Northwest Biotherapeutics Inc - Amended Annual Report (10-K/A)

Signature

/s/ ALTON L. BOYNTON, PH.D.

Alton L. Boynton, Ph.D.

President and Director
(Principal Executive Officer)

December 7, 2007

/s/ ANTHONY P. DEASEY

Anthony P. Deasey

Chief Financial Officer
(Principal Financial and Accounting Officer)

December 7, 2007

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K/A

Amendment No. 2


þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended December 31, 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 000-33393

NORTHWEST BIOTHERAPEUTICS, INC.

(Exact name of Registrant as specified in its charter)


Delaware		94-3306718
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

7600 Wisconsin Ave. 7 ^th Floor, Suite 750 Bethesda, MD 20814 (Address of principal executive offices)		98011 (Zip Code)

Registrant’s telephone number, Including Area Code:

(240) 497-9024

Securities Registered Pursuant to Section 12(b) of the Act:

None

Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock, $0.001 Par Value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

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 Act). Yes o No þ

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, computed by reference to the closing price on the consolidated transaction reporting system on June 30, 2006 was approximately $16.3 million. This number is provided only for purposes of this Annual Report on Form 10-K and does not represent an admission that any particular person is an affiliate of registrant.

As of March 5, 2007, the Registrant had an aggregate of 65,241,287 shares of common stock issued and outstanding.

Documents Incorporated by Reference: Portions of the Registrant’s Definitive Information Statement relating to the election of directors and other matters in lieu of an annual meeting of stockholders are incorporated by reference into Part III of this Report.

Explanatory Note

Northwest Biotherapeutics, Inc. (the “Company”) is filing this amendment on Form 10-K/A (this “Amendment”) to its Annual Report on Form 10-K for the year ended December 31, 2006, filed with the Securities and Exchange Commission (the “Commission”) on April 17, 2007. This Amendment is filed in order to re-file the entirety of Part II, Item 8 Financial Statements and Supplementary Data, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 in light of comments from the staff of the Commission in connection with its review of our Annual Report on Form 10-K for the year ended December 31, 2006.

The Commission file number and the address of the Company’s principal executive offices on the cover of the report and the report of the Independent Registered Public Accounting Firm are hereby amended.

Except for the items described above, this Amendment continues to speak as of the date of the original Form 10-K and does not modify, amend or update in any way the financial statements or any other item or disclosures in the original Form 10-K.


Item 8.	*Financial Statements and Supplementary Data*

Financial Statements

Our financial statements required by this item are submitted as a separate section of this Annual Report on Form 10-K. See Item 15(a)(1) for a listing of financial statements provided in the section titled “Financial Statements.”


Item 9.	*Changes in and Disagreements with Accountants on Accounting and Financial Disclosure*

Not applicable.


Item 9A.	*Controls and Procedures*

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

Our President, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), has concluded that, as of December 31, 2006 our disclosure controls and procedures contained significant internal control weaknesses that, in the aggregate, represent material weaknesses.

Material Weakness Identified

In connection with the preparation of our financial statements for the year ended December 31, 2006, certain significant internal control deficiencies became evident to management that, in the aggregate, represent material weaknesses, including,

(i) lack of independent directors for our audit committee;

(ii) lack of an audit committee financial expert;

(iii) insufficient personnel in our finance/accounting functions;

(iv) insufficient segregation of duties; and

(v) insufficient corporate governance policies.

As part of the communications by Peterson Sullivan, PLLC, or Peterson Sullivan, with our audit committee with respect to Peterson Sullivan’s audit procedures for fiscal 2006, 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.

In accordance with Section 404 of the Sarbanes-Oxley Act of 2002, we intend to take appropriate and reasonable steps to make the necessary improvements to remediate these deficiencies. We intend to consider the results of our remediation efforts and related testing as part of our year-end 2006 assessment of the effectiveness of our internal control over financial reporting. On March 1, 2007, we hired a part-time chief financial officer.


Item 9B.	*Other Information*

On April 14, 2007, a series of cash advances from Toucan Partners, in an aggregate principal amount of $3.05 million, received from October 2006 through April 2007, were converted into a new series of convertible promissory notes and associated warrants (collectively the “2007 Convertible Notes” and “2007 Warrants”). The 2007 Convertible Notes accrue interest at 10% per annum from their respective original cash advance dates. Although these notes are convertible, the conversion terms will not be fixed until a future date at Toucan Partners’ election. The outstanding principal and accrued interest under the 2007 Convertible Notes may be converted (in whole or in part) on conversion terms equal to the terms of any convertible debt financing from an unaffiliated investor in an aggregate principal amount of at least $150,000 on or before May 15, 2007 (a “Qualified Debt Financing”). In the event that a Qualified Debt Financing does not occur, or Toucan Partners elects in its sole discretion to not convert on such terms, the conversion terms shall be subject to further negotiation between Toucan Partners and the Company. These notes carry warrant coverage of 100%. The number of warrant shares issuable upon exercise of each 2007 Warrant will be equal to the number of shares that would be issuable if Toucan Partners elected to convert the principal and accrued interest on the corresponding 2007 Convertible Notes determined as of the date of repayment or conversion of such 2007 Convertible Notes. The exercise price of each 2007 warrant will be equal to the conversion price of the corresponding 2007 Convertible Note. Accordingly, both the number of shares issuable upon exercise of the warrants and the exercise price of the 2007 Warrants are currently unknown.

In addition, the convertible promissory notes and associated warrants issued to Toucan Partners in aggregate principal amount of $950,000 from November 2005 through April 2006 were amended and restated effective April 14, 2007. The terms of the amended and restated convertible promissory notes and associated warrants are similar to the terms of the 2007 Convertible Notes and 2007 Warrants. These notes accrue interest at 10% per annum from the respective original issuance dates of the notes.

Pursuant to the agreements entered into with Toucan Partners on April 14, 2007, as described above, the Company has issued twelve convertible promissory notes to Toucan Partners whereby Toucan Partners has loaned the Company an aggregate of $4.0 million. The twelve convertible promissory notes mature on June 30, 2007.

PART III

We will file a definitive Information Statement relating to the election of directors and other matters in lieu of an annual meeting of stockholders, or the 2007 Information Statement, with the SEC, pursuant to Regulation 14C, not later than 120 days after the end of our fiscal year. Accordingly, certain information required by Part III has been omitted under General Instruction G(3) to Form 10-K. Only those sections of the 2007 Information Statement that specifically address the items set forth herein are incorporated by reference.


Item 10.	*Directors and Executive Officers of the Registrant*

The information required by Item 10 is hereby incorporated by reference from our 2007 Information Statement under the captions “Election of Directors,” “Certain Additional Information about our Management,” “Section 16(a) Beneficial Ownership Reporting Compliance,” and “Code of Ethics.”


Item 11.	*Executive Compensation*

The information required by Item 11 is hereby incorporated by reference from our 2007 Information Statement under the caption “Compensation Discussion and Analysis” and “Compensation of Directors and Executive Officers.”


Item 12.	*Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*

The information required by Item 12 is hereby incorporated by reference from our 2007 Information Statement under the caption “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”


Item 13.	*Certain Relationships and Related Transactions*

The information required by Item 13 is hereby incorporated by reference from our 2007 Information Statement under the caption “Certain Relationships and Related Transactions.”


Item 14.	*Principal Accountant Fees and Services*

The information required by Item 14 is hereby incorporated by reference from our 2007 Information Statement under the caption “Independent Auditor Firm Fees.”


Item 15.	*Exhibits, Financial Statement Schedules*

(a)(1) Index to Financial Statements and Independent Auditors Report.

The financial statements required by this item are submitted in a separate section as indicated below.


	Page

Report of Peterson Sullivan, PLLC, Independent Registered Public Accounting Firm		4
Balance Sheets		5
Statements of Operations		6
Statements of Stockholders’ Equity (Deficit) and Comprehensive Loss		7
Statements of Cash Flows		11
Notes to Financial Statements		13

(2) Index to Financial Statement Schedules

All financial statement schedules are omitted since the required information is not applicable, not required or the required information is included in the financial statements or notes thereto.

(3) Exhibits

See Exhibit Index on page 77.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Northwest Biotherapeutics, Inc.

Bothell, Washington

We have audited the accompanying balance sheets of Northwest Biotherapeutics, Inc. (a development stage company) as of December 31, 2006 and 2005, and the related statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2006, and for the period from March 18, 1996 (date of inception) to December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Northwest Biotherapeutics, Inc. (a development stage company) as of December 31, 2006 and 2005, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2006, and for the period from March 18, 1996 (date of inception) to December 31, 2006, in conformity with accounting principles generally accepted in the United States.

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has experienced recurring losses from operations since inception, has a working capital deficit, and has a deficit accumulated during the development stage. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ PETERSON SULLIVAN PLLC

March 27, 2007

Seattle, Washington

NORTHWEST BIOTHERAPEUTICS, INC.
(A Development Stage Company)

BALANCE SHEETS


	December 31,			December 31,
	2005			2006
	(In thousands)
ASSETS
Current assets:
Cash	$	352		$	307
Accounts receivable		17			3
Accounts receivable, related party		58			—
Prepaid expenses and other current assets		117			145

Total current assets		544			455

Property and equipment:
Laboratory equipment		100			14
Office furniture and other equipment		96			71

		196			85
Less accumulated depreciation and amortization		(143	)		(70	)

Property and equipment, net		53			15
Restricted cash		31			31
Deposit and other non-current assets		3			3

Total assets	$	631		$	504


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Note payable to related parties, net	$	6,683		$	2,505
Current portion of capital lease obligations		10			2
Accounts payable		443			493
Accounts payable, related party		3,353			2,852
Accrued expenses		117			301
Accrued expense, tax liability		336			—
Accrued expense, related party		500			300
Common stock warrant liability		604			—

Total current liabilities		12,046			6,453
Long-term liabilities:
Capital lease obligations, net of current portion		3			—

Total liabilities		12,049			6,453

Stockholders’ equity:
Preferred stock, $0.001 par value; 100,000,000 and 300,000,000 shares authorized at December 31, 2005 and 2006, respectively
Series A preferred stock, 50,000,000 designated and 32,500,000 shares issued and outstanding at December 31, 2005 and 2006		33			33
Series A-1 preferred stock, zero and 10,000,000 designated at December 31, 2005 and 2006 respectively and zero and 4,816,863 shares issued and outstanding at December 31, 2005 and 2006, respectively		—			5
Common stock, $0.001 par value; 300,000,000 and 800,000,000 shares authorized and 19,078,048 and 65,241,286 shares issued and outstanding at December 31, 2005 and 2006, respectively		19			65
Additional paid-in capital		71,220			78,033
Deferred compensation		—			—
Deficit accumulated during the development stage		(82,690	)		(84,085	)

Total stockholders’ equity		(11,418	)		(5,949	)

Total liabilities and stockholders’ equity	$	631		$	504

See accompanying notes to financial statements.

NORTHWEST BIOTHERAPEUTICS, INC.
(A Development Stage Company)

STATEMENTS OF OPERATIONS


										Period from
										March 18, 1996
										(Inception) to
	Years Ended December 31,									December 31,
	2004			2005			2006			2006
	(In thousands except per share data)

Revenues:
Research materials sales	$	52		$	38		$	80		$	530
Contract research and development from related parties		—			—			—			1,128
Research grants and other		338			86			—			1,061

Total revenues		390			124			80			2,719

Operating costs and expenses:
Cost of research material sales		40			12			—			382
Research and development		3,621			4,469			3,777			35,844
General and administrative		2,845			2,005			2,273			32,967
Depreciation and amortization		132			63			37			2,303
Loss on facility sublease		—			—			—			895
Asset impairment loss and (gain) loss on disposal of equipment		130			—			(10	)		2,056

Total operating costs and expenses		6,768			6,549			6,077			74,447

Loss from operations		(6,378	)		(6,425	)		(5,997	)		(71,728	)
Other income (expense):
Warrant valuation		(368	)		—			7,127			6,759
Gain on sale of intellectual property to Medarex		—			—			—			3,656
Interest expense		(1,765	)		(3,517	)		(2,564	)		(15,701	)
Interest income		3			5			39			775

Net loss		(8,508	)		(9,937	)		(1,395	)		(76,239	)
Accretion of Series A preferred stock mandatory redemption obligation		—			—			—			(1,872	)
Series A preferred stock redemption fee		—			—			—			(1,700	)
Beneficial conversion feature of Series D preferred stock		—			—			—			(4,274	)

Net loss applicable to common stockholders	$	(8,508	)	$	(9,937	)	$	(1,395	)	$	(84,085	)

Net loss per share applicable to common stockholders — basic and diluted	$	(0.45	)	$	(0.52	)	$	(0.03	)

Weighted average shares used in computing basic and diluted loss per Share		19,028			19,068			53,432

See accompanying notes to financial statements.

NORTHWEST BIOTHERAPEUTICS, INC.
(A Development Stage Company)

STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) AND COMPREHENSIVE LOSS


																		Deficit
																		Accumulated
						Preferred Stock				Preferred Stock				Additional				During the			Total
	Common Stock					Series A				Series A-1				Paid-In		Deferred		Development			Stockholders’
	Shares			Amount		Shares		Amount		Shares		Amount		Capital		Compensation		Stage			Equity (Deficit)
	(In thousands)

Balances at March 18, 1996		—		$	—		—	$	—		—	$	—	$	—	$	—	$	—		$	—
Accretion of membership units mandatory redemption obligation		—			—		—		—		—		—		—		—		(106	)		(106	)
Comprehensive loss — net loss		—			—		—		—		—		—		—		—		(1,233	)		(1,233	)

Balances at December 31, 1996		—			—		—		—		—		—		—		—		(1,339	)		(1,339	)
Accretion of membership units mandatory redemption obligation		—			—		—		—		—		—		—		—		(275	)		(275	)
Comprehensive loss — net loss		—			—		—		—		—		—		—		—		(2,560	)		(2,560	)

Balances at December 31, 1997		—			—		—		—		—		—		—		—		(4,174	)		(4,174	)
Conversion of membership units to common stock		2,203			2		—		—		—		—		—		—		(2	)		—
Accretion of Series A preferred stock mandatory redemption obligation		—			—		—		—		—		—		—		—		(329	)		(329	)
Comprehensive loss — net loss		—			—		—		—		—		—		—		—		(4,719	)		(4,719	)

Balances at December 31, 1998		2,203			2		—		—		—		—		—		—		(9,224	)		(9,222	)
Issuance of Series C preferred stock warrants for services related to sale of Series C preferred shares		—			—		—		—		—		—		394		—		—			394
Accretion of Series A preferred stock mandatory redemption obligation		—			—		—		—		—		—		—		—		(354	)		(354	)
Comprehensive loss — net loss		—			—		—		—		—		—		—		—		(5,609	)		(5,609	)

Balances at December 31, 1999		2,203			2		—		—		—		—		394		—		(15,187	)		(14,791	)
Issuance of Series C preferred stock warrants in connection with lease agreement		—			—		—		—		—		—		43		—		—			43
Exercise of stock options for cash		2			—		—		—		—		—		1		—		—			1
Issuance of common stock at $0.85 per share for license rights		5			—		—		—		—		—		4		—		—			4
Issuance of Series D preferred stock warrants in convertible promissory note offering		—			—		—		—		—		—		4,039		—		—			4,039
Beneficial conversion feature of convertible promissory notes		—			—		—		—		—		—		1,026		—		—			1,026
Issuance of Series D preferred stock warrants for services		—			—		—		—		—		—		—		—		—			—
related to sale of Series D preferred shares		—			—		—		—		—		—		368		—		—			368
Issuance of common stock warrants in conjunction with issuance of promissory note		—			—		—		—		—		—		3		—		—			3
Cancellation of common stock		(275	)		—		—		—		—		—		—		—		—			—
Accretion of Series A preferred stock mandatory redemption obligation		—			—		—		—		—		—		—		—		(430	)		(430	)
Comprehensive loss — net loss		—			—		—		—		—		—		—		—		(12,779	)		(12,779	)

Balances at December 31, 2000		1,935			2		—		—		—		—		5,878		—		(28,396	)		(22,516	)


																				Deficit
																				Accumulated
						Preferred Stock				Preferred Stock				Additional						During the			Total
	Common Stock					Series A				Series A-1				Paid-In			Deferred			Development			Stockholders’
	Shares			Amount		Shares		Amount		Shares		Amount		Capital			Compensation			Stage			Equity (Deficit)
	(In thousands)

Issuance of Series D preferred stock warrants in conjunction with refinancing of note payable to stockholder		—			—		—		—		—		—		225			—			—			225
Beneficial conversion feature of convertible promissory note		—			—		—		—		—		—		456			—			—			456
Beneficial conversion feature of Series D preferred stock		—			—		—		—		—		—		4,274			—			(4,274	)		—
Issuance of Series D preferred stock warrants for services related to the sale of Series D preferred shares		—			—		—		—		—		—		2,287			—			—			2,287
Exercises of stock options and warrants for cash		1,158			1		—		—		—		—		407			—			—			408
Issuance of common stock in initial public offering for cash, net of offering costs of $2,845		4,000			4		—		—		—		—		17,151			—			—			17,155
Conversion of preferred stock into common stock		9,776			10		—		—		—		—		31,569			—			—			31,579
Series A preferred stock redemption fee		—			—		—		—		—		—		—			—			(1,700	)		(1,700	)
Issuance of stock options to nonemployees for services		—			—		—		—		—		—		45			—			—			45
Deferred compensation related to employee stock options		—			—		—		—		—		—		1,330			(1,330	)		—			—
Amortization of deferred compensation		—			—		—		—		—		—		—			314			—			314
Accretion of Series A preferred stock mandatory redemption obligation		—			—		—		—		—		—		—			—			(379	)		(379	)
Comprehensive loss — net loss		—			—		—		—		—		—		—			—			(10,940	)		(10,940	)

Balances at December 31, 2001		16,869			17		—		—		—		—		63,622			(1,016	)		(45,689	)		16,934
Issuance of unregistered common stock		1,000			1		—		—		—		—		199			—			—			200
Issuance of common stock, Employee Stock Purchase Plan		9			—		—		—		—		—		6			—			—			6
Issuance of common stock warrants to Medarex		—			—		—		—		—		—		80			—			—			80
Issuance of restricted stock to nonemployees		8			—		—		—		—		—		34			—			—			34
Issuance of stock options to nonemployees for service		—			—		—		—		—		—		57			—			—			57
Issuance of stock options to employees		—			—		—		—		—		—		22			(22	)		—			—
Cancellation of employee stock options		—			—		—		—		—		—		(301	)		301			—			—
Exercise of stock options and warrants for cash		32			—		—		—		—		—		18			—			—			18
Deferred compensation related to employee restricted stock option		99			—		—		—		—		—		449			(449	)		—			—
Cancellation of employee restricted stock grants		(87	)		—		—		—		—		—		(392	)		392			—			—
Amortization of deferred compensation, net		—			—		—		—		—		—		—			350			—			350
Comprehensive loss — net loss		—			—		—		—		—		—		—			—			(12,804	)		(12,804	)

Balances at December 31, 2002		17,930			18		—		—		—		—		63,794			(444	)		(58,493	)		4,875


																				Deficit
																				Accumulated
						Preferred Stock				Preferred Stock				Additional						During the			Total
	Common Stock					Series A				Series A-1				Paid-In			Deferred			Development			Stockholders’
	Shares			Amount		Shares		Amount		Shares		Amount		Capital			Compensation			Stage			Equity (Deficit)
	(In thousands)

Issuance of unregistered common stock to Medarex		1,000			1		—		—		—		—		199			—			—			200
Issuance of unregistered common stock to Nexus		90			—		—		—		—		—		35			—			—			35
Issuance of common stock warrants to Medarex		—			—		—		—		—		—		80			—			—			80
Issuance of warrants with convertible promissory note		—			—		—		—		—		—		221			—			—			221
Beneficial conversion feature of convertible promissory note		—			—		—		—		—		—		114			—			—			114
Issuance of common stock, Employee Stock Purchase Plan		4			—		—		—		—		—		—			—			—			—
Exercise of stock options and warrants for cash		8			—		—		—		—		—		—			—			—			—
Cancellation of employee restricted stock grants		(4	)		—		—		—		—		—		(20	)		20			—			—
Cancellation of employee stock options		—			—		—		—		—		—		(131	)		131			—			—
Amortization of deferred compensation, net		—			—		—		—		—		—		—			240			—			240
Non-employee stock compensation		—			—		—		—		—		—		2			—			—			2
Comprehensive loss — net loss		—			—		—		—		—		—		—			—			(5,752	)		(5,752	)

Balances at December 31, 2003		19,028			19		—		—		—		—		64,294			(53	)		(64,245	)		15
Issuance of warrants with convertible promissory note		—			—		—		—		—		—		1,711			—			—			1,711
Beneficial conversion feature of convertible promissory note		—			—		—		—		—		—		1,156			—			—			1,156
Issuance of common stock, Employee Stock Purchase Plan		1			—		—		—		—		—		—			—			—			—
Cancellation of employee stock options		—			—		—		—		—		—		(5	)		5			—			—
Amortization of deferred compensation, net		—			—		—		—		—		—		—			41			—			41
Warrant valuation							—		—		—		—		368			—			—			368
Comprehensive loss — net loss		—			—		—		—		—		—		—			—			(8,508	)		(8,508	)

Balances at December 31, 2004		19,029			19		—		—		—		—		67,524			(7	)		(72,753	)		(5,217	)
Issuance of unregistered common stock and preferred stock to Toucan Capital		—			—		32,500		33		—		—		1,243			—			—			1,276
Issuance of stock options to non-employees for services		—			—		—		—		—		—		3			—			—			3
Issuance of warrants with convertible promissory note		—			—		—		—		—		—		1,878			—			—			1,878
Exercise of stock options and warrants for cash		49			—		—		—		—		—		4			—			—			4
Amortization of deferred compensation, net		—			—		—		—		—		—		—			7			—			7
Beneficial conversion feature of convertible promissory note		—			—		—		—		—		—		1,172			—			—			1,172
Common Stock warrant liability		—			—		—		—		—		—		(604	)		—			—			(604	)
Comprehensive loss — net loss		—			—		—		—		—		—		—			—			(9,937	)		(9,937	)

Balances at December 31, 2005		19,078			19		32,500		33		—		—		71,220			—			(82,690	)		(11,418	)


																		Deficit
																		Accumulated
					Preferred Stock				Preferred Stock				Additional					During the			Total
	Common Stock				Series A				Series A-1				Paid-In			Deferred		Development			Stockholders’
	Shares		Amount		Shares		Amount		Shares		Amount		Capital			Compensation		Stage			Equity (Deficit)
	(In thousands)

Issuance of common stock to PIPE Investors for cash, net of cash and non-cash offering costs of $837		39,468		39		—		—		—		—		4,649			—		—			4,688
Issuance of warrants to PIPE investment bankers		—		—		—		—		—		—		395			—		—			395
Conversion of notes payable due to Toucan Capital to Series A-1 preferred stock		—		—		—		—		4,817		5		7,702			—		—			7,707
Conversion of notes payable due to management to common stock		2,688		3		—		—		—		—		266			—		—			269
Issuance of warrants with convertible promissory notes		—		—		—		—		—		—		236			—		—			236
Exercise of stock options and warrants for cash		66		—		—		—		—		—		9			—		—			9
Exercise of stock options and warrants — cashless		3,942		4		—		—		—		—		(4	)		—		—			—
Stock compensation expense		—		—		—		—		—		—		19			—		—			19
Beneficial conversion feature of convertible promissory note		—		—		—		—		—		—		64			—		—			64
Common Stock warrant liability		—		—		—		—		—		—		(6,523	)		—		—			(6,523	)
Comprehensive loss — net loss		—		—		—		—		—		—		—			—		(1,395	)		(1,395	)

Balances at December 31, 2006		65,241	$	65		32,500	$	33		4,817	$	5	$	78,033		$	—	$	(84,085	)	$	(5,949	)

See accompanying notes to financial statements.

NORTHWEST BIOTHERAPEUTICS, INC.
(A Development Stage Company)

STATEMENTS OF CASH FLOWS


										Period from
										March 18, 1996
										(Inception) to
	Years Ended December 31,									December 31,
	2004			2005			2006			2006
	(In thousands)

Cash Flows from Operating Activities:
Net Loss	$	(8,508	)	$	(9,937	)	$	(1,395	)	$	(76,239	)
Reconciliation of net loss to net cash used in operating activities:
Depreciation and amortization		132			63			37			2,303
Amortization of deferred financing costs		—			—			—			320
Amortization of debt discount		1,559			2,908			1,988			12,246
Accrued interest converted to preferred stock		—			—			—			260
Accreted interest on convertible promissory note		192			603			324			1,121
Stock-based compensation costs		41			10			19			1,112
Loss (gain) on sale and disposal of property and equipment		(48	)		(56	)		(10	)		273
Gain on sale of intellectual property and royalty rights		—			—			—			(3,656	)
Warrant valuation		368			—			(7,127	)		(6,759	)
Asset impairment loss		130			—			—			2,066
Loss on facility sublease		—			—			—			895
Increase (decrease) in cash resulting from changes in assets and liabilities:
Accounts receivable		(3	)		(64	)		72			(3	)
Prepaid expenses and other current assets		(66	)		34			(28	)		321
Accounts payable and accrued expenses		1,809			2,289			(810	)		4,343
Accrued loss on sublease		—			1			—			(265	)
Deferred grant revenue		35			(35	)		—			—
Deferred rent		(66	)		—			—			410

Net Cash used in Operating Activities		(4,425	)		(4,184	)		(6,930	)		(61,252	)

Cash Flows from Investing Activities:
Purchase of property and equipment, net		—			(43	)		—			(4,580	)
Proceeds from sale of property and equipment		41			97			17			250
Proceeds from sale of intellectual property		—			—			—			1,816
Proceeds from sale of marketable securities		—			—			—			2,000
Refund of security deposit		45			(3	)		—			(3	)
Transfer of restricted cash		75			(1	)		—			(1,035	)

Net Cash (used in) provided by Investing Activities		161			50			17			(1,552	)

Cash Flows from Financing Activities:
Proceeds from issuance of note payable to stockholder		—			—			1,500			3,150
Repayment of note payable to stockholder		—			—			—			(1,650	)
Proceeds from issuance of convertible promissory note and warrants, net of issuance costs		4,350			3,050			300			13,099
Repayment of convertible promissory note		(52	)		(54	)		(13	)		(119	)
Borrowing under line of credit, Northwest Hospital		—			—			—			2,834
Repayment of line of credit to Northwest Hospital		—			—			—			(2,834	)
Payment on capital lease obligations		(41	)		(38	)		(10	)		(321	)
Payment on note payable		—			—			—			(420	)
Proceeds from issuance of preferred stock, net		—			1,276			—			28,708
Proceeds from exercise of stock options and warrants		—			4			8			227
Proceeds from issuance of common stock, net		—			—			5,083			22,457
Series A preferred stock redemption fee		—			—			—			(1,700	)
Deferred financing costs		—			—			—			(320	)

Net Cash provided by Financing Activities		4,257			4,238			6,868			63,111

Net increase (decrease) in cash		(7	)		104			(45	)		307
Cash at beginning of period		255			248			352			—

Cash at end of period	$	248		$	352		$	307		$	307


							Period from
							March 18, 1996
							(Inception) to
	Years Ended December 31,						December 31,
	2004		2005		2006		2006
	(In thousands)

Supplemental disclosure of cash flow information
Cash paid during the period for interest	$	12	$	7	$	—	$	1,396

Supplemental schedule of non-cash financing activities Equipment acquired through capital leases	$	—	$	—	$	—	$	285
Common stock warrant liability		4,714		604		6,523		11,841
Accretion of Series A preferred stock mandatory redemption obligation		—		—		—		1,872
Beneficial conversion feature of convertible promissory notes		2,866		3,050		300		7,242
Conversion of convertible promissory notes and accrued interest to Series D preferred stock		—		—		—		5,324
Conversion of convertible promissory notes and accrued interest to Series A-1 preferred stock		—		—		7,707		7,707
Conversion of convertible promissory notes and accrued interest to common stock		—		—		269		269
Issuance of Series C preferred stock warrants in connection with lease agreement		—		—		—		43
Issuance of common stock for license rights		—		—		—		4
Liability for and issuance of common stock and warrants to Medarex		—		—		—		840
Issuance of common stock to landlord		—		—		—		35
Deferred compensation on issuance of stock options and restricted stock grants		41		7		—		759
Cancellation of options and restricted stock grant		5		—		—		849
Financing of prepaid insurance through note payable		—		71		—		491
Stock subscription receivable		—		—		—		480

See accompanying notes to financial statements.

NORTHWEST BIOTHERAPEUTICS, INC.
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS
December 31, 2004, 2005 and 2006

(1) Organization and Description of Business

Northwest Biotherapeutics, Inc. (the “Company”) was organized to discover and develop innovative diagnostics and immunotherapies for prostate cancer. During 1998, the Company incorporated as a Delaware corporation. Prior to 1998, the Company was a limited liability company, which was formed on March 18, 1996. The Company is a development stage company, has yet to generate significant revenues from its intended business purpose and has no assurance of future revenues. While in the development stage, the Company’s principal activities have included defining and conducting research programs, conducting clinical trials, raising capital and recruiting scientific and management personnel.

(2) Operations and Financing

The Company has experienced recurring losses from operations, has a working capital deficit of $5.9 million and has a deficit accumulated during the development stage of $84.1 million at December 31, 2006.

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. The notes initially had a 12-month term, accrued interest at an annual rate equal to the prime rate plus 2% and were secured by substantially all of the Company’s assets not otherwise collateralized. As of December 31, 2005, $100,000 and the related accrued interest was repaid to certain prior members of management. During the first half of 2006, approximately $11,000 and the related accrued interest was repaid to another prior member of management. On April 17, 2006, the final $224,000 outstanding principal balance on these notes, and the related accrued interest, were converted into 2,687,719 shares of common stock. Accordingly, as of December 31, 2006 all of these loans have either been repaid or converted into common stock.

As part of the November 13, 2003 loans 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 and April 2006, warrants for the purchase of an aggregate of 3.7 million shares of common stock were exercised on a net exercise basis resulting in the issuance of approximately 3.4 million shares of common stock 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 defend such claims.

Toucan Capital Loans

From February 2004 through March 2007, the Company entered into multiple agreements with Toucan Capital Fund II, L.P. (“Toucan Capital”) and Toucan Partners LLC, an affiliate of Toucan Capital (“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. The final exercise dates of the warrants range from April 2011 and September 2012.

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.

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.

The sixth amendment to the amended and restated binding term sheet, dated July 26, 2005, extended subsequent closings of the convertible preferred stock to March 31, 2007, or such later date as is mutually agreed by the Company and Toucan Capital.

Toucan Capital Loans and Related Beneficial Conversions, Warrant Valuations, and Amortization

The loan funding period commenced on February 2, 2004 when the Company issued Toucan Capital an unsecured convertible promissory note. On March 1, 2004, the Company issued Toucan Capital a secured convertible promissory note. The Recapitalization Agreement stipulated that these February and March 2004 notes were to be cancelled and reissued effective April 26, 2004 conforming to the conditions of the note signed for an April 26, 2004 bridge loan. Including these initial loans, the Company issued Toucan Capital a series of thirteen convertible promissory notes during 2004 and 2005. Until conversion on April 17, 2006, these notes, (i) accrued interest at 10% per annum on a 365 day basis compounded annually from their respective original issuance dates, (ii) were secured by a first priority senior security interest in all of the Company’s assets, and (iii) notes totaling $1.1 million have warrants with coverage equal to three hundred percent (300%) and the remaining $5.65 million have warrants with coverage equal to one hundred per cent (100%).

Total proceeds from the issuance of senior convertible promissory notes and warrants during the three years ended December 31, 2006 were allocated between the notes and warrants on a relative fair value basis. The total

value was allocated to the warrants based on the date of each grant. The fair value of the warrants was determined using the Black-Scholes option pricing model based on the following assumptions:


	2004	2005

Risk-free interest rates	1.61% - 3.87%	2.86% - 4.03%
Contractual life	7 years	7 years
Expected volatility	218% - 239%	416% - 440%
Dividend yield	0%	0%

The value of the warrants was recorded as a deferred debt discount against the proceeds of the notes received in each of the three years ended December 31, 2006. The notes were convertible at prices below the current price of the Company’s common stock at the date of issuance resulting in a beneficial conversion cost which was included in the total discount and amortized over the 12-month term of each note.


	2004			2005			2006

Toucan Capital (in thousands)
Beginning balance at January 1,	$	—		$	2,926		$	6,355
Proceeds from issuance of senior convertible promissory notes and warrants		4,350			2,400			—
*Discount on notes*
Value allocated to warrants		(1,611	)		(1,527	)		—
Beneficial conversion feature related to the notes		(1,255	)		(873	)		—

Total discount on notes		(2,866	)		(2,400	)		—
Amortization of deferred debt discount		1,278			2,843			1,145
Accrued interest		164			586			207
Conversion of promissory notes		—			—			(7,707	)

Ending balance at December 31,	$	2,926		$	6,355		$	—

Toucan Partners Loans, Beneficial Conversion, Warrant Valuation, and Amortization

The Company borrowed $2.45 million from Toucan Partners, an affiliate of Toucan Capital, from November 14, 2005 to December 31, 2006, comprised of three convertible promissory notes totaling $950,000 and three cash advances totaling $1.5 million. The Company received six additional cash advances from Toucan Partners totaling $1.55 million from January 1 through April 2007. In April 2007, the cash advances were converted into a new series of convertible promissory notes (and associated warrants) (“2007 Convertible Notes” and “2007 Warrants”) which accrue interest at 10% per annum from their respective original cash advance dates. Although these notes are convertible, the conversion terms will not be fixed until a future date upon further negotiation between the company and Toucan Partners. Accordingly, they are referred to as convertible promissory notes with conversion terms subject to negotiation. The convertible promissory notes accrue interest at 10% per annum on a 365 day basis compounded annually from their respective original issuance dates. The convertible promissory notes have warrants with coverage equal to one hundred per cent (100%). The fair value of the conversion feature on the contingently convertible notes has not been recorded due to the existing unspecified terms.

In connection with the convertible notes issued to Toucan Partners, the Company issued warrants to purchase 9.5 million aggregate shares of capital stock. These warrants were amended and restated in April 2007 to conform to the terms of the 2007 Convertible Notes and the 2007 Warrants. These warrants are exercisable for seven years from the date of the amended and restated convertible promissory notes and warrants.

In connection with the convertible notes with conversion terms subject to negotiation, we issued warrants to Toucan Partners that carry 100% warrant coverage. The number of warrant shares issuable upon exercise of each 2007 Warrant will be equal to the number of shares that would be issuable if Toucan Partners elected to convert the principal and accrued interest on the corresponding 2007 Convertible Notes determined as of the date of repayment or conversion of such 2007 Convertible Note. The exercise price of each 2007 warrant will be equal to the

conversion price of the corresponding 2007 Convertible Note. The Company has not recorded a value for these warrants due to the unspecified terms with respect to exercise price and number of warrants.

Total proceeds from the issuance of senior convertible promissory notes and warrants during the 2005 and 2006 were allocated between the notes and warrants on a relative fair value basis. The total value was allocated to the warrants based on the date of each grant. The fair value of the warrants was determined using the Black-Scholes option pricing model based on the following weighted average assumptions:


	2005			2006

Risk-free interest rates		4.2	%		4.35	%
Contractual life		7 years			7 years
Expected volatility		406	%		398	%
Dividend yield		0	%		0	%

The value of the warrants was recorded as a deferred debt discount against the proceeds of the notes received in 2005 and 2006. The notes were convertible at prices below the current price of the Company’s common stock at the date of issuance resulting in a beneficial conversion cost which was included in the total discount and amortized over the 12-month term of each note.


	2005			2006

Toucan Partners (in thousands)
Beginning balance at January 1,	$	—		$	57
Proceeds from issuance of senior convertible promissory notes and warrants		650			300
*Discount on notes*
Value allocated to warrants		(351	)		(236	)
Beneficial conversion feature related to the notes		(299	)		(64	)

Total discount on notes		(650	)		(300	)
Amortization of deferred debt discount		52			842
Accrued interest		5			106
Proceeds from issuance of convertible promissory notes with conversion terms subject to negotiation Toucan Partners		—			1,500

Ending balance at December 31,	$	57		$	2,505

Toucan Capital Series A Cumulative Convertible Preferred Stock

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 our designated Series A Preferred Stock at a purchase price of $0.04 per share, for an aggregate purchase price of $1.3 million. The Series A Preferred Stock:

(i) is entitled to cumulative dividends at the rate of 10% per year;

(ii) is entitled to a liquidation preference in the amount of its initial purchase price plus all accrued and unpaid dividends (to the extent of legally available funds);

(iii) has a preference over the common stock, and is pari passu with the Series A-1 Preferred Stock, with respect to dividends and distributions;

(iv) is entitled to participate on an as-converted basis with the common stock on any distributions after the payment of any preferential amounts to the Series A Preferred Stock and the Series A-1 Preferred Stock;

(v) votes on an as converted basis with the common stock and the Series A-1 Preferred Stock on matters submitted to the common stockholders for approval and as a separate class on certain other material matters; and

(vi) is convertible into common stock on a one-for-one basis (subject to adjustment in the event of stock dividends, stock splits, reverse stock splits, recapitalizations, etc.).

The number of shares of common stock issuable upon conversion of each share of series A stock is also subject to increase in the event of certain dilutive issuances in which we sell or are deemed to have sold shares below the then applicable conversion price (currently $0.04 per share). The consent of the holders of a majority of the Series A Preferred Stock is required in the event that we elect to undertake certain significant business actions.

In the event that the Company sells at least $15 million of convertible preferred stock for cash to investors other than Toucan Capital on the terms and conditions set forth in the Restated Recapitalization Agreement and the Term Sheet (a “Qualified Preferred Stock Financing”), the warrants will be exercisable only for shares of Convertible Preferred Stock. Unless and until the Company completes a Qualified Preferred Stock Financing, the warrants will be exercisable for any debt or equity security authorized for issuance by the Company (which currently consists of common stock, Series A Preferred Stock and Series A-1 Preferred Stock). The number of shares issuable pursuant to the warrants and the exercise prices thereof are subject to adjustment in the event of stock splits, reverse stock splits, stock dividends, and the like. The exercise price is also subject to downward adjustment in the event of certain dilutive issuances in which the Company sells or is deemed to have sold shares below the then applicable exercise price.

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 cash offering expenses of approximately $442,000. The total cost of the offering recorded, including both cash and non-cash costs, was approximately $837,000. The relative fair value of the common stock was estimated to be approximately $3.7 million and the relative fair value of the warrants was estimated to be $1.8 million as determined based on the relative fair value allocation of the proceeds received. The warrants were valued using the Black-Scholes option pricing model.

In connection with the securities purchase agreement, the Company issued approximately 1 million warrants to their investment banker valued at approximately $395,000. The fair value of the warrants issued to the investment banker was determined using the Black-Scholes option pricing model based on the following assumptions: risk free interest rate of 4.8%, contractual life of five years, expected volatility of 382% and a dividend yield of 0%.

The warrants expire five years after issuance, and are initially exercisable at a price of $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.

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 December 31, 2005 totaling approximately $604,000 was recognized as a liability on December 31, 2005. This liability was required to be remeasured 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 $7.1 million during 2006, 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 2006 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 an annual net loss as of December 31, 2004 of approximately $368,000, included in the 2004 statement of operations as a warrant valuation.

Liquidity

Since 2004, the Company has undergone a significant recapitalization pursuant to which Toucan Capital, has loaned it $6.75 million and Toucan Partners has loaned the Company $4.00 million in convertible promissory notes with conversion terms subject to negotiation. 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.

The $3.05 million in convertible promissory notes with conversion terms subject to negotiation from Toucan Partners have enabled the Company to continue to operate and advance programs, while attempting to raise additional capital.

On April 4, 2006, the Company closed an equity financing (“PIPE Financing”) with unrelated investors pursuant to which aggregate net cash proceeds of approximately $5.1 million was raised.

As of March 5, 2007, the Company had less than $100,000 in cash. 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 $5.7 million of the Company’s $6.5 million current liabilities at December 31, 2006 were payable to related parties, net of the related debt discount. The Company pays approximately $250,000 of the related party liabilities balance per month. Further, during the quarter ended December 31, 2006, the Company commenced a clinical trial which will increase the current cash needs.

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, 2006 annual report on Form 10-K, that there is substantial doubt about the Company’s ability to continue as a going concern.

(3) Summary of Significant Accounting Policies


*(a)*	*Use of Estimates in Preparation of Financial Statements*

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.


*(b)*	*Cash*

Cash consists of checking and money market accounts. While cash held by financial institutions may at times exceed federally insured limits, management believes that no material credit or market risk exposure exists due to the high quality of the institutions. The Company has not experienced any losses on such accounts.


*(c)*	*Fair Value of Financial Instruments and Concentrations of Risk*

Financial instruments, consisting of cash, accounts receivable, restricted cash, accounts payable, accrued expenses, and capital lease obligations, are recorded at cost, which approximates fair value based on the short term maturities of these instruments.

Credit is extended based on an evaluation of a customer’s financial condition and collateral is generally not required. Accounts receivable are generally derived from revenue earned from entities located in the United States. The Company records an allowance for potential credit losses based upon the expected collectibility of the accounts receivable. To date, the Company has not experienced any material credit losses.

In January 2003, research materials sales were made to multiple customers, primarily in the United States of America, with whom there were no other contractual relationships. Effective December 31, 2005, the Company no longer actively sells research materials.


*(d)*	*Property and Equipment*

During 2003 and 2004, the Company determined that the carrying value of a significant part of its fixed assets was not recoverable, and recorded an impairment charge to reduce the carrying value of its long-lived assets to their estimated fair values. Property and equipment are stated at cost, as adjusted for any prior impairments. Property and equipment are depreciated or amortized over the following estimated useful lives using the straight-line method:


Laboratory equipment		5-7 years
Office furniture and other equipment		3-5 years

Expenditures for maintenance and repairs are expensed as incurred. Gains and losses from disposal representing the difference between any proceeds received from the sale of property and equipment and the recorded values of the asset disposed are recorded in total operating costs and expenses.


*(e)*	*Impairment of long-lived assets*

In accordance with the provisions of Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144), long-lived assets including property and equipment are reviewed for possible impairment whenever significant events or changes in circumstances, including changes in our business strategy and plans, indicate that an impairment may have occurred. An impairment is indicated when the sum of the expected future undiscounted net cash flows identifiable to that asset or asset group is less than its carrying value. Long-lived assets to be held and used, including assets to be disposed of other than by sale, for which the carrying amount is not recoverable are adjusted to their estimated fair value at the date an impairment is indicated, which establishes a new basis for the assets for depreciation purposes. Long-lived assets to be disposed of by sale are reported at the lower of carrying amount or fair value less cost to sell. Impairment losses are determined from actual or estimated fair values, which are based on market values, net realizable values or projections of discounted net cash flows, as appropriate.


*(f)*	*Restricted Cash*

Restricted cash of $31,000 as of both December 31, 2006 and 2005 represents a deposit to secure the Company’s credit limit on its corporate credit cards.


*(g)*	*Operating Leases*

The Company recognizes lease expense on a straight-line basis over the initial lease term. The Company has operating leases on real property and equipment expiring at various dates through 2007. For leases that contain rent holidays or escalation clauses, the Company recognizes rent expense on a straight-line basis and records the difference between the rent expense and rental amount payable as deferred rent. As of December 31, 2006 and 2005, we did not have any deferred rent.


*(h)*	*Revenue Recognition*

The Company earned revenues through sale of research materials, providing research services to third parties and through research grants. Revenues from sale of research materials are to multiple customers with whom there is no other contractual relationship and are recognized when shipped to the customer and title has passed.

Research contracts and grants require the Company to perform research activities as specified in each respective contract or grant on a best efforts basis, and the Company is paid based on the fees stipulated in the respective contracts and grants which approximate the costs incurred by the Company in performing such activities. The Company recognizes revenue under the research contracts and grants based on completion of performance under the respective contracts and grants where no ongoing obligation on the part of the Company exists. Direct costs related to these contracts and grants are reported as research and development expenses.


*(i)*	*Research and Development Expenses*

Research and development costs are expensed as incurred. These costs include, but are not limited to, personnel costs, lab supplies, depreciation, amortization and other indirect costs directly related to the Company’s research and development activities.


*(j)*	*Income Taxes*

Deferred income taxes are provided utilizing the liability method whereby the estimated future tax effects of carry forwards and temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those carry forwards and temporary differences are expected to be recovered or settled. The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. A valuation allowance is recorded on deferred tax assets if it is more likely than not that such deferred tax assets will not be realized. Prior to 1998, the Company was an LLC and the Company’s tax losses and credits generally flowed directly to the members.


*(k)*	*Stock-Based Compensation*

On January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “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, to be accounted for under the fair value method and requires the use of an option pricing model for estimating fair value. Accordingly, share-based compensation is measured at the grant date, based on the fair value of the award. In prior years, we accounted for awards granted under our equity incentive plans under the intrinsic value method prescribed by Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”), and related interpretations, and provided the required pro forma disclosures prescribed by SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”) , as amended.

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 financial statements for periods prior to 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 financial statements for 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.

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

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. 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):


	Year ended December 31,
	2004			2005

Net loss applicable to common stockholders:
As reported	$	(8,508	)	$	(9,937	)
Add: Stock-based employee compensation expense included in reported net loss		41			7
Deduct: Stock-based employee compensation determined under fair value based method for all awards		(47	)		(13	)

Pro forma	$	(8,514	)	$	(9,943	)

Net loss per share-basic and diluted:
As reported	$	(0.45	)	$	(0.52	)
Pro forma	$	(0.45	)	$	(0.52	)

The fair value of stock options granted during 2005 was estimated using the Black-Scholes option pricing model based on the following assumptions:


	2005

Risk-free interest rate		3.53	%
Expected life		5 years
Expected volatility		403	%
Dividend yield		0	%


*(l)*	*Loss Per Share*

Basic loss per share is computed on the basis of the weighted average number of shares outstanding for the reporting period excluding 2,000 unvested restricted shares as of December 31, 2004. Diluted loss per share is computed on the basis of the weighted average number of common shares plus dilutive potential common shares outstanding using the treasury stock method. Any potentially dilutive securities are antidilutive due to the Company’s net losses. For the periods presented, there is no difference between the basic and diluted net loss per share.


*(m)*	*Operating Segments*

The Company is principally engaged in the discovery and development of innovative immunotherapies for cancer and has a single operating segment as management reviews all financial information together for the purposes of making decisions and assessing the financial performance of the company.

Operating costs:

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

Research and development:

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

Because the Company is a development stage company it does not allocate research and development costs on a project basis. The Company adopted this policy, in part, due to the unreasonable cost burden associated with accounting at such a level of detail and its limited number of financial and personnel resources. The Company’s

business judgment continues to be that there is little value associated with evaluating expenditures at the project level since the Company is focusing primarily on its lead clinical trial programs as most of the Company’s expenditures relate to those programs.

For the year ended December 31, 2006, of the Company’s operating expenses of approximately $6.1 million, approximately 62% of its expended resources were apportioned to the re-activation of its two DCVax ^® clinical trial programs. From its inception through December 31, 2006, the Company incurred costs of approximately $35.8 million associated with its research and development activities. Because its technologies are novel and unproven, the Company is unable to estimate with any certainty the costs it will incur in the continued development of its product candidates for commercialization.

General and administrative:

General and administrative expenses include administrative personnel related salary and benefit expenses, cost of facilities, insurance, travel, legal support, property and equipment depreciation, amortization of stock options and warrants, and amortization of debt discounts and beneficial conversion costs associated with the Company’s debt financing.


*(n)*	*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 we 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 financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). SFAS 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. SFAS 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 SFAS 157 on the financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans , (“SFAS 158”). SFAS 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. SFAS 158 is effective for employers with publicly traded equity securities for fiscal years ending after December 15, 2006. The Company did not experience a material impact from applying SFAS 158.

In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 108 (SAB 108). Due to diversity in practice among registrants, SAB 108 expresses SEC staff views regarding the process by which misstatements in financial statements are evaluated for purposes of determining whether financial statement restatement is necessary. SAB 108 is effective for fiscal years ending after November 15, 2006, and early application is encouraged. The Company does not expect any material impact from applying SAB 108.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is

effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company has not yet determined the impact of adopting SFAS 159 on the Company’s financial position.


4.	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.

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 2006 and 2005.

The stock-based compensation expense recognized in the financial statements relate to stock-based awards under SFAS No. 123(R) totaled approximately $19,000 for 2006 which increased the loss from operations and net loss by the same amount. This expense had no effect on the Company’s net loss per share for the year ended December 31, 2006. At December 31, 2006 the Company had non-vested stock options covering approximately 132,500 shares of common stock. As of December 31, 2006, the Company had approximately $4,000 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 during 2007. Total intrinsic value of options exercised was $18,000 for 2006. Weighted average fair value of options granted during 2006 was $0.11 per share.

Stock Option Activity

A summary of activity relating to our stock options is as follows (options in thousands):


						Weighted-
						Average
				Weighted-		Remaining
				Average		Contractual		Aggregate
				Exercise		Term		Intrinsic
	Options			Price		(Years)		Value

Outstanding as of December 31, 2005		743		$	0.60
Granted		175		$	0.14
Exercised		(66	)	$	0.11
Expired		(88	)	$	0.71
Forfeited		—			—

Outstanding as of December 31, 2006		764		$	0.53		5.1	$	406,914

Vested at December 31, 2006		631		$	0.62		5.0	$	387,821

Exercisable as of December 31, 2006		631		$	0.62		5.0	$	387,821

Additional information regarding stock options outstanding and exercisable at December 31, 2006 is as follows, in thousands, except option price and weighted average exercise price.


	Options Outstanding
			Weighted-
			Average				Options Exercisable
			Remaining		Weighted-				Weighted-
	Number		Contractual		Average		Number		Average
Range of Exercise Prices	Outstanding		Life (Years)		Exercise Price		Exercisable		Exercise Price
			(In thousands except weighted average)

$0.00 - 0.50		478		6.6	$	0.12		345	$	0.12
0.51 - 1.01		180		2.9		0.85		180		0.85
1.02 - 2.02		89		4.3		1.25		89		1.25
2.03 - 5.05		17		5.0		5.00		17		5.00

$0.00 - 5.05		764		5.1	$	0.53		631	$	0.62

Options exercisable as of December 31, 2004, 2005 and 2006 totaled 556,301, 605,000 and 631,000, respectively.

Stock Option Plans

The Company’s stock option plans are administered by the Board of Directors, which determines the terms and conditions of the options granted, including exercise price, number of options granted and vesting period of such options.

Options granted under the plans are generally priced at or above the estimated fair market value of the Company’s common stock on the date of grant and generally vest over four years. Compensation expense, if any, is charged over the period of vesting. All options, if not previously exercised or canceled, expire ten years from the date of grant, or the expiration date specified in the individual option agreement, if earlier.

During the year ended December 31, 2004, the Company did not grant any stock options.

During the year ended December 31, 2005, the Company granted non-qualified options to purchase an aggregate of 25,000 shares of common stock to a non-employee consultant with a weighted average exercise price of $0.21. The fair value of the underlying common stock is evaluated monthly for specific performance compliance with $510 of compensation expense recognized for the year ended December 31, 2005.

During the year ended December 31, 2006, the Company granted options to purchase an aggregate of 175,000 shares of common stock to employees with a weighted average exercise price of $0.14. Stock compensation expense totaling $16,000 was recorded as of December 31, 2006.

(a) 1998 Stock Option Plan

The Company’s 1998 Stock Option Plan (1998 Plan) has reserved 413,026 shares of common stock for stock option grants to employees, directors and consultants of the Company. As of December 31, 2006, net of forfeitures, a total of 391,247 shares remain available for granting under this plan.

(b) 1999 Executive Stock Option Plan

The Company’s 1999 Executive Stock Option Plan (1999 Plan) has reserved 586,166 shares of common stock for issuance. As of December 31, 2006, net of forfeiture, a total of 420,956 shares remain available for granting under this plan.

Under the 2001 Stock Option Plan (2001 Plan), 1,800,000 shares of the Company’s common stock have been reserved for grant of stock options to employees and consultants. Additionally, on January 1 of each year, commencing January 1, 2002, the number of shares reserved for grant under the 2001 Plan will increase by the lesser of (i) 15% of the aggregate number of shares available for grant under the 2001 Plan or (ii) 300,000 shares. As of December 31, 2006, net of forfeitures, a total of 2,548,320 shares remain available under this plan.

(d) 2001 Non-employee Director Stock Incentive Plan

Under the 2001 Non-employee Director Stock Incentive Plan (2001 Director Plan), 200,000 shares of the Company’s common stock have been reserved for grant of stock options to non-employee directors of the Company. As of December 31, 2006, net of forfeitures, a total of 147,500 shares remain available under this plan.


5)	Stockholders’ Equity (Deficit)


*(a)*	*Issuance of Common Stock and Warrants*

In April 2006, the Company received gross proceeds of $5.5 million and issued approximately 39.5 million shares of its common stock, at a price of $0.14 per share, and, for no additional consideration, warrants to purchase up to an aggregate of approximately 19.7 million shares of the Company’s common stock pursuant to a securities purchase agreement entered into with a group of accredited investors. The Company registered both the shares of common stock and the shares of common stock underlying the warrants for resale under the Securities Act of 1933, as amended, effective October 2006.

In connection with the securities purchase agreement, the Company issued approximately 1 million warrants to their investment banker valued at approximately $395,000.

This transaction is more fully described in note (2) Operations and Financing.


*(b)*	*Issuance of Unregistered Common Stock*

On June 30, 2003, the Company entered into a Settlement Agreement with Nexus Canyon Park, its prior landlord. Under this Settlement Agreement, Nexus Canyon Park agreed to permit premature termination of its prior lease and excuse the Company from future performance of lease obligations in exchange for 90,000 shares of its unregistered common stock with a fair value of $35,000 and Nexus’ retention of the Company’s $1.0 million lease security deposit. The Settlement Agreement resulted in an additional loss on facility sublease and lease termination of $174,000, net of deferred rent of $202,000.


*(c)*	*Issuance of Unregistered Preferred Stock*

On January 26, 2005, we entered into a securities purchase agreement with Toucan Capital pursuant to which they purchased 32.5 million shares of our designated series A preferred stock at a purchase price of $0.04 per share, for an aggregate purchase price of approximately $1.3 million. The series A preferred stock:

(i) is entitled to cumulative dividends at the rate of 10% per year;

(ii) is entitled to a liquidation preference in the amount of its initial purchase price plus all accrued and unpaid dividends (to the extent of legally available funds);

(iii) has a preference over the common stock, and is pari passu with the Series A-1 Preferred Stock, with respect to dividends and distributions;

(iv) is entitled to participate on an as-converted basis with the common stock and the Series A-1 Preferred Stock on any distributions after the payment of any preferential amounts to the Series A Preferred Stock;

(vi) is convertible into common stock on a one-for-one basis (subject to adjustment in the event of stock dividends, stock splits, reverse stock splits, recapitalizations, etc.).

The number of shares of common stock issuable upon conversion of each share of Series A Preferred Stock is also subject to increase in the event of certain dilutive issuances in which we sell or are deemed to have sold shares below the then applicable conversion price (currently $0.04 per share). The consent of the holders of a majority of the Series A Preferred Stock is required in the event that we elect to undertake certain significant business actions.


*(d)*	*Stock Purchase Warrants*

Medarex

On December 9, 2002, the Company entered into an assignment and license agreement with Medarex wherein the Company sold certain intellectual property to Medarex in exchange for certain of their intellectual property and received $3.0 million, consisting of $1.0 million in cash and two payments of $1.0 million each payable in common stock. The Company realized a total of $3.0 million in cash as all of the foregoing shares were sold within 30 days of their issuance in 2003. Additionally, a $400,000 payable of ours to Medarex was forgiven by Medarex. Pursuant to this agreement, the Company issued to Medarex 2.0 million unregistered shares of its common stock. The 2.0 million shares of unregistered common stock were issued as follows: (i) 1.0 million shares were issued on December 26, 2002 (ii) 500,000 shares were issued on January 8, 2003; and (iii) 500,000 shares were issued on February 9, 2003. Also in conjunction with the December 9, 2002 agreement with Medarex, the Company issued warrants to purchase unregistered common stock as follows: (i) on December 26, 2002, issued a warrant to purchase 400,000 shares of its common stock at an exercise price of $0.216 per share; (ii) on January 8, 2003, issued a warrant to purchase 200,000 shares of its common stock at an exercise price of $0.177 per share; and (iii) on February 9, 2003 issued the final warrant to purchase 200,000 shares of its common stock at an exercise price of $0.102 per share. The warrants may be exercised at any time after six-months following their issue date and prior to the tenth anniversary of the issue date.

The fair value of the 800,000 warrant shares was $159,678 on the date of grant, which was determined using the Black-Scholes option pricing model with the following assumptions: expected dividend yield 0%, risk-free interest rate of 4.17%, volatility of 191%, and an expected life of 10-years. As of December 31, 2002, one-half of the warrant value, $79,839, was recognized as an increase to additional paid in capital and $79,839 was recognized as a long-term liability, for the 400,000 warrant shares to be issued in 2003.

The net gain recognized on this sale of intellectual property was $2.8 million, made up of the receipt of $3.0 million of cash and stock from Medarex and forgiveness of the $400,000 payable to Medarex, offset by the

issuance of 2.0 million shares of unregistered common stock and warrants to purchase 800,000 shares of common stock valued at approximately $560,000.

Management Loan Warrants

On November 13, 2003, the Company borrowed an aggregate of $335,000 from certain members of its current and former management. As part of the November 13, 2003 loans 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 and April 2006, warrants for the purchase an aggregate of 3.7 million shares of common stock were exercised on a net exercise basis resulting in the issuance of approximately 3.4 million shares of common stock to current and prior members of management.

Toucan Capital and Toucan Partners Warrants

From February 1, 2004 through December 31, 2006, the Company has issued eleven warrants for 122.5 million shares of Company capital stock to Toucan Capital pursuant to which Toucan Capital has loaned the Company an aggregate of $6.75 million in loan financing, as more fully described in note (2) Operations and Financing.

On January 26, 2005, we issued Toucan Capital a warrant, with a contractual life of 7 years, to purchase 13.0 million shares of series A preferred stock in connection with a securities purchase agreement pursuant to which Toucan Capital purchased 32.5 million shares of our newly designated series A preferred stock at a purchase price of $0.04 per share, for an aggregate purchase price of $1.3 million. The number of shares issuable pursuant to the exercise of the warrant and the exercise price thereof is subject to adjustment in the event of stock splits, reverse stock splits, stock dividends and the like, as more fully described in note (2) Operations and Financing.

From November 14 through December 31, 2006, the Company issued warrants for 9.5 million shares of Company capital stock to Toucan Partners pursuant to which Toucan Partners loaned the Company $950,000 in loan financing. These loans and related warrants have been amended and restated in April 2007 as more fully described in note (2) Operations and Financing.

From October 2006 through April 2007, the Company received $3.05 million in cash advances from Toucan Partners. In April 2007, these advances were converted to nine convertible promissory notes with conversion terms subject to further negotiation. In connection with these notes, the Company issued warrants to Toucan Partners. The number of warrant shares issuable upon exercise of each 2007 Warrant will be equal to the number of shares that would be issuable if Toucan Partners elected to convert the principal and accrued interest on the corresponding 2007 Convertible Notes determined as of the date of repayment or conversion of such 2007 Note. The exercise price of each 2007 Warrant will be equal to the note conversion price of the corresponding 2007 Convertible Note.

Private Placement Warrants

On April 4, 2006, the Company closed a securities 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 at an exercise price of $0.14 per share. As of December 31, 2006, approximately 714,000 of these warrants have been exercised.

A summary of stock purchase warrants outstanding at December 31, 2006 is as follows (in thousands):


			Weighted-
	Number		Average
Type of Warrant	Outstanding		Exercise Price
	(In thousands)

Common stock warrant		20,816	$	0.14
Series A preferred stock warrants		13,000	$	0.04
Series C preferred stock warrants(1)		235	$	2.50
Series D preferred stock warrants(1)		324	$	5.00
Warrants issued in connection with convertible promissory notes		132,000	$	0.03


(1)		The exercise of Series C and Series D Preferred Stock warrants will result in the issuance of an equal number of shares of the Company’s common stock with no issuance of preferred stock.

The exercise of Series A Preferred Stock warrants will result in the issuance of an equal number of shares of the Company’s Series A Preferred Stock.


*(d)*	*Common Stock Equivalents*

The following common stock equivalents on an as-converted basis were excluded from the calculation of diluted net loss per share, as the effect would be antidilutive.


	Years Ended December 31
	2004		2005		2006
	(In thousands)

Preferred stock		—		32,500		32,500
Common stock options		864		743		764
Common stock warrants		810		810		20,816
Convertible preferred stock warrants		559		13,599		13,599
Convertible promissory note		110,333		186,306		26,149
Convertible promissory note stock warrants		102,222		132,722		132,000


*(e)*	*Employee Stock Purchase Plan*

In June 2001, the Company adopted an employee stock purchase plan which became effective upon consummation of the Company’s initial public offering and reserved 500,000 shares of common stock for issuance under this plan. Under this plan, employees may purchase up to 1,000 shares of the Company’s common stock during each six-month offering period commencing on April 1 and October 1 of each year. The purchase price of the common stock is equal to the lower of 85% of the market price on the first and last day of each offering period. As of December 31, 2006, a total of 14,374 shares have been issued under the plan.


*(f)*	*Employee 401(k) Plan*

On August 19, 1999, the Company adopted a 401(k) Plan for certain eligible employees. Under the plan, an eligible employee may elect to contribute up to 60% of his or her pre-tax total compensation, not to exceed the annual limits established by the Internal Revenue Service. The Company matched an employee’s contribution at the rate of $0.50 for every employee contributed dollar with a maximum Company match of $3,000 annually. Effective March 1, 2006, the Company no longer matches employee contributions. For the years ended December 31, 2004, 2005 and 2006, the Company contributed approximately $17,000, $15,000 and $6,000 of matching dollars, respectively.


*(g)*	*Stockholder Rights Agreement*

On March 6, 2002, the Company adopted a Stockholder Rights Agreement, under which each common stockholder of record at the close of business on March 4, 2002 received a dividend of one right per share of

common stock held. Each right entitles the holder to purchase one share of common stock from the Company at a price equal to $19.25 per share, subject to certain anti-dilution provisions. The rights become exercisable only in the event that a third party acquires beneficial ownership of, or announces a tender or exchange offer for, at least 15% of the then outstanding shares of the Company’s common stock and such acquisition or offer is determined by the Board of Directors to not be in the best interests of the stockholders. If the acquisition or offer were determined by the Board of Directors to be in the best interests of the stockholders, the rights may be redeemed by the Company for $0.0001 per right. The rights will expire on February 25, 2012, unless earlier redeemed, exchanged or terminated in accordance with the rights agreement.

In connection with the Recapitalization Agreement, the Board of Directors and Mellon Investor Services LLC, its Rights Agent, on April 26, 2004, amended the Stockholder Rights Agreement. The definition of an “Acquiring Person” was amended to exclude Toucan Capital Fund II, L.P. and other investors selected by Toucan from the definition of “Acquiring Person” for those shares of the Company’s capital stock they acquire, or are deemed to beneficially own, in connection with the Recapitalization Agreement.

(6) Related Party Transactions


*(a) Notes Payable to Related Parties*

Promissory notes have been issued to Toucan Capital and Toucan Partners, an affiliate of Toucan Capital, the Company’s controlling shareholder.

Notes payable to related parties are more fully described in note (2) Operations and Financing and note (10) Notes Payable.


*(b)*	*Agreement with Medarex*

On June 20, 2003, under a First Amendment to Assignment and License Agreement with Medarex, the Company released Medarex from future royalty obligations in exchange for a cash payment of $816,000. The purchase price of $816,000 was negotiated based on the expected discounted net present value of a future 2% royalty obligation under that certain Assignment and License Agreement dated December 9, 2002. The Company received the cash payment on July 1, 2003. See further discussions regarding transactions with Medarex in Note 5.


*(c)*	*Cognate Agreement*

The Company entered into a service agreement, dated July 30, 2004, with Cognate Therapeutics, Inc. Cognate is a contract manufacturing and services Organization (CRO), majority owned by Toucan Capital and two of the principals of Toucan Capital are board members of Cognate. The Company committed to utilizing Cognate’s services for a two year period related primarily to manufacturing its DCVax ^® product candidates, regulatory advice, research and development preclinical activities and managing clinical trials. The agreement expired on July 30, 2006. Accordingly, the parties are in the process of negotiating new terms. Monthly expenditures ranged between approximately $250,000 and $487,000 during each of the three years ending December 31, 2006. The contract with Cognate includes a penalty of $2.0 million if cancelled after one year as well as payment for all services performed in winding down any ongoing activities. The Company entered into this contract after extensive consultations with an independent expert in the field of Good Manufacturing Practices (GMP), regulatory affairs, and clinical trial activities, as well as consultations with a former FDA Commissioner, and after considering the ability of other contract research and manufacturing organizations to comply with the Company’s requirement to rapidly commence technology transfers involving manufacturing, immune monitoring, and regulatory clinical advice and after obtaining approval of our Board of Directors. The Company did not find any other CRO who could meet its needs in order to rapidly restart its clinical programs. The Company believes entering into this agreement has given it an opportunity to restart its clinical and research programs much more efficiently and rapidly as opposed to rebuilding its infrastructure, internal GMP facilities, regulatory, clinical and research and development expertise. The Company recognized approximately $2.9 million, $3.5 million and $2.4 million of costs relative to this agreement during the years ending December 31, 2004, 2005 and 2006, respectively. The costs are included in research and development expense.

(7) Income Taxes

There was no income tax benefit attributable to net losses for 2004, 2005 and 2006. The difference between taxes computed by applying the U.S. federal corporate rate of 34% and the actual income tax provisions in 2004, 2005 and 2006 is primarily the result of establishing a valuation allowance on the Company’s deferred tax assets arising primarily from tax loss carry forwards.

The tax effects of temporary differences and tax loss and credit carry forwards that give rise to significant portions of deferred tax assets at December 31 are comprised of the following (in thousands):


	2004			2005			2006

Net operating loss carry forwards	$	17,126		$	20,450		$	22,354
Research and development credit carry forwards		1,319			1,525			1,533
Depreciation and amortization		981			927			1,134
Other		313			325			357

Gross deferred tax assets		19,739			23,227			25,378
Less valuation allowance		(19,739	)		(23,227	)		(25,378	)

Net deferred tax assets	$	—		$	—		$	—

The increase in the valuation allowance for deferred tax assets for 2004, 2005 and 2006 of $2.9 million, $3.5 million and $2.2 million, respectively, was due to the inability to utilize net operating losses and research and development credits.

At December 31, 2006, the Company had net operating loss carry forwards for income tax purposes of approximately $65.7 million and unused research and development tax credits of approximately $1.5 million available to offset future taxable income and income taxes, respectively, expiring beginning 2018 through 2023. The Company’s ability to utilize net operating loss and credit carry forwards is limited pursuant to the Tax Reform Act of 1986, due to cumulative changes in stock ownership in excess of 50% such that some net operating losses may never be utilized.

(8) Scientific Collaboration Arrangements

The Company has also entered into certain collaborative arrangements under which it may be obligated to pay royalties or milestone payments if product development is successful. It is not anticipated that the aggregate amount of any royalty or milestone obligations under these other arrangements will be material to the Company’s operations.

(9) Commitments and Contingencies


*(a)*	*Lease Obligations*

The Company leases its facilities and certain equipment. Commitments for minimum rentals under non-cancelable leases in effect as of December 31, 2006 are as follows:


	Capital		Operating
	Leases		Leases
	(In thousands)

2007	$	3	$	19
Less amount representing interest		—

Present value of minimum lease payments		3
Less current portion		3

	$	—

At both December 31, 2005 and 2006, certain assets included in property and equipment are assets under capital leases totaling approximately $110,000, and related net accumulated amortization totaling approximately

$109,000 and $110,000, respectively. Rent expense was approximately $256,000, $96,000 and $37,000 in 2004, 2005 and 2006, respectively


*(b)*	*Legal Matters*

The Company signed an engagement letter with SOMA Partners, LLC (“SOMA”), a New Jersey-based investment bank dated October 15, 2003 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 us 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.

On December 6, 2006, we filed our brief for this appeal and on December 12, 2006, SOMA filed its reply brief. 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.

The Company has no other legal proceeding pending at this time.


*(c)*	*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 December 31, 2006, the Company has repaid the outstanding balance.

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. As of December 31, 2006, we have received correspondence from the Department of Revenue setting forth a refund of approximately $36,000. We do not plan to pursue this matter any further.


*(d)*	*Other Contractual Arrangements*

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 $95,000 has been paid as of December 31, 2006. The Company will incur no other costs in connection with this study, unless prior approval by the parties is made in writing.

(10) Notes Payable


*(a)*	*Notes Payable to Related Parties.*

Commencing in November 2003, the Company issued promissory notes to finance its operations. This debt financing is comprised of convertible management loans, senior convertible promissory notes issued to Toucan Capital and Toucan Partners, as well as further cash advances from Toucan Partners. In April 2007, these cash advances were converted into a new series of convertible promissory notes (and associated warrants). In addition, the convertible promissory notes previously issued to Toucan Partners with an aggregate value of $950,000 were amended and restated to conform to the terms of the new notes and warrants. Although these notes are convertible the conversion terms will not be fixed until a future date upon further negotiation between the Company and Toucan Partners. The notes payable are comprised of the following as of December 31, 2006 and 2005 (in thousands):


Notes Payable to Related Parties, Net	2005		2006

Convertible Management loans	$	271	$	—
Toucan Capital promissory notes		6,355		—
Toucan Partners convertible promissory notes and convertible promissory notes with conversion terms subject to negotiation		57		2,505

Ending balance at December 31,	$	6,683	$	2,505

The related party notes payable transactions are more fully described in note (2) Operations and Financing.

Management Loans

In November 2003, the Company issued convertible promissory notes totaling $335,000 to certain members of management as more fully described in note (2) Operations and Financing.

Toucan Capital Loans

From February 1, 2004 through September 7, 2005, the Company issued thirteen promissory notes to Toucan Capital pursuant to which Toucan Capital loaned the Company an aggregate of $6.75 million in bridge loan financing as more fully described in note (2) Operations and Financing.

Toucan Partners Loans

From November 14, 2005 through December 31, 2006, the Company issued three promissory notes to Toucan Partners pursuant to which Toucan Partners loaned the Company an aggregate of $950,000 in loan financing. In addition, the Company received cash advances totally $1.5 million from Toucan Partners through December 31, 2006. The promissory notes were amended and restated and the cash advances were converted to convertible promissory notes in April 2007. These transactions are more fully described in note (2) Operations and Financing and note (13) Subsequent Events.

(11) Unaudited Quarterly Financial Information (in thousands, except loss per share data)

The following table contains selected unaudited statement of operations information for each of the quarters in 2005 and 2006. The Company believes that the following information reflects all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the information for the periods presented. The operating results for any quarter are not necessarily indicative of results for any future period.


	First			Second			Third			Fourth
	Quarter			Quarter			Quarter			Quarter
	2005			2005			2005			2005

Total revenues	$	87		$	8		$	15		$	14
Net loss applicable to common stockholders	$	(2,526	)	$	(2,638	)	$	(2,782	)	$	(1,987	)
Net loss per share applicable to common stockholders — basic and diluted	$	(0.13	)	$	(0.14	)	$	(0.15	)	$	(0.10	)
Weighted average shares used in computing basic and diluted loss per share		19,035			19,078			19,078			19,078


	First			Second		Third			Fourth
	Quarter			Quarter		Quarter			Quarter
	2006			2006		2006			2006

Total revenues	$	—		$	—	$	80		$	—
Net income (loss) applicable to common stockholders	$	(3,958	)	$	6,428	$	(1,809	)	$	(2,057	)
Net income (loss) per share applicable to common stockholders — basic	$	(0.21	)	$	0.10	$	(0.03	)	$	(0.03	)
Net income (loss) per share applicable to common stockholders — diluted	$	(0.21	)	$	0.03	$	(0.03	)	$	(0.03	)
Weighted average shares used in computing basic income (loss) per share		19,230			63,381		65,241			65,241
Weighted average shares used in computing diluted income (loss) per share		19,230			228,505		65,241			65,241


(12)	Impairment and Disposal of Long-lived Assets

Upon signing the June 30, 2003 lease cancellation with Nexus, its prior landlord with respect to the entire prior leased space, the Company on September 30, 2003 recorded an additional loss on disposal of assets of approximately $904,000 primarily related to leasehold improvements and equipment that were not utilized in its new facility of 14,000 square feet.

The Company subsequently vacated its 14,000 square foot laboratory and administrative space on December 15, 2004 and entered a sublease at the same facility for approximately 5,047 square feet of strictly administrative space. The Company sold, disposed, or impaired $337,000 of fixed assets, in the third and fourth quarters of 2004, recognizing a loss on retirement of fixed assets of approximately $83,000, net of depreciation, and cash received of approximately $41,000, the net of which is included in general and administrative expenses as of December 31, 2004.

The Company vacated the 5,045 square foot facility when signing a new sublease on November 4, 2005, and moving to a smaller administrative only facility of 2,325 square feet on December 31, 2005. The Company sold, disposed, or impaired $159,000 of fixed assets and leasehold improvements, in the third and fourth quarters of 2005, recognizing a loss on retirement of fixed assets of approximately $41,000, net of depreciation, and cash received of approximately $97,000, the net of which is included in general and administrative expenses as of December 31, 2005.


(13)	Subsequent Events

Loan Agreement

During January through April 2007, the Company received a series of cash advances from Toucan Partners totaling $1.55 million. In April 2007, these cash advances, as well as cash advances totaling $1.5 million prior to December 31, 2006, were converted into a new series of convertible promissory notes (with associated warrants) with repayment due upon written demand on or after June 30, 2007. Interest accrues at the rate of 10% per annum, compounded annually, on a 365-day year basis. Although these notes are convertible, the conversion terms will not be fixed until a future date at Toucan Partners’ election. The outstanding principal and accrued interest under the 2007 Convertible Notes may be converted (in whole or in part) on conversion terms equal to the terms of any convertible debt financing from an unaffiliated investor in an aggregate principal amount of at least $150,000 on or before May 15, 2007 (a “Qualified Debt Financing”). In the event that a Qualified Debt Financing does not occur, or Toucan Partners, an affiliate of Toucan Capital and a controlling shareholder, elects in its sole discretion to not convert on such terms, the conversion terms shall by subject to further negotiation between us and Toucan Partners. In April 2007, the Company also amended and restated three convertible promissory notes issued to Toucan Partners totaling $950,000 on the same terms as the 2007 Convertible Notes and 2007 Warrants. See Note 2, Operations and Financing for the specific terms of these notes.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Bethesda, State of Maryland, on December 7, 2007.

NORTHWEST BIOTHERAPEUTICS, INC.


	By:	/s/ ALTON L. BOYNTON

Alton L. Boynton

Its: President and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated:

NORTHWEST BIOTHERAPEUTICS, INC.
(A Development Stage Company)

EXHIBIT INDEX


Exhibit
Number			Description

	3	.1	Seventh Amended and Restated Certificate of Incorporation, as amended.(3.1)(2)
	3	.2	Second Amended and Restated Bylaws of the Company.(3.2)(1)
	3	.3	Certificate of Designations, Preferences and Rights of Series A Cumulative Convertible Preferred Stock, as amended.
	3	.4	Certificate of Designations, Preferences and Rights of Series A-1 Cumulative Convertible Preferred Stock.
	4	.1	Form of common stock certificate.(4.1)(2)
	4	.2	Northwest Biotherapeutics, Inc. Stockholders Rights Plan dated February 26, 2002 between the Company and Mellon Investors Services, LLC.(4.2)(3)
	4	.3	Form of Rights Certificate.(4.3)(3)
	4	.4	Rights Agreement Amendment dated April 26, 2004.(4.4)(4)
	10	.1	Amended and Restated Loan Agreement and 10% Promissory Note dated November 14, 2005 in the principal amount of $400,000 as amended and restated on April 14, 2007 between the Company and Toucan Partners, LLC.(10.1)(19)
	10	.2	Second Amended and Restated Loan Agreement and 10% Promissory Note originally dated December 30, 2005, and amended and restated on April 17, 2006 and April 14, 2007 in the principal amount of $250,000 between the Company and Toucan Partners, LLC.(10.2)(19)
	10	.3	Second Amended and Restated Loan Agreement and 10% Promissory Note originally dated March 9, 2006, and as amended and restated on April 17, 2006 and April 14, 2007 in the principal amount of $300,000 between the Company and Toucan Partners, LLC.(10.3)(19)
	10	.4	Form of Loan Agreement and 10% Convertible, Promissory Note dated April 14, 2007 between the Company and Toucan Partners, LLC for cash advances made on October 30, 2006, November 21, 2006, December 21, 2006, January 19, 2007, February 23, 2007, March 16, 2007, March 20, 2007, April 10, 2007 and April 11, 2007.(10.4)(19)
	10	.5	Amended and Restated Investor Rights Agreement dated April 17, 2006.(10.5)(19)
	10	.6	Securities Purchase Agreement, dated March 30, 2006 by and among the Company and the Investors identified therein.(10.6)(6)
	10	.7	Form of Warrant.(10.7)(6)
	10	.8	Warrant to purchase securities of the Company dated April 26, 2004 issued to Toucan Capital Fund II, L.P.(10.8)(7)
	10	.9	Warrant to purchase securities of the Company dated June 11, 2004 issued to Toucan Capital Fund II, L.P.(10.9)(7)
	10	.10	Warrant to purchase securities of the Company dated July 30, 2004 issued to Toucan Capital Fund II, L.P.(10.10)(7)
	10	.11	Warrant to purchase securities of the Company dated October 22, 2004 issued to Toucan Capital Fund II, L.P.(10.11)(8)
	10	.12	Warrant to purchase securities of the Company dated November 10, 2004 issued to Toucan Capital Fund II, L.P.(10.12)(9)
	10	.13	Warrant to purchase securities of the Company dated December 27, 2005 issued to Toucan Capital Fund II, L.P.(10.13)(10)
	10	.14	First Amendment to Warrants between Northwest Biotherapeutics, Inc. and Toucan Capital Fund II, L.P. dated January 26, 2005.(10.14)(1)
	10	.15	Warrant to purchase Series A Preferred Stock dated January 26, 2005 issued to Toucan Capital Fund II, L.P.(10.15)(1)
	10	.16	Warrant to purchase securities of the Company dated April 12, 2005 issued to Toucan Capital Fund II, L.P.(10.16)(11)


Exhibit
Number			Description

	10	.17	Warrant to purchase securities of the Company dated May 13, 2005 issued to Toucan Capital Fund II, L.P.(10.17)(12)
	10	.18	Warrant to purchase securities of the Company dated June 16, 2005 issued to Toucan Capital Fund II, L.P.(10.18)(13)
	10	.19	Warrant to purchase securities of the Company dated July 26, 2005 issued to Toucan Capital Fund II, L.P.(10.19)(14)
	10	.20	Warrant to purchase securities of the Company dated September 7, 2005 issued to Toucan Capital Fund II, L.P.(10.20)(15)
	10	.21	Amended Form of Warrant to purchase securities of the Company dated November 14, 2005 and April 17, 2006 as amended April 14, 2006 issued to Toucan Partners, LLC.(10.21)(19)
	10	.22	Form of Warrant to purchase securities of the Company dated April 14, 2007 issued to Toucan Partners, LLC.(10.22)(19)
	10	.23	Amended and Restated Recapitalization Agreement by and between the Company and Toucan Capital Fund II, L.P., as amended.(10.23)(18)
	10	.24	Amended and Restated Binding Term sheet, as amended.(10.24)(18)
	10	.25	Amended and Restated Employment Agreement with Dr. Alton L. Boynton(10.25)(16)
	10	.26	Form of Warrant to purchase common stock of the Company dated November 13, 2003, as amended.(10.26)(18)
	10	.27	Services Proposal between the Company and Cognate Therapeutics, Inc. dated July 30, 2004.(10.27)(7)
	10	.28	1998 Stock Option Plan.(10.28)(2)
	10	.29	1999 Executive Stock Option Plan.(10.29)(2)
	10	.30	2001 Stock Option Plan.(10.30)(2)
	10	.31	2001 Nonemployee Director Stock Incentive Plan.(10.31)(2)
	10	.32	Employee Stock Purchase Plan.(10.32)(2)
	10	.33	Lease Agreement.(10.33)(18)
	10	.34	Clinical Study Agreement between the Company and the Regents of the University of California dated February 14, 2006.(10.34)(18)
	11	.1	Computation of net loss per share (included in notes to financial statements).
	23	.1*	Consent of Peterson Sullivan, PLLC, Independent Registered Accounting Firm.
	31	.1*	Certification of President (Principal Executive Officer), Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31	.2*	Certification of Chief Financial Officer (Principal Financial and Accounting Officer), Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32	.1*	Certification of President Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32	.2*	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


		* Filed Herewith.

(1)		Incorporated by reference to the exhibit shown in the preceding parentheses filed with the Registrant’s Current Report on Form 8-K, February 1, 2005.

(2)		Incorporated by reference to the exhibit shown in the preceding parentheses filed with the Registrant’s Form S-1 (Registration No. 333-67350).

(3)		Incorporated by reference to the exhibit shown in the preceding parentheses filed with the Registrant’s Form 8-A on July 8, 2002.

(4)		Incorporated by reference to the exhibit shown in the preceding parentheses filed with the Registrant’s Form 10-K on May 14, 2004.

(5)		Incorporated by reference to the exhibit shown in the preceding parentheses filed with the Registrant’s Quarterly Report on Form 10-Q on November 14, 2005.


(6)		Incorporated by reference to the exhibit shown in the preceding parentheses filed with the Registrant’s Current Report on Form 8-K on March 31, 2006.

(7)		Incorporated by reference to the exhibit shown in the preceding parentheses filed with the Registrant’s Quarterly Report on Form 10-Q on November 15, 2004.

(8)		Incorporated by reference to the exhibit shown in the preceding parentheses filed with the Registrant’s Current Report on Form 8-K on October 22, 2004.

(9)		Incorporated by reference to the exhibit shown in the preceding parentheses filed with the Registrant’s Current Report on Form 8-K on November 10, 2004.

(10)		Incorporated by reference to the exhibit shown in the preceding parentheses filed with the Registrant’s Current Report on Form 8-K on December 27, 2004.

(11)		Incorporated by reference to the exhibit shown in the preceding parentheses filed with the Registrant’s Annual Report on Form 10-K on April 15, 2005.

(12)		Incorporated by reference to the exhibit shown in the preceding parentheses filed with the Registrant’s Current Report on Form 8- K on May 18, 2005.

(13)		Incorporated by reference to the exhibit shown in the preceding parentheses filed with the Registrant’s Current Report on Form 8-K on June 21, 2005.

(14)		Incorporated by reference to the exhibit shown in the preceding parentheses filed with the Registrant’s Current Report on Form 8-K on August 1, 2005.

(15)		Incorporated by reference to the exhibit shown in the preceding parentheses filed with the Registrant’s Current Report on Form 8-K on September 9, 2005.

(16)		Incorporated by reference to the exhibit shown in the preceding parentheses filed with the Registrant’s Quarterly Report on Form 10-Q on November 11, 2003.

(17)		Incorporated by reference to the exhibit shown in the preceding parentheses filed with the Registrant’s Current Report on Form 8-K on August 5, 2005.

(18)		Incorporated by reference to the exhibit shown in the preceding parentheses filed with the Registrant’s Current Report on Form 10-K on April 18, 2006.

(19)		Incorporated by reference to the exhibit shown in the preceding parentheses filed with the Registrant’s Form 10-K on April 17, 2007.