##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 
 FORM 10-Q 
 (Mark One) þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: September 30, 2006 OR o 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: 0-26825 
 Northwest Biotherapeutics, Inc.
(Exact name of registrant as specified in its charter) Delaware
    
    94-3306718(State or other Jurisdiction of Incorporation)
    
    (IRS Employer Identification No.) 18701  120th Avenue NE, Suite 101Bothell, Washington
    
    98011(Address of Principal Executive Offices)
    
    (Zip Code) (425) 608-3000(Registrants telephone number, including area code)(Former name or former address if changed since last report.) 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 o Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the
Exchange Act. (Check one): Large accelerated filer o
    
    Accelerated filer  o
    
    Non-accelerated filer  þ Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes o No þ As of November 6, 2006, the total shares of common stock outstanding was
65,241,287, $0.001 par value.
   1




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##### 



NORTHWEST BIOTHERAPEUTICS, INC. TABLE OF CONTENTS   
 PagePART I  FINANCIAL INFORMATION3Item 1. Financial StatementsCondensed Balance Sheets as of December 31, 2005 and September 30, 2006 (unaudited)
    
    3Condensed Statements of Operations (unaudited) for the three and nine months ended            September 30, 2005 and 2006 and the period from March 18, 1996 (inception) to September 30, 2006
    
    4Condensed Statements of Cash Flows (unaudited) for the nine months ended            September 30, 2005 and 2006 and the period from March 18, 1996 (inception) to September 30, 2006
    
   5Notes to Condensed Financial Statements
    
   7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    14Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    21Item 4. Controls and Procedures
    
    21PART II  OTHER INFORMATION
    
    22Item 1. Legal Proceedings
    
    22Item 1A. Risk Factors
    
    22Item 2. Unregistered Sales of Securities and Use of Proceeds
    
    23Item 3. Defaults Upon Senior Securities
    
    23Item 4. Submission of Matters to a Vote of Security Holders
    
    23Item 5. Other Information
    
    23Item 6. Exhibits
    
    24SIGNATURES
    
    25INDEX TO EXHIBITS
    
    26
   2   2




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##### 



NORTHWEST BIOTHERAPEUTICS, INC.
(A Development Stage Company) 
 Condensed Balance Sheets
(in thousands) December 31,
    
    
    September 30,2005
    
    
    2006UnauditedAssetsCurrent assets:Cash
    
    $
    352
    
    
    $
    640Accounts receivable
    
    
    17
    
    
    
    70Accounts receivable, related party
    
    
    58
    
    
    
    58Prepaid expenses and other current assets
    
    
    117
    
    
    
    35Total current assets
    
    
    544
    
    
    
    803Property and equipment:Laboratory equipment
    
    
    100
    
    
    
    100Office furniture and other equipment
    
    
    96
    
    
    
    96196
    
    
    
    196Less accumulated depreciation and amortization
    
    
    (143
    )
    
    
    (172
    )Property and equipment, net
    
    
    53
    
    
    
    24Restricted cash
    
    
    31
    
    
    
    31Deposit and other non-current assets
    
    
    3
    
    
    
    3Total assets
    
    $
    631
    
    
    $
    861Liabilities And Stockholders EquityCurrent liabilities:Note payable to related parties, net of discount
    
    $
    6,683
    
    
    $
    779Current portion of capital lease obligations
    
    
    10
    
    
    
    5Accounts payable
    
    
    443
    
    
    
    351Accounts payable, related party
    
    
    3,353
    
    
    
    2,865Accrued expenses
    
    
    117
    
    
    
    216Accrued expense, tax liability
    
    
    336
    
    
    
    254Accrued expense, related party
    
    
    500
    
    
    
    300Common stock warrant liability
    
    
    604
    
    
    
    Total current liabilities
    
    
    12,046
    
    
    
    4,770Long-term liabilities:Capital lease obligations, net of current portion
    
    
    3
    
    
    
    Total liabilities
    
    
    12,049
    
    
    
    4,770Stockholders equity:Preferred stock, $0.001 par value; 100,000,000 and 300,000,000
shares authorized at December 31, 2005 and September 30, 2006,
respectivelySeries A preferred stock, 50,000,000 designated and
32,500,000 shares issued and outstanding at December
31, 2005 and September 30, 2006
    
    
    33
    
    
    
    33Series A-1 preferred stock, zero and 10,000,000
designated at December 31, 2005 and September 30,
2006, respectively, and zero and 4,816,863 shares
issued and outstanding at December 31, 2005 and
September 30, 2006, respectively
    
    
    
    
    
    
    5Common stock, $0.001 par value; 300,000,000 and 800,000,000
shares authorized and 19,078,048 and 65,241,287 shares issued
and outstanding at December 31, 2005 and September 30, 2006,
respectively
    
    
    19
    
    
    
    65Additional paid-in capital
    
    
    71,220
    
    
    
    78,016Deficit accumulated during the development stage
    
    
    (82,690
    )
    
    
    (82,028
    )Total stockholders equity
    
    
    (11,418
    )
    
    
    (3,909
    )Total liabilities and stockholders equity
    
    $
    631
    
    
    $
    861
 See accompanying notes to condensed financial statements. 3   3




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##### 



NORTHWEST BIOTHERAPEUTICS, INC.
(A Development Stage Company) 
 Condensed Statements of Operations
(in thousands, except per share data)
(Unaudited) Period fromThree Months Ended
    
    Nine Months Ended
    
    March 18, 1996September 30,
    
    September 30,
    
    (inception) to2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    September 30, 2006Revenues:Research material sales
    
    $
    4
    
    
    $
    
    
    
    $
    23
    
    
    $
    
    
    
    $
    450License fees
    
    
    10
    
    
    
    80
    
    
    
    10
    
    
    
    80
    
    
    
    115Contract research and development
from related parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,128Research grants
    
    
    1
    
    
    
    
    
    
    
    77
    
    
    
    
    
    
    
    1,026Total revenues
    
    
    15
    
    
    
    80
    
    
    
    110
    
    
    
    80
    
    
    
    2,719Operating expenses:Cost of research material sales
    
    
    3
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    382Research and development
    
    
    1,252
    
    
    
    1,000
    
    
    
    3,860
    
    
    
    2,644
    
    
    
    34,711General and administrative
    
    
    634
    
    
    
    493
    
    
    
    1,554
    
    
    
    1,669
    
    
    
    32,363Depreciation and amortization
    
    
    13
    
    
    
    10
    
    
    
    52
    
    
    
    29
    
    
    
    2,295Accrued loss on facility sublease
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    895Asset impairment loss
    
    
    
    
    
    

    
    
    
    
    
    
    
    (9
    )
    
    
    2,057Total operating expenses
    
    
    1,902
    
    
    
    1,503
    
    
    
    5,474
    
    
    
    4,333
    
    
    
    72,703Loss from operations
    
    
    (1,887
    )
    
    
    (1,423
    )
    
    
    (5,364
    )
    
    
    (4,253
    )
    
    
    (69,984
    )Other income (expense):Warrant valuation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,127
    
    
    
    6,759Gain on sale of intellectual rights
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,656Interest expense
    
    
    (896
    )
    
    
    (407
    )
    
    
    (2,589
    )
    
    
    (2,246
    )
    
    
    (15,383
    )Interest income
    
    
    1
    
    
    
    21
    
    
    
    3
    
    
    
    34
    
    
    
    770Net income (loss)
    
    
    (2,782
    )
    
    
    (1,809
    )
    
    
    (7,950
    )
    
    
    662
    
    
    
    (74,182
    )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 income (loss) applicable to common
stockholders
    
    $
    (2,782
    )
    
    $
    (1,809
    )
    
    $
    (7,950
    )
    
    $
    662
    
    
    $
    (82,028
    )Net income/loss per share applicable to
common stockholders  basic
    
    $
    (0.15
    )
    
    $
    (0.03
    )
    
    $
    (0.42
    )
    
    $
    0.01Weighted average shares used in
computing basic net income/loss per
share
    
    
    19,078
    
    
    
    65,241
    
    
    
    19,064
    
    
    
    49,453Net income/loss per share applicable to
common stockholders  diluted
    
    $
    (0.15
    )
    
    $
    (0.03
    )
    
    $
    (0.42
    )
    
    $
    0.00Weighted average shares used in
computing diluted net income/loss per
share
    
    
    19,078
    
    
    
    65,241
    
    
    
    19,064
    
    
    
    442,820
 See accompanying notes to condensed financial statements. 4   4




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##### 



Northwest Biotherapeutics, Inc.
(A Development Stage Company) 
 Condensed Statements of Cash Flows
(in thousands)
(Unaudited) Period fromNine Months Ended
    
    March 18, 1996September 30,
    
    (Inception) to2005
    
    
    2006
    
    
    September 30, 2006Cash Flows from Operating Activities:Net Income (Loss)
    
    $
    (7,950
    )
    
    $
    662
    
    
    $
    (74,182
    )Reconciliation of net income (loss) to net cash used in operating activities:Depreciation and amortization
    
    
    52
    
    
    
    29
    
    
    
    2,295Amortization of deferred financing costs
    
    
    
    
    
    
    
    
    
    
    320Amortization of debt discount
    
    
    2,171
    
    
    
    1,801
    
    
    
    12,059Accrued interest converted to preferred stock
    
    
    
    
    
    
    
    
    
    
    260Accreted interest on convertible promissory note
    
    
    412
    
    
    
    284
    
    
    
    1,081Stock-based compensation costs
    
    
    10
    
    
    
    3
    
    
    
    1,096Gain on sale of intellectual property and royalty rights
    
    
    
    
    
    
    
    
    
    
    (3,656
    )Loss (gain) on sale of property and equipment
    
    
    70
    
    
    
    (16
    )
    
    
    267Warrant valuation
    
    
    
    
    
    
    (7,127
    )
    
    
    (6,759
    )Asset impairment loss
    
    
    
    
    
    
    
    
    
    
    2,066Loss on facility sublease
    
    
    
    
    
    
    
    
    
    
    895Increase (decrease) in cash resulting from changes in assets and liabilities:Accounts receivable
    
    
    (69
    )
    
    
    (53
    )
    
    
    (128
    )Prepaid expenses and other current assets
    
    
    94
    
    
    
    82
    
    
    
    431Accounts payable and accrued expenses
    
    
    1,776
    
    
    
    (763
    )
    
    
    4,390Accrued loss on sublease
    
    
    
    
    
    
    
    
    
    
    (265
    )Deferred grant revenue
    
    
    (35
    )
    
    
    
    
    
    
    Deferred rent
    
    
    
    
    
    
    
    
    
    
    410Net Cash used in Operating Activities
    
    
    (3,609
    )
    
    
    (5,098
    )
    
    
    (59,420
    )Cash Flows from Investing Activities:Purchase of property and equipment
    
    
    (13
    )
    
    
    
    
    
    
    (4,580
    )Proceeds from sale of property and equipment
    
    
    81
    
    
    
    16
    
    
    
    249Proceeds 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 provided by (used in) Investing Activities
    
    
    68
    
    
    
    16
    
    
    
    (1,553
    )Cash Flows from Financing Activities:Proceeds from issuance of note payable to stockholder
    
    
    
    
    
    
    
    
    
    
    1,650Repayment of note payable to stockholder
    
    
    
    
    
    
    
    
    
    
    (1,650
    )Proceeds from issuance of convertible promissory note and warrants, net of
issuance costs
    
    
    2,400
    
    
    
    300
    
    
    
    13,099Borrowing under line of credit, Northwest Hospital
    
    
    
    
    
    
    
    
    
    
    2,834Repayment of line of credit, Northwest Hospital
    
    
    
    
    
    
    
    
    
    
    (2,834
    )Repayment of convertible promissory note
    
    
    (54
    )
    
    
    (13
    )
    
    
    (119
    )Payment on capital lease obligations
    
    
    (32
    )
    
    
    (8
    )
    
    
    (319
    )Payments on note payable
    
    
    
    
    
    
    
    
    
    
    (420
    )Proceeds from issuance of Series A cumulative preferred stock, net
    
    
    1,276
    
    
    
    
    
    
    
    28,708Proceeds from exercise of stock options and warrants
    
    
    4
    
    
    
    7
    
    
    
    227Proceeds from issuance of common stock, net
    
    
    
    
    
    
    5,084
    
    
    
    22,457Mandatorily redeemable Series A preferred stock redemption fee
    
    
    
    
    
    
    
    
    
    
    (1,700
    )Deferred financing costs
    
    
    
    
    
    
    
    
    
    
    (320
    )Net Cash provided by Financing Activities
    
    
    3,594
    
    
    
    5,370
    
    
    
    61,613Net increase in cash
    
    
    53
    
    
    
    288
    
    
    
    640
 5   5




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##### 



Cash at beginning of period
    
    
    248
    
    
    
    352
    
    
    
    Cash at end of period
    
    $
    301
    
    
    $
    640
    
    
    $
    640Supplemental disclosure of cash flow information  Cash paid during the period
for interest
    
    $
    5
    
    
    $
    58
    
    
    $
    1,454Supplemental schedule of non-cash financing activities:Equipment acquired through capital leases
    
    
    
    
    
    
    
    
    
    
    285Common stock warrant liability
    
    
    
    
    
    
    6,523
    
    
    
    11,841Accretion of Series A preferred stock mandatory redemption
obligation
    
    
    
    
    
    
    
    
    
    
    1,872Beneficial conversion feature of convertible promissory notes
    
    
    2,400
    
    
    
    
    
    
    
    6,842Conversion 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
    
    
    
    
    
    
    7,707
    
    
    
    7,707Conversion of convertible promissory notes and accrued interest to common stock
    
    
    
    
    
    
    269
    
    
    
    269Issuance of Series C preferred stock warrants in connection with lease agreement
    
    
    
    
    
    
    
    
    
    
    43Issuance of common stock for license rights
    
    
    
    
    
    
    
    
    
    
    4Issuance of common stock and warrants to Medarex
    
    
    
    
    
    
    
    
    
    
    840Issuance of common stock to landlord
    
    
    
    
    
    
    
    
    
    
    35Deferred compensation on issuance of stock options and restricted stock grants
    
    
    10
    
    
    
    
    
    
    
    759Cancellation of options and restricted stock grant
    
    
    
    
    
    
    
    
    
    
    849Stock subscription receivable
    
    
    
    
    
    
    
    
    
    
    480Financing of prepaid insurance through note payable
    
    
    
    
    
    
    
    
    
    
    491
 See accompanying notes to condensed financial statements. 6   6




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##### 



Northwest Biotherapeutics, Inc.
(A Development Stage Company) 
 Notes to Condensed Financial Statements
(unaudited) 1. Basis of Presentation The accompanying condensed financial statements are unaudited and include the accounts of Northwest
Biotherapeutics, Inc. (the Company). The accompanying unaudited condensed financial statements should be read in
conjunction with the financial statements included in the Companys Annual Report on Form 10-K for the year ended
December 31, 2005. 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 nine month periods ended September 30, 2006 are not
necessarily indicative of results to be expected for a full year. The auditors report on the financial statements for the fiscal year ended December 31, 2005 states that because
of recurring operating losses, a working capital deficit, 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. See further discussion with respect
to liquidity in Note 4. 2. Summary of significant accounting policies The significant accounting policies used in the preparation of the Companys condensed financial statements are
disclosed in the Annual Report on Form 10-K for the year ended December 31, 2005. Significant accounting
policies that are new or were changed in fiscal 2006 are disclosed below. Share-based Compensation On January 1, 2006, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123(R),
Share-Based Payment. SFAS No. 123(R) requires the measurement and recognition of compensation for all
stock-based awards including stock options and employee stock purchases under a stock
purchase plan, based on estimated fair values. SFAS No. 123(R) supersedes previous accounting under Accounting
Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees and SFAS 123,
Accounting for Stock-Based Compensation for periods beginning January 1,
2006. The Company adopted SFAS No. 123(R) using the modified prospective transition method, which requires the
application of the accounting standard as of January 1, 2006. In accordance with the modified prospective transition
method, the Companys condensed financial statements for periods prior to the first quarter of 2006 have not been
restated to reflect this change. Stock-based compensation recognized during the period is based on the value of the
portion of the stock-based award that will vest during the period, adjusted for expected forfeitures. Stock-based
compensation recognized in the Companys condensed financial statements for the three and nine months ended September
30, 2006 includes compensation cost for stock-based awards granted prior to, but not fully vested as of December 31,
2005 and stock-based awards granted subsequent to December 31, 2005, as applicable. 3. Share-Based Compensation Plans Effective January 1, 2006, the Company adopted SFAS No. 123(R), which establishes accounting for stock-based
awards exchanged for goods or services, using the modified prospective transition method. Accordingly, stock-based
compensation cost is measured at grant date, based on the fair value
of the award, recognized over the requisite service period.
Previously, the Company applied APB Opinion No. 25 and related interpretations, as permitted by SFAS No. 123. For options and warrants issued to non-employees, the Company recognizes stock compensation costs utilizing the
fair value methodology prescribed in SFAS No. 123(R) over the related period of benefit. 7   7




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##### 



Determining Fair Value Under SFAS No. 123(R) Valuation and Amortization Method.The Company estimates the fair value of stock-based awards granted using the
Black-Scholes option valuation model. The Company amortizes the fair value of all awards on a straight-line basis over
the requisite service periods, which are generally the vesting periods. Expected Life. The expected life of awards granted represents the period of time that they are expected to be
outstanding. The Company determines the expected life based on historical experience with similar awards, giving
consideration to the contractual terms, vesting schedules and pre-vesting and post-vesting forfeitures. Expected Volatility. The Company estimates the volatility of its common stock at the date of grant based on the
historical volatility of its common stock. The volatility factor used in the Black-Scholes option valuation model is
based on the Companys historical stock prices over the most recent period commensurate with the estimated expected
life of the award. Risk-Free Interest Rate.The Company bases the risk-free interest rate used in the Black-Scholes option valuation
model on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term
equal to the expected life of the award. Expected Dividend Yield.The Company has never paid any cash dividends on common stock and does not anticipate
paying any cash dividends in the foreseeable future. Consequently, the Company uses an expected dividend yield of zero
in the Black-Scholes option valuation model. Expected Forfeitures.The Company uses historical data to estimate pre-vesting option forfeitures. The Company
records stock-based compensation only for those awards that are expected to vest. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing
model. There were no shares purchased under the Companys employee stock purchase plan during the three and nine months
ended September 30, 2006 and 2005. The
stock-based compensation expense recognized in those condensed
financial statements related to stock-based awards under SFAS No. 123(R) totaled approximately
$400 and $2,100 for the three and nine months ended September 30, 2006, respectively. At September 30, 2006 the Company
had non-vested stock options covering approximately 43,500 shares of common stock that had a weighted average grant
date fair value of $0.12. As of September 30, 2006, the Company had approximately $2,000 of total unrecognized
compensation cost related to non-vested stock-based awards granted under all equity compensation plans. Total
unrecognized compensation cost will be adjusted for any future changes in estimated forfeitures. The Company expects to
recognize this cost over the next two years. Pro Forma Information Under SFAS No. 123 and APB Opinion No. 25 Prior to January 1, 2006, stock-based compensation plans were accounted for using the intrinsic value method
prescribed in APB Opinion No. 25 and related interpretations. No stock-based compensation was reflected in net loss in
the three and nine months ended September 30, 2005, as all stock options granted under those plans had an exercise
price equal to or greater than the market value of the underlying common stock on the date of grant. Had compensation
cost for the plans been determined based on the fair value at the grant dates for awards under those plans consistent
with the method of SFAS No. 123, net loss and basic and diluted net loss per share would have been
changed to the pro forma amounts indicated below (in thousands, except for per share data): Three months ended
    
    
    Nine months endedSeptember 30, 2005
    
    
    September 30, 2005Net loss applicable to common stockholders:As reported
    
    $
    (2,782
    )
    
    $
    (7,950
    )Add: Stock-based employee compensation expense included in reported net loss
    
    
    1
    
    
    
    10Deduct: Stock-based employee compensation determined under fair value based
method for all awards
    
    
    (12
    )
    
    
    (57
    )Pro forma
    
    $
    (2,793
    )
    
    $
    (7,997
    )Net loss per share-basic and diluted:As reported
    
    $
    (0.15
    )
    
    $
    (0.42
    )Pro forma
    
    $
    (0.15
    )
    
    $
    (0.42
    )
 There were no stock options granted during the three or nine month periods ended September 30, 2006. 8   8




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##### 



4. Liquidity Since 2004, the Company has undergone a significant recapitalization pursuant to which Toucan Capital Fund II,
L.P. (Toucan Capital), has loaned it $6.75 million and Toucan Partners, LLC, an affiliate of Toucan Capital (Toucan
Partners), has loaned the Company $950,000. On January 26, 2005, the Company entered into a securities purchase
agreement with Toucan Capital pursuant to which they purchased 32.5 million shares of the Companys Series A Preferred
Stock at a purchase price of $0.04 per share, for a net purchase price of $1.267 million, net of offering related costs
of approximately $24,000. In April 2006, $6.75 million of the notes payable plus all accrued interest due to Toucan
Capital were converted into shares of Series A-1 Preferred Stock. On
October 30, 2006, the Company received a cash advance in the amount of $500,000 from Toucan
Partners. The Company and Toucan Partners are presently negotiating the terms pursuant to which this cash advance will be
required to be repaid. These funds enabled the Company to continue to operate and advance programs, while attempting to
raise additional capital. On March 30, 2006, the Company entered into an equity financing (PIPE Financing) with unrelated investors
pursuant to which aggregate gross proceeds of approximately $5.5 million was raised. As of November 6, 2006, the Company had cash in the amount of $613,000. The Company is considered illiquid as
this cash is not considered sufficient to fund the recurring operating and associated financing costs for the next
month. Approximately $3.9 million of the Companys current liabilities at September 30, 2006 were payable to related
parties, net of the related debt discount. During October 2006, the Company paid $250,000 of the remaining current
related party liabilities recorded as of September 30, 2006. In addition to the recurring operating costs, the Company
has two remaining payments due to the Washington State Department of
Revenue totaling approximately $168,000 as of November 6, 2006. The final
payment is due in mid-December 2006. See Note 9 for further discussion. The Company needs to raise significant additional funding to continue its operations, conduct research and
development activities, pre-clinical studies and clinical trials necessary to bring its product candidates to market.
However, additional funding may not be available on terms acceptable to the Company or at all. The alternative of
issuing additional equity or convertible debt securities also may not be available and, in any event, would result in
additional dilution to the Companys stockholders. For ongoing operating capital the Company intends to seek additional
funds from Toucan Capital, Toucan Partners, or other third parties. Neither Toucan Capital, Toucan Partners, or any
other third parties is obligated to provide the Company any additional funds. Any additional financing with Toucan
Capital, Toucan Partners or any other third party is likely to be dilutive to stockholders, and any debt financing, if
available, may include additional restrictive covenants. The Company does not believe that its assets would be
sufficient to satisfy the claims of all of its creditors in full and to satisfy aggregate liquidation preferences of
our preferred stock in full. Therefore, if the Company were to pursue a liquidation, it is highly unlikely that any
proceeds would be received by the holders of the Companys common stock. If the Company is unable to obtain significant
additional capital in the near-term, it may cease operations at anytime. There can be no assurance that the Companys efforts to seek funding will be successful. If the Companys capital
raising efforts are unsuccessful, the Companys inability to obtain additional cash as needed could have a material
adverse effect on its financial position, results of operations and its ability to continue its existence. The
Companys independent auditors have indicated in their report on the financial statements, included in the December 31,
2005 annual report on Form 10-K, that there is substantial doubt about the Companys ability to continue as a going
concern. 5. Net Income (Loss) Per Share Applicable to Common Stockholders For the nine months ended September 30, 2006, options to purchase 286,000 shares of common stock and warrants to purchase 569,000 shares of common stock were not included in the computation of diluted net income (loss) per share because they were
anti-dilutive. For the nine months ended September 30, 2006, options to
purchase 278,000 shares of common stock and
warrants to purchase 166 million shares of common stock were included in the computation of diluted net income (loss)
per share because they were dilutive. Convertible debt having a face value of $950,000 is also considered to be
dilutive for purposes of computing diluted net income (loss) per share.
The conversion of the convertible debt increases the number of shares outstanding for
purposes of computing diluted net income (loss) per share by 25,529,000 shares for the nine month
period ended September 30, 2006. Preferred stock, Series A and A-1, which is convertible into 225,175,000 shares of common
stock is also considered to be dilutive for purposes of computing diluted net income per share for the
nine months ended September 30, 2006, and is included in such computation.
In determining the amount of net income used to
compute diluted earnings per share, the Company applied the if converted method. Accordingly, net income for the
nine months ended September 30, 2006, has been increased by approximately $65,000, representing
interest expense that would have been avoided if the debt had been converted as of January 1, 2006. Additionally, net income for nine months ended September 30, 2006, has been decreased by
approximately $243,000 representing the expense for the unamortized discount of the beneficial conversion feature as of
January 1, 2006. Options, warrants, convertible debt and convertible
preferred stock outstanding were all considered anti-dilutive for the three and nine months ended September 30, 2005, and for the
three-months ended September 30, 2006, due to net losses. 9   9




---



##### 



6. Notes Payable Management Loans On November 13, 2003, the Company borrowed an aggregate of $335,000 from certain members of its management which
enabled the Company to continue operating into the first quarter of 2004. On April 17, 2006, the outstanding principal
balance on the remaining notes, and the related accrued interest, were converted into 2,687,719 shares of common stock.
Accordingly, as of September 30, 2006 all of these loans have either been repaid or converted into common stock. As part of the November 13, 2003 loan from management, the lenders received warrants initially exercisable to
acquire an aggregate of 3.7 million shares of the Companys
common stock. These warrants were set to expire in November 2008
and were subject to certain anti-dilution adjustments. In connection with the April 26, 2004 recapitalization agreement, the
warrants were amended to remove the anti-dilution provisions and set the warrant exercise price at the lesser of (i)
$0.10 per share or (ii) a 35% discount to the average closing price during the twenty trading days prior to the first
closing of the sale by the Company of convertible preferred stock as contemplated by the recapitalization agreement but
not less than $0.04 per share. During March 2006, warrants for the purchase of 3.6 million shares of common stock were exercised on a net
exercise basis resulting in the issuance of approximately 3.3 million shares of common stock. The remaining 100,000
management warrants were exercised during the second quarter of 2006. As a result, an aggregate of 3.4 million shares
of common stock were issued to current and prior members of management. Two
former members of the Companys management, who had participated as lenders in the
Companys management loans have claimed that they are entitled to receive, for no additional cash consideration, an
aggregate of up to approximately 9.5 million additional shares of the Companys common stock due to the alleged
triggering of an anti-dilution provision in the warrant agreements. The Company does not believe that these claims
have merit, and intends to vigorously oppose such claims. Toucan Capital Loans From February 2004 through March 2006, the Company entered into multiple agreements with Toucan Capital and Toucan
Partners, all of which relate to and were intended by the parties to implement the terms and conditions of the
recapitalization agreement originally entered into on April 26, 2004 with Toucan Capital. The recapitalization
agreement, as amended, contemplated the investment of up to $40 million through the issuance of new securities to
Toucan Capital and a syndicate of other investors to be determined. The Company and Toucan Capital amended the recapitalization agreement in conjunction with each successive loan
agreement. The amendments (i) updated certain representations and warranties of the parties made in the
recapitalization agreement, and (ii) made certain technical changes in the recapitalization agreement in order to
facilitate the bridge loans described therein. Pursuant to the recapitalization agreement, as amended, the Company borrowed an aggregate of $6.75 million from
Toucan Capital, from February 2, 2004 through September 7, 2005. In connection with the loans from Toucan Capital, the
Company issued warrants to purchase 122.5 million aggregate shares of capital stock. These warrants provide Toucan
Capital the ability to purchase 66 million and 56.5 million aggregate shares of capital stock at an exercise price of
$0.01 per share and $0.04 per share, respectively. The warrant exercise period is seven years from the issuance date of
the warrant and the related convertible notes. On April 17, 2006, Toucan Capital elected to convert all of its convertible promissory notes and the related
accrued interest into approximately 4.8 million shares of the Companys Series A-1 Preferred Stock. The Series A-1
Preferred Stock is substantially identical to the Companys Series A Preferred Stock, except that (i) the issuance
price and liquidation preference of the Series A-1 Preferred Stock are each $1.60 per share (as opposed to $0.04 per
share for the Series A Preferred Stock), and (ii) each share of Series A-1 Preferred Stock is convertible into 40
shares of Common Stock (as opposed to one share of common stock in the case of the Series A Preferred Stock). The
foregoing differences result in the Series A-1 Preferred Stock being economically equivalent to the Series A Preferred
Stock. 10   10




---



##### 



In conjunction with the conversion of Toucan Capitals notes into Series A-1 Preferred Stock, on April 17, 2006,
the Company entered into an Amended and Restated Investor Rights Agreement (the IRA) with Toucan Capital. The IRA
implements the provisions of the binding term sheet the Company executed on April 26, 2004, under which Toucan Capital
and other investors, such as Toucan Partners, who are holders of Series A or Series A-1 Preferred Stock receive registration rights in
respect of the shares of common stock issuable upon conversion of the Series A Preferred Stock and Series A-1 Preferred
Stock held by such investors, as well as the shares of common stock underlying the warrants held by such investors. Toucan Partners Loans The Company borrowed $950,000 from Toucan Partners, an affiliate of Toucan Capital, from November 14, 2005 to
March 9, 2006, comprised of the loans listed below. The conversion shares are based upon the outstanding principal and
accrued interest as of September 30, 2006: Interest
    
    
    Conversion
    
    
    WarrantLoan Date
    
    Principal(1)
    
    
    Due Date
    
    
    Rate(2)
    
    
    Shares(3)
    
    
    Shares(3)(In thousands)
    
    
    
    
    
    
    
    
    
    (In thousands)
    
    (In thousands)11/14/2005
    
    $
    400
    
    
    
    11/14/2006
    
    
    
    10
    %
    
    
    10,899
    
    
    
    4,000
    (4)12/30/2005
    
    
    250
    
    
    
    12/30/2006
    
    
    
    10
    %
    
    
    6,715
    
    
    
    2,500
    (5)03/09/2006
    
    
    300
    
    
    
    03/09/2007
    
    
    
    10
    %
    
    
    7,914
    
    
    
    3,000
    (5)Total
    
    $
    950
    
    
    
    
    
    
    
    
    
    
    
    25,528
    
    
    
    9,500
 
 (1)
    
    The notes are secured by a first priority senior security interest in all of the Companys assets.  (2)
    
    Interest accrues at 10% per annum, based on a 365-day basis compounded annually from the respective original
issuance dates of the notes.  (3)
    
    The notes are convertible into, and the warrants are exercisable for, shares of convertible preferred stock if
the convertible preferred stock is approved and authorized and other investors have purchased in cash a minimum of
$15 million of such convertible preferred stock, on the terms and conditions set forth in the recapitalization
agreement. However, if, for any reason, such convertible preferred stock is not approved or authorized and/or if
other investors have not purchased in cash a minimum of $15 million of such convertible preferred stock, on the
terms and conditions set forth in the recapitalization agreement, these notes shall be convertible into, and the
warrants shall be exercisable for, any equity security and/or debt security and/or any combination thereof.  (4)
    
    Exercise period is 7 years from the issuance date of the note.  (5)
    
    Exercise period is 7 years from April 17, 2006 (the issuance date of the warrant). Proceeds from the issuance of $950,000 senior convertible promissory notes and warrants between November 14, 2005
and March 9, 2006 were allocated between the notes and warrants on a relative fair value basis. The value allocated to
the warrants on the date of the grant was approximately $587,000. 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 ranging from 4.1% to 4.4%, volatility ranging between 398% and 408%, and a contractual life of 7 years.
The value of the warrants was recorded as a deferred debt discount against the $950,000 proceeds of the notes. In
addition, a beneficial conversion feature related to the notes was determined to be approximately $363,000. As a
result, the total discount on the notes equaled $950,000 which is being amortized over the twelve-month term of the
respective notes. Amortization of deferred debt discount of approximately $239,000 and $655,000 was recorded for the
three and nine months ended September 30, 2006, respectively. Interest accretion on the notes of approximately $24,200
and $65,900 was recorded for the three and nine months ended September 30, 2006, respectively. On
October 30, 2006, the Company received a cash advance in the amount of $500,000 from Toucan
Partners. The Company and Toucan Partners are presently negotiating the terms pursuant to which this cash advance will be
required to be repaid. 7. Liability for Potentially Dilutive Securities in Excess of Authorized Number of Common Shares In accordance with EITF 00-19, the Company accounts for potential shares that can be converted to common stock,
that are in excess of authorized shares, as a liability that is recorded at fair value. Total potential outstanding
common stock exceeded the Companys authorized shares as of December 31, 2005 when the Company entered into another
convertible promissory note and warrant agreement with Toucan Partners on December 30, 2005. The fair value of the
warrants in excess of the authorized shares at 11   11




---



##### 



December 31, 2005 totaling approximately $604,000 was recognized as a liability on December 31, 2005. This
liability was required to be evaluated at each reporting date with any change in value included in other
income/(expense) until such time as enough shares were authorized to cover all potentially convertible instruments.
Accordingly, during the first quarter of 2006, the Company recognized a loss totaling $2.1 million with respect to the
revaluation of this warrant liability. Further, during March 2006, the Company issued an additional warrant to Toucan
Partners, along with a convertible promissory note. The fair value of the warrants in excess of the authorized shares
was approximately $6.7 million and was recognized as an additional liability as of March 31, 2006. During April 2006,
the Company sold common stock to outside investors in the Pipe Financing. In addition, members of management and Toucan
Capital elected to convert their promissory notes and related accrued interest into common stock and Series A-1
Preferred Stock, respectively. As a result, the fair value of the potential common stock in excess of the authorized
shares was $24.4 million and was recognized as an additional liability during April 2006. Effective May 25, 2006, the number of authorized common shares was increased to 800 million. The liability for
potential shares in excess of total authorized shares was revalued at that date. This valuation resulted in a gain of
approximately zero and $7.1 million during the three and nine month period ended September 30, 2006, respectively, due
to the net decreases in the net fair value of the related warrants on the date the authorized shares were increased.
This gain is included in the statement of operations as a warrant valuation. Similarly, total potential outstanding common stock exceeded the Companys authorized shares on July 30, 2004 when
an additional $2.0 million loan, convertible into common stock, was received from Toucan Capital and an additional
warrant was issued. The fair value of the warrant shares in excess of the authorized shares was approximately $2.8
million and was recognized as a liability on July 30, 2004. During the fourth quarter of 2004, the Company received
three additional loans from Toucan Capital, convertible into shares of common stock totaling $1.25 million and
additional warrants were issued with each loan. The total fair value of the warrant shares in excess of the authorized
shares was approximately $1.5 million and was recognized as a liability at the dates of issuance of the convertible
debt and warrants. This liability was evaluated at each reporting date and any changes in value were included in other
income/(expense) until enough shares were authorized to cover all potentially convertible instruments. Effective
December 29, 2004, the number of authorized common shares was increased to 300 million. The liability for potential
shares in excess of total authorized shares was revalued at that date. This valuation resulted in a fourth quarter loss
of approximately $1.0 million, due to net increases in the net fair value of the related warrants at that date. This
loss was offset against the September 30, 2004 gain of approximately $717,000 for a net loss as of December 31, 2004 of
approximately $368,000, included in the fiscal 2004 statement of operations as a warrant valuation. 8. Private Placement On March 30, 2006, the Company entered into a securities purchase agreement (the Purchase Agreement) with a
group of accredited investors pursuant to which the Company agreed to sell an aggregate of approximately 39.5 million
shares of its common stock, at a price of $0.14 per share, and to issue, for no additional consideration, warrants to
purchase up to an aggregate of approximately 19.7 million shares of the Companys common stock. The PIPE Financing
closed and stock was issued to the new investors in early April and the Company received gross proceeds of
approximately $5.5 million, before offering expenses of approximately $442,000. The warrants expire five years after issuance, and are initially exercisable at a price of $0.14 per share,
subject to adjustments under certain circumstances. Under the Purchase Agreement, the Company agreed to register for resale under the Securities Act of 1933, as
amended (the Securities Act) both the shares of common stock and the shares of common stock underlying the warrants.
Under the terms of the Purchase Agreement, the Company was required to file a registration statement with the
Securities and Exchange Commission (SEC) within 45 days of the transaction closing date. The Company also agreed to
other customary obligations regarding registration, including matters relating to indemnification, maintenance of the
registration statement, payment of expenses, and compliance with state blue sky laws. The registration statement was
filed on May 19, 2006 and amendments to the registration statement were filed on July 17 and September 29, 2006. The
registration statement was declared effective by the SEC on October 11, 2006. Because the registration statement was
not declared effective by the SEC on or prior to September 1, 2006, the Company paid liquidated damages to the
investors, in the aggregate of one percent (1%) of the aggregate purchase price of the shares per
month, or $74,000. As of September 30, 2006, we expensed approximately $55,000 of these liquidated
damages and they are recorded in accrued expenses. 12   12




---



##### 



9. Contingencies The Company signed an engagement letter, dated October 15, 2003, with Soma Partners, LLC (Soma), a New
Jersey-based investment bank, pursuant to which the Company engaged them to locate potential investors. Pursuant to the
terms of the engagement letter, any disputes arising between the parties would be submitted to arbitration in the New
York metropolitan area. A significant dispute arose between the parties. Soma filed an arbitration claim against the
Company with the American Arbitration Association in New York, NY claiming unpaid commission fees of $186,000 and
seeking declaratory relief regarding potential fees for future transactions that may be undertaken by the Company with
Toucan Capital. The Company vigorously disputed Somas claims on multiple grounds, contending the Company only owed
Soma approximately $6,000. Soma subsequently filed an amended arbitration claim, claiming unpaid commission fees of $339,000 and warrants to
purchase 6% of the aggregate securities issued to date, and seeking declaratory relief regarding potential fees for
future financing transactions which may be undertaken by the Company with Toucan Capital and others, which could
potentially be in excess of $4 million. Soma also requested the arbitrator award its attorneys fees and costs related
to the proceedings. The Company strongly disputed Somas claims and defended itself. The arbitration proceedings occurred from March 8-10, 2005 and on May 24, 2005, the arbitrator ruled in favor of
the Company and denied all claims of Soma. In particular, the arbitrator decided that the Company did not owe Soma the
large fees and warrants sought by Soma, that the Company would not owe Soma fees in connection with future financings,
if any, and that the Company had no obligation to pay any of Somas attorneys fees or expenses. The arbitrator agreed
with the Company that the only amount owed Soma was $6,702.87, which payment was made on May 27, 2005. On August 29, 2005, Soma filed a notice of petition to vacate the May 24, 2005 arbitration award issued by the
Supreme Court of the State of New York. On December 30, 2005, the Supreme Court of the State of New York dismissed Somas petition, denying Somas August
29, 2005 motion to vacate the May 24, 2005 award in the Companys favor. On February 3, 2006, Soma filed another notice of appeal with the Supreme Court of the State of New York. As of the date of the filing of this report, the Supreme Court of the State of New York has yet to act on this
matter. The Company believes that this latest appeal is without merit and intends to vigorously defend the appeal. Two former members of the Companys management, who participated as lenders in the
Companys management loans have claimed that they are entitled to receive, for no additional cash consideration, an
aggregate of up to approximately 9.5 million additional shares of our common stock due to the alleged triggering of an
anti-dilution provision in the warrant agreements. The Company does not believe that these claims have merit, and
intends to vigorously oppose such claims. The Company has no other legal proceeding pending at this time. Sales Tax Assessment The Company received a tax assessment of $492,000 on October 21, 2003 related to the abandonment of tenant
improvements at a facility it had previously leased on which use tax payments to the State of Washington had been
deferred, including the disposal and impairment of previously qualified tax deferred equipment. The Company appealed
this assessment and was granted a partial reduction in the assessment on July 8, 2005. The Company filed an addendum to
its appeal petition on December 2, 2005. The net assessment, through December 31, 2005, of approximately $336,000,
inclusive of accrued interest, was being carried as an estimated liability on the Companys balance sheet and
included in general and administrative expense. On August 10, 2006 the Companys appeal was denied. In September 2006,
the Company entered into an agreement with the State of Washington to pay an aggregate of approximately $336,000, plus
interest at a rate of 4% per year over a four month period commencing
on September 11, 2006. As of September 30, 2006, the Company
still owes the State of Washington approximately $254,000. This
balance is recorded in accrued expense, tax liability on the balance sheet. In February 2004, the Company filed a refund request of approximately $175,000 related to certain other state
taxes previously paid to the State of Washingtons Department of Revenue. The finalization of this refund request is
expected in late 2006. The Company may not be successful in its efforts to receive a tax refund. 13   13




---



##### 



10. Commitments On February 14, 2006, the Company and The Regents of the University of California entered into a clinical study
for the University of California at Los Angeles (UCLA) to carry out a booster vaccination immunotherapy program.
During the study, patients will receive up to five boosters over a 12 month period. The Company will pay approximately
$216,000 over the course of the study. Approximately $68,000 has been paid as of September 30, 2006. The Company will
incur no other costs in connection with this study, unless prior approval by the parties is made in writing. 11. Recent Accounting Pronouncements In June 2006, the FASB issued FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income
Taxesan interpretation of FASB Statement No. 109, Accounting for Income Taxes, which clarifies the accounting for
uncertainty in income taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The
Interpretation requires that the Company recognize in the financial statements, the impact of a tax position, if that
position is more likely than not of being sustained on audit, based on the technical merits of the position. FIN 48
also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and
disclosure. The provisions of FIN 48 are effective beginning January 1, 2007 with the cumulative effect of the change
in accounting principle recorded as an adjustment to opening retained earnings. We are currently evaluating the
possible impact of FIN 48 on our consolidated financial statements. In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value
Measurements (FAS 157). FAS 157 defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements but does not require any new fair value
measurements. FAS 157 is effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. The Company is evaluating the
possible impact of FAS 157 on the financial statements. 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in
conjunction with our financial statements and the notes to those statements included with this report. In addition to
historical information, this report contains forward-looking statements 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. 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, which are
made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. We
undertake no obligation to publicly update or revise any forward looking statements, whether as a result of new
information, future events or otherwise, after the date of this Form 10-Q. 14   14




---



##### 



Overview We are a development stage biotechnology company focused on discovering, developing, and commercializing
immunotherapy products that safely generate and enhance immune system responses to effectively treat cancer. Our
primary activities since incorporation have been focused on advancing a proprietary dendritic cell immunotherapy for
prostate and brain cancer together with strategic and financial planning, and raising capital to fund our operations.
Additional activities have included pre-clinical development of antibody drugs targeting CXCR4, a chemokine receptor
that plays a central role in all three phases of cancer progression: expansion of the primary tumor, migration of tumor
cells and establishment of distant metastases. We completed an initial public offering of our common stock in December
2001. Since 2002, we have only been able to obtain enough capital resources to pursue our strategic plans at a very
minimal level. We presently have approval from the U.S. Food and Drug Administration, or FDA, to conduct a Phase III
trial for DCVax®-Prostate, our product candidate for a possible prostate cancer treatment and a Phase II
clinical trial to evaluate our DCVax®-Brain product candidate as a possible treatment for
Glioblastoma Multiforme. However, we do not presently have adequate resources to complete the trials once they begin. We
also have FDA approval to begin Phase I studies for several other DCVax®-product candidates. As of November 6, 2006 we had cash in the amount of $613,000. Included in this cash balance is a
advance in the amount of $500,000 received from Toucan Partners on October 30, 2006. We are presently negotiating the
terms pursuant to which this cash advance will be required to be repaid. We are considered illiquid as this cash is
not considered sufficient to fund the recurring operating and associated financing costs for the next month.
Approximately $3.9 million of our current liabilities at September 30, 2006 were payable to related parties, net of the
related debt discount. During October 2006, we paid $250,000 of the related party liabilities recorded as of September
30, 2006. In addition to the recurring operating costs, we have two remaining payments due to the Washington State
Department of Revenue totaling approximately $168,000 as of November
6, 2006. The final payment is due to the Department of Revenue in mid-December 2006. We need to raise significant additional funding to continue our operations, conduct research and development
activities, pre-clinical studies and clinical trials necessary to bring our product candidates to market. However,
additional funding may not be available on terms acceptable to us or at all. The alternative of issuing additional
equity or convertible debt securities also may not be available and, in any event, would result in additional dilution
to our shareholders. We will have to seek additional funds from Toucan Capital, Toucan Partners or, another third
party, who are not obligated to provide us with any financing. Any additional equity financing with Toucan Capital,
Toucan Partners or any other third party is likely to be dilutive to stockholders and debt financing, if available, may
include additional restrictive covenants. We do not believe that our assets would be sufficient to satisfy the claims
of all of our creditors in full and to satisfy aggregate liquidation preferences of our preferred stock. Therefore, if
we were to pursue a liquidation, it is highly unlikely that any proceeds would be received by our common stockholders.
If we are unable to obtain significant additional capital in the near-term, we may cease operations at any time. Our financial statements for the year ended December 31, 2005 and nine months ended September 30, 2006 were
prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in
the normal course of business. Nevertheless, we have experienced recurring losses from operations since inception, have
a working capital deficit of $4.0 million, and have a deficit accumulated during the development stage of $82.0
million, as of September 30, 2006, that raises substantial doubt about our ability to continue as a going concern and
our auditors have issued an opinion on the December 31, 2005 financial statements which states 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, 2005. New
critical accounting policies that involve significant judgments and estimates are disclosed below. 15   15




---



##### 



On January 1, 2006, we adopted Statement of Financial Accounting Standards (SFAS) No. 123(R), which requires the
measurement and recognition of compensation for all stock-based awards, including stock
options and employee stock purchases under a stock purchase plan, based on estimated fair values. Under SFAS No.
123(R), we use the Black-Scholes option pricing model as our method of valuation for stock-based awards. Our
determination of the fair value of stock-based awards on the date of grant using an option pricing model is affected by
our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables
include, but are not limited to the expected life of the award, our expected stock price, volatility over the term of
the award and actual and projected exercise behaviors. Although the fair value of stock-based awards is determined in
accordance with SFAS No. 123(R), the Black-Scholes option pricing model requires the input of highly subjective
assumptions, and other reasonable assumptions could provide differing results. Prior to the adoption of SFAS No. 123(R), we determined our employee stock option compensation costs as the
difference between the estimated fair value of our common stock and the exercise price of options on their date of
grant pursuant to APB No. 25. Prior to our initial public offering, our common stock was not actively traded. The fair value of our common
stock for purposes of determining compensation expense for this period was determined based on our review of the
primary business factors underlying the value of our common stock on the date such option grants were made, viewed in
light of the expected initial public offering price per share prior to the initial public offering of our common stock.
The actual initial public offering price was significantly lower than the expected price used in determining
compensation expense. Also, on an ongoing basis the estimate of expense for stock options and warrants is dependant on
factors such as expected life and volatility of our stock. To the extent actual expense is different than that
estimated, the actual expense that would have been recorded may be substantially different. 16   16




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Results of Operations Operating costs and expenses consist primarily of research and development expenses, including clinical trial
expenses incurred when we are actively participating in clinical trials, and general and administrative expenses. Research and development expenses include salary and benefit expenses and costs of laboratory supplies used in our
internal research and development projects. From our inception through September 30, 2006, we incurred costs of
approximately $34.7 million associated with our research and development activities (not including clinical trial and
related expenses). Because our technologies are unproven, we are unable to estimate with any certainty the costs we
will incur in the continued development of our product candidates for commercialization. General and administrative expenses include salary and benefit expenses related to administrative personnel, cost
of facilities, insurance, legal support, as well as amortization costs of stock options granted to employees and
warrants issued to consultants. During
the three and nine months ended September 30, 2006 we realized a
net loss of $1.8 million and a net income of $662,000, respectively.
This net income for the nine month period was generated from the reversal of previously recorded non-cash items as further
described in Total Other Income (Expense), Net. We do not expect similar transactions in the future. Three Months Ended September 30, 2005 and 2006 Total Revenues.We recognized $80,000 in revenues during the three months ended September 30, 2006 as compared to
$15,000 in revenue for the three months ended September 30, 2005. To date, our revenues have primarily been derived
from the sale of research materials, licenses, contract research and development services and research grants from the
federal government. Effective December 31, 2005, we have withdrawn from selling research materials. Cost of Research Material Sales.Cost of research material sales decreased from $3,000 for the three months ended
September 30, 2005 to zero costs for the three months ended September 30, 2006. This decrease is related to the fact
that we have withdrawn from selling research materials effective December 31, 2005. Research and Development Expense.Research and development expense decreased slightly from approximately $1.3
million for the three months ended September 30, 2005 to $1.0 million for the three months ended September 30, 2006.
This decrease was primarily due to decreased expenditures for consultants in the preparation of and filing an IND with
the FDA and decreasing expenditures related to our service agreement for drug manufacturing, regulatory advice, and
research and development related to preclinical activities. General and Administrative Expense.General and administrative expense decreased from $634,000 for the three
months ended September 30, 2005 to $493,000 for the three months ended September 30, 2006. This decrease was primarily
due to a decrease in the use of consultants and continuing efforts to conserve cash. Depreciation and Amortization.Depreciation and amortization decreased from $13,000 for the three months ended
September 30, 2005 to $10,000 for the three months ended September 30, 2006. This decrease was primarily due to the
disposal or impairment of property and equipment in 2005, as well as the fact that certain assets are now fully
depreciated. Total Other Income (Expense), Net.Interest expense decreased from $896,000 for the three months ended September
30, 2005 to $407,000 for the three months ended September 30, 2006. Interest expense is primarily related to the debt
discount and interest accretion associated with the secured convertible promissory notes and warrants debt financing.
This decrease was due primarily to the fact that the Toucan Capital and management loans were converted into equity in
April 2006, offset by the fact that the average note payable balance was higher prior to conversion in 2006 as compared
to the balances outstanding during the three months ended September 30, 2005. 17   17




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Nine Months Ended September 30, 2005 and 2006 Total Revenues.We recognized $80,000 in revenues during the nine months ended September 30, 2006 as compared to
$110,000 in revenue for the nine months ended September 30, 2005. To date, our revenues have primarily been derived
from the sale of research materials, licenses, contract research and development services and research grants from the
federal government. Effective December 31, 2005, we have withdrawn from selling research materials. The $77,000
decrease in grant revenue was attributable to the cessation of the remaining two research grant awards which occurred
during the first quarter of 2005. Cost of Research Material Sales.We did not recognize any cost of research material sales during the nine months
ended September 30, 2006 as compared to $8,000 for the nine months ended September 30, 2005. This decrease is related
to the fact that we have withdrawn from selling research materials effective December 31, 2005. Research and Development Expense.Research and development expense decreased from $3.9 million for the nine months
ended September 30, 2005 to $2.6 million for the nine months ended September 30, 2006. This decrease was primarily due
to decreased expenditures for consultants in the preparation of and filing an IND with the FDA and decreasing
expenditure related to our service agreement for drug manufacturing, regulatory advice, and research and development
related to preclinical activities. General and Administrative Expense.General and administrative expense increased from approximately $1.6 million
for the nine months ended September 30, 2005 to $1.7 million for the nine months ended September 30, 2006. This
increase was primarily due to professional service fees, including legal, accounting and executive search fees,
increased fees related to our SEC filings and required communications with our investors and travel expenses partially
offset by our initiative to continue to conserve cash. Depreciation and Amortization.Depreciation and amortization decreased from $52,000 during the nine months ended
September 30, 2005 to $29,000 for the nine months ended September 30, 2006. This decrease was primarily due to the
disposal or impairment of property and equipment in 2005, as well as the fact that certain assets are now fully
depreciated. Total Other Income (Expense), Net.Interest expense decreased from approximately $2.6 million for the nine months
ended September 30, 2005 to $ 2.2 million for the nine months ended September 30, 2006. This decrease was due
primarily to the fact that the Toucan Capital and management loans were converted into equity in April 2006, offset by
the fact that the average note payable balance was higher prior to conversion in 2006 as compared to the balances
outstanding during the nine months ended September 30, 2005.
Additionally, we recorded a warrant valuation gain of $7.1
million during the nine months ended September 30, 2006 with respect to the revaluation of the potential shares that
could be issued in excess of the available authorized shares. We did not have a similar gain or loss during the nine
months ended September 30, 2005. Liquidity and Capital Resources As of November 6, 2006 we had cash in the amount of approximately $613,000. Included in this cash balance is a cash advance in the amount of $500,00 received from Toucan Partners on October 30, 2006. We are presently
negotiating the terms pursuant to which this cash advance will be required to be repaid. We consider ourselves
illiquid as this cash is not considered sufficient to fund our recurring operating and associated financing costs for
the next month. Approximately $3.9 million of our current liabilities at September 30, 2006 were payable to related
parties, net of the related debt discount. During October 2006, we paid $250,000 of the remaining current related
party liabilities recorded as of September 30, 2006. In addition to the recurring operating costs, we have two
remaining payments due to the Washington State Department of Revenue
totaling approximately $168,000 as of November 6, 2006. The final
payment is due to the Department of Revenue in mid-December 2006. We need to raise significant additional funding to continue our operations, conduct research and development
activities, pre-clinical studies and clinical trials necessary to bring our product candidates to market. However,
additional funding may not be available on terms acceptable to us or at all. The alternative of issuing additional
equity or convertible debt securities also may not be available and, in any event, would result in additional dilution
to our stockholders. For ongoing operating capital we intend to seek additional funds from Toucan Capital, Toucan
Partners, or other third parties. Neither Toucan Capital, Toucan Partners, or any other third parties is obligated to
provide us any additional funds. Any additional financing with Toucan Capital, Toucan Partners or any other third party
is likely to be dilutive to stockholders, and any debt financing, if available, may include additional restrictive
covenants. We do not believe that our assets would be sufficient to satisfy the claims of all of our creditors in full
and to satisfy aggregate liquidation preferences of our preferred stock in full. Therefore, if we were to pursue a
liquidation, it is highly unlikely that any proceeds would be received by the holders of our common stock. If we are
unable to obtain significant additional capital in the near-term, we may cease operations at anytime. 18   18




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On January 7, 2000, we qualified for the State of Washingtons use tax deferral program for businesses engaged in
high technology and research and development activities. Under the deferral program, a business may defer paying sales
and use tax upon investments in qualified buildings, qualified machinery and equipment, or pilot scale manufacturing.
No repayment of the taxes deferred under this program is required if the business uses the investment project for
qualified research and development during the calendar year the investment project is certified by the State of
Washingtons Department of Revenue as operationally complete, and for an additional seven calendar years. Beginning on October 9, 2002, we initiated a series of substantial steps to conserve cash, including the
relocation and consolidation of our facilities. We received a tax assessment of $491,802 on October 21, 2003 in
connection with taxes previously deferred under the State of Washingtons use tax deferral. The tax assessment was due
to our abandonment of tenant improvements at the prior facility. The tax assessment payment was initially due on
November 20, 2003. The net assessment, through December 31, 2005, of approximately $336,000, inclusive of accrued
interest, was being carried as an estimated liability on our balance sheet. On August 10, 2006 our appeal was denied.
In September 2006, we entered into an agreement with the State of Washington to pay an aggregate of approximately
$336,000, plus interest at a rate of 4% per year. The agreement provides for two additional monthly payments totaling
approximately $168,000, as of November 6, 2006, which are due in November and December 2006. In February 2004, we filed a refund request of approximately $175,000 related to certain state taxes previously
paid to the State of Washington. The finalization of this refund request is not expected until late 2006. Since 2004, we have undergone a significant recapitalization, pursuant to which Toucan Capital and Toucan Partners
loaned us an aggregate of approximately $7.7 million, excluding $500,000 received from Toucan Partners in October 2006, and purchased $1.3 million in equity. These funds enabled us to
continue to operate, and advance our programs, while attempting to raise additional capital. These funds were primarily
comprised of $6.75 million from Toucan Capital, which we borrowed from February 1, 2004 through September 2005. Toucan
Capital elected to convert these loans and the related accrued interest on the loans into approximately 4.8 million
shares of our newly designated Series A-1 Preferred Stock (which are convertible into an aggregate of 192.7 million
shares of common stock) as of April 17, 2006. In January 2005, Toucan Capital purchased 32.5 million of Series A
Preferred Stock for gross proceeds of $1.3 million. Toucan Capital also has the right to acquire up to approximately
135.5 million shares of capital stock upon exercise of warrants issued in connection with its convertible debt and
equity financings. In connection with the recapitalization, we have also issued three promissory notes to Toucan Partners, pursuant
to which it has loaned us an aggregate of $950,000. Toucan Partners has the right, as of September 30, 2006, to convert
principal and interest on the above loans to acquire up to approximately 25.5 million shares of our capital stock and
has the right to acquire up to an aggregate of 9.5 million shares upon exercise of warrants having a contractual life
of 7 years. Including the 32.5 million shares of Series A Preferred Stock and the approximately 4.82 million shares of
Series A-1 Preferred Stock held by Toucan Capital, Toucan Capital and Toucan Partners collectively have beneficial
ownership of approximately 395.1 million shares of our common stock, which represents beneficial ownership of
approximately 86% as of September 30, 2006. Toucan Capital and Toucan Partners each has a right of first refusal to
participate in our future issuances of debt or equity securities. In addition, on October 30, 2006, Toucan Partners provided a cash advance in the amount of $500,000, of which the terms of repayment are currently being negotiated. Our independent auditors have indicated in their report on our financial statements, included in our December 31,
2005 Annual Report on Form 10-K, that there is substantial doubt about our ability to continue as a going concern. We
need to raise significant additional funding to continue our operations, conduct research and development activities,
pre-clinical studies and clinical trials necessary to bring our product candidates to market. However, additional
funding may not be available on terms acceptable to us or at all. The alternative of issuing additional equity or
convertible debt securities also may not be available and, in any event, would result in additional dilution to our
stockholders. Sources of Cash Federal Grants On April 8, 2003, we were awarded a NIH cancer research grant. The total first year grant award was approximately
$318,000, and was recognized in revenue through the year ended December 31, 2003. The total award for fiscal 2004 
2005 was approximately $328,000, comprised of approximately $198,000 authorized for direct grant research expenditures
and approximately $130,000 authorized for use to cover our facilities and administrative overhead costs. This grants
final $35,000 award was recognized in January 2005. This grant ended January 31, 2005. 19   19




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Effective September 10, 2004, we were awarded a small business innovation research grant. The grant award for
$100,000 had an award period that commenced September 10, 2004. There was approximately $59,000 earned under the grant
and recognized in revenue through the year ended December 31, 2004, with the remaining $41,000 of the grants aggregate
award recognized through the six months ended June 30, 2005. Research Reagent Sales On April 21, 2003, we announced our entry into the research reagents market. We earned approximately $23,000 in
revenue for the nine months ended September 30, 2005 from the sale of research materials. Effective December 31, 2005,
we have withdrawn from selling research materials. License Fees Our effort to license certain rights, title, and interest to technology relating to the worldwide use of specific
antibodies for the diagnostic immunohistochemical market resulted in the July 1, 2003 license agreement with
DakoCytomation California, Inc. with the payment of a one-time $25,000 license fee and future non-refundable minimum
annual royalty payments of $10,000 credited against any royalty payments made to us. The $25,000 one-time license fee
was received in 2003. We waived the payment of the July 1, 2004 annual royalty payment because of costs incurred by
DakoCytomation, on our behalf, regarding purity issues with the initial cell lines. During both the three months
ending September 30, 2006 and 2005, we received and recorded the minimum annual royalty payment totaling
$10,000. During the three months ended September 30, 2006, we granted a non-exclusive license to certain of our patent
rights and provided certain reagents for a one-time $70,000 license fee. Management Loan On November 13, 2003, we borrowed an aggregate of $335,000 from
certain members of our management, which enabled
us to continue operating into the first quarter of 2004. As of September 30, 2006, all of these management loans have
either been repaid or converted into common stock. During the second quarter of 2006, the remaining outstanding
principal balance, along with the related accrued interest were converted into 2,687,719 shares of common stock. As part of the November 13, 2003 loan from management, the lenders received warrants initially exercisable to
acquire an aggregate of 3.7 million shares of our common stock, expiring November 2008 and subject to certain
anti-dilution adjustments. In connection with the April 26, 2004 recapitalization agreement, the warrants were amended
to remove the anti-dilution provisions and set the warrant exercise price at the lesser of (i) $0.10 per share or (ii)
a 35% discount to the average closing price during the twenty trading days prior to the first closing of the sale by us
of convertible preferred stock as contemplated by the recapitalization agreement but not less than $0.04 per share. During March 2006, warrants for the purchase of 3.6 million shares were exercised on a net exercise basis,
resulting in the issuance of approximately 3.3 million shares of common stock. The remaining 100,000 management
warrants were exercised during the second quarter of 2006. As a result, an aggregate of 3.4 million shares of common
stock were issued to current and prior members of management. Two of the management lenders, neither of whom are still employed by us, have claimed that
they are entitled to receive, for no additional cash consideration, an aggregate of up to approximately 9.5 million
additional shares of our common stock due to the alleged triggering of an anti-dilution provision in the warrant
agreements. We do not believe that these claims have merit, and intends to vigorously oppose such claims. We generated $16,000 in cash from investing activities during the nine months ended September 30, 2006 compared to
$68,000 provided by investing activities during the nine months ended September 30, 2005. The cash provided during the
nine months ended September 30, 2006 and 2005 consisted of net proceeds from the sale of property and equipment. 20   20




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We generated $5.4 million in cash from financing activities for the nine months ended September 30, 2006 primarily
related to the sale of the Companys common stock to certain private equity investors in April 2006. We generated $3.6
million in cash from financing activities during the nine months ended September 30, 2005 consisting primarily of the
proceeds received in connection with the issuance of $2.4 million of convertible promissory notes to Toucan Capital, in addition to the January
26, 2005 securities purchase agreement with Toucan Capital pursuant to which they purchased 32.5 million shares of our
Series A Preferred Stock at a purchase price of $0.04 per share, for a net purchase price of approximately $1.3
million, net of offering related costs of approximately $24,000. Uses of Cash We used $5.1 million in cash for operating activities during the nine months ended September 30, 2006, compared
to $3.6 million for the nine months ended September 30, 2005. The increase in cash used in operating activities from
2005 to 2006, was primarily the result of increased expenditures for consultants related to a service agreement for
drug manufacturing, regulatory advice, the preparation and submission to the FDA of three new INDs, and research and
development related to preclinical activities. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk Our exposure to market risk is presently limited to the interest rate sensitivity of our cash and any cash
equivalents which is affected by changes in the general level of U.S. interest rates. We are exposed to interest rate
changes primarily as a result of our investment activities. The primary objective of our investment activities is to
preserve principal while at the same time maximizing the income we receive without significantly increasing risk. To
minimize risk, we maintain our cash and cash equivalents in interest-bearing instruments, primarily money market funds.
Our interest rate risk management objective with respect to our borrowings is to limit the impact of interest rate
changes on earnings and cash flows. Due to the nature of our cash and cash equivalents, we believe that we are not
subject to any material market risk exposure. We do not have any foreign currency or other derivative financial
instruments. 
 Item 4. Controls and Procedures Our president, who serves as our principal executive, financial and accounting officer, after evaluating, as
required, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)), recognized, as of September 30, 2006, our disclosure controls and
procedures contained certain internal control weaknesses that, in the aggregate, represent material weaknesses. The identified weaknesses were anticipated given our status with respect to the fact that we only have three
full-time employees. The weaknesses were comprised of: insufficient segregation of duties, insufficient corporate
governance policies, and lack of independent directors as of September 30, 2006. Each of these weaknesses is expected
to be corrected after raising the additional capital considered necessary to fund our operations. SEC release #33-8545
extends the deadline for section 404 compliance for non-accelerated filers, such as our Company, to the first fiscal
year ending on or after July 15, 2007 and the SEC has recently proposed to extend these deadlines further. There have been no changes in our internal control over financial reporting that occurred during the quarter ended
September 30, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting. As part of the communications by Peterson Sullivan, PLLC (Peterson Sullivan) with our audit committee with
respect to Peterson Sullivans audit procedures for 2005, Peterson Sullivan informed the audit committee that these
deficiencies constituted material weaknesses, as defined by Auditing Standard No. 2, An Audit of Internal Control Over
Financial Reporting Performed in Conjunction with an Audit of Financial Statements, established by the Public Company
Accounting Oversight Board, or PCAOB. 21   21




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Part II  Other Information 
 Item 1. Legal Proceedings Soma Arbitration We were parties to an engagement letter, dated October 15, 2003, with Soma Partners, LLC, or Soma, a New
Jersey-based investment bank, pursuant to which we engaged them to locate potential investors. Pursuant to the terms of
the engagement letter, any disputes arising between the parties would be submitted to arbitration in the New York
metropolitan area. A significant dispute arose between the parties. Soma filed an arbitration claim against us with the
American Arbitration Association in New York, NY claiming unpaid commission fees of $186,000 and seeking declaratory
relief regarding potential fees for future transactions that may be undertaken by us with Toucan Capital. We vigorously
disputed Somas claims on multiple grounds. We contended that we only owed Soma approximately $6,000. Soma subsequently filed an amended arbitration claim, claiming unpaid commission fees of $339,000 and warrants to
purchase 6% of the aggregate securities issued to date, and seeking declaratory relief regarding potential fees for
future financing transactions which may be undertaken by us with Toucan Capital and others, which could potentially be
in excess of $4 million. Soma also requested the arbitrator award its attorneys fees and costs related to the
proceedings. We strongly disputed Somas claims and defended ourselves. The arbitration proceedings occurred from March 8-10, 2005 and on May 24, 2005, the arbitrator ruled in our favor
and denied all claims of Soma. In particular, the arbitrator decided that we did not owe Soma the fees and warrants
sought by Soma, that we would not owe Soma fees in connection with future financings, if any, and that we had no
obligation to pay any of Somas attorneys fees or expenses. The arbitrator agreed with us that the only amount we owed
Soma was $6,702.87, which payment we made on May 27, 2005. On August 29, 2005, Soma filed a notice of petition to vacate the May 24, 2005 arbitration award issued by the
Supreme Court of the State of New York. On December 30, 2005, the Supreme Court of the State of New York dismissed Somas petition, denying Somas August
29, 2005 motion to vacate the May 24, 2005 award. On February 3, 2006, Soma filed another notice of appeal with the Supreme Court of the State of New York. As of the date of the filing of this report, the Supreme Court of the State of New York has yet to act on this
matter. We believe that Somas latest appeal is without merit and we intend to vigorously defend the appeal. Management Warrants On November 13, 2003, we borrowed an aggregate of $335,000 from certain members of our management. As part of
this loan, the lenders received warrants exercisable to acquire an aggregate of 3.7 million shares of our common stock.
From March 2006 through May 2006, all of these warrants were exercised for common stock on a net exercise basis,
pursuant to the terms of the warrants. Two
former members of management who had participated as lenders in our management loans have claimed that they are entitled to receive, for no additional cash consideration, an aggregate of up to
approximately 9.5 million additional shares of our common stock due to the alleged triggering of an anti-dilution
provision in the warrant agreements. We do not believe that these claims have merit, and intend to vigorously oppose
such claims. 
 Item 1A. Risk Factors This section briefly discusses certain risks that should be considered by our stockholders and prospective
investors. Because we continually update our analysis and description of such risks, you should carefully consider the
risks described below, together with all other information included in our annual report on Form 10-K for the year
ended December 31, 2005 filed with the Securities and Exchange Commission on April 18, 2006 and the information
incorporated by reference. If any of the following risks actually occur, our business, financial condition, or
operating results could be harmed. In such case, you could lose all of your investment. 22   22




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We may cease operations at any time; we need to raise additional capital, which may not be available. As of November 6, 2006, we have approximately $613,000 in cash. Included in this cash balance is an additional
cash advance in the amount of $500,00 received from Toucan Partners on October 30, 2006. We are presently negotiating
the terms pursuant to which this cash advance will be required to be repaid. We consider ourselves illiquid as this
cash is not considered sufficient to fund our recurring operating and associated financing costs. Approximately $3.9
million of our current liabilities at September 30, 2006 were payable to related parties, net of the related debt
discount. During October 2006, we paid $250,000 of the related party liabilities recorded as of September 30, 2006. In
addition to the recurring operating costs, we have two remaining payments due to the Washington State Department of
revenue totaling approximately $168,000. The final payment is due in mid December 2006. The Company needs to raise significant additional funding to continue its operations, conduct research and
development activities, pre-clinical studies and clinical trials necessary to bring its product candidates to market.
However, additional funding may not be available on terms acceptable to the Company or at all. The alternative of
issuing additional equity or convertible debt securities also may not be available and, in any event, would result in
additional dilution to the Companys stockholders. For ongoing operating capital we intend to seek additional funds
from Toucan Capital, Toucan Partners, or other third parties. Neither Toucan Capital, Toucan Partners, or any other
third parties is obligated to provide us any additional funds. Any additional financing with Toucan Capital, Toucan
Partners or any other third party is likely to be dilutive to stockholders, and any debt financing, if available, may
include additional restrictive covenants. We do not believe that our assets would be sufficient to satisfy the claims
of all of our creditors in full and to satisfy aggregate liquidation preferences of our preferred stock in full.
Therefore, if the Company were to pursue a liquidation, it is highly unlikely that any proceeds would be received by
the holders of the Companys common stock. If the Company is unable to obtain significant additional capital in the
near-term, we may cease operations at anytime. The resale, or the availability for resale, of the shares issued in the PIPE Financing could have a material
adverse impact on the market price of our common stock. In April 2006, we closed the PIPE Financing, consisting of a private placement of an aggregate of approximately
39.5 million shares and accompanying warrants to purchase an aggregate of approximately 19.7 million shares. In
connection with the PIPE Financing, we agreed to register the resale of the shares of common stock sold in the PIPE
Financing and the shares underlying the warrants issued in the PIPE Financing. The registration statement registering
such shares was declared effective by the Securities and Exchange Commission on October 11, 2006. The resale of a
substantial number of such shares, or even the availability of these shares for resale, could have a material adverse
impact on our stock price. 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds None 
 Item 3. Defaults upon Senior Securities None 
 Item 4. Submission of Matters to a Vote of Security Holders None 
 Item 5. Other Information None 23   23




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Item 6. Exhibits a) Exhibits 3.1
    
    Seventh Amended and Restated Certificate of Incorporation. (3.1.)(1)3.2
    
    Second Amended and Restated Bylaws of the Company. (3.2)(2)3.3
    
    Certificate of Designations, Preferences and Rights of Series A Cumulative Convertible Preferred Stock. (3.3)(3)3.4
    
    Certificate of Designations, Preferences and Rights of Series A-1 Cumulative Convertible Preferred Stock. (3.4)(3)3.5
    
    First Amendment to Second Amended and Restated Bylaws of Northwest Biotherapeutics, Inc. (3.1)(4)*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 (Principal 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 Pre-effective Amendment
No. 1 to the Registration Statement on Form S-1 (File No. 333-134320), filed 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 (File No. 000-33393) filed on February 1, 2005.  (3)
    
    Incorporated by reference to the exhibit shown in the preceding parentheses filed with the Registrants Annual
Report on Form 10-K filed on April 18, 2006.  (4)
    
    Incorporated by reference to the exhibit shown in the preceding parentheses filed with the Registrants Current
Report on Form 8-K (File No. 000-33393) filed on April 26, 2006.  *
    
    Filed herewith. 24   24




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized. NORTHWEST BIOTHERAPEUTICS, INCDated:
November 10, 2006
    
    By:
    
    /s/ Alton L. BoyntonAlton L. Boynton
President(Principal Executive Officer)
 25   25




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NORTHWEST BIOTHERAPEUTICS, INC.
(A Development Stage Company) 
 EXHIBIT INDEX 3.1
    
    Seventh Amended and Restated Certificate of Incorporation. (3.1)(1)3.2
    
    Second Amended and Restated Bylaws of the Company. (3.2)(2)3.3
    
    Certificate of Designations, Preferences and Rights of Series A Cumulative Convertible Preferred Stock, as
amended. (3.3)(3)3.4
    
    Certificate of Designations, Preferences and Rights of Series A-1 Cumulative Convertible Preferred Stock. (3.4)(3)3.5
    
    First Amendment to Second Amended and Restated Bylaws of Northwest Biotherapeutics, Inc. (3.1)(4)*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 (Principal 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 Pre-effective Amendment
No. 1 to the Registration Statement on Form S-1 (File No. 333-134320), filed 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 (File No. 000-33393) filed on February 1, 2005.  (3)
    
    Incorporated by reference to the exhibit shown in the preceding parentheses filed with the Registrants Annual
Report on Form 10-K filed on April 18, 2006.  (4)
    
    Incorporated by reference to the exhibit shown in the preceding parentheses filed with the Registrants Current
Report on Form 8-K (File No. 000-33393) filed on April 26, 2006.  *
    
    Filed herewith. 26   26