule
13a-15(f).  Under the supervision and with the participation of our
management, including our principal executive, financial and accounting officer,
we conducted an evaluation of the effectiveness of our internal controls over
financial reporting as of June 30, 2010.  This evaluation was based on
the framework in Internal Control—Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission ("COSO").





A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the Company's annual or interim financial
statements will not be prevented or detected on a timely basis.





Based on management's evaluation as of June 30, 2010, our management identified
the material weaknesses set forth below in our internal control over financial
reporting:





(i)
            The
      Company's process for internally reporting material information in a
      systematic manner to allow for timely filing of material information is
      ineffective, due to its inherent limitations from being a small company,
      and there exist material weaknesses in internal control over financial
      reporting that contribute to the weaknesses in our disclosure controls and
      procedures.  These weaknesses include the lack
    of:


17





·
            appropriate segregation of
      duties;





·
            appropriate oversight and
      review;





·
            internal accounting technical
      expertise;





·
            preparation, review and
      verification of internally developed
  documentation;





·
            controls in place to insure that
      all material developments impacting the financial statements are
      reflected; and





·
            executed agreements for
      significant contracts.





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





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





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





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





Our
company's management concluded that in light of the material weaknesses
described above, our company did not maintain effective internal control over
financial reporting as of June 30, 2010 based on the criteria set forth in
Internal Control—Integrated Framework issued by the COSO.





Changes
in Internal Control over Financial Reporting





There has
been no change in our internal controls over financial reporting that occurred
during the fiscal quarter ended June 30, 2010 that has materially affected, or
is reasonably expected to materially affect, our internal controls over
financial reporting.





Inherent
Limitations





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.





Part
II — Other Information





Item
1. Legal Proceedings





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


18





SOMA
Arbitration





In
January, 2003, Toucan Capital initiated contact with the Company through a
letter expressing interest in investing. The Company’s then business managers
(who left the Company that year) did not engage with Toucan.  In the
spring and summer of 2003, Toucan hired a former employee of the Company, and
Toucan retained external advisers who conducted due diligence on the Company. In
January, 2004, Toucan pursued investment discussions with the Company at an
investment conference.  Those discussions led to initial investment by
Toucan a few weeks later, in February 2004, followed by further investment in
March and culminating in a recapitalization of the Company pursuant to an
agreement completed in April, 2004.





On
October 15, 2003, the Company engaged Soma Partners, LLC (Soma), a New
Jersey-based investment bank, to help raise funding for the
Company.  Although Toucan had initiated contact with the Company ten
months earlier and had been conducting due diligence on the Company both
internally and externally over the course of those ten months, and although Soma
was not present at the January 2004 discussions and did not know such
discussions were taking place, thereafter Soma sought to receive investment
banking fees on all investment made by Toucan into the Company, despite the
chronology of events.





The
Company sought to reach a negotiated settlement.  Soma declined to
reduce the amount of its claims, and filed an arbitration case to pursue the
claims.  Soma also expanded its claims to include not only the
investments made by Toucan in 2004, but also all future financings which might
be made pursuant to the recapitalization plans that Toucan and the Company had
developed for up to $40 million of future financings.  In its
arbitration case at various points, Soma sought growing amounts of cash fees and
in excess of 10 million shares of stock or warrants.





The
arbitration case turned on whether Soma had “first introduced” Toucan to the
Company.  The Company vigorously disputed Soma’s claims and defended
itself.  The arbitration was held in March and May 2005, and all
claims were decided in the Company’s favor.





Soma then
filed a series of appeals during 2005.  In the first appeal, the court
rejected all of Soma’s claims and confirmed the decision reached in the
arbitration.  Soma then filed another appeal in 2006.  In
that appeal, the court found an issue with the selection of the arbitrator, and
remanded the case for a new arbitration.  Sometime during this period,
Soma went out of business, but its former principals still continue to pursue
the claims against the Company.





The new
arbitration was conducted in May and June of 2009, by a three-arbitrator
panel.  Once again, all claims were decided in the Company’s
favor.  Soma’s former principals did not file further appeals after
that decision, and the case is now finally closed.





Lonza
Patent Infringement Claim





In late June 2007, the Company received a favorable ruling from a Swiss
regulatory agency (the B.A.G.), which was expected at the time to enable the
Company to begin providing its DCVax ®
dendritic cell vaccines to patients commercially through designated medical
centers in Switzerland.  Within weeks after this decision was
announced, on July 27, 2007, Lonza Group AG (“Lonza”), a large Swiss based
corporation, filed a lawsuit against us in the U.S., alleging infringement of
some eight different patents, relating to recombinant DNA methods, sequences,
vectors and other technology relating to gene modifications of cells, cell lines
and host cells.





None
of the Company’s DCVax ® products
involve, or have ever involved, any gene modifications of any of the
cells.  The lawsuit was groundless and we defended ourselves
vigorously, including making clear that we would seek court sanctions under the
Federal Rules of Civil Procedure against Lonza and its counsel for filing a
complaint without any reasonable basis. Within five months after filing its
extensive complaint, Lonza unilaterally withdrew nearly all of the claims in it
– all claims except certain claims relating to our DCVax ®
-Prostate product.





Regarding
the DCVax ®
-Prostate product, Lonza sought to still pursue its claims on the basis that
although the Company itself had never used any gene expression or gene
modification technology, instead Medarex – who had served as the contract
manufacturer of the PSMA antigen (biomarker) in DCVax ®
-Prostate and supplied the finished PSMA antigen to us – had potentially used
Lonza’s gene expression system.  Although the Company had had no
involvement in (and no knowledge of) Medarex’s choice of manufacturing method,
and had simply contracted with Medarex for delivery of a quantity of finished
PSMA, Lonza sought to hold the Company liable for this because Lonza had reached
a business deal with Medarex several years earlier which precluded Lonza
pursuing claims against Medarex.





We
continued to dispute and defend ourselves vigorously against Lonza’s remaining
claims concerning DCVax ®
-Prostate.  During the course of the case, Lonza proposed several
times for us to take a license to their gene expression
technology.  Since we had no use for their technology, we
declined.





Within
another four months after Lonza’s unilateral withdrawal of all other claims in
its complaint, in April 2008 we and Lonza entered into a settlement to dispose
of the last of Lonza’s claims.  Under this settlement, we refused to
pay make any monetary payment of any kind, refused to take a license to Lonza’s
technology, and agreed to only one thing: to destroy our remaining inventory of
PSMA which had been produced by Medarex, and which had been sitting in our
freezers for nearly ten years.  Under this settlement, the last of
Lonza’s claims were dismissed with prejudice (meaning they cannot be re-filed),
thus ending the case.


19





Stockholder
Class Action





In
February 2007, the Company applied to the Bundesamt für Gesundheit (B.A.G.) in
Switzerland for an Authorization for Use, so that the Company could make DCVax
®
available to patients commercially at designated medical centers in
Switzerland.  At that time, the B.A.G. had jurisdiction over
transplants, and a separate agency, Swissmedic, had jurisdiction over drugs and
other medical products.  Our DCVax ®
dendritic cell vaccine was classified as a standardized
transplant.  The B.A.G. had jurisdiction to issue Authorizations for
Use, which were a form of limited regulatory approval for which there is no
counterpart or similar form of approval in the U.S.  Swissmedic had
jurisdiction to issue Marketing Authorizations, which are full commercial
approvals without limitations, and which are similar to product approvals that
are issued by the Food and Drug Administration (FDA) in the U.S.





In June
2007, the Company received a favorable decision from the B.A.G. granting the
Authorization for Use for which the Company had applied.  As this was
a material event, the Company issued a press release announcing and describing
it.  A tremendous amount of activity in our stock followed the
announcement, and the stock price rose quite substantially.  There was
also a large amount of confusion about what the Company had
received.  Various parties thought the Company had received a
Marketing Authorization from Swissmedic.  No one was familiar with an
Authorization for Use from the B.A.G.  After growing controversy in
the days following our public announcement of the Authorization for Use, the
Company issued a second public announcement clarifying that the Company had
neither applied for nor received a Marketing Authorization from
Swissmedic.  The Company also sought to clarify in the second
announcement what the Authorization for Use was, and what it
provided.





Following
our second public announcement, our stock price dropped
sharply.  Within the next weeks and months, six class action lawsuits
were filed by parties who bought stock between our first public announcement and
our second one, seeking damages on the basis that our public announcements had
not been clear enough and had been misleading.





The
Company disputed the claims and strongly defended ourselves.  In
January, 2009, the Company reached a settlement which disposed of all six class
action cases, in their entirety, for a single payment of $1
million.  The Company entered this settlement because the amount to be
paid was a small fraction of what it would have cost to proceed with litigation
of the cases.  The settlement also removed the diversion of management
time and attention, which was needed on the Company’s operations.  The
entire $1 million settlement payment and all of our defense costs were paid by
our Directors’ and Officers’ liability insurance.  The settlement
executed in January of 2009 was approved by the applicable court in June 2009,
and all of the cases were dismissed with prejudice (meaning they cannot be
re-filed), thus ending these cases.  Our Directors’ and Officers’
liability insurer has renewed and continued our coverage throughout the time
since these cases were brought, unaffected by these cases.





We have
no other legal proceedings pending at this time.





Item 1A.
 Risk Factors





Not
required for smaller reporting companies





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





Between
February 22, 2010 and March 31, 2010, we sold 1,451,666 shares of common stock
at a purchase price of $0.75 per share for net proceeds of
$1,088,750.





On
February 22, 2010, we agreed to extend the term of the note made in favor of Al
Rajhi in the principal amount of $4 million issued on May 12, 2008 from December
31, 2009 to December 31, 2010. Additionally,  Al Rajhi agreed to
convert the interest accrued pursuant to the promissory into shares of common
stock.  A total of $853,952 was converted into 1,138,603 shares of
common stock at a conversion price of $0.75.  In consideration of the
extension, the Company agreed to extend by one year the term of the warrants
issued to Al Rajhi.





During
the three months ended June 30, 2010, we sold 2,333,333 shares of common stock
at $0.75 per share for net proceeds of $1,750,000.





On May
27, 2010 we issued 5,024,400 shares of common stock in respect of the conversion
the principal and accrued interest payable of a note due to SDS.





The sales
of the securities identified above were made pursuant to privately negotiated
transactions that did not involve a public offering of securities and,
accordingly, we believe that these transactions were exempt from the
registration requirements of the Securities Act pursuant to Section 4(2) of the
Securities Act and Rule 506 of Regulation D. The agreements executed in
connection with this sale contain representations to support the Company’s
reasonable belief that the Investor had access to information concerning the
Company’s operations and financial condition, the Investor acquired the
securities for their own account and not with a view to the distribution thereof
in the absence of an effective registration statement or an applicable exemption
from registration, and that the Investor are sophisticated within the meaning of
Section 4(2) of the Securities Act and are “accredited investors” (as defined by
Rule 501 under the Securities Act). In addition, the issuances did not involve
any public offering; the Company made no solicitation in connection with the
sale other than communications with the Investor; the Company obtained
representations from the Investor regarding their investment intent, experience
and sophistication; and the Investor either received or had access to adequate
information about the Company in order to make an informed investment
decision.  All of the foregoing securities are deemed restricted
securities for purposes of the Securities Act.


20





Item
3. Defaults upon Senior Securities





None





Item
4. (Removed and Reserved)





Item
5. Other Information





None





Item
6. Exhibits





3.1
            
            Seventh
      Amended and Restated Certificate of Incorporation
  (3.1)(1)3.2
            
            Third
      Amended and Restated Bylaws (3.1)(2)3.3
            
            Amendment
      to the Seventh Amended and Restated Certificate of Incorporation
      (3.2)(2)3.4
            
            Amendment
      to Seventh Amended and Restated Certificate of Incorporation
      (3.4)(3)*31.1
            
            Certification
      of President (Principal Executive Officer and Principal Financial and
      Accounting Officer), Pursuant to Exchange Act Rules 13a-14(a) and
      15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.*32.1
            
            Certification
      of President, Chief Executive Officer and Principal Financial and
      Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
      of 2002.







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





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





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





*
            Filed
      herewith.


21




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:
      January 17, 2011
                By:
                /s/   ALTON L.
      BOYNTONName:
      Alton L. BoyntonTitle:
      President, Chief Executive Officer and Director(principal
      executive officer and principal accounting officer)By:
                /s/   LINDA
  POWERSLinda
      PowersDirectorBy:
                /s/   ROBERT
    FARMERLinda
      PowersDirector




22





NORTHWEST
BIOTHERAPEUTICS, INC.


(A
Development Stage Company)





EXHIBIT
INDEX





3.1
            
            Seventh
      Amended and Restated Certificate of Incorporation
  (3.1)(1)3.2
            
            Third
      Amended and Restated Bylaws (3.1)(2)3.3
            
            Amendment
      to the Seventh Amended and Restated Certificate of Incorporation
      (3.2)(2)3.4
            
            Amendment
      to Seventh Amended and Restated Certificate of Incorporation
      (3.4)(3)*31.1
            
            Certification
      of President (Principal Executive Officer and Principal Financial and
      Accounting Officer), Pursuant to Exchange Act Rules 13a-14(a) and
      15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.*32.1
            
            Certification
      of President, Chief Executive Officer and Principal Financial and
      Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
      of 2002.







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





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





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





*
            Filed
      herewith.


23