UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

Commission File Number 0-26825

Northwest Biotherapeutics, Inc.

(Exact name of Registrant as specified in its charter)

Registrant’s telephone number, Including Area Code:

(425) 608-3000

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 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.     þ

      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.     o

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

      The aggregate market value of the voting stock held by non-affiliates of the Registrant, computed by reference to the closing price on the consolidated transaction reporting system on June 30, 2004 was approximately $2.0 million.

      As of March 31, 2005, the Registrant had outstanding 19,028,779 shares of common stock.

TABLE OF CONTENTS

PART I

Forward-Looking Statements

      The following description of our business, discussion and analysis of our financial condition and results of operations should be read in conjunction with the information included elsewhere in this Annual Report on Form 10-K. In addition to historical information, this report contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those projected. The words “believe,” “expect,” “intend,” “anticipate,” and similar expressions are used to identify forward-looking statements, but their absence does not mean that such statement is not forward-looking. You are encouraged to carefully review the various disclosures made by us in this report and in the documents incorporated herein by reference, in our previous SEC filings, and those factors described under “Factors That May Affect Results of Operations and Financial Condition”, beginning on page 18 of this Annual Report on Form  10-K. These factors, among others, could cause results to differ materially from those presently anticipated by us. Readers are cautioned not to place undue reliance on these forward-looking statements. In this Annual Report on Form 10-K, references to “Northwest Biotherapeutics,” “company,” “we,” “us,” and “our” refer to Northwest Biotherapeutics, Inc.

Recent Developments

      During 2004 and to date in 2005 we entered into multiple agreements with Toucan Capital Fund II, L.P., or Toucan Capital, all of which related to the recapitalization of our company. These agreements contemplate that we will issue up to $40 million of convertible preferred stock over the one-year period beginning January 26, 2005 and ending on January 25, 2006.

      On January 26, 2005, we issued to Toucan Capital 32.5 million shares of our series A cumulative convertible preferred stock, or series A stock, and a warrant, with a contractual life of 7-years, to purchase up to 13.0 million shares of series A stock, in exchange for $1.3 million.

      We also borrowed $4.8 million from Toucan Capital, from February 2, 2004 through April 12, 2005, comprised of the following loan transactions:

      Toucan Capital has the right, as of April 14, 2005, to convert principal and interest on the above loans to acquire up to 127.4 million shares of our capital stock and has the right to acquire up to 116.0 million shares upon exercise of related warrants, inclusive of the 13.0 million series A warrants. Including the 32.5 million of series A preferred stock held by Toucan Capital, they have beneficial ownership of approximately 275.9 million shares of our capital stock, representing a beneficial ownership of approximately 93.4%. Toucan Capital has a right of first refusal to participate in our future issuances of debt or equity securities.

      On December 17, 2004, Dr. Randall L-W. Caudill and Mr. Wayne L. Pines resigned as members of our board of directors. Since that time we have had a sole director, Alton L. Boynton, Ph.D., who is also our president. These board resignations were anticipated as part of the recapitalization plan.

      In connection with our January 26, 2005 issuance of series A stock, Toucan Capital amended the related restated recapitalization agreement and the restated term sheet to provide that: (i) as of January 26, 2005, the authorized number of our directors shall be one; (ii) the authorized number of directors may not be increased or decreased without the consent of the holders of a majority of the shares of convertible preferred stock; (iii) the holders of a majority of the shares of convertible preferred stock, acting in their sole discretion, may require us to increase the total number of authorized directors up to a maximum of seven directors; and (iv) any newly created directorships shall be designated by the holders of a majority of the shares of convertible preferred stock, acting in their sole discretion, to be filled by either: (A) an outside director with significant industry experience, who is reasonably acceptable to the holders of a majority of the convertible preferred stock, to be elected by the holders of our common stock and called a independent industry expert directorship; or (B) a director to be designated by the holders of a majority of the convertible preferred stock and to be called a preferred directorship. Up to four directorships shall be designated as preferred directorships, up to two directorships shall be designated as independent industry expert directorships, and one director shall be our chief executive officer.

      Our financial statements for the year ended December 31, 2004 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. Nevertheless, we have experienced recurring losses from operations and have a deficit accumulated during the development stage of $72.8 million. Our independent auditors indicated in their report on our December 31, 2004 financial statements included in this report that there is substantial doubt about our ability to continue as a going concern.

Overview

      Northwest Biotherapeutics, Inc. was incorporated in Delaware in July 1998. We are a development stage biotechnology company focused on discovering, developing, and commercializing immunotherapy products that safely generate and enhance immune system responses to effectively treat cancer. Currently approved cancer treatments are frequently ineffective and can cause undesirable side effects. Our approach in developing cancer therapies utilizes our expertise in the biology of dendritic cells, which are a type of white blood cells that activate the immune system. Our primary activities since incorporation have been focused on advancing a proprietary dendritic cell immunotherapy for prostate and brain cancer together with strategic and financial planning, and raising capital to fund our operations. We completed an initial public offering of our common stock in December 2001.

      We have two basic technology platforms applicable to cancer therapeutics; dendritic cell-based cancer vaccines which we call DCVax® and monoclonal antibodies for cancer therapeutics. DCVax is our registered trademark. Our DCVax dendritic cell-based cancer vaccine program is our main technology platform.

      Since the beginning of 2002, we recognized that we did not have sufficient working capital to adequately fund our operations and needed to obtain additional capital from third parties in order to continue our clinical and research programs. In April 2002 we retained an investment bank to assist us in raising capital. Due to the economic climate in 2002 and declining stock prices of biotechnology companies, including our own stock price, we were unable to raise additional capital. In July 2002 we retained an additional investment banking firm to assist us in exploring various strategic options including raising additional capital, licensing our technology to a third party, or merging with another company. We contacted over 50 biotechnology companies and over 20 large pharmaceutical companies in an attempt to explore these options without success.

      From September 2002 through approximately September 2004, we reduced our staff from 67 to 8 employees, withdrew the approved investigational new drug application (IND) for our Phase III clinical trial for hormone refractory prostate cancer and our IND for our Phase I trial for non-small cell lung cancer from the U.S. Food and Drug Administration (FDA), and left open our Phase II clinical trial for brain cancer which currently remains open with the FDA. In addition, we moved our corporate headquarters twice, each time to smaller facilities in order to reduce our monthly rent expense. During this time, we attempted to obtain capital from various sources, but were not successful. On November 13, 2003, we borrowed $335,000 from members of our management which enabled us to continue operating into the first quarter of 2004.

      During 2004 and to date in 2005, we have undergone a significant recapitalization pursuant to which Toucan Capital has loaned us $4.8 million and invested $1.3 million in equity, in return for debt securities, preferred stock and warrants. Toucan Capital has the right, as of April 14, 2005, to convert principal and interest on the loans to acquire up to 127.4 million shares of our capital stock and has also the right to acquire up to 116.0 million shares upon exercise of warrants. Including the 32.5 million of series A preferred stock held by Toucan Capital, they have beneficial ownership of approximately 275.9 million shares of our capital stock, representing a beneficial ownership of approximately 93.4%.

      On July 30, 2004 we entered into a service agreement with Cognate Therapeutics, Inc. Cognate is a contract research organization, the majority of which is owned by Toucan Capital. In addition, two of the principals of Toucan Capital are members of Cognate’s board of directors. Under the agreement we agreed to utilize Cognate’s services for a two-year period, related primarily to manufacturing DCVax product candidates, regulatory advice, research and development preclinical activities and managing clinical trials. We recognized approximately $2.9 million of costs relative to this agreement in 2004.

Website Access to Reports

      Our website is located at: http://www.nwbio.com. Our periodic SEC filings are available on our website by clicking on “News and Investor” to “Stock Quote” to “Real-Time SEC Filings”. Additionally, our press releases can be accessed on our website through clicking on “News and Investor” to “Stock Quote” to “Press Releases”. The “Archive” button will display our historical press releases. The Securities and Exchange Commission also maintains an Internet site that contains reports that we have filed with it at http://www.sec.gov. The information contained on our website is not incorporated into nor a part of this annual report on Form 10-K.

Industry Background

      The American Cancer Society estimates that in the United States, men have a 1 in 2 lifetime risk of developing cancer, while women have a risk of 1 in 3. Doctors were expected to diagnose approximately 1.37 million new cases of cancer in the United States during 2004. Cancer is the second leading cause of death in the United States after heart disease and was estimated to result in approximately 563,700 deaths, or 1,544 per day, in 2004. The direct medical costs related to treating cancer in the United States were estimated to be $56 billion in 2002. Our initial therapeutic targets, prostate, brain and lung cancers, cause approximately 36% of the cancer deaths in the United States each year. The American Cancer Society

estimated that the incidence of new diagnosis and deaths resulting from several common cancers during 2004 would be as follows:

      Cancer is characterized by aberrant cells that multiply uncontrollably. As cancer progresses, the cancer cells may invade other tissues throughout the body producing additional cancers, called metastases. Cancer growth can cause tissue damage, organ failure and, ultimately, death. Many immunologists believe that cancer cells occur frequently in the human body, yet are effectively controlled by the immune system because these cells are recognized as aberrant. Cancer growth occurs if this natural process fails.

      Cancer cells produce abnormal kinds and amounts of substances called antigens, which may be distinguishable from those produced by healthy cells. The use of these cancer-associated antigens is essential to the successful development of products capable of stimulating the immune system to seek and destroy cancer cells marked by these antigens.

      The immune system is the body’s defense mechanism responsible for recognizing and eliminating cancer cells, viruses, bacteria and other disease-causing organisms. This system consists of populations of white blood cells whose components are responsible for initiating the cellular immune response, and the humoral, or antibody-based, immune response.

      Dendritic cells, a component of white blood cells, initiate the cellular immune response by processing and displaying disease-associated antigen fragments on their outer cell surface, where they are recognized by white blood cells, known as naive T cells, that have not yet been exposed to antigens. Upon exposure to these antigen fragments, naive T cells become disease-specific Helper T cells or Killer T cells. Helper T cells then induce Killer T cells to seek and destroy the cells marked by the disease-associated antigen.

      B cells direct the humoral (i.e. antibody) immune response by binding to disease-associated antigens on the surface of various cell types, producing disease-specific antibodies. Helper T cells also enhance B cell production of disease-specific antibodies. These antibodies bind to and initiate the destruction of cells marked by the associated disease-specific antigens.

      A small population of activated Helper T cells, Killer T cells, and antibody-producing B cells survive for long periods of time, retaining the memory of what the disease fragment looks like. These cells can respond very rapidly to subsequent exposure to disease-specific antigens and fragments. The most effective natural immune response is one in which both Killer T cells and antibody-producing B cells are activated.

      The immune system response to cancer is generally characterized by the following sequence:

Limitations of Current Cancer Therapies

      Cancer is characterized by aberrant cells that multiply uncontrollably. As cancer progresses, the cancer cells may invade other tissues throughout the body producing additional cancers, called metastases. Effective therapies must attack the cancer both at its site of origin and at sites of metastases. Traditional treatments for cancer include:

      Immunotherapy can stimulate and enhance the body’s natural mechanism for destroying pathogens, such as cancer cells, and may overcome many of the limitations of traditional cancer therapies. Immunotherapy may be particularly useful to augment traditional cancer therapies. In recent years, two cancer immunotherapy approaches have emerged, with FDA approved products to address the limitations of traditional therapies:

      We have developed two proprietary approaches, DCVax and therapeutic antibodies, for stimulating and enhancing a patient’s cellular and humoral (i.e. antibody) immune response to cancer. Given appropriate funding for future development, which we are currently seeking, we believe that DCVax and therapeutic antibody products may overcome certain limitations of current cancer therapies and offer cancer patients safe and effective treatment alternatives, alone or in combination with other therapies.

      Our DCVax platform combines our expertise in dendritic cell biology, immunology and antigen discovery with our proprietary process of producing and activating dendritic cells outside a patient’s body to develop therapeutic products that stimulate beneficial immune responses to treat cancer. We believe that DCVax has the following significant characteristics, the total of which, we believe makes it a potentially attractive alternative to current therapies.

      Our therapeutic antibody program is based on combining our expertise in monoclonal antibodies, immunology and antigen discovery. We co-developed an initial therapeutic antibody product candidate with Medarex, Inc. This partnership enabled us to create a proprietary fully human monoclonal antibody-based prostate cancer product candidate. Our interest in that product candidate now was acquired by Medarex and is presently in a FDA Phase II clinical trial. We plan to enter into partnering agreements for development of other antibody product candidates, so that we can devote our primary focus to our core program of dentritic cell vaccine (DCVax). Products derived from our therapeutic antibody efforts are intended to have the following attractive characteristics.

      In addition, we believe that therapeutic antibodies may be useful for the development of cancer diagnostic imaging products.

      We submitted an investigational new drug application, or IND, with the FDA on December 8, 2004 for restarting our Phase III clinical trial for prostate cancer, DCVax-Prostate. The IND cleared the FDA on January 8, 2005. This Phase III clinical trial is based on promising clinical data from a previously conducted Phase I/ II clinical trial. The double blinded, placebo controlled Phase III clinical trial is expected to enroll about 600 patients at 30-50 sites throughout the United States. The trial will focus on non-metastatic hormone-independent prostate cancer patients. Preparations are underway to commence the trial later in 2005.

      We have also cleared with the FDA a Phase II clinical trial for DCVax-Brain for patients with Glioblastoma multiforme, the most lethal form of brain cancer. Preparations are underway to commence the trial later in 2005.

      We have completed completed substantial research and pre-clinical testing phases for four additional product candidates. Significantly, we have recently been issued a patent by the United States Patent and Trademark Office which covers antibody therapeutic rights to a cancer protein involved in primary cancers and in the metastatic process. The protein is known as CXCR4, and is over-expressed in more than 65% of cancers and involved in three critical functions of primary tumors and metastatic tumors. These three functions are cell proliferation, migration, and invasion of cancer cells resulting in the establishment of distant metastatic sites.

      The following table summarizes the targeted indications and status of our product candidates:

      Phase I:      Evaluation of safety and dosing.

      Phase II:  Evaluation of safety and efficacy.

      Phase III: Larger scale evaluation of safety and efficacy.

      The DCVax platform uses our proprietary process to efficiently produce and activate dendritic cells outside of a patient’s body. Our Phase I/ II clinical trial for DCVax-Prostate demonstrated that these cells can generate an effective immune system response when administered therapeutically. Manufacture of a DCVax product takes approximately 30 days to complete, and is characterized by the following sequence:

      We believe that our DCVax platform affords us the flexibility to target many different forms of cancer through pairing of dendritic cells with cancer-associated antigens, pieces of cancer-associated antigens or deactivated whole cancer cells. We have either patented or licensed critical intellectual property regarding this technology.

DCVax Product Candidates

      DCVax-Prostate, our initial dendritic cell-based product candidate, resulted from combining our DCVax platform with the cancer-associated antigen prostate specific membrane antigen, or PSMA. Prostate specific membrane antigen is located on the surface of prostate cells. It is expressed at very low levels on benign or healthy prostate cells, and at much higher levels on prostate cancer cells. Because PSMA is over-expressed in virtually all prostate cancers, it represents an effective target for prostate cancer therapeutics. The results from our Phase I/ II clinical trial provided us with important results supporting the potential value of our DCVax platform as the basis for new cancer immunotherapies.

      In September 1999, we filed an application to conduct a Phase I/ II clinical trial for DCVax-Prostate to treat late-stage prostate cancer patients for whom hormone therapy was no longer effective. This trial was carried out at M.D. Anderson Cancer Center and at UCLA, involved the administration of DCVax-Prostate to thirty-two evaluable patients in order to establish the safety and efficacy of three different dosage levels of DCVax-Prostate.

      We observed stabilization of disease at 26 weeks in 52% (16 of 31) of the patients in our Phase I/ II clinical trial. Twelve of these stable patients did not have measurable metastatic disease at the time of treatment and all twelve were stable, as measured by radiographic criteria, at weeks 26 to 28 with a median time to progression of 59 weeks. These results can be compared to results for another company’s experimental therapy given to similar patients without metastatic disease that had a median time to progression of 29 weeks. Patients with measurable metastatic disease in our Phase I/ II clinical trial had a median time to progression of 20 weeks. These results can be compared to results for another company’s experimental therapy given to patients with metastatic disease that had a median time to progression of 16 weeks with control or placebo progression occurring at 9 weeks. Eighty-three percent (83%) of patients had an immune response following treatment with DCVax-Prostate, as measured by the amount of immune-reactive substances found in the blood of patients, which formed specifically in response to PSMA.

      Target Market. The American Cancer Society estimates that 231,000 new cases of prostate cancer will be diagnosed in the United States during 2004. Deaths from prostate cancer are estimated at

29,000 per year. We estimate that there is an initial DCVax-Prostate target population consisting of approximately 100,000 patients with late stage, or hormone refractory, prostate cancer.

      Current Treatments. Existing treatments for localized prostate cancer include surgery and various forms of radiation therapy. The current standard-of-care for treating metastatic prostate cancer is hormone therapy. Although this therapy achieves temporary tumor control, the National Cancer Institute’s 1989-1996 five-year survival rate for metastatic prostate cancer is only 33%. Moreover, hormone therapy may cause significant adverse side effects, including bone loss, hot flashes, impotence and blood clots. Disease progression in the presence of hormone therapy occurs on average in two years, and is then classified as hormone refractory prostate cancer. Approximately 50% of patients with hormone refractory prostate cancer will die within two years of its onset. Currently, the only FDA approved treatment for hormone refractory prostate cancer are chemotherapy or Taxotere which prolongs survival and radioactive pharmaceuticals, which can alleviate cancer-related symptoms but may cause significant adverse side effects and does not prolong survival. A large fraction of hormone refractory patients do not have objective metatstatic disease as measured by bone and CT scans. We believe that DCVax-Prostate addresses this critical unmet medical need of this patient population.

      DCVax-Brain uses our DCVax platform in combination with glioblastoma tumor cell lysate antigens. Our clinical collaborators at UCLA conducted a Phase I clinical trial to assess the safety and efficacy of dendritic cell-based immunotherapy for glioblastoma. They have informed us that it has been safely administered to 12 patients, and have provided us with preliminary data. Seven of these patients were newly diagnosed and to date have a mean time to progression of 18.2 months (two patients have yet to progress after 19 and 29 months respectively) compared to 7 months for historical controls. Survival to date averages 20.7 months compared to 15 months of survival for historical controls. Two of seven patients remain alive after 4 years without recurrence. The five patients with recurrent disease all progressed with a mean of 13 months compared to 5 months for historical controls. Average survival to date is 11.8 months compared to 10 months for historical controls. Three of these patients, from the recurring group, remain alive. Based on these results, we have received clearance from the FDA to conduct a Phase II clinical trial with DCVax-Brain, and we have been granted Orphan Drug designation for this application of DCVax.

      Target Market. The American Cancer Society estimated that about 17,000 new cases of brain cancer would be diagnosed in the United States during 2004. Deaths from brain cancer are estimated at about 13,100 per year. The most common and lethal form of brain cancer is glioblastoma, the indication we are targeting with DCVax-Brain. We estimate that our DCVax-Brain could address a population consisting of approximately 10,000 new patients per year.

      Current Treatments. Existing treatments for glioblastoma include surgery, radiation and chemotherapy. These existing treatments are often used in various combinations and/or sequences and have significant adverse side effects. In its most recent study, The National Institutes of Health reported that the 1989-1996 five-year survival rate for all brain cancer patients (including less virulent forms than glioblastoma) was only 31%. Following initial treatment, virtually all cases of this cancer recur, with a life expectancy of approximately one year following recurrence. Few effective therapies exist for these patients. We believe that DCVax-Brain may address this critical unmet medical need.

      DCVax-Lung was designed to use our DCVax platform in combination with isolated and deactivated lung cancer cells as antigens. Although we received clearance from the FDA to conduct a Phase I clinical trial to assess the safety and efficacy of DCVax-Lung, due to lack of financial resources, we suspended the initiation of this trial.

      Target Market. The American Cancer Society estimated that 178,000 new cases of lung cancer would be diagnosed in the United States during 2004. Approximately 80% of these cases are expected to be attributable to non-small cell lung cancer, the indication we were targeting with DCVax-Lung and are

now targeting with DCVax-Direct. Deaths from all forms of lung cancer are estimated at 161,300 per year for 2004.

      Current Treatments. Existing treatments for non-small cell lung cancer include surgery and radiation therapy, which are used in various combinations. These treatments have significant adverse side effects. In its most recent study, the National Institutes of Health reported that the 1989-1996 five-year survival rate for non-small cell lung cancer patients was only 6.2%. Following initial treatment, virtually all cases of this cancer recur, with a life expectancy of approximately one year following recurrence. No effective therapy exists for these patients.

      DCVax-Direct uses our DCVax platform to produce dendritic cells suitable for direct injection into solid tumors. Several scientific studies have shown that dendritic cells injected into solid tumors in animal models can result in tumor regression. We have continued pre-clinical development of this application with positive preclinical animal data.

      Our therapeutic antibody platform is based on combining our expertise in monoclonal antibodies, immunology and antigen discovery with potential partners who have expertise in humanized and fully human monoclonal antibody development. We co-developed our initial therapeutic antibody product with Medarex. We believe our relationship with Medarex and future partners may enable us to create proprietary humanized and fully human monoclonal antibody-based cancer therapies. We develop our therapeutic antibody products in the following sequence:

      We believe that, given additional funding, our antigen discovery program may enable us to identify and develop cancer-associated antigens for the therapeutic antibody platform, potentially expanding our portfolio of potential therapeutic products. We expect that the antibodies generated by the therapeutic antibody platform may be useful as potential products or as products coupled with cytotoxins or radioactive agents. However, the DCVax program will continue to be our primary focus.

Therapeutic Antibody Product Candidates

      We have selected a cancer-associated antigen, CXCR4, for non-small cell lung cancer, breast cancer, glioblastoma, colon cancer, melanoma, prostate, pancreas, kidney, ovarian, and certain blood cancers. We were recently issued a United States patent to the use of antibodies to CXCR4, a protein found to be over expressed in greater than 65% of cancers and involved in three critical functions of cancer cells that include cell proliferation, cell migration and cancer cell invasion resulting in the seeding of metastatic sites in distant organs and tissues.

      We have no manufacturing facilities for the production of our product candidates currently under development. We expect to rely upon partners (or third-party manufacturers) to produce our product candidates for pre-clinical, clinical and commercial purposes. Furthermore, the product candidates under development by us have never been manufactured on a commercial scale and may not be able to be manufactured at a cost or in sufficient quantities to make commercially viable products.

      In the event that we secure funding and develop an approved product, we plan to market that product in partnership with one or more established pharmaceutical companies. Our collaboration with these companies may take the form of co-development agreements, licensing agreements or co-marketing arrangements. The oncology market in the United States is characterized by highly concentrated distribution channels. To be successful in producing a commercially viable product, we may need to either partner with a well established company or develop a direct sales force to market that product in the United States.

      We seek to protect our commercially relevant proprietary technologies through patents both in the United States and abroad. We have 14 issued and licensed patents (seven in the United States and seven in foreign jurisdictions) and 105 patent applications pending (19 in the United States and 86 in foreign jurisdictions) which cover the use of dendritic cells in DCVax as well as targets for either our dendritic cell or fully human monoclonal antibody therapy candidates. The issued patents expire at dates from 2015 to 2018. We intend to continue using our scientific expertise to pursue and patent new developments with respect to uses, methods, and compositions to enhance our position in the field of cancer treatment.

      Any patents that we obtain may be circumvented, challenged or invalidated by our competitors. Our patent applications may not result in the issuance of any patents, and any patents that may issue may not offer any protection against others who seek to practice the claimed inventions. We have obtained licenses for certain technologies that we use, but we may be unable to maintain those licenses and may be unable to secure additional licenses in the future. Thus, we may be forced to abandon certain product areas or develop alternative methods for operating in those areas.

      In addition to patents, we rely on copyright protection, trade secrets, proprietary know-how and trademarks to maintain our competitive position. Our future success will depend in part on our ability to preserve our copyrights and trade secrets. Although our officers, employees, consultants, contractors, manufacturers, outside scientific collaborators, sponsored researchers and other advisors are required to sign agreements obligating them not to disclose our confidential information, these parties may nevertheless disclose such information and compromise our confidential data. We may not have adequate remedies for any such breach. It is also possible that our trade secrets or proprietary know-how will otherwise become known or be independently replicated or otherwise circumvented by competitors.

      Our technologies may infringe the patents or violate other proprietary rights of third parties. In the event of infringement or violation, we may be prevented from pursuing further licensing, product

development or commercialization. Such a result would materially adversely affect our business, financial condition and results of operations.

      If we become involved in any litigation, interference or other administrative proceedings, we will incur substantial expenses and the efforts of our technical and management personnel will be significantly diverted. An adverse determination may subject us to significant liabilities or require us to seek licenses, which may not be available. We may also be restricted or prevented from manufacturing and selling our products, if any, in the event of an adverse determination in a judicial or administrative proceeding, or if we fail to obtain necessary licenses. In addition, any potential litigation or dispute may, as a result of our lack of funding, require us to further reduce or even curtail our operations entirely.

      The biotechnology and biopharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. Several companies, such as Cell Genesys, Inc., Dendreon Corporation, CancerVax, Immuno-Designed Molecules, Inc. and Argos Therapeutics, Inc., are actively involved in research and development of cell-based cancer therapeutics. Of these companies, we believe that only Dendreon, CancerVax, and Cell Genesys are carrying-out Phase III clinical trials with a cell-based therapy and they are doing so in a patient population that does not compete with our Phase III DCVax-Prostate product candidate. No cell-based therapeutic product is currently available for commercial sale. Additionally, several companies, such as Abgenix, Inc., Agensys, Inc., and Genentech, Inc. are actively involved in research and development of monoclonal antibody-based cancer therapies. Currently, at least seven antibody-based products are approved for commercial sale for cancer therapy. Genentech is also engaged in several Phase III clinical trials for additional antibody-based therapeutic products for a variety of cancers, and several other companies are in early stage clinical trials for such products. Many other third parties compete with us in developing alternative therapies to treat cancer, including:

      Most of our competitors have significantly greater resources and expertise then we do in research and development, manufacturing, pre-clinical testing, conducting clinical trials, obtaining regulatory approvals, and marketing. In addition, many of these competitors have become more active in seeking patent protection and licensing arrangements in anticipation of collecting royalties for use of technology they have developed. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors may prevent us from recruiting and retaining qualified scientific and management personnel, or from acquiring technologies complementary to our programs.

      We expect that our ability to compete effectively will be dependent upon our ability to:

      Governmental authorities in the United States and other countries extensively regulate the pre-clinical and clinical testing, manufacturing, labeling, storage, record-keeping, advertising, promotion, export, marketing and distribution, among other things, of immunotherapeutics. In the United States, the FDA subjects pharmaceutical and biologic products to rigorous review. Even if we ultimately receive FDA approval for one or more of our products, if we or our partners do not comply with applicable requirements, we may be fined, our products may be recalled or seized, our production may be totally or partially suspended, the government may refuse to approve our marketing applications or allow us to distribute our products, and we may be criminally prosecuted. The FDA also has the authority to revoke previously granted marketing authorizations.

      In order to obtain approval of a new product from the FDA, we must, among other requirements, submit proof of safety and efficacy as well as detailed information on the manufacture and composition of the product. In most cases, this proof requires documentation of extensive laboratory tests, and pre-clinical and clinical trials. This testing, and the preparation of necessary applications and processing of those applications by the FDA are expensive and typically take several years to complete. The FDA may not act quickly or favorably in reviewing these applications, and we may encounter significant difficulties or costs in our efforts to obtain FDA approvals that could delay or preclude us from marketing any products we may develop. The FDA also may require post-marketing testing and surveillance to monitor the effects of approved products or place conditions on any approvals that could restrict the commercial applications of these products. Regulatory authorities may withdraw product approvals if we fail to comply with regulatory standards or if we encounter problems following initial marketing. With respect to patented products or technologies, delays imposed by the governmental approval process may materially reduce the period we might have the exclusive right to exploit the products or technologies.

      After an investigational new drug application becomes effective, a sponsor may commence human clinical trials. The sponsor typically conducts human clinical trials in three sequential phases, but these phases may overlap. In Phase I clinical trials, the product is tested in a small number of patients or healthy volunteers, primarily for safety at one or more doses. In Phase II, in addition to safety, the sponsor evaluates the efficacy of the product in a patient population somewhat larger than Phase I clinical trials. Phase III clinical trials typically involve additional testing for safety and clinical efficacy in an expanded population at geographically dispersed test sites. The sponsor must submit to the FDA a clinical plan, or protocol, accompanied by the approval of a clinical site responsible for ongoing review of the investigation, prior to commencement of each clinical trial. The FDA or a clinical site may order the temporary or permanent discontinuation of a clinical trial at any time, if the trial is not being conducted in accordance with FDA or clinical site requirements or presents a danger to its subjects.

      The sponsor must submit to the FDA the results of the pre-clinical and clinical trials, together with, among other things, detailed information on the manufacture and composition of the product, in the form of a new drug application or, in the case of a biologic, a biologics license application. The FDA is regulating our therapeutic vaccine product candidates as biologics and, therefore, we must submit biologics license applications to the FDA to obtain approval of our products. In a process which generally takes several years, the FDA reviews this application and, when and if it decides that adequate data is available to show that the new compound is both safe and effective and that all other applicable requirements have been met, approves the drug or biologic for marketing. The amount of time taken for this approval process is a function of a number of variables, including the quality of the submission and studies presented, the potential contribution that the compound will make in improving the treatment of the disease in question, and the workload at the FDA. It is possible that our product candidates will not successfully proceed through this approval process or that the FDA will not approve them in any specific period of time.

      Congress enacted the Food and Drug Administration Modernization Act of 1997, in part, to ensure the availability of safe and effective drugs, biologics and medical devices by expediting the FDA review process for new products. The Modernization Act establishes a statutory program for the approval of fast-track products, including biologics. A fast-track product is defined as a new drug or biologic intended for

the treatment of a serious or life-threatening condition that demonstrates the potential to address unmet medical needs for this condition. Under the fast-track program, the sponsor of a new drug or biologic may request the FDA to designate the drug or biologic as a fast-track product at any time during the clinical development of the product, prior to marketing approval.

      The Modernization Act specifies that the FDA must determine if the product qualifies for fast-track designation within 60 days of receipt of the sponsor’s request. The FDA can base approval of a marketing application for a fast-track product on an effect, on a surrogate endpoint, or on another endpoint that is reasonably likely to predict clinical benefit. The FDA may subject approval of an application for certain fast-track products to post-approval studies to validate the surrogate endpoint or confirm the effect on the clinical endpoint and prior review of all promotional materials. In addition, the FDA may withdraw its approval of a fast-track product on a number of grounds, including the sponsor’s failure to conduct any required post-approval study with due diligence.

      If a preliminary review of clinical data suggests that a fast-track product may be effective, the FDA may initiate review of entire sections of a marketing application for a fast-track product before the sponsor completes the application. This rolling review is available if the applicant provides a schedule for submission of remaining information and pays applicable user fees. However, the time periods specified under the Prescription Drug User Fee Act concerning timing goals to which the FDA has committed in reviewing an application, do not begin until the sponsor submits the entire application.

      The FDA may, during its review of a new drug application or biologics license application, ask for additional test data. If the FDA does ultimately approve a product, it may require post-marketing testing, including potentially expensive Phase IV studies, and surveillance to monitor the safety and effectiveness of the drug. In addition, the FDA may in some circumstances impose restrictions on the use of an approved drug, which may be difficult and expensive to administer, and may require prior approval of promotional materials.

      Before approving a new drug application or biologics license application, the FDA also will inspect the facilities at which the product is manufactured and will not approve the product unless the manufacturing facilities are in compliance with guidelines for the manufacture, holding, and distribution of a product. Following approval, the FDA periodically inspects drug and biologic manufacturing facilities to ensure continued compliance with manufacturing guidelines. Manufacturers must continue to expend time, money and effort in the areas of production, quality control, record keeping and reporting to ensure full compliance with those requirements. The labeling, advertising, promotion, marketing and distribution of a drug or biologic product must also be in compliance with FDA regulatory requirements. Failure to comply with applicable requirements can lead to the FDA demanding that production and shipment cease, and, in some cases, that the manufacturer recall products, or to FDA enforcement actions that can include seizures, injunctions and criminal prosecution. These failures can also lead to FDA withdrawal of approval to market the product.

      We, and our partners, are also subject to regulation by the Occupational Safety and Health Administration, the Environmental Protection Agency, the Nuclear Regulatory Commission and other foreign, federal, state and local agencies under various regulatory statutes, and may in the future be subject to other environmental, health and safety regulations that may affect our research, development and manufacturing programs. We are unable to predict whether any agency will adopt any regulation, which could limit or impede on our operations.

      Sales of pharmaceutical products outside the United States are subject to foreign regulatory requirements that vary widely from country to country. Whether or not we have obtained FDA approval, we must obtain approval of a product by comparable regulatory authorities in foreign countries prior to the commencement of marketing the product in those countries. The time required to obtain this approval may be longer or shorter than that required for FDA approval. The foreign regulatory approval process includes all the risks associated with FDA regulation set forth above, as well as country-specific regulations.

      Beginning in September 2002, we reduced our research and administrative staff approximately 94%, from 67 employees to a remaining staff of four full-time employees, as of April 14, 2005. Each of our employees has signed a confidentiality and invention assignment agreement, and none are covered by a collective bargaining agreement. We have never experienced employment-related work stoppages and consider our employee relations to be positive.

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

      As of April 14, 2005, we have approximately $487,000 in cash. We believe, based on recurring operating and associated financing costs, our cash will be sufficient to fund our operations through approximately May 25, 2005. For operating capital after that date we intend to seek additional funds from Toucan Capital who is not obligated to provide any further funds to us. Any additional financing with Toucan Capital or any other third party is likely to be dilutive to our stockholders, and any debt financing, if available, may include additional restrictive covenants. If we are unable to obtain significant additional capital in the near-term, we may cease operations at anytime. We do not believe that our assets would be sufficient to satisfy the claims of all of our creditors in full. Therefore, if we were to pursue a liquidation it is highly unlikely that any proceeds would be received by our stockholders.

      Our independent auditors have indicated in their report on our December 31, 2004 financial statements included in this report that there is substantial doubt about our ability to continue as a going concern. A “going concern” opinion indicates that the financial statements have been prepared assuming we will continue as a going concern and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. Therefore, you should not rely on our consolidated balance sheet as an indication of the amount of proceeds that would be available to satisfy claims of creditors, and potentially be available for distribution to stockholders, in the event of a liquidation.

      Due to rising insurance premiums for most business insurance coverage, our reduced level of operating activity, and reduced liability exposure through the cessation of all clinical trials, we lowered the levels of all of our insurance coverage. Making a material reduction in our insurance coverage may make it difficult for us to acquire new directors and officers, and will also result in increased exposure to potential liabilities arising from any future litigation, either of which may materially harm our business and results of operations.

      We have incurred net losses every year since our incorporation in July 1998 and, as of December 31, 2004, we had a deficit accumulated during the development stage of approximately $72.8 million. We have had net losses applicable to common stockholders as follows:

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

      We have had a limited operating history and are still in development. We may not be able to achieve revenue growth in the future. We have generated the following limited revenues:

      We have derived most of these limited revenues from:

      In the future, we anticipate that revenues, if any, will be derived through grants, partnering agreements, and, ultimately, the commercialization of our product candidates.

      Since September 2002, we reduced our research and administrative staff approximately 94%, from 67 employees to a remaining staff of four full-time employees, as of April 14, 2005. The uncertainty of our cash position, workforce reductions, the volatility in our stock price and our recent asset sales may create anxiety and uncertainty, which may adversely affect employee morale and cause us to lose employees whom we would prefer to retain or prevent us from hiring qualified staff. To the extent that we are unable to retain our existing personnel, our business and financial results may suffer.

                  Failure to obtain regulatory approval for one or more of our product candidates could significantly harm our business.

      All of our product candidates are still under development. None of our product candidates will be commercially available prior to FDA approval. Significant further financial resources and personnel will be required to develop commercially viable products and obtain regulatory approvals. Much of our efforts and expenditures over the next few years will be devoted to completing the last clinical trials and seeking FDA approval for our lead product candidates, DCVax-Prostate and DCVax-Brain.

      Success in pre-clinical studies and prior clinical trials does not ensure that subsequent large-scale trials will likewise be successful, nor is it a basis for predicting final results. A number of companies in the biotechnology industry have suffered significant setbacks in advanced clinical trials, even after promising

results have been achieved in earlier trials. Failure to obtain Food and Drug Administration, or FDA, approval for one or more of our product candidates could significantly harm our business.

      We have no manufacturing facilities nor expertise to produce our product candidates. We have never manufactured, on a commercial scale, any of our product candidates. We currently have manufacturing arrangements in place with a contract manufacturer (Cognate Therapeutics). However, we may not be able to enter into agreements with contract manufactures for the manufacture of any of our product candidates at a reasonable cost or in sufficient quantities to be profitable.

      The commercial success of any of our product candidates will depend upon the strength of our sales and marketing efforts. We do not have a sales force and have no experience in the sales, marketing or distribution of products. To fully commercialize our product candidates, we will need to create a substantial marketing staff and sales force with technical expertise and the ability to distribute these products. As an alternative, we could seek assistance from a third party with a large distribution system and a large direct sales force. We may be unable to put either of these plans in place. In addition, if we arrange for others to market and sell our products, our revenues will depend upon the efforts of those parties. Such arrangements may not succeed. If we fail to establish adequate sales, marketing and distribution capabilities, independently or with others, our business will be seriously harmed.

      The success of our business strategy may partially depend upon our ability to develop and maintain multiple partnerships and to manage them effectively. The success of our restructured operations will depend on our ability to attract partners to our research initiatives. Due to concerns regarding our ability to continue operations, these third parties may decide not to conduct business with us, or may conduct business with us on terms that are less favorable than those customarily extended by them. If either of these events occurs, our business will suffer significantly.

      Our success depends partially upon the performance of our partners. We cannot directly control the amount and timing of resources that our existing or future partners devote to the research, development or marketing of our product candidates. As a result, those partners:

      We may have disputes with our partners, which could be costly and time consuming. Our failure to successfully defend our rights could seriously harm our business, financial condition and operating results. We intend to continue to enter into partnerships in the future. However, we may be unable to successfully negotiate any additional partnerships and any of these relationships, if established, may not be scientifically or commercially successful.

      We also work with scientists and medical professionals at academic and other institutions, including the University of California, Los Angeles, M.D. Anderson Cancer Center, and the H. Lee Moffitt Cancer Center some of whom have conducted research for us or assist us in developing our research and

development strategy. These scientists and medical professionals are not our employees. They may have commitments to, or contracts with, other businesses or institutions that limit the amount of time they have available to work with us. We have little control over these individuals. We can only expect them to devote to our projects the amount of time required by our license, consulting and sponsored research agreements. In addition, these individuals may have arrangements with other companies to assist in developing technologies that may compete with ours. If these individuals do not devote sufficient time and resources to our programs, our business could be seriously harmed.

      The biotechnology and biopharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. Several companies, such as Cell Genesys, Inc., Dendreon Corporation and Immuno-Designed Molecules, Inc., are actively involved in the research and development of cell-based cancer therapeutics. Additionally, several companies, such as Abgenix, Inc., Agensys, Inc., and Genentech, Inc., are actively involved in the research and development of monoclonal antibody-based cancer therapies. Currently, at least seven antibody-based products are approved for commercial sale for cancer therapy. Genentech is also engaged in several Phase III clinical trials for additional antibody-based therapeutics for a variety of cancers, and several other companies are in early stage clinical trials for such products. Many other third parties compete with us in developing alternative therapies to treat cancer, including:

      Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, pre-clinical testing, conducting clinical trials, obtaining regulatory approvals and marketing than we do. In addition, many of these competitors have become active in seeking patent protection and licensing arrangements in anticipation of collecting royalties for use of technology they have developed. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, as well as in acquiring technologies complementary to our programs.

      We expect that our ability to compete effectively will be dependent upon our ability to:

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

      We rely on patent, copyright, trade secret and trademark laws to limit the ability of others to compete with us using the same or similar technology in the United States and other countries. However, as described below, these laws afford only limited protection and may not adequately protect our rights to the extent necessary to sustain any competitive advantage we may have. The laws of some foreign countries do not protect proprietary rights to the same extent as the laws of the United States, and we may encounter significant problems in protecting our proprietary rights in these countries.

      We have 14 issued and licensed patents (seven in the United States and seven in foreign jurisdictions) and 105 patent applications pending (19 in the United States and 86 in foreign jurisdictions) which cover the use of dendritic cells in DCVax as well as targets for either our dendritic cell or fully human monoclonal antibody therapy candidates. The issued patents expire at dates from 2015 to 2018.

      We will only be able to protect our technologies from unauthorized use by third parties to the extent that they are covered by valid and enforceable patents or are effectively maintained as trade secrets. The patent positions of companies developing novel cancer treatments, including our patent position, generally are uncertain and involve complex legal and factual questions, particularly concerning the scope and enforceability of claims of such patents against alleged infringement. Recent judicial decisions are prompting a reinterpretation of the limited case law that exists in this area, and historical legal standards surrounding questions of infringement and validity may not apply in future cases. A reinterpretation of existing law in this area may limit or potentially eliminate our patent position and, therefore, our ability to prevent others from using our technologies. The biotechnology patent situation outside the United States is even more uncertain. Changes in either the patent laws or in interpretations of patent laws in the United States and other countries may therefore diminish the value of our intellectual property.

      We own or have rights under licenses to a variety of issued patents and pending patent applications. However, the patents on which we rely may be challenged and invalidated, and our patent applications may not result in issued patents. Moreover, our patents and patent applications may not be sufficiently broad to prevent others from practicing our technologies or from developing competing products. We also face the risk that others may independently develop similar or alternative technologies or design around our patented technologies.

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

      Our success will depend to a substantial degree upon our ability to develop, manufacture, market and sell our research products and product candidates without infringing the proprietary rights of third parties and without breaching any licenses we have entered into regarding our product candidates.

      There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and biopharmaceutical industries generally. Infringement and other intellectual property claims, with or without merit, can be expensive and time-consuming to litigate and can divert

management’s attention from our core business. We may be exposed to future litigation by third parties based on claims that our products infringe their intellectual property rights. This risk is exacerbated by the fact that there are numerous issued and pending patents in the biotechnology industry and the fact that the validity and breadth of biotechnology patents involve complex legal and factual questions for which important legal principles remain unresolved.

      Third parties may assert that our products and the methods we employ are covered by U.S. or foreign patents held by them. In addition, because patent applications can take many years to issue, there may be currently pending applications, unknown to us, which may later result in issued patents that we may infringe. There could also be existing patents of which we are not aware that we may inadvertently infringe.

      If we lose a patent infringement lawsuit, we could be prevented from commercialing product candidates unless we can obtain a license to use technology or ideas covered by such patent or are able to redesign our products to avoid infringement. A license may not be available at all or on terms acceptable to us, or we may not be able to redesign our products to avoid any infringement. If we are not successful in obtaining a license or redesigning our products, we may be unable to commercialing our product candidates and our business could suffer.

      We store, handle, use and dispose of controlled hazardous, radioactive and biological materials in our business. Our current use of these materials generally is below thresholds giving rise to burdensome regulatory requirements. Our development efforts, however, may result in our becoming subject to additional requirements, and if we fail to comply with applicable requirements we could be subject to substantial fines and other sanctions, delays in research and production, and increased operating costs. In addition, if regulated materials were improperly released at our current or former facilities or at locations to which we send materials for disposal, we could be strictly liable for substantial damages and costs, including cleanup costs and personal injury or property damages, and incur delays in research and production and increased operating costs.

      Insurance covering certain types of claims of environmental damage or injury resulting from the use of these materials is available but can be expensive and is limited in its coverage. We have no insurance specifically covering environmental risks or personal injury from the use of these materials and if such use results in liability, our business may be seriously harmed.

      Toucan Capital and our executive officers, and directors and entities affiliated with them, in the aggregate, beneficially owned approximately 93.7% of our capital stock and shares of capital stock issuable pursuant to convertible notes, options and warrants exercisable as of April 14, 2005. The notes held by Toucan Capital are currently convertible into common stock or series A preferred stock at Toucan’s election, at the price of $0.04 per share and the series A stock is similarly convertible into common stock. Finally, the warrants held by Toucan are exercisable at exercise prices ranging from $0.01 to $0.04 per share. This significant concentration of ownership may adversely affect the trading price for our common stock because investors often perceive disadvantages in owning stock in companies with controlling stockholders. Company management and Toucan Capital, have the ability to exert substantial influence over all matters requiring approval by our stockholders, including the election and removal of directors and any proposed merger, consolidation or sale of all or substantially all of our assets. In addition, they can dictate the management of our business and affairs. This concentration of ownership could have the effect of delaying, deferring or preventing a change in control, or impeding a merger or consolidation, takeover or other business combination that could be favorable to you.

      On December 14, 2001, our common stock was listed on the NASDAQ National Market. Prior to that time there was no public market for our common stock. On December 23, 2002, we were delisted from the NASDAQ National Market and our common stock is currently listed on the Over The Counter Bulletin Board (OTCBB), which is generally recognized as being a less active market than the NASDAQ National Market. You may not be able to sell your shares at the time or at the price desired.

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

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

      Our amended and restated certificate of incorporation, bylaws and stockholder rights plan contain provisions that could delay or prevent a change in our management team. Some of these provisions:

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

      Toucan Capital has the right, as of April 14, 2005, to convert principal and interest on the loans to acquire up to 127.4 million shares of our capital stock and has the right to acquire up to 116.0 million shares upon exercise of related warrants, inclusive of the 13.0 million series A warrants. Including the 32.5 million of series A preferred stock held by Toucan Capital, they have beneficial ownership of approximately 275.9 million shares of our capital stock, representing a beneficial ownership of approximately 93.4%. Toucan Capital has a right of first refusal to participate in our future issuances of debt or equity securities.

      In addition, under the terms of our recapitalization agreement, we are required to consult with Toucan Capital on how we conduct many aspects of our business. As a result, Toucan Capital has significant authority over how we conduct our business, and with its stock acquisition rights, could influence or control all matters requiring stockholder approval. This control may cause us to conduct our business differently from the way we have in the past. The concentration of ownership may also delay, deter or prevent acts that would result in a change in control, which, in turn, could reduce the market price of our common stock.

      We maintain our headquarters in Bothell, Washington where we sublease approximately 5,047 square feet of general administration space. Our lease expires on December 31, 2005. We assigned the lease to another party, but we remain primarily liable for the performance of the provisions and obligations under the original June 18, 2003 lease, with Benaroya, in the event the assignee defaults on the lease.

      We are presently party to an arbitration proceeding with Soma Partners, LLC, an investment bank located in New Jersey. We were parties with Soma to an engagement letter dated October 15, 2003 pursuant to which we engaged them to locate potential investors. Pursuant to the terms of the engagement letter, any disputes arising between the parties would be submitted to arbitration in the New York metropolitan area. Soma filed an arbitration statement of claim against us with the American Arbitration Association in New York, NY claiming unpaid commission fees of $186,000 and seeking declaratory relief regarding potential fees for future transactions which may be undertaken by us with Toucan Capital.

      The arbitration proceedings occurred from March 8-10, 2005 and the arbitrator has indicated he will issue his ruling before approximately May 25, 2005. Soma has filed an amended arbitration statement of claim claiming unpaid commission fees of $339,000, as well as warrants to purchase 6% of the aggregate securities issued, and seeking declaratory relief regarding potential fees for future financing transactions which may be undertaken by us with Toucan Capital and others. If Soma were to prevail, the arbitrator could also award its attorneys’ fees and costs related to the proceedings. The arbitrator might also award declaratory relief to Soma regarding potential fees for future financing transactions that may be undertaken by us with Toucan Capital and others. We strongly dispute Soma’s claims and are defending ourselves.

      We held our annual meeting of stockholders on December 17, 2004. There were five proposals submitted to stockholders for their approval. The proposals included:

      All proposals were approved as follows:

PART II

Market Information and Price Range of Common Stock

      Our common stock is quoted on the OTC Bulletin Board under the symbol “NWBT.OB” Public trading of our common stock commenced on December 14, 2001 on the NASDAQ National Market. Prior to that time, there was no public market for our stock. On December 23, 2002, we were delisted from NASDAQ and subsequently commenced trading on the OTC Bulletin Board. The following table summarizes our common stock’s high and low sales prices for the periods indicated as reported by either the NASDAQ National Market or OTC Bulletin Board, as applicable. These prices do not include retail markups, markdowns or commissions.

      As of December 31, 2004, there were approximately 254 holders of record of our common stock. Such holders include any broker or clearing agencies as holders of record but exclude the individual stockholders whose shares are held by brokers or clearing agencies.

Dividend Policy

      We have never declared or paid cash dividends on our capital stock. We currently intend to retain future earnings, if any, to fund the development and growth of our business and do not currently anticipate paying any cash dividends in the foreseeable future. The payment of future dividends, if any, will be determined by our board of directors.

Recent Sale of Unregistered Securities

      On December 9, 2002, we entered into an agreement with Medarex wherein we sold certain of our intellectual property to Medarex in exchange for certain of their intellectual property and $3.0 million, consisting of $1.0 million in cash and two payments of $1.0 million each payable in common stock. We realized a total of $3.0 million in cash as all of the forgoing shares were sold within 30 days of their issuance in 2003. Additionally, as part of this transaction, a $400,000 debt to Medarex was forgiven. Pursuant to this agreement, we issued to Medarex 2.0 million unregistered shares of our common stock issued as follows: on December 26, 2002, we issued 1.0 million shares; on January 8, 2003 we issued 500,000 shares; and on February 9, 2003 we issued the final 500,000 shares. Also in conjunction with this agreement, we issued Medarex warrants to purchase unregistered common stock as follows: on

December 26, 2002, we issued a warrant to purchase 400,000 shares at an exercise price of $0.216 per share; on January 8, 2003, we issued a warrant to purchase 200,000 shares at an exercise price of $0.177 per share; and on February 9, 2003 we issued the final warrant to purchase 200,000 shares of our 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.

      We estimated the fair value of the 800,000 warrant shares to be $159,678 on the date of grant and as of December 31, 2002, one-half of the warrant value, $79,839, was recognized as an increase to our additional paid in capital and $79,839 was recognized as a long term liability, for the 400,000 warrant shares to be issued in fiscal 2003. Our net gain recognized on this transaction was $2.8 million made up of the receipt of $3.0 million of cash and stock and forgiveness of the $400,000 payable offset by the issuance of 2.0 million shares of unregistered common stock and warrants to purchase 800,000 shares of our common stock valued at approximately $560,000.

      On June 30, 2003, we entered into a settlement agreement with Nexus Canyon Park, LLC, our prior landlord. Under this settlement agreement, Nexus Canyon Park agreed to permit premature termination of our lease and excused us from future performance of lease obligations in exchange for 90,000 shares of our unregistered common stock and Nexus’ retention of our $1.0 million cash deposit. The settlement agreement resulted in an additional loss on facility sublease and lease termination of $174,000, net of deferred rent of $203,000, for the year ended December 31, 2003.

      On November 13, 2003, we borrowed an aggregate of $335,000 from the following five members of our management:

      The notes initially had a 12-month term, accrue interest at an annual rate equal to the prime rate plus 2% and were initially secured by substantially all of our assets not otherwise collateralized. We repaid $50,000, including interest of $1,674, on June 1, 2004 and repaid an additional $50,000, including interest of $4,497, on February 24, 2005. In connection with our April 26, 2004 recapitalization agreement with Toucan Capital, holders of notes representing 70% of the principal amount agreed to amend to the notes to set the conversion price of the amended notes at $0.10 per share and to amend the maturity date to May 12, 2005. The maturity date for these notes was subsequently changed to July 12, 2005.

      As part of these management loans, the lenders received warrants initially exercisable to acquire an aggregate of 3.7 million shares of our common stock subject to certain antidilution adjustments, expiring November 2008, at an exercise price to be determined as follows: (i) in the event that we completed an offering of our common stock generating gross proceeds to us of at least $1 million, then the price per share paid by investors in that offering; or (ii) if we did not complete such an offering, then $0.18, which

was the closing price of our common stock on the date of the financing. In connection with the April 26, 2004 recapitalization agreement, certain members of management who held warrants agreed to an amendment to their warrants issued in the November 13, 2003 financing. The purpose of the amendment was to remove the anti-dilution provisions and set the warrant exercise price at the lesser of (i) $0.10 per share or (ii) a 35% discount to the average closing price during the twenty trading days prior to the first closing of the sale by us of convertible preferred stock as contemplated by the recapitalization agreement but not less than $0.04 per share.

      From February 1, 2004 through April 14, 2005, we have issued nine promissory notes to Toucan Capital pursuant to which Toucan Capital has loaned us an aggregate of $4.8 million. Toucan Capital has the right, as of April 14, 2005, to convert principal and interest on the loans to acquire up to 127.4 million shares of our capital stock and has the right to acquire up to 116.0 million shares upon exercise of related warrants, inclusive of the 13.0 million series A warrants. Including the 32.5 million of series A preferred stock held by Toucan Capital, they have beneficial ownership of approximately 275.9 million shares of our capital stock, representing a beneficial ownership of approximately 93.4%. Toucan Capital has a right of first refusal to participate in our future issuances of debt or equity securities. The notes accrue interest at the rate of 10% per annum, compounding annually, computed on a 365-day year, have a 12 month term, and are secured by first priority senior security interest in all of our assets.

      In connection with each of the financings, we and Toucan Capital agreed to the allocation of the aggregate investment amounts among the notes and warrants for tax purposes.

      The notes issued February 2, March 1, and April 26, 2004 to Toucan Capital were subsequently amended to change their respective maturity dates to June 26, 2005.

      Pursuant to our restated recapitalization agreement, as amended, Toucan Capital may, at any time and in its sole discretion, convert any or all of the principal and/or interest due on any or all of the notes into any equity or debt security authorized for issuance by us. Under the notes, the conversion price for a discretionary conversion is the lowest of: (i) the lowest nominal or effective price per share paid by any investor at any time on or after April 26, 2003 (with the exception of certain options held by members of the board of directors outstanding as of the effective date, and shares issuable upon the exercise of the warrants); (ii) the lowest nominal or effective price at which any investor is entitled to acquire our shares pursuant to any other security, instrument, or promise, undertaking, commitment, agreement or letter of intent outstanding on or after the effective date or granted, issued, extended or otherwise made available by us at any time on or after April 26, 2003 (with the exception of certain options held by members of the board of directors outstanding as of the effective date and the warrants); and (iii) the lesser of $0.10 per share or a 35% discount to the average closing price per share of our common stock during any twenty consecutive trading days beginning with the twenty consecutive trading days immediately preceding the effective date (with the limitation that the conversion price (iii) will be no less than $0.04 per share). If the currently outstanding notes had been converted into common stock on the date of filing this schedule, the conversion price would have been $0.04 per share pursuant to the above calculation.

      In addition to the optional conversion described above, the notes are automatically convertible into shares of convertible preferred stock upon the closing of a financing pursuant to which we sell 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 related term sheet. The conversion price for such an automatic conversion is the lowest nominal or effective price per share paid by any investor other than Toucan Capital who purchases convertible preferred stock.

      If we complete a financing upon the terms described above, Toucan Capital’s warrants will be exercisable only for shares of convertible preferred. Until such event, if any, the warrants will be exercisable for any debt or equity security authorized for issuance by us. 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 we sell or are deemed to have sold shares below the then applicable exercise price.

      On January 26, 2005 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 series A preferred stock:

      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 which is 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 connection with Toucan Capital’s purchase of series A preferred stock, we issued them a warrant, with a 7-year term, to purchase up to 13.0 million shares of series A preferred stock with an exercise price of $0.04 per share. 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.

      The following table shows selected financial data for each of the years ending December 31, 2000 to December 31, 2004 and for the period from our inception through December 31, 2004 and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our financial statements and notes thereto and other financial information included elsewhere in this Annual Report on Form 10-K.

      The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the notes to those statements included with this annual report. In addition to historical information, this report contains forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. The words “believe,” “expect,” “intend,” “anticipate,” and similar expressions are used to identify forward-looking statements, but some forward-looking statements are expressed differently. Many factors could affect our actual results, including those factors described under “Factors That May Affect Results of Operations and Financial Condition.” These factors, among others, could cause results to differ materially from those presently anticipated by us. You should not place undue reliance on these forward-looking statements.

Overview

      We have experienced recurring losses from operations, have a working capital deficit of $5.4 million and have a deficit accumulated during the development stage of $72.8 million at December 31, 2004.

      On April 26, 2004 we entered into a recapitalization agreement with Toucan Capital which contemplates the possible recapitalization of our company. At Toucan Capital’s option, and if successfully implemented, the recapitalization could provide us with up to $40 million through the issuance of new securities to Toucan Capital and a syndicate of other investors. Following the recapitalization, Toucan Capital and the investor syndicate would potentially own, on a combined basis, over 90% of our outstanding capital stock.

      As part of our recapitalization plan we borrowed $4.8 million from Toucan Capital, from February 2, 2004 through April 12, 2005, comprised of the following transactions:

The notes are secured by a first priority senior security interest in all of our assets.

      On January 26, 2005, 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.

      On January 26, 2005, Toucan Capital also purchased a warrant to purchase 13.0 million shares of series A preferred stock, with an exercise price of $0.04 per share. The warrant has a 7-year term. 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.

      Our financial statements for the year ended December 31, 2004 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. Nevertheless, we have experienced recurring losses from operations and have a deficit accumulated during the development stage of $72.8 million that raises substantial doubt about our ability

to continue as a going concern and our auditors have issued an opinion, for the year ended December 31, 2004, which states that there is substantial doubt about our ability to continue as a going concern.

      If we are able to continue as a restructured company, we intend to advance our dendritic cell-based product and monoclonal antibody candidates, pursue potential corporate partnerships for our monoclonal antibody candidates, and further consider other alternatives including the possible sale of some or all of our assets.

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

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

      From our inception through December 31, 2004, we incurred costs of approximately $27.6 million associated with our research and development activities. Because our technologies are unproven, we are unable to estimate with any certainty the costs we will incur in the continued development of our product candidates for commercialization.

      General and administrative expenses include salary and benefit expenses related to administrative personnel, cost of facilities, insurance, legal support, as well as amortization costs of stock options granted to employees and warrants issued to consultants for their professional services.

      To date, our revenues have primarily been derived from the manufacture and sale of research materials, contract research and development services and research grants from the federal government. For the year ended December 31, 2004, we earned approximately $52,000 in revenues from the manufacture and sale of research materials. All research material sales prior to 2002 were to one customer and sales to this one customer peaked at $129,000 in 2001.

Critical Accounting Policies and Estimates

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

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

      Consequently, we recognized, for the year ended December 31, 2002, a liability of approximately $929,000 and a loss on facility sublease of $721,000, net of deferred rent write off in estimating the loss of economic benefit from vacating approximately 22,000 square feet of laboratory and administrative space at our prior facility.

      On June 30, 2003, we entered into a settlement agreement with Nexus Canyon Park, our prior landlord. Under this Settlement Agreement, Nexus Canyon Park agreed to permit premature termination of our prior lease and excuse us from future performance of lease obligations in exchange for 90,000 shares of our unregistered common stock with a fair value of $35,000 and Nexus’ retention of our $1.0 million 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. FASB 146 Accounting for Costs Associated with Exit or Disposal Activities has replaced EITF 94-3 but similar charges may occur if we have to cancel our current lease or enter into other restructuring transactions.

      We also determine our employee stock option compensation costs as the difference between the estimated fair value of our common stock and the exercise price of options on their date of grant. Prior to our initial public offering, our common stock was not actively traded. The fair value of our common stock for purposes of determining compensation expense for this period was determined based on our review of the primary business factors underlying the value of our common stock on the date such option grants were made, viewed in light of the expected initial public offering price per share prior to the initial public offering of our common stock. The actual initial public offering price was significantly lower than the expected price used in determining compensation expense. Also, on an ongoing basis the estimate of expense for stock options and warrants is dependant on factors such as expected life and volatility of our stock. To the extent actual expense is different than that estimated, the actual expense that would have been recorded may be substantially different.

Results of Operations

Year Ended December 31, 2003 Compared to the Year Ended December 31, 2004

      Total Revenues. Revenues decreased from $529,000 for the year ended December 31, 2003 to $390,000 for the year ended December 31, 2004. The research material sales component of revenue increased from $24,000 for the year ended December 31, 2003 to $52,000 for the year ended December 31, 2004. There were no license fees for the year ended December 31, 2004. Research grant income decreased from $480,000 for the year ended December 31, 2003 to $338,000 for the year ended December 31, 2004. This decrease in grant revenue was attributable to the cessation of one research grant award in the first quarter of 2004.

      Cost of Research Material Sales. Cost of research material sales decreased from $79,000 for the year ended December 31, 2003 to $40,000 for the year ended December 31, 2004. This decrease was due to lower direct labor costs. We may discontinue our efforts to generate these sales.

      Research and Development Expense. Research and development expense increased 125% from $1.6 million for the year ended December 31, 2003 to $3.6 million for the year ended December 31, 2004. This increase was primarily due to increased expenditures for consultants in preparation of and filing an IND with the FDA and for entering into a service agreement for drug manufacturing, regulatory advice, research & development related to preclinical activities.

      General and Administrative Expense. General and administrative expense decreased 29.3% from $4.1 million for the year ended December 31, 2003 to $2.9 million for the year ended December 31, 2004. This decrease was primarily due to the October 9, 2002 directive from our Board of Directors to initiate immediate actions to conserve cash and the resulting staff reductions.

      Depreciation and Amortization. Depreciation and amortization decreased 36.2% from $207,000 for the year ended December 31, 2032 to $132,000 for the year ended December 31, 2004. This decrease was primarily due to the disposal or impairment of $337,000 of property and equipment in the third and fourth quarters 2004.

      Loss on Facility Sublease and Lease Cancellation. The lease cancellation costs of $174,000 for the year ended December 31, 2003 are associated with the June 30, 2003 termination of our primary lease at our former facility and release from future lease obligations thereunder.

      Asset Impairment Loss. Asset disposal costs decreased from $904,000 for the year ended December 31, 2003 to $130,000 for the year ended December 31, 2004. This decrease was primarily related to the write-off of unused property & equipment associated with our vacating a 14,000 square foot lab and administrative space and entering a sublease for approximately 5,047 square feet of administrative space whereby such assets will not be utilized.

      Total Other Income (Expense), Net. Interest expense increased from $73,000 for the year ended December 31, 2003 to $1.8 million for the year ended December 31, 2004. This increase was due primarily to recognizing interest expense relative to the debt discount and interest accretion associated with the

November 13, 2003 secured convertible promissory note and warrant financing and the loans from Toucan Capital. Interest income decreased from $23,000 for the year ended December 31, 2003 to $3,000 for the year ended December 31, 2004. This decrease was primarily due to having comparable lower average cash balances during the year ended 2004.

      Our total committed outstanding obligations for shares of common stock exceeded our authorized shares on July 30, 2004 when an additional $2.0 million loan, convertible into common stock, was received from Toucan Capital and a warrant was issued. The fair value of the warrant in excess of the authorized shares was approximately $2.8 million and was recognized as a liability on July 30, 2004. This liability must be revalued at each reporting date with any change in valuation included in other income/(expense) until such time as enough shares are authorized to cover all potentially convertible instruments. Our stock price declined from $0.04 at July 30, 2004 to $0.03 at September 30, 2004 resulting in a warrant valuation gain of approximately $717,000 recognized for the quarter ended September 30, 2004. Additional warrant liability of approximately $1.5 million was recognized for the respective fair market valuations of the additional loans, convertible into shares, received from Toucan Capital, with warrants, on October 22, November 10, and December 27, 2004, for the year ended December 31, 2004. The aggregate shares by which we exceeded our authorized shares were required to be re-valued when our shareholder approved increase in our authorized shares, from 125 million to 400 million shares, was recorded on December 29, 2004 with the Secretary of State of Delaware. The approximate $1.0 million change in fair market valuation during the fourth quarter was recognized in other income as additional expense resulting in a net increase in other income/(expense) of approximately $368,000 for the year ended December 31, 2004. The warrant liability of approximately $4.7 million was reclassified to equity upon approval of the additional authorized shares.

      Gain on Sale of Intellectual Property. The $816,000 gain was realized on the sale of royalty rights for the year ended December 31, 2003 and was based on the expected discounted net present value of the future 2% royalty obligation under that certain assignment and license agreement dated December 9, 2002 with Medarex and was received in cash on July 1, 2003.

Year Ended December 31, 2002 Compared to the Year Ended December 31, 2003

      In late 2002, we initiated actions to conserve cash and restructured our operations. Our staffing was reduced by sixty-three positions and, as of December 31, 2003, our remaining staff consisted of seven full-time employees, three in administration and four in research. As a result, expenses decreased from those incurred in 2002 as discussed below.

      Total Revenues. Revenues increased from $9,000 for the year ended December 31, 2002 to $529,000 for the year ended December 31, 2003. The research material sales component of revenue increased from $9,000 for the year ended December 31, 2002 to $24,000 for the year ended December 31, 2003. The license fees component of revenue increased from $0 for the year ended December 31, 2002 to $25,000 for the year ended December 31, 2003. Research grant income is the remaining revenue component which increased from $0 for the year ended December 31, 2002 to $480,000 for the year ended December 31, 2003. This increase in grant revenue was attributable to the receipt of research grant awards in the first and second quarters of 2003.

      Cost of Research Material Sales. Cost of research material sales increased from $7,000 for the year ended December 31, 2002 to $79,000 for the year ended December 31, 2003. This increase was due to increased direct labor costs attributed to our entry into the sale of research reagents. We are unable to project when, if ever, our sales of research materials will attain profitability.

      Research and Development Expense. Research and development expense decreased 73.3% from $6.0 million for the year ended December 31, 2002 to $1.6 million for the year ended December 31, 2003. This decrease was primarily due to the November 2002 suspension of all clinical trial activity for our DCVax product candidates and the withdrawal of our Investigational New Drug Application for DCVax-Prostate, and for DCVax-Lung.

      General and Administrative Expense. General and administrative expense decreased 45.3% from $7.5 million for the year ended December 31, 2002 to $4.1 million for the year ended December 31, 2003. This decrease was primarily due to the October 9, 2002 directive from our Board of Directors to initiate immediate actions to conserve cash and the resulting staff reductions.

      Depreciation and Amortization. Depreciation and amortization decreased 65.1% from $593,000 for the year ended December 31, 2002 to $207,000 for the year ended December 31, 2003. This decrease was primarily due to the disposal or impairment of $1.0 million of equipment and leasehold improvements in the fourth quarter 2002 and approximately $904,000, net of equipment and leasehold improvements write-offs, for the year ended December 31, 2003.

      Loss on Facility Sublease and Lease Cancellation. Lease cancellation costs decreased 75.9% from $721,000 for the year ended December 31, 2002 to $174,000 for the year ended December 31, 2003 and are associated with the June 30, 2003 termination of our primary lease at our former facility and release from future lease obligations there under.

      Asset Impairment Loss. Asset disposal costs decreased 10.0% from $1.0 million for the year ended December 31, 2002 to $904,000 for the year ended December 31, 2003. This decrease was primarily related to the write-off of leasehold improvements and equipment associated with the June 30, 2003 termination of our primary lease at our previous 38,000 square foot facility and our resulting move to another facility of approximately 14,000 square feet whereby such assets will not be utilized.

      Total Other Income (Expense), Net. Other income (expense), net, consists primarily of gain on sale of intellectual property discussed below. In addition, interest expense increased 92.1% from $38,000 for the year ended December 31, 2002 to $73,000 for the year ended December 31, 2003. This increase was due primarily to recognizing approximately $42,000 of interest expense relative to the debt discount associated with the November 13, 2003 secured convertible promissory note and warrants debt financing. Interest income decreased 85.3% from $157,000 for the year ended December 31, 2002 compared to $23,000 for the year ended December 31, 2003. This decrease was primarily due to the decline in market interest rates and having lower average cash balances during the year ended December 31, 2003.

      Gain on Sale of Intellectual Property. The December 31, 2002 gain of $2.8 million was recognized on the sale of intellectual property which relates to the December 2002 Assignment and Licensing agreement with Medarex in which we received $3.0 million in working capital and $400,000 of accrued liabilities to Medarex were forgiven offset by the issuance of 2.0 million shares of unregistered common stock and warrants to purchase 800,000 shares of common stock. The stock and warrants were valued at a combined total of approximately $560,000. The $816,000 gain was realized on the sale of royalty rights for the year ended December 31, 2003 and was negotiated based on the expected discounted net present value of the future 2% royalty obligation under that certain Assignment and License Agreement dated December 9, 2002 with Medarex and was received in cash on July 1, 2003.

Liquidity and Capital Resources

      On December 9, 2002, we entered into an assignment and license agreement with Medarex wherein we sold certain of our intellectual property to Medarex in exchange for certain of their intellectual property and $3.0 million, which consisted of $1.0 million in cash and two payments of $1.0 million each payable in common stock. We realized a total of $2.0 million in cash from the sale of those shares. Additionally, a $400,000 payable to Medarex was forgiven. Pursuant to this agreement, we issued to Medarex 2.0 million unregistered shares of our common stock. The 2.0 million shares of unregistered common stock were issued as follows: on December 26, 2002, we issued 1.0 million shares; on January 8, 2003 we issued 500,000 shares; and on February 9, 2003 we issued the final 500,000 shares. Also in conjunction with the December 9, 2002 agreement with Medarex, we issued warrants to purchase unregistered common stock as follows: on December 26, 2002, we issued a warrant to purchase 400,000 shares of our common stock at an exercise price of $0.216 per share; on January 8, 2003, we issued a warrant to purchase 200,000 shares

of our common stock at an exercise price of $0.177 per share; and on February 9, 2003 we issued the final warrant to purchase 200,000 shares of our 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 fiscal 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.

      On June 20, 2003, we released Medarex from future royalty obligations in exchange for a cash payment of $816,000. The purchase price of $816,000.

      On January 7, 2000, we qualified for the State of Washington’s use tax deferral program for businesses engaged in high technology and research and development activities. Under the deferral program, a business may defer paying sales and use tax upon investments in qualified buildings, qualified machinery and equipment, or pilot scale manufacturing. No repayment of the taxes deferred under this program is required if the business uses the investment project for qualified research and development during the calendar year the investment project is certified by the State of Washington’s Department of Revenue as operationally complete, and for an additional seven calendar years.

      Beginning on October 9, 2002, we initiated a series of substantial steps to conserve cash, including the relocation and consolidation of our facilities. We received a tax assessment of $491,802 on October 21, 2003 due to our abandonment of tenant improvements at the prior facility, on which use tax payments had been deferred, including the disposal and impairment of previously qualified tax deferred equipment. The tax assessment payment was initially due on November 20, 2003. This contingent assessment, and accrued interest, is being carried as an estimated liability on our balance sheet as of December 31, 2004 and is included in general and administrative expense. We have appealed this assessment and do not expect final resolution of this matter until late 2005.

      In February 2004, we filed a refund request of approximately $175,000 related to certain state taxes previously paid to the State of Washington. The finalization of this refund request is expected to take several more months.

      From February 1, 2004 through April 14, 2005, we borrowed $4.8 million from Toucan Capital. Toucan Capital has the right, as of April 14, 2005, to convert principal and interest on the loans to acquire up to 127.4 million shares of our capital stock and has the right to acquire up to 116.0 million shares upon exercise of related warrants, inclusive of the 13.0 million series A warrants. Including the 32.5 million of series A preferred stock held by Toucan Capital, they have beneficial ownership of approximately 275.9 million shares of our capital stock, representing a beneficial ownership of approximately 93.4%. Toucan Capital has a right of first refusal to participate in our future issuances of debt or equity securities. The notes issued February 2, March 1, and April 26, 2004 to Toucan Capital were subsequently amended to change their respective maturity dates to June 26, 2005.

      As of April 14, 2005, we have approximately $487,000 in cash. We believe, based on recurring operating and associated financing costs, our cash will be sufficient to fund our operations through approximately May 25, 2005. For operating capital after that date we intend to seek additional funds from Toucan Capital which Toucan Capital is not obligated to provide to us.

      Any additional financing with Toucan Capital or any other third party is likely to be dilutive to stockholders, and any debt financing, if available, may include additional restrictive covenants. If we are unable to obtain significant additional capital in the near-term, we may cease operations at anytime. We do not believe that our assets would be sufficient to satisfy the claims of all of our creditors in full. Therefore, if we were to pursue a liquidation it is highly unlikely that any proceeds would be received by our stockholders.

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

      We were a subcontractor to the University of Washington in connection with an award from the National Institutes of Health, (NIH), of a one-year cancer research grant on February 26, 2003. Our total subcontract proceeds for fiscal 2003 were $146,563 and were recognized in revenue through the year ended December 31, 2003.

      On April 8, 2003, we were awarded a NIH cancer research grant. The total first year grant award was for approximately $318,000, has been earned under the grant, and was recognized in revenue through the year ended December 31, 2003. The total award for fiscal 2004 was approximately $328,000, comprised of approximately $198,000 authorized for direct grant research expenditures and approximately $130,000 authorized for use to cover our facilities and administrative overhead costs. Approximately $48,000 of the grant’s aggregate award remains to be utilized of which $35,000 has been received and was included in deferred grant revenue as of December 31, 2004.

      Effective September 10, 2004, we were awarded a small business innovation research grant. The grant award for $100,000 has an award period that commenced September 10, 2004 and will expire of August 31, 2005. There was approximately $59,000 earned under the grant, which was recognized in revenue through the year ended December 31, 2004. Approximately $41,000 of the grant’s aggregate award remained at December 31, 2004.

      On April 21, 2003, we announced our entry into the research reagents market. We earned approximately $52,000 in revenue for the year ended December 31, 2004 from the manufacture and sale of research materials. We will likely discontinue our efforts to generate these sales.

      Our effort to license certain rights, title, and interest to technology relating to the worldwide use of specific antibodies for the diagnostic immunohistochemical market resulted in the July 1, 2003 license agreement with DakoCytomation California, Inc. with the payment of a one-time $25,000 license fee and future non-refundable minimum annual royalty payments of $10,000 credited against any royalty payments made to us. The $25,000 one-time license fee was received on August 25, 2003. We waived the payment of the July 1, 2004 annual royalty payment because of costs incurred by DakoCytomation, on our behalf, regarding purity issues with the initial cell lines.

      On November 13, 2003, we borrowed an aggregate of $335,000 from members of our management. The notes accrue interest at an annual rate equal to the prime rate plus 2% and are payable by July 12, 2005 and were initially secured by substantially all of our assets not otherwise collateralized. We repaid $50,000, including interest of $1,674, on June 1, 2004 and repaid an additional $50,000, including interest of $4,497, on February 24, 2005.

      As part of the management loan, the lenders were issued warrants initially exercisable to acquire an aggregate of 3.7 million shares of our common stock, expiring November 2008 subject to certain antidilution adjustments, at an exercise price to be determined as follows: (i) in the event that we completed an offering of our common stock generating gross proceeds to us of at least $1 million, then the price per share paid by investors in that offering; or (ii) if we did not complete such an offering, then $0.18, which was the closing price of our common stock on the date of the financing. In connection with our April 26, 2004 recapitalization agreement these warrants were amended to remove the anti-dilution provisions and set the warrant exercise price at the lesser of (i) $0.10 per share or (ii) a 35% discount to the average closing price during the twenty trading days prior to the first closing of the sale by us of convertible preferred stock as contemplated by the recapitalization agreement but not less than $0.04 per share.

      We generated $4.2 million in cash from financing activities during the year ended December 31, 2004 consisting primarily of the eight Toucan Capital loans, net of loan repayments and capital lease payments.

      We used $4.7 million in cash for the operating activities during the year ended December 31, 2003, compared to $4.4 million for the year ended December 31, 2004. The 6.4% decrease in cash used in operating activities from 2003 to 2004, was primarily the result of continuing efforts to conserve cash, including: (i) the suspension of all clinical trial activities; (ii) the sale of certain fixed assets; (iii) the relocation and consolidation of our facilities; and (iv) a reduction in personnel. Some of these reductions were offset with our third and fourth quarter 2004 increased efforts in re-starting DCVax-Prostate program activity, and preparing and submitting to the FDA a revised IND for a Phase III clinical trial for non-metastic hormone independent prostate cancer.

      We generated $2.5 million in cash from investing activities during the year ended December 31, 2003 compared to $161,000 provided by investing activities during the year ended December 31, 2004. The cash provided during the year ended December 31, 2003 consisted primarily of $1.8 million received from Medarex and the sale of Medarex common stock held as marketable securities on December 31, 2002 arising from the December 9, 2002 assignment and license agreement, as amended June 20, 2003, wherein Medarex purchased the expected discounted net present value of the future 2% royalty obligation for $816,000. The cash provided during the year ended December 31, 2004 consisted of net proceeds from the sale of property and equipment, reimbursement of our lease security deposit, and a partial release of reserves necessary to secure our corporate credit cards.

Overview of Contractual Obligations

      On June 18, 2003, we entered into a lease agreement with Benaroya Capital Company, LLC for 14,022 square feet of space at a building located at 22322 20th Avenue S.E. in Bothell, Washington. This lease was for a term of 39 months commencing July 1, 2003 and terminating September 30, 2006. Effective December 15, 2004, an assignment fee of $1,000 was paid by us to Benaroya for entering into an assignment of and consent to assignment of this lease to MediQuest Therapeutics, Inc. Concurrently we entered into a sublease from MediQuest for approximately 5,047 square feet of administrative floor space. Our sublease is for a term of 12.5 months commencing December 15, 2004 and terminating December 31, 2005. We remain primarily liable for the performance of the provisions and obligations under the original June 18, 2003 lease, with Benaroya, if Mediquest fails to perform. The amounts scheduled below reflect

our lease obligation in the event we must cure any breach of the lease contract pertaining to the June 18, 2003 lease.

Tabular Disclosure of Contractual Obligations

      We have also entered into other collaborative arrangements under which we may be obligated to pay royalties or milestone payments if product development is successful. We do not anticipate that the aggregate amount of any royalty or milestone obligations under these arrangements will be material.

New Accounting Standards

      Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), Share-Based Payments (“SFAS 123R”) eliminates the option to apply the intrinsic value measurement provisions of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, to stock compensation awards issued to employees. The Company is continuing to evaluate the transition method to be adopted.

      SFAS No. 151, Inventory Costs an amendment of ARB No. 43, Chapter 4 deals with inventory pricing with respect to abnormal amounts of idle facility expenses, freight, handling costs, and spoilage. Management is analyzing the requirements of this new Statement and believes that its adoption will not have any significant impact on the Company’s financial statements.

      SFAS No. 153, Exchanges of Nonmonetary Assets amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. Management is analyzing the requirements of this new standard and believes that its adoption will not have any significant impact on the Company’s financial statements.

      FIN No. 46(R) revised FIN No. 46, “Consolidation of Variable Interest Entities”, requiring the consolidation by a business of variable interest entities in which it is the primary beneficiary. The adoption of FIN No. 46 did not have an impact on the Company’s financial statements.

      The Emerging Issues Task Force (“EITF”) reached consensus on Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (“EITF 03-1”) which provides guidance on determining when an investment is considered impaired, whether that impairment is other than temporary and the measurement of an impairment loss. The FASB issued FSP EITF 03-1-1, “Effective Date of Paragraphs 10-20 of EITF Issue No. 03-1, ‘The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”’, which delays the effective date for the measurement and recognition criteria contained in EITF 03-1 until final application guidance is issued. The Company does not expect the adoption of this consensus or FSP to have a material impact on its financial statements.

      The EITF reached a consensus on Issue No. 04-8, “The Effect of Contingently Convertible Debt on Diluted Earnings Per Share” (“EITF 04-8”), which addresses when the dilutive effect of contingently

convertible debt instruments should be included in diluted earnings (loss) per share. EITF 04-8 is effective for reporting periods ending after December 15, 2004. The adoption of EITF 04-8 did not have an impact on diluted earnings (loss) per share.

      Our exposure to market risk is presently limited to the interest rate sensitivity of our cash which is affected by changes in the general level of U.S. interest rates. We are exposed to interest rate changes primarily as a result of our investment activities. The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive without significantly increasing risk. To minimize risk, we maintain our cash in interest-bearing instruments, primarily money market funds. Our interest rate risk management objective with respect to our borrowings is to limit the impact of interest rate changes on earnings and cash flows. Due to the nature of our cash, we believe that we are not subject to any material market risk exposure. We do not have any foreign currency or other derivative financial instruments.

Financial Statements

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

      On January 25, 2005, KPMG LLP notified our board of directors that it had decided to resign as our independent auditors.

      The audit reports of KPMG LLP on our financial statements for the years ended December 31, 2002 and December 31, 2003 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle, except as follows: KPMG LLP’s report on the financial statements of the Company as of and for the years ended December 31, 2002 and December 31, 2003 contained a separate paragraph stating “the Company has experienced recurring losses from operations, has a working capital deficit and has a deficit accumulated during the development stage which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.”

      Our change of accountant was based on KPMG’s decision to resign and was not recommended nor approved by our board of directors. During the fiscal years ended December 31, 2002 and December 31, 2003, and the subsequent period through January 25, 2005, we have had no disagreements with KPMG LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to KPMG LLP’s satisfaction, would have caused it to make reference thereto in its report on our financial statements for the fiscal years ended December 31, 2002 and December 31, 2003.

      No reportable event of the type described in Item 304(a)(1)(v) of Regulation S-K occurred during the fiscal years ended December 31, 2002 and December 31, 2003 and the subsequent period through January 25, 2005, except that KPMG LLP informed us in January 2005 that it believed that the lack of an audit committee of the board of directors represented a material weakness in the internal controls over our financial reporting.

      We provided KPMG LLP with a copy of the foregoing disclosures and requested in writing that KPMG LLP furnish us with a letter addressed to the Securities and Exchange Commission stating whether it agrees with such disclosures. Upon receipt of KPMG’s letter, we filed the letter as Exhibit 16.1 on Form 8-K/ A on February 2, 2005.

      On February 16, 2005,we engaged Peterson Sullivan PLLC to act as our independent auditor. The engagement of Peterson Sullivan PLLC was approved by our board of directors. During the two most

recent fiscal years and the interim period up to February 16, 2005, we have not consulted with Peterson Sullivan PLLC regarding either:

      On February 8, 2005, we requested in writing to KPMG for their cooperation and permission for Peterson Sullivan, PLLC, to make inquiries and examine KPMG’s prior work papers in preparation for the audit of our financial statements for the year ended December 31, 2004.

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

      Our president and our controller, after evaluating, as required, the effectiveness of our “disclosure controls and procedures” (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), recognized subsequent to KPMG’s resignation as our auditor that, as of December 31, 2004, our disclosure controls and procedures contained certain internal control weaknesses that, in the aggregate, represent material weaknesses.

      The identified weaknesses were anticipated given the company’s status with respect to its number of employees (four full-time employees). The weaknesses were comprised of: insufficient segregation of duties, insufficient corporate governance policies, and lack of independent directors as of December 31, 2004. Each of these weaknesses is expected to be corrected with the recapitalization of our company. SEC release #33-8545 extends the deadline for section 404 compliance for non-accelerated filers, such as the company, to the first fiscal year ending on or after July 15, 2006.

      As part of the communications by Peterson Sullivan with our audit committee with respect to Peterson Sullivan’s audit procedures for 2004, 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.

PART III

Executive Officers

      The names of our senior executives and our officers as of April 14, 2005 and information about them is presented below.

      Alton L. Boynton, Ph.D. Dr. Boynton co-founded our company, has served as Secretary since August 2001, has served as our Executive Vice President since July 2000, has served as our Chief Scientific Officer and a director since our inception in 1998, was appointed our Chief Operating Officer in August 2001, and appointed President in May 2003. Dr. Boynton has also served as Director of the Department of Molecular Medicine of Northwest Hospital from 1995-2003 where he coordinated the establishment of a program centered on carcinogenesis. Prior to moving to Seattle, Dr. Boynton was

Associate Director of the Cancer Research Center of Hawaii, The University of Hawaii, where he also held the positions of Director of Molecular Oncology of the Cancer Research Center and Professor of Genetics and Molecular Biology. Dr. Boynton received his Ph.D. in Radiation Biology from the University of Iowa in 1972.

      Marnix L. Bosch, Ph.D. Dr. Bosch joined us in 2000, and has served as our Vice President for Vaccine R&D since July 2001. Prior to joining us, Dr. Bosch was a member of the faculty of the Department of Pathobiology at the University of Washington, and he continues to serve that Department as an Affiliate Associate Professor. He worked at the National Institutes of Health (Bethesda, MD) and the National Institutes of Health and Environmental Protection (Bilthoven, the Netherlands) prior to joining the University of Washington. He has authored more than 40 research publications in virology and immunology, and is an inventor of several patent applications on dendritic cell product manufacturing. Dr. Bosch obtained his Ph.D. in Medicine at the University of Leiden, the Netherlands in 1987 and earned an MBA from the University of Washington in 2003.

      Larry L. Richards. Mr. Richards joined us in 1998 as our Controller. Mr. Richards earned a B.S. in Business Administration from Southern Colorado State College in Colorado and a MBA from Pepperdine University, Los Angeles, California.

Information on Audit Committee

      Our board of directors created an audit committee on June 21, 2001. The committee does not have a formal meeting schedule, but is required to meet at least quarterly each year. In 2004, the audit committee held five meetings. Two of the three audit committee members resigned as directors on December 17, 2004. Their resignations, as contemplated in our recapitalization agreement and restructuring of the board of directors, leaves us with one remaining audit committee member, our sole remaining director, Alton L. Boynton, Ph.D., who is our president. Dr. Boynton is not a financial expert. The Audit Committee is responsible for our independent auditors and reviewing the scope, costs and results of the audit engagement. The lack of independent directors and at least one financial expert at December 31, 2004 is a material weakness of our internal control pursuant to Rules 13a-15 and 15d-15 under the Exchange Act of 1934 and Section 404 of the Sarbanes-Oxley Act of 2002. However, the Company as a non-accelerated filer has until its first fiscal year ending after July 15, 2006 to reach full compliance with Sarbanes-Oxley.

      As part of the communications by Peterson Sullivan with our audit committee with respect to Peterson Sullivan’s audit procedures for fiscal 2004, 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 PCAOB.

Code of Ethics

      We have adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Our code of ethics has been posted on our website at http://www.nwbio.com. You may obtain a copy of our code of ethics by making a request in writing addressed to 22322 20th Avenue SE, Suite 150, Bothell, WA 98021.

Section 16(a) Beneficial Ownership Reporting Compliance

      Section 16(a) of the Securities Exchange Act of 1933, as amended, requires our executive officers and directors, and persons who own more than 10% of our outstanding Common Stock, to file reports of ownership and change in ownership with the Securities and Exchange Commission. Officers, directors and greater than 10% stockholders are required by SEC regulations to furnish us with copies of all such ownership reports they file.

      Based solely on our review of the copies of such reports we received, or written representations from certain reporting persons, we believe that, during the 2004 fiscal year, all such filing requirements

applicable to our executive officers, directors and greater than 10% beneficial owners were complied with, except that the following filing was not made on a timely basis:

      The following table sets forth certain information concerning compensation paid or accrued to our chief executive officer and our four most highly compensated executive officers whose salary and bonus for our fiscal year ended December 31, 2004 were in excess of $100,000 and for services rendered to us in all capacities during each of the years in the three-year period ended December 31, 2004:

Option Grants in the 2004 Fiscal Year

      There were no stock options granted for the twelve months ended December 31, 2004.

Aggregated Option Exercises in Fiscal Year Ended December 31, 2004 and Fiscal Year End Option Values

      The following table contains information concerning the options exercised by the named executive officers in the fiscal year ended December 31, 2004, and the year-end number and value of unexercised options with respect to each of the named executive officers.

      The following table sets forth, as of March 31, 2005 the number of shares of common stock held by beneficial owners of more than five percent of our common stock, by directors and nominees, by the executive officers named in the Summary Compensation Table on page 45, and by all of our directors and executive officers as a group:

      We believe that each of the transactions described below was carried out on terms that were no less favorable to it than those that would have been obtained from unaffiliated third parties. Any future transactions between us and any of our directors, officers or principal stockholders will be on terms no less favorable than could be obtained from unaffiliated third parties and will be approved by a majority of the independent and disinterested members of the board of directors.

      On December 9, 2002, we entered into an assignment and license agreement with Medarex wherein we sold certain of our intellectual property to Medarex in exchange for certain of their intellectual property and $3.0 million, consisting of $1.0 million in cash and two payments of $1.0 million each payable in common stock We realized a total of $3.0 million in cash as all of the forgoing shares were sold within 30 days of their issuance in 2003. Additionally, a $400,000 debt to Medarex was forgiven. Pursuant to this agreement, we issued to Medarex 2.0 million unregistered shares of our common stock issued as follows: on December 26, 2002, we issued 1.0 million shares; on January 8, 2003 we issued 500,000 shares; and on February 9, 2003 we issued the final 500,000 shares. Also in conjunction with this agreement, we issued Medarex warrants to purchase unregistered common stock as follows: on December 26, 2002, we issued a warrant to purchase 400,000 shares at an exercise price of $0.216 per share; on January 8, 2003, we issued a warrant to purchase 200,000 shares at an exercise price of $0.177 per share; and on February 9, 2003 we issued the final warrant to purchase 200,000 shares of our 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.

      We estimated the fair value of the 800,000 warrant shares to be $159,678 on the date of grant and as of December 31, 2002, one-half of the warrant value, $79,839, was recognized as an increase to our additional paid in capital and $79,839 was recognized as a long term liability, for the 400,000 warrant shares to be issued in fiscal 2003. Our net gain recognized on this transaction was $2.8 million made up of the receipt of $3.0 million of cash and stock and forgiveness of the $400,000 payable offset by the issuance of 2.0 million shares of unregistered common stock and warrants to purchase 800,000 shares of our common stock valued at approximately $560,000.

      On June 30, 2003, we entered into a settlement agreement with Nexus Canyon Park, LLC, our prior landlord. Under this settlement agreement, Nexus Canyon Park agreed to permit premature termination of our lease and excuse us from future performance of lease obligations in exchange for 90,000 shares of our unregistered common stock and Nexus’ retention of $1.0 million of restricted cash related to the lease. The settlement agreement resulted in an additional loss on facility sublease and lease termination of $174,000, net of deferred rent of $203,000, for the year ended December 31, 2003.

      On November 13, 2003, we borrowed an aggregate of $335,000 from the following five members of our management:

      The notes initially had a 12-month term, accrue interest at an annual rate equal to the prime rate plus 2% and initially were secured by substantially all of our assets not otherwise collateralized. We repaid $50,000, including interest of $1,674, on June 1, 2004 and repaid an additional $50,000, including interest of $4,479 on February 24, 2005. In connection with our April 26, 2004 recapitalization agreement with Toucan Capital, holders of notes representing 70% of the principal amount agreed to amend to the notes to set the conversion price of the amended notes at $0.10 per share and to amend the maturity date to May 12, 2005. The maturity date for these notes was subsequently changed to July 12, 2005.

      As part of these management loans, the lenders received warrants initially exercisable to acquire an aggregate of 3.7 million shares of our common stock subject to certain antidilution adjustments, expiring November 2008, at an exercise price to be determined as follows: (i) in the event that we completed an offering of our common stock generating gross proceeds to us of at least $1 million, then the price per share paid by investors in that offering; or (ii) if we did not complete such an offering, then $0.18, which was the closing price of our common stock on the date of the financing. In connection with the April 26, 2004 recapitalization agreement, certain members of management who held warrants agreed to an amendment to their warrants issued in the November 13, 2003 financing. The purpose of the amendment was to remove the anti-dilution provisions and set the warrant exercise price at the lesser of (i) $0.10 per share or (ii) a 35% discount to the average closing price during the twenty trading days prior to the first closing of the sale by us of convertible preferred stock as contemplated by the recapitalization agreement but not less than $0.04 per share.

      Since February 1, 2004 through April 14, 2005, we have issued nine promissory notes to Toucan Capital pursuant to which Toucan Capital has loaned us an aggregate of $4.8 million. Toucan Capital has the right, as of April 14, 2005, to convert principal and interest on the loans to acquire up to 127.4 million shares of our capital stock and has the right to acquire up to 116.0 million shares upon exercise of related warrants, inclusive of the 13.0 million series A warrants. Including the 32.5 million of series A preferred stock held by Toucan Capital, they have beneficial ownership of approximately 275.9 million shares of our capital stock, representing a beneficial ownership of approximately 93.4%. Toucan Capital has a right of first refusal to participate in our future issuances of debt or equity securities. The notes issued February 2, March 1, and April 26, 2004 to Toucan Capital were each amended subsequently to change their respective maturity dates to June 26, 2005.

      In the event that we sell 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 related term sheet, which we call a qualified preferred stock financing, Toucan Capital’s warrants will be exercisable only for shares of convertible preferred stock. Unless and until we complete a qualified

preferred stock financing, the warrants will be exercisable for any debt or equity security authorized for issuance by us (which currently consists of common stock and series A 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 we sell or are deemed to have sold shares below the then applicable exercise price.

      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 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 series A preferred stock:

      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.

      On January 26, 2005, we issued Toucan Capital a warrant, and a contractual life of 7-years, to purchase 13.0 million shares of series A preferred stock. with an exercise price of $0.04 per share in connection with Toucan Capital’s purchase of series A preferred stock on January 26, 2005. 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, dilutive events and the like.

      We entered into a service agreement dated July 30, 2004 with Cognate Therapeutics, Inc. Cognate is a contract research organization, majority owned by Toucan Capital and two of the principals of Toucan Capital are board members of Cognate. We committed to utilizing Cognate’s services for a two year period related primarily to manufacturing our DCVax product candidates, regulatory advice, research and development preclinical activities and managing clinical trials. Monthly expenditures are expected to range between approximately $427,000 and $487,000 until manufacturing ramps up, and then the monthly expenditures are expected to be approximately $718,000. The contract with Cognate includes a penalty of $4.0 million if we cancel the contract within one year and $2.0 million if cancelled after one year as well as payment for all services performed in winding down any ongoing activities. We entered into this contract after extensive consultations with an independent expert in the field of good manufacturing practices, regulatory affairs, and clinical trial activities, and after considering the ability of other contract research organizations to comply with our requirement to rapidly commence technology transfers involving manufacturing, immune monitoring, and regulatory clinical advice. We did not find any other contract research organization who could meet our needs in order to rapidly restart our clinical programs. We believe entering into this agreement gives us an opportunity to restart our clinical and research programs

much more efficiently and rapidly as opposed to rebuilding our infrastructure, internal manufacturing facilities, regulatory, clinical and research and development expertise. We recognized approximately $2.9 million of costs relative to the contract, which are included in research and development expense, with cash payments of approximately $1.9 million made to Cognate in 2004, and with approximately $1.0 million in accounts payable for the year ended December 31, 2004.

Employee Agreements

      On November 13, 2003, we amended the employment agreement with Dr. Boynton; our President, Chief Operating Officer, Chief Science Officer and Secretary. The amendments eliminated any potential award of severance compensation in exchange for a one-time payment of $281,571. The term of this employment agreement expired on January 31, 2004.

Audit Fees

      The aggregate fees billed for professional audit services were $92,935, related to KPMG, for 2003 and $42,500, related to Peterson Sullivan, for 2004.

Audit Related Fees

      We incurred no fees for audit related services in either 2003 or 2004.

Tax Fees

      Our aggregate fees billed for tax preparation services were $9,000, related to KPMG, in 2003 and $5,000, related to Peterson Sullivan, in 2004.

All Other Fees

      We incurred no other fees in either 2004 or 2003.

      (a)(1) Index to Financial Statements and Reports of Independent Registered Public Accounting Firms.

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

      (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 84.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Northwest Biotherapeutics, Inc.

Bothell, Washington

      We have audited the accompanying balance sheet of Northwest Biotherapeutics, Inc. (a development stage company) as of December 31, 2004, and the related statements of operations, stockholders’ equity (deficit), and cash flows for the year ended December 31, 2004, and for the period from March 18, 1996 (date of inception) to December 31, 2004. 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 audit. The Company’s financial statements as of and for the year ended December 31, 2003, and for the period from March 18, 1996 (date of inception) through December 31, 2003, were audited by other auditors whose report, dated March 12, 2004, except as to notes 1 and 12, which were as of April 26, 2004, expressed an unqualified opinion on those statements and included an explanatory paragraph that referred to substantial doubt about the Company’s ability to continue as a going concern. The financial statements for the period from March 18, 1996 (date of inception) through December 31, 2003, reflect a net loss of $64,242 (in thousands) of the accumulated deficit as of December 31, 2004. The other auditors’ report has been furnished to us, and our opinion, insofar as it relates to the amounts included for such prior periods, is based solely on the report of such other auditors.

      We conducted our audit in accordance with auditing 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 audit provides a reasonable basis for our opinion.

      In our opinion, based on our audit and the report of other auditors, 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, 2004, and the results of its operations and its cash flows for the year ended December 31, 2004, and for the period from March 18, 1996 (date of inception) to December 31, 2004, 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.

March 7, 2005, except with respect to note 13 which is as of April 12, 2005

Seattle, Washington

Report of Independent Registered Public Accounting Firm

The Board of Directors

Northwest Biotherapeutics, Inc.:

      We have audited the accompanying balance sheet of Northwest Biotherapeutics, Inc. (a development stage company) (Company) as of December 31, 2003, and the related statements of operations, stockholders’ equity (deficit) and comprehensive loss, and cash flows for each of the years in the two-year period ended December 31, 2003. 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 auditing 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. 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, 2003, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2003, in conformity with U.S. generally accepted accounting principles.

      The accompanying financial statements have been prepared assuming that 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, has a working capital deficit and has a deficit accumulated during the development stage which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to 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.

Seattle, Washington

March 12, 2004, except as to note 2, which is as of April 26, 2004

NORTHWEST BIOTHERAPEUTICS, INC.

(A Development Stage Company)

BALANCE SHEETS