UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

 ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

                        Commission file number 333-09349

                             AVAX TECHNOLOGIES, INC.
                 (Name of small business issuer in its charter)

                Delaware                              13-3575874
      (State or other jurisdiction        (I.R.S. Employer Identification No.)
   of incorporation or organization)

           4520 Main Street
              Suite 930
           Kansas City, MO                             64111
(Address of principal executive offices)             (Zip Code)

                    Issuer's telephone number: (816) 960-1333

       Securities registered under Section 12(b) of the Exchange Act: None

         Securities registered under Section 12(g) of the Exchange Act:

                     Common Stock, par value $.004 per share
                                (Title of class)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes |X| No |_|

Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained herein and, to the best of the
registrant's knowledge, will not be contained in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or by any
amendment to this Form 10-KSB. |_|

The issuer's revenues for the period ended December 31, 1998 were $ -0-.

As of March 3, 1999, 10,238,640 shares of the registrant's common stock, par
value $.004 per share, were outstanding. The aggregate market value of the
voting and non-voting common equity held by non-affiliates computed by reference
to the average bid and asked price of such common equity on the Nasdaq SmallCap
Market, on March 3, 1999, was $28,746,668. Shares of common stock, beneficially
owned by each executive officer and director and each person who beneficially
owns 10% or more of the outstanding shares of common stock, have been excluded,
in that such persons may be deemed to be affiliates of the Company. This
determination of affiliate status is not necessarily conclusive.

Documents incorporated by reference: The information required by Part III of
Form 10-KSB is incorporated herein by reference to the registrant's definitive
Proxy Statement relating to its 1999 Annual Meeting of Stockholders which will
be filed with the Commission within 120 days of the end of the registrant's
fiscal year.

Transitional Small Business Disclosure Format:  Yes |_|   No |X|
<PAGE>

                             AVAX Technologies, Inc.

                              Index to Form 10-KSB

                                     PART I                                 Page
                                                                            ----

Item  1.  Description of Business..............................................1
Item  2.  Description of Property.............................................21
Item  3.  Legal Proceedings...................................................22
Item  4.  Submission of Matters to a Vote of Security Holders.................22

                                  PART II
Item  5.  Market for Common Equity and Related Stockholder Matters............23
Item  6.  Management's Discussion and Analysis
          of Financial Condition and Plan of Operation........................23
Item  7.  Financial Statements................................................25
Item  8.  Changes In and Disagreements with Accountants
          on Accounting and Financial Disclosure..............................25

                                 PART III
Item  9.  Directors, Executive Officers, Promoters and Control Persons;
          Compliance with Section 16(a) of the Exchange Act...................26
Item 10.  Executive Compensation..............................................26
Item 11.  Security Ownership of Certain Beneficial Owners and Management......26
Item 12.  Certain Relationships and Related Transactions......................26
Item 13.  Exhibits and Reports on Form 8-K....................................26

Signatures....................................................................27
<PAGE>

Unless the context otherwise requires, all references to the Company's common
stock, par value $.004 per share (the "Common Stock"), are to the Company's
Common Stock after giving effect to the 1-for-2 reverse split of the Common
Stock effected on May 15, 1996 and the 1-for-2 reverse split of the Common Stock
effected on May 13, 1997.

Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995. Certain written and oral statements
made or incorporated by reference by the Company or its representatives in this
Report and other reports and filings with the Securities and Exchange Commission
(the "Commission"), press releases, conferences or otherwise, are "forward
looking statements", within the meaning of the Private Securities Litigation
Reform Act of 1995 ("PSLRA") and Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Forward-looking statements
include, without limitation, any statement that may predict, forecast, indicate,
or imply future results, performance or achievements, and may contain the words
"estimate", "project", "intend", "forecast", "anticipate", "plan", "planning",
"expect", "believe", "will", "will likely", "should", "could", "would", "may" or
words or expressions of similar meaning. In addition, except for historical
matters, certain other statements set forth in this Report and elsewhere by the
Company from time to time, including, without limitation, the Company's research
and development programs, the possible filing of INDs or marketing applications
for M-Vax(TM), O-Vax(TM),, or any other products the Company may develop, the
seeking of joint development or licensing arrangements with pharmaceutical
companies, the research and development of particular compounds and technologies
for particular indications and the period of time for which the Company's
existing resources will enable the Company to fund its operations and to meet
the continuing listing requirements for the quotation of its securities on the
Nasdaq SmallCap Market and the possibility of contracting with other parties
additional licenses to develop, manufacture and market commercially viable
products, are forward-looking statements within the meaning of the PSLRA. Such
forward-looking statements are based upon the Company's current belief as to the
outcome, occurrence and timing of future events or current expectations and
plans based upon, among other things, assumptions made by, and information
currently available to management, including management's own knowledge and
assessment of the Company's industry, competition and current regulatory
environment. All such statements involve significant risks and uncertainties.
Many important factors affect the Company's ability to achieve the stated
outcomes and to develop successfully and commercialize its product candidates,
including (1) the ability to obtain substantial additional funds as needed to
fund anticipated continuing operating losses, (2) to obtain and maintain all
necessary patents or licenses, (3) to demonstrate the safety and efficacy of
product candidates at each stage of development, (4) to meet applicable
regulatory standards and receive required regulatory approvals, (5) to meet
obligations and required milestones under its license agreements, (6) to be
capable of producing drug candidates in commercial quantities at reasonable
costs, (7) to compete successfully against other products and (8) to market
products in a profitable manner. Although the Company believes that its
assumptions underlying the forward-looking statements are reasonable, any of the
assumptions could prove inaccurate and, therefore, there also can be no
assurance that the statements included in this Report and elsewhere will prove
to be accurate. In addition, such risks and uncertainties included herein and
elsewhere are not exhaustive. Other sections of this Report and the Company's
other filings with the Commission from time to time, may include additional
factors which could adversely affect the Company's business and other financial
performance. Moreover, the Company operates in a very competitive and rapidly
changing environment. New risk factors emerge from time to time and it is not
possible for management to predict all such risk factors, nor can it assess the
impact of all such factors on the Company's business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements. Accordingly, in light of
the significant uncertainties inherent in these statements included herein, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives and plans of the Company will be
achieved; in fact, actual results could differ materially from those
contemplated by such forward-looking statements. Given these risks,
uncertainties and limitations, investors should not rely upon forward-looking
statements as a predictor of actual results. The Company does not undertake any
obligation to release publicly any revisions to these forward-looking statements
or to reflect the occurrence of unanticipated events.

AVAX(TM), AC Vaccine(TM), M-Vax(TM) and O-Vax(TM)are trademarks of the Company.
This Report also includes trademarks of other companies.
<PAGE>

                             AVAX TECHNOLOGIES, INC.

                                     PART I

ITEM 1. Description of Business

GENERAL

AVAX Technologies, Inc. ("AVAX" or the "Company"), is a development stage
biopharmaceutical company which is acquiring and developing technologies and
products for the treatment of cancer and other life-threatening diseases. The
Company is focusing its efforts primarily on the development of immunotherapies
and chemotherapies for cancer. Immunotherapy is a rapidly developing segment of
the cancer therapeutic market.

In 1995, the Company licensed (the "TJU License") from Thomas Jefferson
University ("TJU") an issued U.S. patent and certain U.S. and foreign patent
applications covering a cancer vaccine containing a cancer patient's own
modified tumor cells, and a method for making and using that vaccine. This
technology allows the Company to produce an autologous cell vaccine (an " AC
Vaccine(TM)") that attempts to stimulate the patient's immune system to
eliminate the cancer. This technology has emerged from research conducted at TJU
and primarily involves the removal of a patient's own tumor cells, modifying
them with a small molecule known as a hapten, and reintroducing the product back
into the patient. The approach is based on the premise that a patient's immune
response to a strongly immunogenic, hapten-conjugated tumor antigen may be
followed by the development of an immune response to the unmodified tumor
antigen, somewhat analogous to the phenomenon of drug-induced autoimmune
disease. David Berd, M.D., Professor of Medicine and Clinical Oncologist at TJU
and the inventor of the AC Vaccine(TM) technology, has conducted the ongoing
clinical trials at TJU pursuant to an FDA-approved, physician-sponsored
Investigational New Drug application ("IND").

The Company's initial AC Vaccine(TM), M-Vax(TM), is currently undergoing
physician-sponsored human clinical trials based on an experimental protocol at
TJU as an outpatient, post-surgical, adjunct therapy for the treatment of
melanoma, and is believed by the Company to be the first therapeutic cancer
vaccine to show a substantial increase in the survival rate for patients with
stage 3 melanoma. In the ongoing clinical trials at TJU, over 350 melanoma
patients have been treated post-surgically on an outpatient basis with
M-Vax(TM). In 62 patients with stage 3 melanoma in protocols in which there has
been sufficient time for long-term follow-up, the five-year survival rate is
approximately 55%. This compares with the historical and control group stage 3
survival rate of approximately 20%, and the survival rate for treatment with
high dose alpha interferon of approximately 32% in stage 3 patients who the
Company believes to be comparable to those treated with M-Vax(TM). In patients
over 50 years old treated with M-Vax(TM), the five-year survival rate was
approximately 71%. In a separate study of 16 patients with Stage 4 malignant
melanoma lung tumors, there was documented evidence of tumor shrinkage caused
solely by the vaccine. In the over 350 patients treated in studies only
relatively minor side effects, such as mild transient nausea and soreness and
swelling at the site of the application of M-Vax(TM), have been reported to
date. See "Technology Applications and Product Candidates - Clinical Trials".

In 1998, the Company obtained from the FDA a Company-sponsored IND to allow the
Company to proceed with a multi-center clinical trial intended to support a
biologics license application. Depending upon the results of these clinical
trials, the Company intends to use the Company-sponsored clinical trial results,
along with the results of the TJU clinical trials, as the basis for filing an
application for FDA approval to market M-Vax(TM). The Company is also pursuing
strategies for commercial acceptance (including any applicable regulatory
approvals) of M-Vax and other AC Vaccine product candidates in various foreign
countries, although such strategies have not yet been finalized.

Denial of any regulatory approvals or any significant delays in obtaining any
regulatory approvals would have a material adverse effect on the Company.

The Company also believes that the AC Vaccine(TM) technology may have
applications in the treatment of other cancers, which may include ovarian,
breast, prostate, lung, renal cell and colorectal cancers and acute myelogenous
leukemia (AML). The Company is funding the pre-clinical and initial clinical
development of this technology for certain of these indications. Accordingly, in
addition to continuing the clinical work on M-Vax(TM), the Company has also
entered into a sponsored research agreement with TJU relating to the development
of additional immunotherapies based on the AC Vaccine(TM) 
<PAGE>

technology. For example, the Company is treating post-surgical stage 3 patients
in its Phase I/II clinical trial of O-Vax(TM), its AC Vaccine(TM) for ovarian
cancer. This trial is being conducted at TJU under the direction of Dr. David
Berd and has shown a positive immune response to haptenized tumor cells in the
first nine of nine patients treated, and has also shown a positive immune
response to unhaptenized tumor cells in the first eight of nine patients
treated, both as measured by a delayed type hypersensitivity (DTH) test.
Recently, the Company has received agreement from National Cancer Institute
("NCI") for NCI to sponsor a Phase I/II trial in ovarian cancer, which trial the
Company intends to begin later this year.

In connection with the Company's strategy to acquire, develop and commercialize
other potential biotechnology products and technologies, the Company has
licensed from Rutgers University and the University of Medicine and Dentistry of
New Jersey (collectively, "Rutgers"), certain patent applications relating to a
series of topoisomerase inhibitor compounds for the potential treatment of
cancer and infectious diseases (the "Rutgers License"). The Company also has
licensed from The Texas A&M University System ("Texas A&M"), an issued U.S.
patent and certain patent applications relating to a series of novel
anti-estrogen compounds for the potential treatment of cancer (the "Texas A&M
License"). Pursuant to the Rutgers License and the Texas A&M License (and under
its related sponsored research agreements with each of Rutgers and Texas A&M),
the Company intends to continue to expend significant resources on the research
and development of these compounds.

In order to contain costs, the Company may continue to use sponsored research
agreements and contract research organizations to help it develop its
technologies. At the appropriate time the Company may seek corporate partners to
provide the necessary resources and expertise for clinical development and to
manufacture, market or distribute products. In addition, the Company may seek to
explore the acquisition and subsequent development and commercialization of
additional commercially promising immunotherapy, chemotherapy and adjuvant
technologies. No assurance can be given that the Company will have the requisite
resources or that any such projects will be identified on terms favorable to the
Company, if at all.

The Company was incorporated in the State of New York on January 12, 1990, under
the name Nehoc, Inc. On May 29, 1992, it changed its name to Appex Technologies,
Inc. On October 22, 1992, the Company merged into Walden Laboratories, Inc., a
Delaware corporation, which was incorporated on September 18, 1992. On December
27, 1995, Walden Laboratories, Inc. sold its former leading product under
development, an over-the-counter nutritional dietary, medicinal and/or
elixorative food supplement or drug and related patents and intellectual
property to a subsidiary of Interneuron Pharmaceuticals, Inc. The Company
changed its name from Walden Laboratories, Inc., to AVAX Technologies, Inc.,
effective March 26, 1996.

BACKGROUND AND SCIENTIFIC RATIONALE OF THE AC VACCINE(TM) TECHNOLOGY

Cancer is characterized by the uncontrolled growth and spread of abnormal cells
which escape the body's protective immune surveillance system, invade healthy
tissues and destroy normal tissue function and ultimately lead to a person's
death if untreated. Cancers, composed of either solid tumors or blood-borne
cancerous cells, tend to spread over time to other tissues and organs in the
body (metastasis). Cancer may be diagnosed at any stage of the disease, from
very early (best prognosis) to very late (worst prognosis). When cancer is
detected early and has not yet metastasized (spread) to other organs and
tissues, surgical removal of the tumor is often effective. Unfortunately, many
cancers are not discovered until metastatic cancer cells from the primary tumor
have already entered the blood or lymphatic system and established new tumors at
distant sites. These cells, and the tumors they form, are difficult to diagnose
and treat with current technology.

As of 1997, the NCI estimates that approximately 7.4 million people living in
the United States were diagnosed as having cancer. The incidence of cancer
continues to increase. The NCI also estimates that the overall annual cost to
the health care system of treating these patients is approximately $104 billion.
The Company is aware of estimates that deaths from cancer will surpass
cardiovascular mortality worldwide by the end of this year.

Although some progress has been made, few effective treatments are available for
most adult solid tumors, which often metastasize and invade other organs before
they are detected. The standard treatment for solid tumors is surgery. While
this treatment is effective in many types of cancers, in cases in which removal
of the tumor is incomplete or in which the tumor has metastasized, the patient's
prognosis is poor. Chemotherapy and radiation therapy are rather crude
treatments because they kill cells indiscriminately, destroying normal as well
as malignant cells, leading to toxic side-effects and thereby 


                                       2
<PAGE>

limiting the usefulness of these therapies. A safe, effective treatment for
residual and metastatic disease is clearly needed. Such a treatment, if
effective and safe, would increase patient survival and may, therefore, be
widely adopted.

Although, many different types of drugs are used to treat a variety of cancers,
no one drug has been found to be a cure for the disease. Given the need for new
effective treatments for cancer, a drug which may effectively treat cancer could
have a large market potential. Although there can be no assurance, the Company
believes that an AC Vaccine(TM), developed to treat effectively the recurrence
of cancer after surgery, is likely to have a sizable market share. Surgery, in
many cases is the first treatment performed on cancer patients, and if a
treatment following surgery were to prove broadly applicable and safe, its
market potential could be significant, while enabling the health care system to
realize significant overall cost savings due to a reduction in the number of
cases of recurrent disease requiring hospitalization and ongoing clinical and
home care.

Immunotherapy is an emerging cancer treatment modality that the Company believes
shows promise for utilizing a patient's own immune system to recognize and
eliminate cancer cells. There are a number of different types of immunotherapies
such as cytokines, antibodies, activated cell therapy and vaccines currently
under development by unrelated companies. See "Competition." In all cases,
immunotherapies attempt to modulate the body's immune system to contain and
eliminate cancer cells. In concept, immunotherapies should have fewer
side-effects than chemotherapies and should be relatively well-tolerated by the
patient. Thus, although there can be no assurance of success, the Company
believes immunotherapies have the potential to be effective and, by reason of
their selectivity, relatively safe anti-cancer therapeutic agents.

TECHNOLOGY APPLICATIONS AND PRODUCT CANDIDATES

      The AC Vaccine(TM) Technology

The Company's primary proprietary technology is a patented autologous cell
vaccine that attempts to stimulate the patient's own immune system to recognize,
contain and eliminate cancer cells. The technology primarily involves the
removal of a patient's own tumor cells, conjugating them to a small molecule
known as a hapten-dinitro phenyl (DNP) and reintroducing the product back into
the patient with an adjuvant, which is an immunological agent that increases the
immune response. Haptenization is the process of modifying a larger molecule
with a smaller molecule. The small molecule known as a hapten, is recognized by
the immune system and elicits an immune response against the larger molecule.
The approach is based on the premise that a patient's immune response to a
strongly immunogenic, hapten-modified tumor antigen may be followed by the
development of an immune response to the unmodified tumor antigen, somewhat
analogous to the phenomenon of drug-induced autoimmune disease. Therefore, the
process of haptenizing a patient's tumor cells may allow the unhaptenized cancer
cells to be recognized by the body's immune system leading to an immune response
against the patient's tumor cells and their potential elimination from the body.

In practice, the Company's initial therapy would be used as an adjunct to
surgical treatment of tumors. In one proposed model, the surgeon would remove
the patient's tumor and send the cells to the Company where cancer cells would
be processed and stored. The vaccine would then be created and sent to the
patient's doctor as each dose is required for administration of the vaccine on
an outpatient basis. The patient's response to the treatment would then be
monitored using standard protocols. 

The Company is initially developing this technology for the treatment of
metastatic melanoma but believes that it possibly could have applications in the
treatment of a variety of solid tumors such as ovarian, breast, prostate, lung
and colorectal cancer and may have applications in the treatment of acute
myelogenous leukemia (AML).

      M-Vax(TM)

General. The Company's leading product, M-Vax(TM), is a post-surgical treatment
for stage 3 melanoma. Melanoma is a highly malignant tumor that can spread so
rapidly that it can be fatal within months of diagnosis. The incidence of
melanoma is increasing at a faster rate than most other cancers in the United
States, Australia, northern Europe and Canada. Although there are several
causative factors, rising exposure by the general population to UV radiation in
sunlight appears to be the most significant factor behind this increase. With
the incidence growing at a rate in excess of 6% annually, it is estimated that
there are approximately 200,000 existing cases of melanoma in the United States,
with approximately 40,300 new cases diagnosed in 1997.


                                       3
<PAGE>

Melanoma patients may be categorized according to the following staging system:

      o     Stage 1 -- lesion less than 1.5mm thickness and no apparent
            metastasis;

      o     Stage 2 -- lesion greater than 1.5mm thickness and local spreading
            from primary cancer site;

      o     Stage 3 -- metastasis to regional draining lymph nodes and regional
            spread from primary cancer site; and

      o     Stage 4 -- distant metastasis.

Current treatment for Stage 3 melanoma patients includes surgical excision of
the tumor mass and any of the nearby lymph nodes into which there has been
metastasis, followed by a year long regimen of alpha interferon administration,
which is currently the only FDA-approved treatment for patients with stage 3
melanoma. I In many cases however, survival is restricted by the inability of
surgery to guarantee removal of all the tumor cells. It is highly possible for
the post-surgery patient to remain with undetected metastasis. Further, use of
alpha interferon is associated with many severe side effects, often leading to
either reduction in dosage or complete discontinuation before the full course of
treatment is completed. Due to its limited efficacy and highly toxic side
effects, chemotherapy and radiation have not been widely used in the treatment
of these patients. The five-year survival rate for these patients is believed by
the Company to be approximately 20%. In clinical studies, alpha interferon
demonstrated a five-year survival rate that the Company believes to be
approximately 32% in stage 3 patients whom the Company believes to be comparable
to those treated with M-Vax(TM). Thus, the Company believes that there is a
clear need for an effective post-surgical treatment of stage 3 melanoma
patients.

Clinical Trials. Dr. David Berd, the inventor of the patented technology
licensed to the Company by TJU, is a clinical oncologist at TJU. Dr. Berd has
been conducting physician-sponsored clinical trials at TJU for the treatment of
melanoma using M-Vax(TM) for approximately ten years.

In the ongoing clinical trials at TJU, over 350 melanoma patients have been
treated post-surgically on an outpatient basis with M-Vax(TM). In 62 patients
with stage 3 melanoma in protocols in which there has been sufficient time for
long-term follow-up, the five-year survival rate is approximately 55%. This
compares with the historical and control group survival rates of about 20%, and
the survival rate for treatment with alpha interferon of approximately 32% in
stage 3 patients whom the Company believes to be comparable to those treated
with M-Vax(TM). In patients over 50 years old treated with M-Vax(TM), the
five-year survival rate was approximately 71%. The Company believes that the
results to date of the ongoing clinical trial represent the first substantial
increase in survival for stage 3 melanoma patients treated by immunotherapy. In
the over 350 patients treated in studies, only relatively minor side effects,
such as soreness and mild transient nausea and swelling at the site of the
application of the M-Vax(TM) vaccine, have been reported to date.

In 1998, the Company obtained from the FDA a Company-sponsored IND to allow the
Company to proceed with a multi-center clinical trial intended to support a
biologics license application. Depending upon the results of these clinical
trials, the Company intends to use the Company-sponsored clinical trial results,
along with the results of the TJU clinical trials, as the basis for filing an
application for FDA approval to market M-Vax(TM). The Company is also pursuing
strategies for commercial acceptance (including any applicable regulatory
approvals) of M-Vax and other AC Vaccine product candidates in various foreign
countries, although such strategies have not yet been finalized. The Company's
management estimates that it may be in the position to submit an application in
2001 or 2002. The targeted timetable for filing a marketing application depends
upon the rate of enrollment of both clinical sites and patients in the
registration studies, the adequacy of the overall clinical outcome data from
these trials, and ultimately acceptance by the FDA of the studies. A delay in
enrollment of either clinical sites or patients would delay completion of the
trials. Moreover, equivocal clinical outcomes from these trials would have the
effect of at least delaying the timetable for submission of a marketing
application and would negatively affect regulatory acceptance of the studies in
connection with the possible approval of such marketing application.

Denial of any regulatory approvals or any significant delays in obtaining any of
the regulatory approvals, would have a material adverse effect on the Company.


                                       4
<PAGE>

The Company is treating post-surgical stage 3 patients in its Phase I/II
clinical trial of O-Vax(TM),, its AC Vaccine(TM) for ovarian cancer. This trial
is being conducted at TJU under the direction of Dr. David Berd and has shown a
positive immune response to haptenized tumor cells in the first nine of nine
patients treated, and has also shown a positive immune response to unhaptenized
tumor cells in the first eight of nine patients treated, both as measured by a
delayed type hypersensitivity (DTH) test. Recently, the Company has received
agreement from the NCI for NCI to sponsor a Phase I/II trial in ovarian cancer,
which trial the Company intends to begin this year. In addition, the Company
intends to begin enrolling in a multi-center Phase II clinical trial for
O-Vax(TM) this year.

There can be no assurance, however, that the foregoing forward-looking
statements with respect to the Company's intended timetable for the completion
of the pivotal registration clinical trials for M-Vax(TM), the eventual filing
of a marketing application for M-Vax(TM) and the Company's intended timetable
for clinical trials for O-Vax(TM), will be met.

In addition, the Company has recently entered into a Technical Testing Agreement
(the "Illinois Agreement") with the University of Illinois ("Illinois"),
pursuant to which Illinois will conduct testing in order to determine whether an
animal model can be used to demonstrate the therapeutic potential of
DNP-vaccine, such as the Company's AC Vaccine(TM), in experimental tumor models,
and the value of adjunctive therapies. The Company has agreed to fund
approximately $160,000 for the expected two-year term of this study.

      Topoisomerase Inhibitors

The Rutgers License relates to a series of novel anticancer compounds being
prepared and studied under the direction of Professors Edmund LaVoie and Leroy
Liu at Rutgers University (the "Rutgers Compounds"). The Rutgers Compounds have
proven effective on animal models during pre-clinical studies. The Rutgers
Compounds fall into six distinct and varied chemical classes, and have been
shown to inhibit topoisomerase I or topoisomerase II activities, depending on
the exact structure. Topoisomerases are key enzymes needed for remolding DNA, a
necessary function for malignant tumor growth. Inhibitors of these enzymes have
been proven to be clinically-useful anticancer therapies. In addition to having
topoisomerase-inhibiting characteristics, some of the Rutgers Compounds have
shown activity against fungal as well as parasitic organisms. Both United States
and non-U.S. patents have been filed for the Rutgers Compounds and their
anticancer and anti-infective uses. During 1998 a U.S. Patent was issued to the
Company granting claims to novel compounds which inhibit activity of
topoisomerase I, a natural enzyme needed to support malignant tumor growth.
Although these compounds are in an early stage of pre-clinical development for
solid tumor, antifungal and parasitic indications, the Company intends to pursue
development of one or more of these compounds. The Company's management
anticipates that the pre-clinical work may lead to identification of a lead
compound during 1999, and that an IND for that compound may be filed with the
FDA during 1999. However, there can be no assurance that any of the Rutgers
Compounds will ultimately reach a stage of clinical testing or
commercialization.

      Novel Anti-Estrogens

The Texas A&M License relates to a series of novel anticancer compounds (the
"Texas A&M Compounds") being prepared and studied under the direction of
Professor Stephen Safe at Texas A&M University. The unique activity against
solid tumors exhibited by the Texas A&M Compounds can be classified as
anti-estrogen, although they appear to act indirectly on the estrogen receptor
through a novel pathway. Anti-estrogens have been proven to be clinically-useful
anticancer therapies. United States patents for both the Texas A&M Compounds and
their anticancer uses have been filed. Although non-U.S. patent filings have not
yet been made, the Company expects that foreign patent coverage will be pursued
as the result of ongoing laboratory research. These compounds are in an early
stage of pre-clinical development for solid tumor indications. The Company's
management anticipates that the pre-clinical work may lead to identification of
a lead compound during 1999, and that an IND for such compound may be filed with
the FDA during 1999. However, there can be no assurance that any such compounds
will ultimately reach a stage of clinical testing or commercialization.


                                       5
<PAGE>

RESEARCH AND DEVELOPMENT

      Autologous Cell Vaccines

In connection with the TJU License entered into in November 1995, TJU, Dr. Berd,
as TJU's principal investigator, and the Company entered into a Clinical Study
and Research Agreement. Under that agreement, TJU and Dr. Berd began a research
and clinical study program for the further development of the AC Vaccine(TM)
technology for additional cancer targets and the Company agreed to provide
certain funding for the research.. . During 1998, the agreement was amended to
provide research funding for the fourth year of the agreement of $279,690. The
Company is presently obligated to spend a minimum of $500,000 per year on the
development of the AC Vaccine(TM) technology until commercialized in the United
States. If the Company files for FDA approval of a Company-sponsored marketing
application for the right to market a product arising from such technology, the
Company may elect to spend less than $500,000 per year on the development of the
AC Vaccine(TM) technology during the period of time the marketing application is
under review by the FDA. If the Company does not meet its financial,
development, or other obligations in a timely manner under the TJU license or
related sponsored research agreement, the Company could lose the rights to this
proprietary technology or the right to have TJU conduct its research and
development efforts, any of which could have a material adverse effect on the
Company. TJU has the right to terminate the agreement on 30 days' written notice
if it becomes unable for any reason to complete the study. See "Risk
Factors--Dependence on Licenses and Sponsored Research Agreements."

      Topoisomerase Inhibitors

The Company has committed to fund research for each of the first three years of
the Rutgers License at a rate of $100,000 per year as well as the payment of
certain indirect overhead costs. The Company also is obligated to pay Rutgers
for certain overhead costs on a deferred basis. In addition, the Company is
obligated to spend an aggregate of $200,000 in the first year, $300,000 in the
second year and $500,000 each year thereafter until the first year of commercial
marketing of a product derived from the Rutgers Compounds, for the development,
research (including the $100,000 research funding commitment in each of the
first three years), manufacture, regulatory approval, marketing and selling of a
product derived from the Rutgers Compounds. If the Company fails to make
payments in accordance with the terms of the Rutgers License, Rutgers would be
entitled to terminate the Rutgers License, which could have a material adverse
effect on the Company. See "Risk Factors--Dependence on Licenses and Sponsored
Research Agreements."

The research effort with respect to these compounds is conducted at Rutgers
under the direction of Edmond J. LaVoie, Ph.D., the co-originator of the
technology underlying the Rutgers License. Dr. LaVoie is Professor of Medicinal
Chemistry and Chairman of the Department of Pharmaceutical Chemistry at Rutgers
and is a member of the Company's Scientific Advisory Board. See
"Management--Scientific Advisory Board."

      Novel Anti-Estrogens

The Company has committed to fund research relating to the Texas A&M Compounds
in the amount of $108,750 for each of the first three years of the Texas A&M
license. In addition, the Company is required to achieve certain milestones
toward development of a licensed product within certain specified time frames.
If the Company fails to make such payments or achieve such milestones in
accordance with the terms of the Texas A&M License, Texas A&M would be entitled
to terminate the agreement. The termination of the Texas A&M License could have
a material adverse effect on the Company. See "Risk Factors--Dependence on
Licenses and Sponsored Research Agreements."

It is anticipated that the research effort with respect to the potential
anti-cancer compounds licensed under the Texas A&M License will be conducted at
Texas A&M under the direction of Stephen H. Safe, Ph.D., the originator of the
technology underlying the Texas A&M License. Dr. Safe is Sid Kyle Professor of
Toxicology at Texas A&M and is a member of the Company's Scientific Advisory
Board.


                                       6
<PAGE>

PROPRIETARY RIGHTS

      The TJU License

Pursuant to the TJU License, the Company has licensed an issued U.S. patent and
certain U.S. and foreign patent applications covering a process for the
modification of a patient's own tumor cells into a cancer vaccine. The TJU
License is a royalty-bearing license for the rights to such patented vaccine
technology, and provides for certain payments upon the occurrence of certain
milestones. As consideration for the TJU License, the Company paid $10,000 to
TJU, and issued 229,121 shares of Common Stock to each of TJU and Dr. Berd,
representing 7.5% (15% in the aggregate) of the Company's total outstanding
voting securities at the time of issuance in 1995.

The Company is obligated to make certain milestone payments to TJU as follows:
$10,000 upon initiation of the first clinical trial that is approved by the FDA
(or comparable international agency), $10,000 upon the first filing of a
marketing application with the FDA (or comparable filing with a comparable
international agency), and $25,000 upon receipt by the Company of approval from
the FDA (or comparable international agency) to market products relating to the
AC Vaccine(TM) technology. In addition, the Company is obligated to pay
royalties on its net sales revenue and a percentage of all revenues received
from sublicenses relating to the AC Vaccine(TM) technology. Failure to comply
with the terms of the TJU License may cause its termination, which would have a
material adverse effect on the Company. See "Risk Factors--Dependence on
Licenses and Sponsored Research Agreements."

      The Rutgers License

Pursuant to the Rutgers License, the Company has licensed certain U.S. and
foreign patent applications relating to the Rutgers Compounds. The Company paid
$15,000 as consideration for the Rutgers License, and has agreed to pay an
additional $15,000 license maintenance feeeach year. The license maintenance fee
is not payable in years where research funding is equal to or greater than
$100,000. The Company has issued to Rutgers warrants to purchase 125,000 shares
of Common Stock at a price of $8.24 per share. Such warrants are exercisable
upon the achievement of certain development-related milestones. The first 75,000
of the warrants will expire in 2006 and the final 50,000 warrants will expire in
2011. These warrants provide for cashless exercise, piggyback registration
rights and certain anti-dilution rights.

The Company is also obligated to make certain milestone payments as follows:
$15,000 on the earlier of October 31, 1999 or the date of first filing of an IND
application with the FDA, or comparable international agency, $25,000 on the
earlier of October 31, 2001 or the date of initiation of Phase II trials in the
United States or another major market country, $45,000 on the earlier of October
31, 2005 or the date of first filing of a marketing application with the FDA, or
comparable international agency and $150,000 on the earlier of October 31, 2008
or the date of receipt by the Company of approval from the FDA or comparable
international agency to market products. In addition, the Company is required to
pay royalties on its worldwide net sales revenue derived from the Rutgers
Compounds and a percentage of all revenues received from sublicenses of products
derived from these compounds. Failure to comply with the terms of the Rutgers
License may cause its termination, which could have a material adverse effect on
the Company. See "Risk Factors--Dependence on Licenses and Sponsored Research
Agreements."

      The Texas A&M License

Pursuant to the Texas A&M License, the Company has licensed an issued U.S.
patent and certain U.S. and foreign patent applications relating to the Texas
A&M Compounds. Under the terms of the agreement, the Company is obligated to pay
future milestone payments, royalties on its net sales revenue derived from these
compounds and a percentage of all revenues received from sublicenses of such
compounds. The Company also has agreed to fund research in the amount of
$108,750 for each of the first three years of the Texas A&M License. Failure to
comply with the terms of the Texas A&M License may cause its termination, which
could have a material adverse effect on the Company. See "Risk
Factors--Dependence on Licenses and Sponsored Research Agreements."

In the future, the Company may require additional licenses from other parties to
develop, manufacture and market commercially viable products effectively. The
Company's commercial success will depend in part on obtaining and maintaining
such licenses. There can be no assurance that such licenses can be obtained or
maintained on commercially reasonable terms, if at all, that the patents
underlying such licenses will be valid and enforceable or that the proprietary


                                       7
<PAGE>

nature of the technology underlying such licenses will remain proprietary. The
Company presently intends to pursue aggressively the broadest patent coverage
possible for all of its intellectual property. See "Risk Factors--Uncertainty
Regarding Patents and Proprietary Rights."

COMPETITION

The Company is aware of estimates that more than 300 companies are reported to
have approximately 1,250 cancer drugs under development worldwide, of which a
substantial number are under development in the United States. Many of these
drugs or other substances under development involve chemotherapeutic agents and
cancer immunotherapies and, thus, are, or may be, in direct competition with the
Company's AC Vaccine(TM) or compounds resulting from development work pursuant
to the Rutgers License or the Texas A&M License. Future competitor products and
drugs may perform more effectively or safely than the Company's product
candidates.

Many of the companies engaged in anticancer research and development and in
acquiring rights to the products of such research and development, including
biotechnology companies, have substantially greater financial, technical,
scientific, manufacturing, marketing and other resources than the Company and
have more experience in developing, marketing and manufacturing therapeutics,
including performing the pre-clinical testing and clinical trials that are
required for obtaining FDA and other regulatory approvals. Included among the
Company's competitors are: (i) large established pharmaceutical and
biotechnology companies with commitments to oncology or antiviral research,
development and marketing, including, without limitation, Schering Plough
Corporation, Chiron Corporation, Bristol-Myers Squibb and Johnson & Johnson;
(ii) smaller biotechnology companies with similar strategies, including IDEC
Pharmaceuticals, Inc. and Biomira Diagnostics; and (iii) many development stage
companies licensing or developing oncology therapeutics.

In addition, many research institutes, hospitals and universities are working to
develop products and processes in the same field of cancer that may in the
future be in direct competition with the Company's technologies.

A number of companies or research institutions are developing cancer vaccines,
including, without limitation, Ribi ImmunoChem Research, Inc. and Progenics,
Inc., in melanoma; AltaRex, Genentech and Biomira, in ovarian cancer; and
Intracell and Aphton Corporation, in colorectal cancer. The principal
competitive factors in the area of cancer immunotherapies are (i) the efficacy
of the product and (ii) the timing of the entry of the product into the market.
Although there is significant competition, to date, the Company believes that
none of the competing immunotherapies have demonstrated the increase in survival
over the same period of time that the Company's technology has shown in
melanoma. Although there can be no assurance, the Company also believes that its
AC Vaccine(TM) technology may be applicable to a variety of solid tumors such as
ovarian, breast, prostate, lung, renal cell and colorectal cancer and may have
applications in the treatment of acute myelogenous leukemia (AML) and therefore
may not be as limited as certain other approaches. With respect to the timing of
the entry of the product, there can be no assurance as to when, if at all, any
of the Company's potential products will be approved. See "Risk Factors".

MANUFACTURING AND MARKETING

The Company does not currently have the resources to manufacture commercially or
directly market any products that it may develop. The Company may seek to enter
into collaborative arrangements with pharmaceutical, medical device, health
care, chemical or other companies to assist in development, commercial
manufacturing or marketing of its products if such activities are commercially
feasible, or to provide funding for these efforts. These partners may also be
responsible for commercial scale manufacturing, which will be subject to
compliance with applicable FDA regulations. The Company anticipates that such
arrangements may involve the grant of exclusive or semi-exclusive rights to sell
specific products to specified market segments or particular geographic
territories in exchange for a royalty, joint venture, future co-marketing or
other financial interests.

To date, the Company has not entered into any collaborative commercial
manufacturing or marketing agreements for any of its potential products. There
can be no assurance that the Company will be able to enter into any such
arrangements on favorable terms, if at all. Such collaborative marketing
arrangements, whether licenses, joint ventures or otherwise, may result in lower
revenues than would otherwise be generated if the Company manufactured and
marketed its own products.


                                       8
<PAGE>

The Company is in the process of completing construction of its GMP
manufacturing facility for the AC Vaccine(TM) (which facility will be used
initially to produce AC Vaccines sufficient to support its clinical programs).
The facility is expected to go on-line in April of this year. To support this
facility, the Company will be required to hire and train significant numbers of
employees and to comply with extensive GMP regulations applicable to the
facility. The establishment of any such facilities and eventual expansion of
operations to commercial levels, as well as the hiring of qualified employees,
could require substantial expenditures. In addition, at least some of the
Company's products produced at its facilities will probably be regulated as
biologics. In that event, the Company would be required to file a biologics
license application with the FDA in order to obtain an establishment license (or
similar license) for its facilities. Any delay in the FDA's approval of (or its
refusal to grant) such a license would delay or prevent marketing of the
relevant product.

GOVERNMENT REGULATION

The research, pre-clinical development, clinical trials, product manufacturing
and marketing conducted by or on behalf of the Company is subject to regulation
by the FDA and similar health authorities in foreign countries. The proposed
products and technologies of the Company also may be subject to certain other
federal, state and local government regulations, including, the Federal Food,
Drug and Cosmetic Act, and their state, local and foreign counterparts.

Generally, the steps required before a pharmaceutical or therapeutic biological
agent may be marketed in the United States include: (i) pre-clinical laboratory
tests, in vivo pre-clinical studies in animals, toxicity studies and formulation
studies; (ii) the submission to the FDA of an IND application for human clinical
testing, that must become effective before human clinical trials commence; (iii)
adequate and well-controlled human clinical trials to establish the safety and
efficacy of the drug; (iv) the submission of a marketing application to the FDA;
and (v) FDA approval of the marketing application prior to any commercial sale
or shipment of the drug.

Pre-clinical studies include laboratory evaluation of the product, mostly
conducted under Good Laboratory Practice (GLP) regulations, and animal studies
to assess the pharmacological activity and the potential safety and
effectiveness of the drug. The results of the pre-clinical studies are submitted
to the FDA in the IND. Unless the FDA objects to an IND, it becomes effective 30
days following submission and the clinical trial described in the IND may then
begin.

Every clinical trial must be conducted under the review and oversight of an
institutional review board (IRB) at each institution participating in the trial.
The IRB evaluates, among other things, ethical factors, the safety of human
subjects, and the possible liability of the institution.

Clinical trials are typically conducted in three sequential phases, although the
phases may overlap. Phase I represents the initial introduction of the drug to a
small group of healthy subjects to test for safety, dosage tolerance, and the
essential characteristics of the drug. Phase II involves studies in a limited
number of patients to test the safety and efficacy of the drug at different
dosages. Phase III trials involve large-scale evaluation of safety and
effectiveness, usually (though not necessarily) in comparison with a placebo or
an existing treatment.

The results of the pre-clinical and clinical trials are submitted to the FDA as
part of an application to market the drug. The marketing application also
includes information pertaining to the chemistry, formulation and manufacture of
the drug and each component of the final product. The FDA review of a marketing
application takes from one to two years on average to complete, though reviews
of treatments for cancer and other life-threatening diseases may be accelerated.
The process may take substantially longer, however, if the FDA has questions or
concerns about a product. Following review, the FDA may ultimately decide that
an application does not satisfy regulatory and statutory criteria for approval.
In some cases, the FDA may approve a product but require additional clinical
tests following approval (i.e., Phase IV).

In addition to obtaining FDA approval for each product, each domestic drug
manufacturing establishment must be registered with, and approved by, the FDA.
Domestic manufacturing establishments are subject to inspections by the FDA and
must comply with Good Manufacturing Practices. To supply products for use in the
United States, foreign manufacturing establishments must comply with GMP and are
subject to periodic inspection by the FDA or by corresponding regulatory
agencies in such countries under reciprocal agreements with the FDA.

If marketing approval of any Company product is granted, the Company must
continue to comply with FDA requirements not only for manufacturing, but also
for labeling, advertising, record keeping, and reporting to the FDA of 


                                       9
<PAGE>

adverse experiences and other information. In addition, the Company must comply
with federal and state health care antikickback laws and other health care fraud
and abuse laws that affect the marketing of pharmaceuticals. Failure to comply
with applicable laws and regulations could subject the Company to administrative
or judicial enforcement actions, including product seizures, injunctions, civil
penalties, criminal prosecution, refusals to approve new products or withdrawal
of existing approvals, as well as increased product liability exposure, any of
which could have a material adverse effect on the Company's business, financial
condition, or results of operations.

For clinical investigation and marketing outside the United States, the Company
also is subject to certain foreign regulatory requirements governing human
clinical trials and marketing approval for drugs. The requirements governing the
conduct of clinical trials, product licensing, pricing and reimbursement vary
widely for European countries both within and outside the European Union ("EU").
Normally, foreign marketing authorizations are applied for at a national level,
although within the EU certain registration procedures are available to
companies wishing to market their products in more than one EU member state. If
any applicable regulatory authority is satisfied that adequate evidence of
safety, quality and efficacy has been presented, a marketing authorization will
be granted. The system for obtaining marketing authorizations within the EU
registration system is a dual one in which certain products, such as
biotechnology and high technology products and those containing new active
substances, will have access to a central regulatory system that provides
registration throughout the entire EU. Other products will be registered by
national authorities in individual EU member states, operating on a principle of
mutual recognition. Any applicable foreign regulatory approval processes
include, at least, all of the risks associated with FDA approval set forth
above. The Company could possibly have greater difficulty in obtaining foreign
approvals and also might find it more difficult to protect its intellectual
property abroad.

SOURCES AND AVAILABILITY OF RAW MATERIALS

The Company does not expect to encounter significant difficulties in obtaining
raw materials for M-Vax(TM) or O-Vax(TM),, because they are primarily composed
of a readily available chemical reagent, DNP, and the patient's own tumor cells.
In addition the vaccine is administered with a chemical adjuvant, BCG, which
assists in stimulating the immune system. Should the supply of DNP or BCG
significantly decrease, the Company may encounter problems preparing M-Vax(TM),
O-Vax(TM), or any other AC Vaccine(TM) based products.

COMPLIANCE WITH ENVIRONMENTAL LAWS

The Company's business may be subject to regulation under federal, state, local,
and foreign laws regarding environmental protection and hazardous substance
control. The Company believes that its compliance with these laws will have no
adverse impact upon its capital expenditures, earnings or competitive position.
Federal, state and foreign agencies and legislative bodies have expressed
interest in the further environmental regulation of the biotechnology industry.
The Company is unable to estimate the extent and impact of such, if any, future
federal, state, local legislation or administrative environmental action may
have on the Company.

EMPLOYEES

The Company utilizes a product development strategy that includes contracting
out its research and development, and to a certain extent, other functions in
order to minimize the expenses and overhead associated with full-time employees.
Consistent with this strategy, as of March 3, 1999, the Company had 13 full-time
employees. Its other consultants, scientific advisors and directors devote only
a portion of their time to the business of the Company. The Company believes
that it maintains good relations with its employees, consultants, scientific
advisors, part-time officers and directors. See "Risk Factors--Lack of
Management and Employees" and "--Dependence Upon Key Personnel and Consultants."

RESEARCH AND DEVELOPMENT EXPENSE

In 1997 and 1998, the Company incurred research and development expense of
$2,448,976 and $4,019,143, respectively. Research and development expense for
the period from inception has been $8,820,428. See "Financial Statements."
Although there can be no assurance it will have the capital resources to do so,
the Company intends to increase its spending on research and development in the
foreseeable future.


                                       10
<PAGE>

RISK FACTORS

The following important factors, among others, could cause the Company's actual
results, performance or achievements, or industry results, to differ materially
from those expressed in the Company's forward-looking statements in this Report
and presented elsewhere by the Company from time to time. See also "Cautionary
Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities
Litigation Reform Act of 1995".

HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE
PROFITABILITY

The Company has incurred substantial operating losses since its inception. As of
December 31, 1998, the Company's accumulated deficit was $13,358,277. The
Company expects to incur significant operating losses over the next several
years, primarily due to the expansion of its research and development programs,
including clinical trials for M-Vax(TM) , O-Vax(TM), and pre-clinical studies
and clinical trials for other products that it may acquire or develop. The
Company's ability to achieve profitability depends upon, among other things, its
ability to develop products, obtain regulatory approval for its proposed
products, and enter into agreements for product development, manufacturing and
commercialization. The Company's M-Vax(TM) and O-Vax(TM), products do not
currently generate revenue and the Company does not expect to achieve revenues
from these or other products for the foreseeable future. Moreover, there can be
no assurance that the Company will ever achieve significant revenues or
profitable operations from the sale of M-Vax(TM), O-Vax(TM), or any other
products that it may develop.

NEED FOR ADDITIONAL FINANCING; ISSUANCE OF SECURITIES; FUTURE DILUTION

In the future, the Company will require substantial additional financings to
continue research, undertake product development and pursue the manufacturing
and marketing of any products that it may develop. Although the Company
completed a $10.1 million private placement of series C preferred stock on March
1, 1999, there can be no assurance that any additional financings will be
consummated or that the Company will otherwise be able to obtain additional
funds or that such financings, if available, can be obtained on terms favorable
or acceptable to the Company. If such financings are not consummated or are not
available, the Company will be required to modify its business development plans
or reduce or cease certain or all of its operations. The current cash resources
of the Company (including the net proceeds of the March, 1999 private placement
of series C preferred stock) should be sufficient to fund operations (as
presently conducted and with planned expansions of research and development in
1999) for the next 18-26 months.

If the Company obtains any additional funding, such financings may have a
dilutive effect on the holders of the Common Stock.

DEVELOPMENT STAGE COMPANY

Although the Company was organized in January 1990, it has only conducted
limited research activities, principally since 1995 through its license and
research agreements with TJU, Rutgers and Texas A&M, and has not generated any
significant revenues to date from operations. Accordingly, the Company must be
evaluated in light of the expenses, delays, uncertainties and complications
typically encountered by newly established biopharmaceutical businesses, many of
which uncertainties and complications are beyond the Company's control. These
include, but are not limited to, unanticipated problems relating to product
development, testing, regulatory compliance, manufacturing, marketing and
competition, and additional costs and expenses that may exceed current
estimates. There can be no assurance that the Company will successfully develop
and commercialize any products, generate any revenues or ever achieve profitable
operations.


                                       11
<PAGE>

TECHNOLOGICAL UNCERTAINTY AND EARLY STAGE OF PRODUCT DEVELOPMENT

The technologies and products that the Company is seeking to develop are in the
early stages of research and development, require significant further research,
development and testing and are subject to the risks of failure inherent in the
development of products based on innovative or novel technologies. These risks
include the possibility that any or all of the Company's proposed products will
be found to be ineffective or unsafe, that the products once developed, although
effective, are uneconomical to market, that third parties hold proprietary
rights that preclude the Company from marketing the products or that third
parties market a superior or equivalent product or that the Company will be
unable to secure a meaningful patent position for its products. See "Uncertainty
Regarding Patents and Proprietary Rights." The results of initial pre-clinical
and clinical testing of the Company's current and proposed products under
development are neither necessarily predictive of results that will be obtained
from more extensive pre-clinical and clinical testing nor necessarily acceptable
to the FDA or other similar foreign agencies to support applications for
marketing permits.

The Company is unable to predict whether the research and development activities
it is funding will result in any commercially viable products or applications.
Further, due to the extended testing required before marketing clearance can be
obtained from the FDA or similar foreign agencies, the Company is not able to
predict with any certainty, when, if ever, it will be able to commercialize any
of its proposed products.

The market for biotechnology products in general, and for cancer immunotherapies
such as the AC Vaccine(TM) technology and other possible future products, in
particular, are characterized by rapidly changing technology, evolving industry
standards and frequent new product introductions. The Company's future success
will depend upon its ability to develop and commercialize its existing product
technologies and to develop new products. There can be no assurance that the
Company will successfully complete the development of its existing product
technologies or of any future product or that the Company's current or future
products will achieve market acceptance. Any delay or failure of M-Vax(TM),
O-Vax(TM), or any future product that the Company may develop, in achieving
market acceptance would materially and adversely affect the Company's business.
In addition, there can be no assurance that products or technologies developed
by others will not materially render the Company's existing or future products
or technologies non-competitive or obsolete.

This Report includes estimates by the Company of the number of patients with a
particular type of cancer or other diseases, the number of patients who were
administered a particular vaccine or drug and the number of patients who
received or might have been candidates for a particular type of treatment. There
can be no assurance that such estimates accurately reflect the true market or
the extent to which any of the Company's products, if successfully developed,
will actually be used by patients. Furthermore, even if patient use occurs,
there can be no assurance that any future sales of its products will be
profitable. Failure of the Company to successfully develop, obtain regulatory
approval for, introduce and market M-Vax(TM), O-Vax(TM), and possible future
products would have a material adverse effect on the Company.

GOVERNMENT REGULATION; NO ASSURANCE OF PRODUCT APPROVAL

The proposed products of the Company will be subject to very stringent federal,
state and local government regulations, including the Federal Food, Drug and
Cosmetic Act, and its state and local counterparts. Similar regulatory
frameworks exist in certain other countries where the Company may consider
marketing its products. To date, TJU and Dr. David Berd, the inventor of the AC
Vaccine technology, have conducted the ongoing clinical trials at TJU pursuant
to an FDA-approved physician sponsored Investigational New Drug Application
("IND"). The Company met earlier with the FDA to discuss the clinical results
obtained with M-Vax, the use of such results in support of the submission of a
Company-sponsored IND to the FDA, which has now been activated by the FDA. Prior
to marketing M-Vax(TM), O-Vax(TM) or any other possible product the Company may
develop, such product must undergo an extensive regulatory approval process. Any
denials or delays in obtaining requisite approvals would be likely to have a
material adverse effect on the Company.

The regulatory process includes extensive pre-clinical and clinical testing of
any product to establish its safety and efficacy. This testing can take many
years and require the expenditure of substantial capital and other resources. In
the U.S., clinical trials are stringently regulated by the FDA, and the FDA may
suspend clinical trials at any time if it determines that patients are being
exposed to an unreasonable health risk, or for certain other reasons. Delays or
denials of marketing approval are encountered regularly due to the submission of
unacceptable or incomplete data as deemed by the FDA or other similar regulatory
agency, or due to regulatory policy for product approvals. In addition, new
government regulations may be 


                                       12
<PAGE>

established that could delay or prevent regulatory approval of the Company's
products under development. These delays may be encountered both domestically
and abroad. There is no assurance that even after clinical testing, regulatory
approval will ever be obtained. If regulatory approval is obtained, the uses for
which any products may be marketed will be limited to specific indications.
Following regulatory approval, if any, a marketed product and its manufacturer
are subject to continual regulatory review and periodic inspections. In the
U.S., the Company would be required to comply with FDA requirements for
manufacturing, labeling, advertising, record keeping and reporting of adverse
experiences and other information. In addition, the Company would be required to
comply with federal and state health care anti-kickback laws and other health
care fraud and abuse laws that pertain to the marketing of pharmaceuticals.
Failure to comply with regulatory requirements could subject the Company to
administrative or judicial enforcement actions, including product seizures,
injunctions, civil penalties, criminal prosecution, refusals to approve new
products or withdrawal of existing approvals, as well as increased product
liability exposure, any of which could have a material adverse affect on the
Company. Development and marketing of the Company's products outside the U.S.
will be subject to foreign regulatory requirements governing clinical trials,
marketing approval, manufacturing and pricing. Failure to comply with these
requirements could result in enforcement actions or penalties or could delay
introduction of the Company's products in certain countries.

Failure of the Company to obtain and maintain regulatory approval of its
proposed products, processes or facilities would have a material adverse effect
on the business, financial condition and results of operations of the Company.
In addition, many academic institutions and companies doing research in the
field of cancer immunotherapy are using a variety of approaches and
technologies. Any adverse results obtained by such researchers in pre-clinical
or clinical studies, even if not directly or indirectly related to the Company's
potential products or approaches, could adversely affect the regulatory
environment for immunotherapy or other biotechnology products generally, and
possibly lead to delays in the approval process for the Company's potential
products.

DEPENDENCE ON OTHERS FOR CLINICAL DEVELOPMENT AND MARKETING OF PHARMACEUTICAL
PRODUCTS

The Company is presently dependent upon TJU, Rutgers and Texas A&M for
substantial all of the Company's current research and clinical development of
its products. Additionally, the Company currently does not have the resources to
directly market or sell M-Vax(TM), O-Vax(TM)or any products it may develop in
the future. The Company anticipates that it may in the future seek to enter into
collaborative agreements with pharmaceutical, or other biotechnology companies,
for the development of, clinical testing of, seeking of regulatory approval for,
and marketing of, certain of its products. Accordingly, the Company is and is
likely to continue to be dependent on others for, and may have only limited
control over, clinical development and marketing and selling of its products.
The inability of the Company to enter into third party distribution, marketing
and selling arrangements for the Company's anticipated products would have a
material adverse effect on the Company's business. There can be no assurance
that the Company will be able to enter into any arrangements for the marketing,
or selling of its products.

The Company anticipates that it may in the future seek to enter into
collaborative agreements with pharmaceutical, or other biotechnology companies,
for the development of, clinical testing of, seeking of regulatory approval for,
and manufacturing, marketing and commercialization of, certain of its products.
The Company may in the future grant to its collaborative partners, if any,
rights to license and commercialize any pharmaceutical products developed under
these collaborative agreements and such rights would limit the Company's
flexibility in considering alternatives for the commercialization of such
products. Although the Company believes that such collaborative partners might
have an economic motivation to commercialize the pharmaceutical products they
may license, the amount and timing of resources devoted to these activities
generally will be controlled by each such individual partner. There can be no
assurance that the Company will be successful in establishing any collaborative
arrangements, or that, if established, such future partners will be successful
in commercializing products or that the Company will derive any revenues from
such arrangements.

DEPENDENCE ON LICENSES AND SPONSORED RESEARCH AGREEMENTS

The Company relies heavily on third parties for a variety of functions,
including certain functions relating to research and development. As of March 3,
1999, the Company had only thirteen employees. The Company is party to several
license and research agreements which place substantial responsibility on the
Company's licensors for research and clinical development of its products and
technologies.


                                       13
<PAGE>

In particular, the Company is dependent upon the TJU License as the basis of its
proprietary AC Vaccine(TM) technology and is dependent upon a sponsored research
agreement with TJU for research and development efforts in connection therewith.
Pursuant to the TJU License, the Company is obligated to pay an up-front license
fee, to use due diligence in developing and bringing products to market and to
make certain payments upon the achievement of certain milestones. The Company is
also obligated to make royalty payments on the sales, if any, of products
resulting from such licensed technology and, is responsible for the costs of
filing and prosecuting patent applications and maintaining issued patents. In
addition, the Company is required to invest a minimum amount per year in the AC
Vaccine(TM) technology as well as sponsored research at TJU. The Company is
similarly dependent upon the Rutgers License and Texas A&M License for certain
of its technology, and has financial and other obligations thereunder (and under
its related sponsored research agreements with each of Rutgers and Texas A&M)
that are similar to those under the TJU agreements.

If the Company does not meet its financial, development, or other obligations in
a timely manner under its license agreements or related sponsored research
agreements, the Company could lose the rights to its proprietary technology or
the right to have its licensors and others conduct its research and development
efforts, any of which could have a material adverse effect on the Company. TJU
has the right to terminate the TJU research and development agreement on 30
days' written notice if it becomes unable for any reason to complete the Study.

LIMITED MANUFACTURING FACILITIES

In order to successfully commercialize its product candidates, the Company must
be able to manufacture its products in commercial quantities, in compliance with
regulatory requirements, at acceptable costs and in a timely manner, or contract
with a third party to manufacture products on behalf of the Company. The
manufacture of the types of biopharmaceutical products that are likely to be
developed by the Company present several risks and difficulties. For example,
the manufacture of M-Vax(TM), O-Vax(TM) and other compounds the Company may
develop for use in the Company's current and future products and technologies
may be difficult to scale-up when large scale production is required and can be
subject to delays, inefficiencies and poor or low yields of quality products.
The Company may also be subject to risks relating to the expense, or
unavailability of, products and compounds manufactured or sold by third parties
that are required for use on a comparative basis in clinical trials and studies
for the Company's products. There can be no assurance that the Company will be
able to procure such products and compounds at an acceptable cost or in
sufficient quantities without delays or other adverse effects upon the Company's
development programs.

The Company currently has interim manufacturing capacity at TJU and is
completing the construction of a manufacturing facility in Pennsylvania. The TJU
facility has been reasonably adequate to support the clinical programs to date,
and the new Pennsylvania facility is expected to be adequate to support the
planned clinical trial programs. The new Pennsylvania facility, however, has not
yet received FDA licensure as a pharmaceutical manufacturing facility, and there
can be no assurance that the licensure will be obtained.

While the Company is in the process of establishing a new manufacturing
facility, such endeavor will require substantial additional funds, the hiring
and retention of significant additional personnel and compliance with extensive
regulations applicable to such a facility. There can be no assurance that the
Company will be able to successfully establish such a facility, hire such
personnel or successfully manufacture products for sale at competitive prices.

These existing facilities (even after licensure of the Pennsylvania facility and
commencement of manufacturing there) likely will not be sufficient to produce
sufficient quantities of M-Vax(TM) or other products if M-Vax(TM) or any other
product reaches commercialization. Accordingly, the Company anticipates that it
will either expand its current facilities, build an additional facility or
facilities or contract with third parties to assist with production. There can
be no assurance that the Company will be able to obtain from a third party a
satisfactory manufacturing arrangement or that the third party will manufacture
adequate supplies in a timely fashion for commercialization, or that commercial
quantities of any such products, if approved for marketing, will be available
from contract manufacturers at acceptable costs. If the Company seeks to
establish a full-scale commercial manufacturing facility, the Company will
require substantial additional funds and will be required to hire and train
significant numbers of employees and comply with the extensive regulations
applicable to that facility.


                                       14
<PAGE>

UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS

The biotechnology industry places importance on obtaining patent and trade
secret protection for new technologies, products and processes. Also,
particularly in the case of biological therapies, additional protection may be
afforded by the regulatory approval process. The success of the Company will
depend in substantial part on its ability, or the ability of its current
licensors and on the ability of its potential future licensors, if any, to
obtain and defend patents, maintain trade secrets and operate without infringing
upon the proprietary rights of others, both in the United States and in foreign
countries. The patent position of firms relying upon biotechnology is highly
uncertain and involves complex legal and factual questions. To date there has
emerged no consistent policy regarding the breadth of claims allowed in
biotechnology patents or the degree of protection afforded under those patents.

More specifically, the Company relies on TJU's issued patent for its proprietary
patent rights in the AC Vaccine(TM) technology and may rely on certain United
States patents and pending patent applications, as well as a pending foreign
Patent Cooperation Treaty ("PCT") application, relating to various aspects of
its present and future products and processes. The patent application and
issuance process can be expected to take several years and could entail
considerable expense to the Company, as it may be responsible for such costs
under the terms of any technology agreements. There can be no assurance that
patents will issue as a result of any applications or that existing patents and
any patents resulting from such applications, will be sufficiently broad to
afford protection against competitors with similar technology. In addition,
there can be no assurance that any issued patents will be enforceable and will
not be subject to reexamination or reissue, or challenged, invalidated, or
circumvented. There can be no assurance that the rights granted thereunder will
provide competitive advantages to the Company. The commercial success of the
Company will also depend upon avoiding infringement of patents issued to
competitors. A United States patent application is maintained under conditions
of confidentiality while the application is pending, so the Company cannot
determine the inventions being claimed in pending patent applications filed by
third parties. As a result, the Company cannot be certain that its licensors
were the first to make inventions covered by its patents and patent
applications.

If a third party has filed a patent application relating to an invention claimed
in a Company or licensor patent application, the Company or its licensor may be
required to participate in an interference proceeding in the United States
Patent and Trademark Office to determine priority of the invention, which could
result in substantial uncertainties and cost for the Company, even if the
eventual outcome is favorable to the Company. An adverse outcome could subject
the Company to significant liabilities to third parties and require the Company
to license disputed rights from third parties at an undeterminable cost or to
cease using the technology. In addition to patent litigation and interference, a
third party may at some time seek to have a patent of the Company reexamined in
the Patent Office on the basis of prior art. The Company, or a licensor of the
Company, may also at some time seek reexamination, or reissue, of a Company
patent.

The Company has submitted an application for reissue for the purpose of
strengthening the TJU patent in light of a prior art reference which may have a
material adverse impact on that patent. The prior art reference relates to the
publication, slightly more than one year prior to the filing of the patent, of
an abstract for an oral presentation given by the inventor of the AC Vaccine(TM)
technology. Although the Company believes that there is a sound basis for this
reissue application, there can be no assurance that a patent will issue from the
application, or that any such patent will be enforceable and will not be
challenged, invalidated, or circumvented. In connection with the application for
re-issuance, the Company may seek to have the patent's claims modified to
reconcile such claims with the prior art reference. There can be no assurance
that the validity or enforceability of the Company's patents and its
applications, if issued, would be upheld by a court. In the absence of an
enforceable patent, the Company may rely upon significant regulatory barriers to
competition. The Company has been notified of U. S. Patent No. 5,484,596 to
Hanna et al. The Company has studied this patent and has concluded that no
license is required. While no other patent that could be potentially infringed
by manufacture, use or sale of the Company's product candidates has come to the
attention of the Company, the Company's product candidates are still in the
development stage, and neither their formulations nor their method of
manufacture have been finalized. Thus, there can be no assurance that the
manufacture, use, or sale of the Company's product candidates will not infringe
patent rights of others. The Company may be unable to avoid infringement of any
such patents and may have to seek a license, defend an infringement action, or
challenge the validity of the patents in court. There can be no assurance that a
license will be available to the Company, if at all, upon terms and conditions
acceptable to the Company, or that the Company will prevail in any patent
litigation. Litigation may be necessary to defend or enforce the Company's
patent and license rights, or to determine the scope and validity of others'
proprietary rights. Defense and enforcement of patent claims can be expensive
and time consuming, even in those instances in which the outcome is favorable to
the Company and can result in the 


                                       15
<PAGE>

diversion of substantial resources from the Company's other activities. There
can be no assurance that the Company will have sufficient resources to pursue
such litigation. If the Company does not obtain a license under any such
patents, is found liable for infringement, or is not able to have them declared
invalid, the Company may be liable for significant money damages, may encounter
significant delays in bringing products to market, or may be precluded from
participating in the manufacture, use, or sale of products or methods of
treatment covered by such patents, any of which could have a material adverse
effect on the Company's business, results of operation and financial condition.

In its product development activities, the Company relies substantially on
certain technologies which are not patentable or proprietary and are therefore
available to the Company's competitors. The Company also relies on certain
proprietary trade secrets and know-how which are not patentable. Although the
Company has taken steps to protect its unpatented trade secrets and know-how, in
part through the use of confidentiality agreements with its employees,
consultants and certain of its contractors, there can be no assurance that these
agreements will not be breached, that the Company would have adequate remedies
for any breach, or that the Company's trade secrets will not otherwise become
known or be independently developed, or discovered by competitors. If the
Company's employees, scientific consultants or collaborators develop inventions,
or processes, independently that may be applicable to the Company's product
candidates, disputes may arise about ownership of propriety rights to those
inventions and processes. Such inventions and processes will not necessarily
become the Company's property, but may remain the property of those persons or
their employers. Protracted and costly litigation could be necessary to enforce
and determine the scope of the Company's proprietary rights. Failure to obtain
or maintain patent and trade secret protection, for any reason, could have a
material adverse effect on the Company. Certain of the Company's patents are
directed to inventions developed within academic institutions (from which the
Company earlier acquired rights to such patents) with funds from United States
government agencies. As a result of these arrangements, the United States
government may have rights in certain inventions developed during the course of
the performance of federally funded projects as required by law or agreements
with the funding agency. Several bills affecting patent rights have been
introduced in the United States Congress. These bills address various aspects of
patent law, including publication, patent term, re-examination, subject matter
and enforceability. It is not certain whether any of these bills will be enacted
into law or what form new laws may take. Accordingly, the effect of legislative
change on the Company's intellectual property rights is uncertain.

CONDUCTING BUSINESS ABROAD

To the extent the Company conducts business outside the United States, it may do
so through licenses, joint ventures, or other contractual arrangements for the
development, manufacturing and marketing of its products. No assurance can be
given that the Company will be able to establish foreign operations successfully
through such a plan, or that foreign applications will avoid opposition and be
approved. No assurance can be given that the foreign coverage will be available
or that the manufacturing and marketing of its products through such licenses,
joint ventures, or other arrangements will be commercially successful. The
Company might also have greater difficulty obtaining proprietary protection for
its products and technologies outside the United States and enforcing its rights
in foreign courts.

For clinical investigation and marketing outside the United States, the Company
also is subject to any applicable foreign regulatory requirements governing
human clinical trials and marketing approval for drugs. The requirements
governing the conduct of clinical trials, product licensing, pricing and
reimbursement vary widely for European countries both within and outside the EU.
Outside the United States, the Company's ability to market a product is
contingent upon receiving a marketing authorization from the appropriate
regulatory authority. At present, any applicable foreign marketing
authorizations are applied for at a national level, although with the EU certain
registration procedures are available to companies wishing to market their
products in more than one EU member state. If the regulatory authority is
satisfied that adequate evidence of safety, quality and efficacy has been
presented, a marketing authorization will be granted. The system for obtaining
marketing authorizations within the EU registration system is a dual one in
which certain products, such as biotechnology and high technology products and
those containing new active substances, will have access to a central regulatory
system that provides registration throughout the entire EU. Other products will
be registered by national authorities in individual EU member states, operating
on a principle of mutual recognition. Any applicable foreign regulatory approval
process includes, at least, all of the risks associated with FDA approval set
forth above. The Company could possibly have greater difficulty in obtaining any
such approvals and also might find it more difficult to protect its intellectual
property abroad.


                                       16
<PAGE>

DEPENDENCE UPON KEY PERSONNEL AND CONSULTANTS

The Company is highly dependent upon its officers and directors, as well as its
Scientific Advisory Board members, consultants and collaborating scientists.
Except for its 13 employees, each of the Company's directors, advisors and
consultants devotes only a portion of his or her time to the Company's business
and for the most part are involved with other substantially full-time
activities. The loss of certain of these individuals, including Jeffrey M.
Jonas, M.D., the Company's President and Chief Executive Officer, could have a
material adverse effect on the Company unless the Company could promptly hire
qualified replacements. The Company maintains a key-man life insurance policy on
Dr. Jonas in the amount of only $3 million. Although the Company has entered
into letters of employment with many of its full-time employees, officers and
consultants, such letters of employment do not contain provisions which would
prevent any of them from resigning at any time.

Competition for qualified employees among pharmaceutical and biotechnology
companies is intense, and the loss of any of such persons, or an inability to
attract, retain and motivate any additional highly skilled employees required
for the expansion of the Company's activities, could have a material adverse
effect on the Company. There can be no assurance that the Company will be able
to retain its existing personnel, or to attract additional qualified employees
and such failure likely would have a material adverse effect on the Company.

COMPETITION

The Company's proposed cancer immunotherapy business is characterized by
intensive research efforts and intense competition. Many companies, research
institutes, hospitals and universities are working to develop products and
processes in the Company's fields of research. Most of these entities have
substantially greater financial, technical, manufacturing, marketing,
distribution and other resources than the Company and include, among others,
Schering Plough Corporation, Chiron Corporation, Bristol-Myers Squibb and
Johnson & Johnson. Certain of these companies have experience in undertaking
testing and clinical trials of new or improved products similar in nature to
that which the Company is developing. In addition, certain competitors have
already begun testing similar compounds or processes and may introduce such
products or processes before the Company. Accordingly, other companies may
succeed in developing products earlier than the Company or that are more
effective than those proposed to be developed by the Company. Further, it is
expected that competition in the Company's field will intensify. There can be no
assurance that the Company will be able to compete successfully against these
Companies.

PRODUCT LIABILITY RISKS

If the Company develops and markets any products, the marketing of products may
expose the Company to product liability claims. Although the Company presently
carries product liability insurance, there can be no assurance that the
insurance will protect the Company against all claims of product liability or
that adequate insurance coverage will be available in the future in sufficient
amounts, or at a reasonable cost. The Company may be required to indemnify its
licensors or persons with whom the Company establishes a marketing,
manufacturing or other collaborative arrangement against product liability
claims incurred as a result of the products developed by the Company.

UNCERTAINTY OF PRODUCT PRICING AND REIMBURSEMENT; HEALTH CARE REFORM AND RELATED
MEASURES

The revenues and profitability of pharmaceutical and biotechnology products and
companies may be affected by efforts of governmental and third party payors to
contain, or reduce the costs of health care through various means. For example,
in certain foreign markets, pricing, or profitability of prescription
pharmaceuticals is subject to government control. In the United States there
have been, and the Company expects that there will continue to be, a number of
federal and state proposals to implement similar government control. The United
States Congress continually considers a number of legislative and regulatory
reforms that may affect companies engaged in the health care industry in the
United States. Pricing constraints on the Company's products, if approved, could
have a material adverse effect on the Company. Although the Company cannot
predict whether these proposals will be adopted or what effects such proposals
may have on its business, the mere existence of such proposals could have a
material adverse effect on the Company. In addition, the Company's ability to
commercialize potential pharmaceutical and biotechnology products may be
adversely affected to the extent that such proposals have an adverse effect on
possible reimbursement rates for or pricing of those products.


                                       17
<PAGE>

In addition, in the United States and elsewhere, sales of medical products and
services are dependent in part on the availability of reimbursement to the
consumer from third party payors, such as government and private insurance
plans. Third party payors are increasingly challenging the prices charged for
medical products and services. If the Company succeeds in bringing one or more
products to the market, there can be no assurance that these products will be
considered cost effective and that reimbursement to the consumer will be
available, or will be sufficient to allow the Company to sell its products on a
competitive basis.

NO ASSURANCE OF IDENTIFICATION OF ADDITIONAL PROJECTS; CERTAIN INTERLOCKING
RELATIONSHIPS; POTENTIAL CONFLICTS OF INTEREST

The Company is engaged primarily in the development and commercialization of the
AC Vaccine(TM) technology, as well as the potential anti-cancer and
anti-infective technology licensed under the Rutgers License and the potential
anti-cancer technology licensed under the Texas A&M License. If and when the
Company's resources allow, the Company may explore the acquisition, development
and commercialization of additional biomedical and pharmaceutical products and
technologies. There can be no assurance, however, that the Company will be able
to identify any additional products or technologies and, even if suitable
products or technologies are identified, there can be no assurance that the
Company will have sufficient resources at that time to acquire the rights to
additional products or technologies.

One director of the Company is an officer of Paramount Capital Investments, LLC.
Paramount Capital Investments, LLC, is a merchant bank specializing in
biotechnology companies. In the regular course of its business, Paramount
Capital Investments, LLC, identifies, evaluates and pursues investment
opportunities in biomedical and pharmaceutical products, technologies and
companies. Generally, Delaware corporate law requires that any transactions
between the Company and any of its affiliates be on terms that, when taken as a
whole, are substantially as favorable to the Company as those then reasonably
obtainable from a person who is not an affiliate in an arms-length transaction.
Nevertheless, neither Paramount Capital Investments, LLC, nor any other person
is obligated under any agreement or understanding with the Company to make any
additional products or technologies available to the Company, and there can be
no assurance or expectation that any biomedical or pharmaceutical product or
technology identified by Paramount Capital Investments, LLC, or any other person
in the future will be made available to the Company. In addition, certain of the
officers, directors, consultants and advisors to the Company serve as officers,
directors, consultants or advisors to other biopharmaceutical or biotechnology
companies. There can be no assurance that such other companies will not in the
future have interests in conflict with those of the Company.

CONTROL BY CURRENT OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS

The Company's directors, executive officers and principal stockholders have
voting power over approximately 33% of the outstanding shares of Common Stock
(assuming full conversion of the Series B and C Convertible Preferred Stock).
Accordingly, the Company's executive officers, directors, principal stockholders
and certain of their affiliates have the ability to exert substantial influence
over the direction and policies of the Company and, if they choose to act in
concert, the election of the Company's Board of Directors and the outcome of
issues submitted to the Company's stockholders.

VOLATILITY OF STOCK PRICE

The market price of the Common Stock, like that of many other development-stage
pharmaceutical or biotechnology companies, may be highly volatile. Factors such
as announcements of technological innovations or new commercial products by the
Company or its competitors, disclosure of results of pre-clinical and clinical
testing, adverse reactions to products, governmental regulation and approvals,
developments in patent or other proprietary rights, public or regulatory agency
concerns as to the safety of any products developed by the Company and general
conditions may have a significant effect on the market price of the Common
Stock. Also, the trading price of the Common Stock may respond to quarterly
variations in operating results, announcements of innovations or new products by
the Company or its competitors and other events or factors, including the sale
or attempted sale of a large amount of Company securities into the market. In
addition, general market fluctuations may adversely affect the market price of
the Common Stock.


                                       18
<PAGE>

POTENTIAL ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE

The Company presently has an effective Registration Statement on Form S-3 for
the resale of approximately 527,000 shares of Common Stock. In conjunction with
the March 1, 1999, sale of approximately 101,300 shares of Series C Convertible
Preferred Stock of the Company (the "Series C Preferred Stock"), the Company
agreed to register approximately 3,964,716 shares of Common Stock underlying the
Series C Preferred Stock (and underlying warrants issued in conjunction with the
issuance of the Series C Preferred Stock) by September 1, 1999. The Company
expects to complete the registration of those additional shares of Common Stock
before the September 1, 1999 deadline. Additionally, the Company is required to
maintain the effectiveness of the registration of the new shares of Common Stock
for up to three years after the effectiveness of the registration statement. The
presence of an effective registration statement for such a significant number of
shares of Common Stock and for such a substantial period of time may have an
adverse effect on the market price for the Common Stock. Similarly, the sale of
shares of Common Stock under that registration statement (or the sale of
restricted stock held by affiliates of the Company in reliance on SEC Rule 144)
may have an adverse effect on the market price for the Common Stock.

LIMITED PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

The Common Stock is listed for quotation on the Nasdaq SmallCap Market. The
average daily trading volume in the Common Stock varies significantly, and there
can be no assurance that there will be an active trading market for the Common
Stock at the time any stockholder desires to sell. The absence of an active
trading market would reduce the liquidity of an investment in the Common Stock.
To the extent that brokerage firms act as market makers, they may be a
dominating influence in the market for the Common Stock, and the degree of
participation by such firms may significantly affect the price and liquidity of
the Common Stock. These firms may discontinue market making activities at any
time. The prices at which the Common Stock may be offered in the market will be
determined by these firms and the purchasers and sellers of the Common Stock,
based in part on market factors, and may not necessarily relate to the Company's
assets, book value, results of operations, or other established and quantifiable
criteria of value. The trading price of the Common Stock could be subject to
wide fluctuations in response to quarterly variations in operating results,
announcements of technological innovations or new products by the Company, or
its competitors, and other events or factors. In addition, the stock market has
experienced volatility that has particularly affected the market prices of
equity securities of many biotechnology companies and that often has been
unrelated to the performance of those companies. These broad market fluctuations
may affect adversely the market price of the Common Stock.

UNCERTAINTY OF CONTINUED LISTING ON NASDAQ SMALLCAP MARKET; MARKET ILLIQUIDITY

Although the Common Stock is listed on the Nasdaq SmallCap Market, the Nasdaq
has adopted stricter continuing listing criteria for the SmallCap Market in
1997, which the Company is required to meet. Accordingly, continued inclusion of
the Common Stock on the Nasdaq SmallCap Market pursuant to the recently adopted
stricter standards requires that: (i) the Company have net tangible assets of
$2,000,000, or a market capitalization of $35 million or more, or net income in
two of the three most recent fiscal years of at least $500,000; (ii) the
Company's public float have a market value of at least $1 million and a public
float of at least 500,000 shares; (iii) the minimum bid price for the Common
Stock be at least $1.00 per share; (iv) the Common Stock have at least two
active market makers and be held of record by at least 300 shareholders and (v)
the Company adhere to certain corporate governance provisions. While the Company
presently meets these listing criteria, there can be no assurance that the
Company will continue to satisfy the requirements for maintaining a listing of
the Common Stock on the Nasdaq SmallCap Market.

If the Company is unable to satisfy the continuing listing requirements, the
Common Stock may be delisted from the Nasdaq SmallCap Market. In that event,
trading, if any, in the Common Stock would thereafter probably be conducted on
the OTC Bulletin Board, or in the over-the-counter market through the National
Quotation Bureau (the "pink sheets") and the Company would again be required to
comply with the Nasdaq SmallCap Market's initial listing criteria in order to
have the Common Stock re-approved for listing and quotation thereon.
Consequently, the liquidity of the Common Stock could be impaired materially and
adversely, not only in the number of securities that can be bought and sold at a
given price, but also through delays in the timing of transactions and reduction
in security analysts' and media coverage of the Company, which could result in
lower prices for the Common Stock than might otherwise be attained and could
also result in a larger spread between the bid and asked prices for the Common
Stock.


                                       19
<PAGE>

RISKS OF LOW-PRICED STOCK; POSSIBLE EFFECT OF "PENNY STOCK" RULES ON LIQUIDITY
FOR THE COMMON STOCK

The Exchange Act requires additional disclosure relating to the market for penny
stocks in connection with trades in any stock defined as a penny stock. The
Commission's regulations generally define a penny stock as any equity security
that has a market price of less than $5.00 per share, subject to certain
exceptions. Such exceptions include any equity security listed on the Nasdaq
SmallCap Market, subject to certain trade reporting requirements, and any equity
security issued by an issuer that meets certain net tangible asset tests. The
penny stock rules require delivery, prior to any transaction in a penny stock,
of a disclosure schedule prepared by the Commission relating to the penny stock
market. Disclosure is also required to be made about sales commissions payable
to both the broker-dealer and the registered representative and current
quotations for the securities. Finally, monthly statements are required to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks. Although the penny stock
rules do not presently apply to the Common Stock, there can be no assurance that
the trading in the Common Stock will not be subject to the penny stock rules in
the future, in which case the market liquidity for such securities could be
materially and adversely affected.

In addition, if the Common Stock fails to meet certain minimum market price, net
tangible asset or the annual revenue tests, but is quoted on the OTC Bulletin
Board, then trading in the Common Stock would be subject to additional
Commission rules, which may affect the ability of broker-dealers to make a
market in the Common Stock and may affect the ability of holders of Common Stock
to sell in the secondary market.

ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND
DELAWARE LAW

The Company's Articles of Incorporation, as amended, authorize the issuance of
up to 5,000,000 shares of preferred stock, par value $.01 per share, of which
300,000 shares are authorized for issuance as shares of Series B Preferred
Stock, of which approximately 103,814 shares are issued and outstanding as
Series B Preferred Stock, and 120,000 shares are authorized for issuance as
shares of Series C Preferred Stock, of which 101,300 shares are issued and
outstanding. The Company's Certificate of Incorporation authorizes the issuance
of "blank check" preferred stock with such designation, rights and preferences
as may be determined from time to time by the Board of Directors. Accordingly,
the Board of Directors is empowered, without stockholder approval, to issue a
new series of preferred stock with dividend, liquidation, conversion, voting or
other rights which could adversely affect the voting power or other rights of
the holders of the Common Stock. In the event of issuance, the new series of
preferred stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company.
Although the Company has no present intention to issue any additional shares of
its preferred stock, other than those already authorized for issuance, there can
be no assurance that the Company will not do so in the future.

The Company is subject to Section 203 of the General Corporation Law of the
State of Delaware which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder. In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person affiliated
with or controlling or controlled by such entity or person. The foregoing
provisions could have the effect of discouraging others from making tender
offers for the Company's shares and, as a consequence, they also may inhibit
fluctuations in the market price of the Company's shares that could result from
actual or rumored takeover attempts. Such provisions also may have the effect of
preventing changes in the management of the Company.

RIGHTS OF PREFERRED STOCKHOLDERS

The holders of the Series B Preferred Stock and the Series C Preferred Stock
have certain rights that are superior to the rights of holders of the Common
Stock, including particularly a liquidation preference over the Common Stock. In
addition to the normal liquidation preference for the preferred stock (which
entitles each share to receive $135.00 and $100.00 for the Series B and Series
C, respectively, in cash or securities prior to any distributions to the holders
of the Common Stock), the Series C Preferred Stock holders are entitled to
additional rights if the Company ceases to exist by virtue of a merger in which
the Company is not the surviving corporation or if shares of Common Stock is
acquired constituting greater than 50% of the voting power of the Company. In
that event, the holders of the Series C Preferred Stock are entitled to both (1)
the $100.00 liquidation preference per share of Series C Preferred Stock, and
(2) the consideration per share of Common Stock 


                                       20
<PAGE>

otherwise to be received in the transaction assuming all of the Series C
Preferred Stock had been converted into Common Stock immediately prior to the
transaction. These rights of the Series C Preferred Stock holders could result
in the holders of those shares receiving substantially more of the consideration
in a merger transaction than they would otherwise receive if the shares of
Series C Preferred Stock were converted into Common Stock prior to the merger
transaction. The holders of the Common Stock would, accordingly, receive a
lesser amount in a merger transaction of that type than they would have received
if no Series C Preferred Stock were outstanding.

YEAR 2000

The Year 2000 Issue is the result of computer programs being written using two
digits, rather than four, to define the applicable year. As a result, those
computer programs having date-sensitive software would recognize a date with the
year "00" as the year 1900 rather than the year 2000. Systems that calculate,
compare, or sort using the incorrect date may malfunction.

The Company's only date-sensitive information technology is its accounting
software applications, which the Company intends to upgrade to be Year 2000
compliant by June 30, 1999. To the degree the software is found to be
non-compliant, the Company has alternative methods in place to ensure the
functions performed by the software will be completed. Because the Company has
already planned to replace its software in 1999, the Company does not
contemplate any software replacement costs due to Year 2000 issues.

The Company has made inquiries of suppliers and parties with whom it has
significant business relationships regarding compliance with Year 2000 issues.
These include a clinical processing site at TJU, various other clinical sites
and certain financial institutions, such as commercial banks. The Company has
been informed by TJU that TJU will be Year 2000 compliant insofar as the Company
is concerned before the end of the year. Specifically, clinical trial
information that is maintained at TJU is on a standalone computer system. The
software used to monitor clinical trial information will be upgraded to a Year
2000 compliant version during 1999.

To date, the Company is not aware of any financial institution or other third
party with a Year 2000 issue that would materially affect the Company's results
of operations, liquidity or capital resources. The Company has also been advised
by its financial institutions that it will receive certifications confirming
that the computer systems of these institutions are Year 2000 compliant.

Generally, the Company intends to develop contingency plans to address any other
Year 2000 compliance-risks that are uncovered by its continuing evaluation
efforts. Although the Company has no means of ensuring that its suppliers and
financial institutions will be Year 2000 ready, it will continue to monitor, to
the extent practicable, their compliance with the Year 2000 problem. There can
be no assurance, however, that such problems will not arise.

NO DIVIDENDS

The Company has never paid cash dividends on its capital stock and does not
anticipate paying any cash dividends for the foreseeable future.

ITEM 2. Description of Properties

The Company's executive offices are located at 4520 Main, Suite 930, Kansas
City, Missouri 64111. The Company currently leases 4,100 square feet of office
space for a monthly lease cost of $8,100.

In February, 1998 the Company leased a facility at 2000 Hamilton Street,
Philadelphia, Pennsylvania 19103, for the construction and development of its
clinical manufacturing facility. The facility consists of approximately 11,900
square feet of which approximately 9,300 square feet will be utilized for
manufacturing development while the remaining 2,600 square feet will be used for
office space. The Company has options for additional space which become
available from August, 1999 through May, 2002. Monthly rental on the facility is
approximately $10,400.

In 1997 the Company designed and developed a class 10,000 clean room at TJU for
the production of AC Vaccines, 


                                       21
<PAGE>

which the Company believes is adequate to support the multi-center pivotal
registration trial for M-Vax(TM). Completion of the Company's clinical programs
and commercial manufacturing, however, is dependent upon the Company's ability
to establish additional Good Manufacturing Practice ("GMP") facilities which
will be needed for compliance with certain regulatory standards promulgated by
the FDA. To that end, the Company is completing construction of its GMP
manufacturing facility in Philadelphia. It is anticipated that the facility will
be on-line in April of this year. While management of the Company anticipates
that this facility will be established in a timely manner, there can be no
assurance of the adequacy of this manufacturing facility or of FDA licensure of
this facility. Delays in either manufacturing capability or regulatory approval
could delay completion of these studies and could have a material adverse effect
on the Company.

ITEM 3. Legal Proceedings

The Company's application for a federal trademark registration for the name AVAX
has been opposed by a third party. This opposition proceeding concerns the right
of the Company to obtain a federal trademark registration in the United States
Patent & Trademark Office for the name AVAX. Although the Company believes there
is a sound basis for denial of the opposition and allowance of its application
to register the name AVAX, there can be no assurance that the Company will
prevail in this proceeding. There is also no assurance that the Company will
desire, or be able to continue to use the name AVAX at some future time. The
Company does not believe that an adverse outcome in this proceeding will
materially affect its business.

The Company is not aware of any other pending or threatened legal actions which,
in the opinion of management, based on known information, is likely to have a
material adverse effect on the Company's business.

ITEM 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the quarter ended
December 31, 1998.


                                       22
<PAGE>

AVAX TECHNOLOGIES, INC.

                                     PART II

ITEM 5. Market For Common Equity And Related Stockholder Matters

The Common Stock was publicly traded on the OTC Bulletin Board from December 19,
1996 through July 9, 1997. Since July 10, 1997, the Common Stock has been listed
for quotation on the Nasdaq SmallCap Market under the symbol "AVXT". The
following table sets forth, for the periods indicated, the high and low closing
bid prices for the Common Stock, as reported by the National Quotation Bureau or
Nasdaq, for the quarters presented. Certain of the prices set forth below may
represent inter-dealer quotations, without adjustment for markups, markdowns and
commissions and may not reflect actual transactions.

                 -----------------------------------------------------------

                                                           High        Low
                 -----------------------------------------------------------
                 Fiscal year ended December 31, 1998                        
                   First quarter                        $ 4 11/16    $3 5/8
                   Second quarter                         5 3/4       2 7/16
                   Third quarter                          2 29/32     1 7/16
                   Fourth quarter                         2 3/4       1
                 -----------------------------------------------------------
                 Fiscal year ended December 31, 1997
                      First quarter                     $ 6 3/4      $5 1/2
                      Second quarter                      5 7/8       4 1/4
                      Third quarter                       5 3/8       4
                      Fourth quarter                      4 1/2       3 1/2
                 -----------------------------------------------------------

The last reported sale price of the Common Stock on the Nasdaq SmallCap Market
on March 3, 1999 was $ 3.75 per share. At March 3, 1999, there were 10,238,640
shares of Common Stock outstanding, which were held by approximately 800
stockholders of record.

The Company has not paid any cash dividends on its Common Stock since its
formation. The payment of dividends, if any, in the future, with respect to the
Common Stock, is within the discretion of the Board of Directors of the Company
and will depend on the Company's earnings, capital requirements, financial
condition and other relevant factors. The Board of Directors of the Company does
not presently intend to declare any dividends on the Common Stock in the
foreseeable future. The Company anticipates that all earnings and other
resources of the Company, if any, will be retained by the Company for investment
in its business.

ITEM 6. Management's Discussion and Analysis of Financial Condition and Plan of
        Operation

GENERAL

Since its inception, the Company has concentrated its efforts and resources in
the development and commercialization of biotechnology and pharmaceutical
products and technologies. The Company has been unprofitable since its founding
and has incurred a cumulative net loss of approximately $13,358,277 as of
December 31, 1998. The Company expects to incur increasing operating losses over
the next several years, primarily due to the expansion of its research and
development programs, including clinical trials for M-Vax(TM), O-Vax, and other
pre-clinical studies and clinical trials for other products that may arise from
the AC Vaccine(TM) technology and from the compounds licensed from Rutgers and
Texas A&M and other products that it may acquire or develop.


                                       23
<PAGE>

The Company's ability to achieve profitability depends upon, among other things,
its ability to develop products, obtain regulatory approval for its proposed
products, and enter into agreements for product development, manufacturing and
commercialization. The Company's M-Vax(TM) and O-Vax(TM), products do not
currently generate revenue and the Company does not expect to achieve revenues
from these, or other products, for the foreseeable future. Moreover, there can
be no assurance that the Company will ever achieve significant revenues or
profitable operations from the sale of M-Vax(TM), O-Vax(TM),, or any other
products that it may develop.

PLAN OF OPERATION

The Company is currently engaged in the development and commercialization of
biotechnology and pharmaceutical products and technologies. In November 1995,
the Company acquired the rights to the AC Vaccine(TM) technology pursuant to the
TJU License. The Company initially intends to be engaged primarily in the
development and commercialization of the AC Vaccine(TM) technology, as well as
the potential anti-cancer and anti-infective technology licensed pursuant to the
Rutgers License and the potential anti-cancer technology licensed pursuant to
the Texas A&M License. The Company anticipates that during the next 12 months it
will continue substantial research and development of the AC Vaccine(TM)
technology, including, without limitation, pivotal registration clinical trials
on M-Vax(TM), the Company's lead AC Vaccine(TM) technology for metastatic
melanoma. The Company also anticipates that it will expend substantial resources
on the research and development of that same technology for the treatment of
other cancers, which may include ovarian, breast, prostate, lung, renal cell and
colorectal cancer and acute myelogenous leukemia (AML). For example, the Company
is treating post-surgical stage 3 patients in its Phase I/II clinical trial of
O-Vax(TM),, its AC Vaccine(TM) for ovarian cancer and intends to initiate a
multi-center Phase II trial during 1999. It is expected that during the next 12
months, in order to support these clinical trial efforts, the Company will be
required to expend substantial resources. See Item 1-- "Description of
Business--Technology Applications and Product Candidates," "Research and
Development" and "Manufacturing and Marketing."

In connection with the Company's strategy to acquire, develop and commercialize
other potential biotechnology products and technologies, in December 1996, the
Company acquired the exclusive worldwide rights to a series of compounds for the
potential treatment of cancer and other infectious diseases from Rutgers.
Additionally, in February 1997, the Company acquired the exclusive worldwide
rights to another series of compounds for the potential treatment of cancer from
Texas A&M. Pursuant to the Rutgers License, the Texas A&M License, and the
related sponsored research agreements with each of Rutgers and Texas A&M, the
Company intends to expend substantial resources on the research and development
of these compounds.

While there can be no assurance, the Company may acquire additional products and
technologies during the next 12 months, which may or may not be in the cancer
immunotherapy field. Should the Company acquire additional products or
technologies, it is anticipated that such additional products or technologies
will require substantial resources for research, development and clinical
evaluation. Although the Company completed a $10.1 million private placement of
preferred stock on March 1, 1999, there can be no assurance that the Company
will be able to obtain the additional financing necessary to acquire and develop
additional products and technologies. In addition, there can be no assurance,
that changes in the Company's research and development plans or other changes
which would or could alter the Company's operating expenses will not require the
Company to reallocate funds among its planned activities and curtail certain
planned expenditures. In that event, the Company may need additional financing.
There can be no assurance as to the availability or the terms of any required
additional financing, when and if needed. In the event that the Company fails to
raise any funds it requires, it may be necessary for the Company to curtail
significantly its activities or cease operations.

During the last 12 months, the Company's research and development expenses
increased from $2.4 million to $4.0 million, while general and administrative
expenses decreased from $2.7 million to $2.5 million. The increases in the
research and development expenses relate primarily to the progress made in
advancing M-Vax(TM) into a pivotal registration trial, while also beginning
clinical testing and evaluation of O-Vax(TM),. In addition, the Company
increased development spending on the topoisomearse inhibitors and anti-estrogen
technologies in preparation for advancing these technologies into the clinic.
General and administrative expenses decreased slightly due to the non-recurrence
in 1998 of registration expenses incurred in 1997, offset to some degree by the
hiring of additional staff and management personnel in 1998. The Company
anticipates that, over the next 12 months, research and development expenses
will continue to increase substantially, particularly as development proceeds
with the AC Vaccine(TM) and the Rutgers and Texas A&M Compounds.


                                       24
<PAGE>

Also, during the past 12 months, the Company hired eight new employees and it
anticipates that over the next 12 months it may hire additional new employees,
particularly in connection with the establishment of the new facility for the
manufacture of the AC Vaccine(TM) products. The timing and cost of hiring any
additional employees or the establishment of any such facility may vary
depending on need and currently cannot be predicted with any certainty.

LIQUIDITY AND CAPITAL RESOURCES

On March 1, 1999 the Company completed a private placement of 101,300 shares of
Series C Convertible Preferred Stock to a group of accredited investors. The net
proceeds from the offering, approximately $9.4 million, will be used by the
Company to fund its future operations. Had the private placement been completed
at December 31, 1998, the Company would have had cash and cash equivalents of
approximately $19.1 million, which the Company's management presently estimates
will be sufficient to fund operations (as presently conducted and with planned
expansions of research and development in 1999) for the next 18-26 months.
Changes in the Company's research and development plans, which are under
constant revision, could dramatically alter the time period during which current
cash resources of the Company will cover anticipated future operating losses.

The Company does not currently expect to be required to raise additional capital
in the next 12 months, although from time to time, depending upon its
anticipated future needs, the Company may avail itself of opportunities in the
capital markets to raise additional capital if acceptable terms may be obtained.
Because the Company's working capital requirements will depend upon numerous
factors, including, without limitation, progress of the Company's research and
development programs, pre-clinical and clinical testing, timing and cost of
obtaining regulatory approvals, changes in levels of resources that the Company
devotes to the development of manufacturing and marketing capabilities,
competitive and technological advances, status of competitors, and the ability
of the Company to establish collaborative arrangements with other organizations,
there can be no assurance that the current cash resources of the Company will be
sufficient to fund its operations for the next 18-26 months. Because the Company
has no committed external sources of capital, and expects no product revenues
for the foreseeable future, it will likely require additional financing to fund
future operations. There can be no assurance, however, that the Company will be
able to obtain the additional funds it will require on acceptable terms, if at
all. If adequate funds are not available the Company may be required to delay,
reduce the scope of or eliminate one or more of its research or development
programs; to obtain funds through arrangements with collaborative partners or
others that may require the Company to relinquish rights to certain
technologies, product candidates or products that the Company would otherwise
seek to develop or commercialize itself; or to license the rights to such
products on terms that are less favorable to the Company that might otherwise be
available.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

None noted.

ITEM 7. Financial Statements

The Company's consolidated financial statements appear following Item 13 of this
Report. See Financial Statements.

ITEM 8. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure

None.


                                       25
<PAGE>

                             AVAX TECHNOLOGIES, INC.

                                    PART III

ITEM 9. Directors, Executive Officers, Promoters And Control Persons; Compliance
        with Section 16(A) of the Exchange Act

Incorporated by reference to the Company's Proxy Statement for its Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission
within 120 days after the close of the year ended December 31, 1998.

ITEM 10. Executive Compensation

Incorporated by reference to the Company's Proxy Statement for its Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission
within 120 days after the close of the year ended December 31, 1998.

ITEM 11. Security Ownership of Certain Beneficial Owners and Management

Incorporated by reference to the Company's Proxy Statement for its Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission
within 120 days after the close of the year ended December 31, 1998.

ITEM 12. Certain Relationships and Related Transactions

Incorporated by reference to the Company's Proxy Statement for its Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission
within 120 days after the close of the year ended December 31, 1998.

ITEM 13. Exhibits and Reports on Form 8-K

(a)   Exhibits

Exhibits are listed on the Index to Exhibits at the end of this Report. The
exhibits required by Item 601 of Regulation S-B, listed on such Index in
response to this Item, are incorporated herein by reference.

(b)   Reports On Form 8-K

Three reports on Form 8-K were filed by the Company during the quarter ended
December 31, 1998. One report was filed on October 20, 1998, announcing the
Company's results for the quarter ended September 30, 1998. The second report
was filed on October 27, 1998 relating to a press release of October 27, 1998
announcing the Company's initiation of its fifteenth clinical site for the
M-Vax(TM) pivotal registration trial. A third report was filed on December 14,
1998 related to a press release filed on December 14, 1998, related to the
Company being invited to present an initial talk at the National Cancer
Institutue-FDA sponsored workshop on the regulation of new cancer vaccines.
M-Vax(TM)


                                       26
<PAGE>

                              Financial Statements

                             AVAX Technologies, Inc.
                          (a development stage company)

                     Years ended December 31, 1998 and 1997
                      and the period from January 12, 1990
                      (Incorporation) to December 31, 1998
                       With Report of Independent Auditors
<PAGE>

                             AVAX Technologies, Inc.
                          (a development stage company)

                              Financial Statements

Years ended December 31, 1998 and 1997 and for the period from January 12, 1990
                      (Incorporation) to December 31, 1998

                                    Contents

Report of Independent Auditors...............................................F-1

Financial Statements

Balance Sheet as of December 31, 1998........................................F-2
Statements of Operations for the years ended December 31, 1998
  and 1997 and for the period from January 12, 1990 (incorporation)
  to December 31, 1998 ......................................................F-3
Statements of Stockholders' Equity (Deficit) for the years ended December
  31, 1998 and 1997 and for the period from January 12, 1990 (incorporation)
  to December 31, 1998.......................................................F-4
Statements of Cash Flows for the years ended December 31, 1998
  and 1997 and for the period from January 12, 1990 (incorporation) to
  December 31, 1998..........................................................F-6
Notes to Financial Statements................................................F-8
<PAGE>

                         Report of Independent Auditors

The Board of Directors and Stockholders
AVAX Technologies, Inc.

We have audited the accompanying balance sheet of AVAX Technologies, Inc. (a
development stage company) as of December 31, 1998, and the related statements
of operations, stockholders' equity (deficit) and cash flows for the years ended
December 31, 1998 and 1997, and for the period from January 12, 1990
(incorporation) to December 31, 1998. 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 generally accepted auditing
standards. Those standards required 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 AVAX Technologies, Inc. at
December 31, 1998 and the results of its operations and its cash flows for the
years ended December 31, 1998 and 1997 and for the period from January 12, 1990
(incorporation) to December 31, 1998 in conformity with generally accepted
accounting principles.

                                        /s/ Ernst & Young, LLP
                                        ----------------------------------------
                                        Ernst & Young LLP

Kansas City, Missouri
January 20, 1999

                                      F-1
<PAGE>

                             AVAX Technologies, Inc.
                          (a development stage company)

                                  Balance Sheet
                                                                    December 31,
                                                                        1998
                                                                   -------------
Assets
Current assets:
  Cash and cash equivalents                                        $    344,940
  Marketable securities                                               9,377,678
  Prepaid expenses and other current assets                             230,701
                                                                   ------------
Total current assets                                                  9,953,319
Property, plant and equipment at cost  (Note 8)                       1,225,891
  Less accumulated depreciation                                          35,477
                                                                   ------------
Net property, plant and equipment                                     1,190,414
                                                                   ------------
Total assets                                                       $ 11,143,733
                                                                   ============

Liabilities and stockholders' equity Current liabilities:
  Accounts payable and accrued liabilities
  (Note 5)                                                         $    886,646
                                                                   ------------
Total current liabilities                                               886,646
Commitments and contingencies (Note 7)
Stockholders' equity (Notes 3, 4, and 7):
 Preferred stock, $.01 par value:
   Authorized shares - 5,000,000,
     including Series B - 300,000 shares
   Series B convertible preferred stock:
     Issued and outstanding shares - 112,689
       (liquidation preference - $15,213,015)                             1,127
 Common stock, $.004 par value:
   Authorized shares - 30,000,000
   Issued and outstanding shares - 10,007,119                            40,028
  Additional paid-in capital                                         23,999,855
  Subscription receivable                                                  (422)
  Deferred compensation                                                (425,224)
  Deficit accumulated during the development stage                  (13,358,277)
                                                                   ------------
Total stockholders' equity                                           10,257,087
                                                                   ------------
Total liabilities and stockholders' equity                         $ 11,143,733
                                                                   ============

See accompanying notes.

                                      F-2
<PAGE>

                             AVAX Technologies, Inc.
                          (a development stage company)

                            Statements of Operations

                                                                   Period from
                                                                   January 12,
                                                                      1990
                                                                 (Incorporation)
                                                    Year ended         to
                                                   December 31,    December 31,
                                       1997            1998           1998
                                   --------------------------------------------
Gain from sale of
  the Product (Note 2)             $         --    $         --    $  1,951,000

Costs and expenses:
  Research and
   development                        2,448,976       4,019,143       8,820,428
  Marketing and selling                      --              --         543,646
  General and
   administrative                     2,724,007       2,516,215       8,078,359
                                   --------------------------------------------
Total operating loss                 (5,172,983)     (6,535,358)    (15,491,433)

Other income (expense):
  Interest income                     1,057,460         697,228       2,633,681
  Interest expense                     (150,602)             --        (646,293)
  Other, net                                 --              --         145,768
                                   --------------------------------------------
Total other income, net                 906,858         697,228       2,133,156
                                   --------------------------------------------

Net loss                             (4,266,125)     (5,838,130)    (13,358,277)
Amount payable for
  liquidation preference                     --              --      (1,870,033)
                                   --------------------------------------------
Net loss attributable to
  common stockholders              $ (4,266,125)   $ (5,838,130)   $(15,228,310)
                                   ============================================

Net loss per common share -
  basic                            $      (1.14)   $       (.87)               
                                   ============================

Weighted average number
  of common shares
  outstanding                         3,750,440       6,731,210                
                                   ============================

See accompanying notes.

                                      F-3
<PAGE>

                             AVAX Technologies, Inc.
                          (a development stage company)
                  Statements of Stockholders' Equity (Deficit)

<TABLE>
<CAPTION>
                                                                                                                      
                                                 Series A              Series B                                                   
                                               Convertible            Convertible                                                 
                                             Preferred Stock        Preferred Stock             Common Stock          Additional  
                                        --------------------------------------------------------------------------      Paid-In   
                                          Shares        Amount     Shares     Amount        Shares        Amount        Capital   
                                        ------------------------------------------------------------------------------------------
<S>                                     <C>           <C>              <C>    <C>         <C>          <C>            <C>         
Issuance of common stock for
   services in January 1990                    --     $      --        --     $    --       582,500    $     2,330    $       920 
Net loss                                       --            --        --          --            --             --             -- 
                                        ------------------------------------------------------------------------------------------
Balance at December 31, 1990                   --            --        --          --       582,500          2,330            920 
   Issuance of common stock for                                                                                                   
     services in August 1991                   --            --        --          --       230,000            920          5,830 
   Net loss                                    --            --        --          --            --             --             -- 
                                        ------------------------------------------------------------------------------------------
Balance at December 31, 1991                   --            --        --          --       812,500          3,250          6,750 
   Conversion of note payable to                                                                                                  
     related party to common stock                                                                                                
     in June 1992                              --            --        --          --        22,913             92        160,465 
   Issuance of common stock for                                                                                                   
     services in May and June 1992             --            --        --          --       264,185          1,056          6,444 
   Issuance of Series A convertible                                                                                               
     preferred stock, net of                                                                                                      
     issuance cost in June, July                                                                                                  
     and September 1992                 1,287,500        12,875        --          --            --             --      2,258,837 
   Net loss                                    --            --        --          --            --             --             -- 
                                        ------------------------------------------------------------------------------------------
Balance at December 31, 1992            1,287,500        12,875        --          --     1,099,598          4,398      2,432,496 
   Issuance of common stock for                                                                                                   
     services in July and November                                                                                                
     1993                                      --            --        --          --         8,717             35         24,965 
   Net loss                                    --            --        --          --            --             --             -- 
                                        ------------------------------------------------------------------------------------------
Balance at December 31, 1993            1,287,500        12,875        --          --     1,108,315          4,433      2,457,461 
   Issuance of common stock for                                                                                                   
     services in July 1994                     --            --        --          --         3,750             15          4,485 
   Net loss                                    --            --        --          --            --             --             -- 
                                        ------------------------------------------------------------------------------------------
Balance at December 31, 1994            1,287,500        12,875        --          --     1,112,065          4,448      2,461,946 
   Common stock returned and                                                                                                      
     canceled in April and May 1995            --            --        --          --      (307,948)        (1,232)            -- 
   Shares issued in September and                                                                                                 
     November 1995                             --            --        --          --     1,777,218          7,109             -- 
   Amount payable for liquidation              --            --        --          --            --             --       (738,289)
     preference                  
   Net income                                  --            --        --          --            --             --             -- 
                                        ------------------------------------------------------------------------------------------
Balance at December 31, 1995            1,287,500        12,875        --          --     2,581,335         10,325      1,723,657 

<CAPTION>                           
                                                                                   Deficit                      
                                                                     Unrealized  Accumulated     Total          
                                                                       Loss on    During the  Stockholders'     
                                   Subscription        Deferred      Marketable  Development     Equity         
                                    Receivable       Compensation    Securities     Stage       (Deficit)       
                                   -----------------------------------------------------------------------      
                                    <C>                <C>           <C>         <C>          <C>               
<S>                                                                                                             
Issuance of common stock for
   services in January 1990         $        --        $    --       $    --     $      --    $     3,250       
Net loss                                     --             --            --          (889)          (889)      
                                   -----------------------------------------------------------------------      
Balance at December 31, 1990                 --             --            --          (889)         2,361       
   Issuance of common stock for                                                                                 
     services in August 1991                 --             --            --            --          6,750       
   Net loss                                  --             --            --       (97,804)       (97,804)      
                                   -----------------------------------------------------------------------      
Balance at December 31, 1991                 --             --            --       (98,693)       (88,693)      
   Conversion of note payable to                                                                                
     related party to common stock                                                                              
     in June 1992                            --             --            --            --        160,557       
   Issuance of common stock for                                                                                 
     services in May and June 1992           --             --            --            --          7,500       
   Issuance of Series A convertible                                                                             
     preferred stock, net of                                                                                    
     issuance cost in June, July                                                                                
     and September 1992                      --             --            --            --      2,271,712       
   Net loss                                  --             --            --      (607,683)      (607,683)      
                                   -----------------------------------------------------------------------      
Balance at December 31, 1992                 --             --            --      (706,376)     1,743,393       
   Issuance of common stock for                                                                                 
     services in July and November                                                                              
     1993                                    --             --            --            --         25,000       
   Net loss                                  --             --            --    (1,610,154)    (1,610,154)      
                                   -----------------------------------------------------------------------      
Balance at December 31, 1993                 --             --            --    (2,316,530)       158,239       
   Issuance of common stock for
     services in July 1994                   --             --            --            --          4,500
   Net loss                                  --             --            --      (781,221)      (781,221)
                                   -----------------------------------------------------------------------      
Balance at December 31, 1994                 --             --            --    (3,097,751)      (618,482)      
   Common stock returned and          
     canceled in April and May 1995          --             --            --            --         (1,232)
   Shares issued in September and
     November 1995                       (7,109)            --            --            --             --       
   Amount payable for liquidation            --             --            --            --       (738,289)      
     preference
   Net income                                --             --            --     1,380,571      1,380,571       
                                   -----------------------------------------------------------------------      
Balance at December 31, 1995             (7,109)            --            --    (1,717,180)        22,568       
</TABLE>


                                      F-4
<PAGE>

                             AVAX Technologies, Inc.
                          (a development stage company)
            Statements of Stockholders' Equity (Deficit) (continued)

<TABLE>
<CAPTION>
                                                   Series A                       Series B                                          
                                                  Convertible                   Convertible                                         
                                                Preferred Stock                Preferred Stock          Common Stock                
                                        --------------------------------------------------------------------------------------------
                                            Shares          Amount          Shares          Amount          Shares         Amount   
                                        --------------------------------------------------------------------------------------------
<S>                                      <C>           <C>                  <C>        <C>               <C>           <C>          
Balance at December 31, 1995              1,287,500    $     12,875              --    $         --       2,581,335    $     10,325 
   Repurchase of common stock
     in March 1996                               --              --              --              --         (77,901)           (312)
   Payment of subscription
     receivable                                  --              --              --              --              --              -- 
   Conversion of Series A
     preferred stock in June 1996        (1,287,500)        (12,875)             --              --         321,875           1,288 
   Issuance of common stock and
     Series B preferred stock in a
     private placement in May and
     June 1996                                   --              --         258,198           2,582         129,099             516 
   Issuance of common stock
     and Series B preferred
     stock for services in
     June 1996                                   --              --           1,000              10             500               2 
   Exercise of warrants in June and
     July 1996                                   --              --              --              --         156,250             626 
   Amount payable for liquidation                --              --              --              --              --              --
     preference 
   Compensation related to stock
     options granted in May and
     September 1996                              --              --              --              --              --              -- 
   Amortization of deferred
     compensation                                --              --              --              --              --              -- 
   Unrealized loss on marketable
     securities                                  --              --              --              --              --              -- 
   Net loss                                      --              --              --              --              --              -- 
                                        --------------------------------------------------------------------------------------------
Balance at December  31, 1996                    --              --         259,198           2,592       3,111,158          12,445 
   Payment of subscription
     receivable                                  --              --              --              --              --              -- 
   Write-off of subscription
     receivable                                  --              --              --              --              --              -- 
   Exercise of warrants in
     April and June 1997                         --              --              --              --          49,770             199 
   Conversion of preferred to
     common stock                                --              --         (55,039)           (551)      1,421,403           5,685 
   Repurchase of fractional shares               --              --              --              --             (26)             -- 
   Realization of loss on marketable
     securities                                  --              --              --              --              --              -- 
   Amortization of deferred
     compensation                                --              --              --              --              --              -- 
   Net loss                                      --              --              --              --              --              -- 
                                        --------------------------------------------------------------------------------------------
Balance at December  31, 1997                    --    $         --         204,159    $      2,041       4,582,305    $     18,329 
   Conversion of preferred to
     common stock                                --              --         (91,470)           (914)      2,386,176           9,544 
   Payment of subscription
     receivable                                  --              --              --              --              --              -- 
   Issue shares based upon reset
     provisions                                  --              --              --              --       3,029,339          12,117 
   Issue compensatory shares to
     officer                                     --              --              --              --           9,301              38 
   Amortization of deferred
     compensation                                --              --              --              --              --              -- 
   Net loss                                      --              --              --              --              --              -- 
                                        --------------------------------------------------------------------------------------------
Balance at December 31, 1998                     --    $         --         112,689    $      1,127      10,007,119    $     40,028 
                                        ============================================================================================

<CAPTION>
                                                                                                      Deficit
                                                                                     Unrealized     Accumulated         Total    
                                      Additional                                      Loss on        During the     Stockholders'
                                       Paid-In      Subscription      Deferred       Marketable      Development       Equity    
                                       Capital       Receivable     Compensation     Securities         Stage         (Deficit)  
                                    -------------------------------------------------------------------------------------------- 
<S>                                 <C>             <C>             <C>             <C>             <C>             <C>          
Balance at December 31, 1995        $  1,723,657    $     (7,109)   $         --    $         --    $ (1,717,180)   $     22,568 
   Repurchase of common stock                                                                                                    
     in March 1996                            --             312              --              --              --              -- 
   Payment of subscription                                                                                                       
     receivable                               --           2,771              --              --              --           2,771 
   Conversion of Series A                                                                                                        
     preferred stock in June 1996         11,587              --              --              --              --              -- 
   Issuance of common stock and                                                                                                  
     Series B preferred stock in a                                                                                               
     private placement in May and                                                                                                
     June 1996                        22,217,397              --              --              --              --      22,220,495 
   Issuance of common stock                                                                                                      
     and Series B preferred                                                                                                      
     stock for services in                                                                                                       
     June 1996                            99,988              --              --              --              --         100,000 
   Exercise of warrants in June and                                                                                              
     July 1996                             5,624              --              --              --              --           6,250 
   Amount payable for liquidation                                                                                                
     preference                       (1,131,744)             --              --              --              --      (1,131,744)
   Compensation related to stock                                                                                                 
     options granted in May and                                                                                                  
     September 1996                    1,076,373              --      (1,076,373)             --              --              -- 
   Amortization of deferred                                                                                                      
     compensation                             --              --         112,949              --              --         112,949 
   Unrealized loss on marketable                                                                                                 
     securities                               --              --              --          (2,037)             --          (2,037)
   Net loss                                   --              --              --              --      (1,536,842)     (1,536,842)
                                    -------------------------------------------------------------------------------------------- 
Balance at December  31, 1996         24,002,882          (4,026)       (963,424)         (2,037)     (3,254,022)     19,794,410 
   Payment of subscription                                                                                                       
     receivable                               --           1,761              --              --              --           1,761 
   Write-off of subscription                                                                                                     
     receivable                           (1,833)          1,833              --              --              --              -- 
   Exercise of warrants in                                                                                                       
     April and June 1997                    (199)             --              --              --              --              -- 
   Conversion of preferred to                                                                                                    
     common stock                         (5,134)             --              --              --              --              -- 
   Repurchase of fractional shares           (76)             --              --              --              --             (76)
   Realization of loss on marketable                                                                                             
     securities                               --              --              --           2,037              --           2,037 
   Amortization of deferred                                                                                                      
     compensation                             --              --         269,100              --              --         269,100 
   Net loss                                   --              --              --              --      (4,266,125)     (4,266,125)
                                    -------------------------------------------------------------------------------------------- 
Balance at December  31, 1997        $23,995,640    $       (432)   $   (694,324)   $         --    $ (7,520,147)   $ 15,801,107 
   Conversion of preferred to                                                                                                    
     common stock                         (8,630)             --              --              --              --              -- 
   Payment of subscription                                                                                                       
     receivable                               --              10              --              --              --              10 
   Issue shares based upon reset                                                                                                 
     provisions                          (12,117)             --              --              --              --                 
   Issue compensatory shares to                                                                                                  
     officer                              24,962              --              --              --              --          25,000 
   Amortization of deferred                                                                                                      
     compensation                             --              --         269,100              --              --         269,100 
   Net loss                                   --              --              --              --      (5,838,130)     (5,838,130)
                                    -------------------------------------------------------------------------------------------- 
Balance at December 31, 1998        $ 23,999,855    $       (422)    $  (425,224)   $         --    $(13,358,277)   $ 10,257,087
                                    ============================================================================================ 
</TABLE>

See accompanying notes.


                                      F-5
<PAGE>

                             AVAX Technologies, Inc.
                          (a development stage company)

                            Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                  Period from
                                                                                  January 12,
                                                                                      1990
                                                                                 Incorporation)
                                                      Year ended December 31,  (to December 31,
                                                      1997            1998            1998
                                                  --------------------------------------------
<S>                                               <C>             <C>             <C>          
Operating activities
Net loss                                          $ (4,266,125)   $ (5,838,130)   $(13,358,277)
Adjustments to reconcile net loss to net
  cash used in operating activities:
   Depreciation and amortization                       282,061         289,610         801,931
   Compensatory stock issue                                 --          25,000          25,000
   Gain on sale of the Product                              --              --      (1,951,000)
   Gain on sale of intellectual property                    --              --            (787)
   Accretion of interest on common stock
     receivable                                       (150,541)             --        (449,000)
   Accretion of interest on amount payable
     to preferred stockholders and Former
     Officer                                           150,541              --         449,000
   Loss on sale or abandonment of furniture
     and equipment                                          --              --          37,387
   Issuance of common stock for services                    --              --         147,000
   Changes in operating assets and liabilities:
     Prepaid expenses and other current
      assets                                           (93,644)        (75,772)       (230,701)
     Accounts payable and accrued liabilities           76,048         532,920         886,646
     Amount payable to Former Officer                       --              --          80,522
                                                  --------------------------------------------
Net cash used in operating activities               (4,001,660)     (5,066,372)    (13,562,279)

Investing activities
Purchases of  marketable securities                 (9,102,028)    (81,958,707)    (98,177,207)
Proceeds from sale of marketable securities                 --      81,683,057      81,683,057
Proceeds from sale of short-term investments         6,136,890              --       7,116,472
Purchases of furniture and equipment                   (46,182)     (1,133,932)     (1,291,825)
Proceeds from sale of furniture and equipment               --              --           4,600
Organization costs incurred                                 --              --          (1,358)
                                                  --------------------------------------------
Net cash used in investing activities               (3,011,320)     (1,409,582)    (10,666,261)
</TABLE>

                                      F-6
<PAGE>

                             AVAX Technologies, Inc.
                          (a development stage company)

                      Statements of Cash Flows (continued)

<TABLE>
<CAPTION>
                                                                                 Period from
                                                                                 January 12,
                                                                                     1990
                                                                                (Incorporation)
                                                    Year ended December 31       to December
                                                    1997              1998           1998
                                               ---------------------------------------------
<S>                                            <C>               <C>            <C>         
Financing activities
Proceeds from issuance of notes payable
  to related party                             $         --      $         --   $    957,557
Principal payments on notes payable to
  related party                                          --                --       (797,000)
Proceeds from loans payable                              --                --      1,389,000
Principal payments on loans payable                      --                --     (1,389,000)
Payments for fractional shares from reverse
  splits and preferred stock conversions                (76)               --            (76)
Financing costs incurred                                 --                --        (90,000)
Payments received on subscription receivable          1,761                10          4,542
Proceeds received from exercise of stock
  warrants                                               --                --          6,250
Net proceeds received from issuance of
  preferred and common stock                             --                --     24,492,207
                                               ---------------------------------------------
Net cash provided by financing activities             1,685                10     24,573,480
                                               ---------------------------------------------

Net increase (decrease) in cash and cash
  equivalents                                    (7,011,295)       (6,475,944)       344,940
Cash and cash equivalents at beginning
  of period                                      13,832,179         6,820,884             --
                                               ---------------------------------------------
Cash and cash equivalents at end of period     $  6,820,884      $    344,940   $    344,940
                                               =============================================
Supplemental disclosure of cash flow
  information
Interest paid                                  $         --      $         --   $    197,072
                                               =============================================
</TABLE>

See accompanying notes.

                                      F-7
<PAGE>

                                AVAX Technologies
                          (a development stage company)

                          Notes to Financial Statements

                           December 31, 1998 and 1997

1. Description of Business and Significant Accounting Policies

Description of Business

AVAX Technologies, Inc. (the Company) is a development stage biopharmaceutical
company.

In November 1995, the Company sold its leading product under development, an
over-the-counter nutritional, dietary, medicinal and/or elixorative food
supplement or drug and all of the related patents and other intellectual
property (the Product) (see Note 2).

Also in November 1995, the Company entered into a license agreement with Thomas
Jefferson University (TJU) to develop, commercially manufacture and sell
products embodying immunotherapeutic vaccines for the treatment of malignant
melanoma and other cancers (the Invention) (see Note 3).

In December 1996, the Company entered into a license agreement with Rutgers
University (Rutgers) to develop, commercially manufacture and sell products
embodying a series of compounds for the treatment of cancer and infectious
diseases (the Compounds) (see Note 3).

In February 1997, the Company entered into a license agreement with Texas A&M to
develop, commercially manufacture and sell products embodying a series of
compounds for the treatment of cancer (the Texas A&M Compounds) (see Note 3).

The Company's business is subject to significant risks consistent with
biotechnology companies that are developing products for human therapeutic use.
These risks include, but are not limited to, uncertainties regarding research
and development, access to capital, obtaining and enforcing patents, receiving
regulatory approval, and competition with other biotechnology and pharmaceutical
companies. The Company plans to continue to finance its operations with a
combination of equity and debt financing and, in the longer term, revenues from
product sales, if any. However, there can be no assurance that it will
successfully develop any product or, if it does, that the product will generate
any or sufficient revenues.

Use of Estimates

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

Cash Equivalents

The Company considers all highly liquid financial instruments with a maturity of
three months or less when purchased to be cash equivalents. At December 31,
1998, all cash and cash equivalents were held at one financial institution.

                                      F-8
<PAGE>

                                AVAX Technologies
                          (a development stage company)

                    Notes to Financial Statements (continued)

1. Description of Business and Significant Accounting Policies (continued)

Cash Equivalents

The Company considers all highly liquid financial instruments with a maturity of
three months or less when purchased to be cash equivalents. At December 31,
1998, all cash and cash equivalents were held at one financial institution.

Marketable Securities

Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
Debt securities are classified as held-to-maturity when the Company has the
positive intent and ability to hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost, adjusted for amortization of premiums
and accretion of discounts to maturity. Such amortization and interest on
securities classified as held-to-maturity are included in interest income.

The following is a summary of marketable securities:

<TABLE>
<CAPTION>
                                                          Unrealized     Estimated
             Description of Securities          Cost      Gain/(Loss)    Fair Value
        -------------------------------------------------------------------------------
        <S>                                 <C>             <C>          <C>       
        December 31, 1997 
        Held-to-maturity debt securities:
          Commercial paper                  $9,024,625      $    --      $9,024,625
          U.S. Treasury securities              77,403           --          77,403
                                           --------------------------------------------
                                            $9,102,028      $    --      $9,102,028
                                           ============================================
                                                                 
        December 31, 1998                                        
        Held-to-maturity debt securities:                        
          Commercial paper                  $8,845,322      $    --      $8,845,322
          U.S. Treasury securities             532,356           --         532,356
                                           --------------------------------------------
                                            $9,377,678      $    --      $9,377,678
                                           ============================================
</TABLE>                                                         
                                                             
The Company's debt securities all mature in 1999.

Depreciation

Depreciation is computed using the straight-line method over the estimated
useful lives of the furniture and equipment, which range from three to ten
years. Depreciation for the Company's manufacturing facility under construction
and related equipment as of December 31, 1998 will be computed using the
straight-line method over estimated useful lives of 5 to 40 years.


                                      F-9
<PAGE>

                                AVAX Technologies
                          (a development stage company)

                    Notes to Financial Statements (continued)

1. Description of Business and Significant Accounting Policies (continued)

Research and Development Costs

Research and development costs, including payments related to patents and
license agreements, are expensed when incurred.

Deferred Compensation

Certain compensation costs are deferred and amortized over the vesting period of
such compensation.

Share Information

On May 15, 1996 (see Note 4), prior to the first closing of a private placement,
the Company effected a 1-for-2 reverse stock split of the Company's common
stock. Pursuant to an amendment to the Company's Certificate of Incorporation
dated May 7, 1997, a second 1-for-2 reverse split of the Company's common stock
was effected as of the close of business on May 13, 1997. All outstanding share
and per share amounts included in the accompanying financial statements have
been adjusted to reflect both 1-for-2 reverse stock splits.

Earnings Per Share

In 1997, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." SFAS No.
128 replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share exclude any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously required fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where appropriate, restated to
conform to the SFAS No. 128 requirements.

Net loss per share is based on net loss divided by weighted average number of
shares of common stock outstanding during the respective periods, adjusted to
reflect the reverse stock splits. The weighted average number of common shares
outstanding has been calculated in accordance with Staff Accounting Bulletin 83
(SAB 83) of the Securities and Exchange Commission. SAB 83 requires that shares
of common stock, warrants and options issued one year prior to the initial
filing of a registration statement relating to an initial public offering at
amounts below the public offering price be considered outstanding for all
periods presented in the Company's registration statement. For purposes of
calculating the net loss per share, the private placement of Series B
convertible preferred stock (see Note 4) has been considered to be the
equivalent of an initial filing of a registration statement relating to an
initial public offering, and the initial public offering price was determined to
be $3.92 per share by assuming that the preferred stock issued was immediately
converted into common stock. Those shares of common stock, warrants and options
(see Note 4), considered as cheap stock in accordance with SAB 83, were
considered outstanding for all periods, prior to July 10, 1997, at which time
the Company's registration statement on Form SB-2 to register the shares sold in
the private placement was declared effective.


                                      F-10
<PAGE>

                                AVAX Technologies
                          (a development stage company)

                    Notes to Financial Statements (continued)

1. Description of Business and Significant Accounting Policies (continued)

The following table sets forth the computation of the Company's basic earnings
per share information, adjusted for the SAB 83 requirements, as discussed above.
Diluted earnings per share information is not presented, as the effects of stock
options, warrants and other convertible securities would be antidilutive for the
periods presented.

                                                             December 31,
                                                         1997           1998
                                                     --------------------------
Numerator (basic):
Numerator - loss available to common stockholders    $(4,266,125)   $(5,838,130)
                                                     ==========================

Denominator (basic):
  Weighted average shares                              3,616,906      6,731,210
  Effect of stock issuances, stock
   options and warrants issued within
   one year prior to the initial
   public offering (IPO) at  prices
   below the IPO price                                   133,534             --
                                                     --------------------------
Denominator                                            3,750,440      6,731,210
                                                     ==========================
Net loss per share - basic                           $     (1.14)   $      (.87)
                                                     ==========================

Stock-Based Compensation

In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 is effective for fiscal years beginning after
December 31, 1995 and prescribes accounting and reporting standards for all
stock-based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights. SFAS No. 123
requires compensation expense to be recorded (i) using the new fair value method
or (ii) using existing accounting rules prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," (APB 25) and
related interpretations, with pro forma disclosure of what net income and
earnings per share would have been had the Company adopted the new fair value
method. The Company has elected to continue to account for its stock-based
compensation plans in accordance with the provisions of APB 25. See Note 4 for
the pro forma effects of applying SFAS No. 123.

2. Sale of the Product

In December 1995, the Company entered into an agreement to sell the Product for
$2.4 million in shares of common stock of Interneuron Pharmaceuticals, Inc.
(IPI), a public company, the parent of the purchaser of the Product (the Stock).
Certain common stockholders of the Company are also common stockholders of IPI.
Pursuant to the terms of the agreement, the purchase price, payable in two equal
installments in December 1996 and 1997, was fixed, and the number of shares of
the Stock would vary depending on the quoted market price of the Stock at such
time.


                                      F-11
<PAGE>

                                AVAX Technologies
                          (a development stage company)

                    Notes to Financial Statements (continued)

2. Sale of the Product (continued)

The first installment was paid on January 3, 1997 in the form of a distribution
of IPI stock directly by IPI to the Series A convertible preferred stockholders,
who were holders of record on the closing date of the agreement for sale, and
the Company's former President and Chief Executive Officer (the Former Officer).
The final installment was received on January 14, 1998.

The sale of the Product was approved by the Company's common and Series A
preferred stockholders subject to the following conditions:

      o     At approximately the same time each installment was received by the
            Company, 95.85% of the Stock was to be distributed by the Company,
            or directly by IPI, to the Company's preferred stockholders of
            record (referred to herein as the holders of Series A preferred
            stock) at the time sale of the Product closed, on a pro rata basis,
            to reduce their liquidation preference, provided, however, that if
            at the time of each installment, any of the Company's indebtedness
            which had been outstanding at the time of the closing of the
            agreement to sell the Product (December 27, 1995) and was due and
            payable, the Company was to cause such indebtedness to be paid or
            provided for, whether by use of available cash, refinancing,
            redirecting a portion of the Stock to satisfy such indebtedness, or
            otherwise, as the Company would determine in its best interest.

      o     The remaining 4.15% of the Stock (or a cash payment equal to the
            value thereof) was to be distributed to the Former Officer in
            partial consideration for his resignation from the Company and the
            return to the Company of all common stock of the Company and
            cancellation of options to purchase 62,500 shares of common stock.

Other than for the Former Officer, none of the other common stockholders were
entitled to any of the Stock.

Because the Stock was receivable in two equal annual installments, the gain from
the sale of the Product, $1,951,000, was calculated by discounting the value of
the Stock receivable using a discount rate of 15%. In 1995, the Company also
recorded the difference between 95.85% of the discounted net present value of
the Stock to be received and the Company's indebtedness, $1,131,744 at December
31, 1995, as a payable to the preferred stockholders of $738,289 to reduce their
liquidation preference. The present value of the amount payable to the preferred
stockholders, including the accretion of interest thereon, was $2,156,106 at
December 31, 1996, since all of the Company's indebtedness outstanding as of the
date of the sale of the Product was satisfied through sources other than the
Stock to be received. This obligation was settled with the January 1998 receipt
of the final installment of IPI stock, as discussed above.

The discounted net present value of the Stock distributable to the Former
Officer as of the date of sale, amounting to $80,967, was allocated between
common stock ($445) and severance expense ($80,522) based on the fair value of
the Company's common stock ($.004 per share).

3. License and Research Agreements

In November 1995, the Company entered into an agreement with TJU for the
exclusive worldwide license to develop, manufacture and sell the Invention. In
consideration for the license agreement, the Company paid cash of $10,000 and
issued an aggregate of 458,243 shares of common stock to TJU and the scientific
founder (the Scientist). These shares had


                                      F-12
<PAGE>

                                AVAX Technologies
                          (a development stage company)

                    Notes to Financial Statements (continued)

3. License and Research Agreements (continued)

antidilution rights prior to the first equity financing, as defined in the
license agreement, in excess of $1,000,000 by the Company.

Under terms of the license agreement, the Company was required to raise a
minimum of $500,000 of net operating capital by December 1996. Also under the
terms of the license agreement, (i) the Company is obligated to pay certain
milestone payments as follows: $10,000 upon initiation of the first clinical
trial that is approved by the Food and Drug Administration (FDA) or comparable
international agency, $10,000 upon the first filing of a New Drug Application
(NDA) with the FDA or comparable international agency, and $25,000 upon receipt
by the Company of approval from the FDA or comparable international agency to
market products. In addition, the Company is obligated to pay royalties on its
worldwide net sales revenue derived from the Invention and a percentage of all
revenues received from sublicensees of the Invention.

The Company also entered into a research agreement with TJU to fund a study to
be performed by TJU for the development of the technology related to the
Invention (the Study) at approximately $220,000 per annum for the first three
years. The Company, at its discretion, may reduce the funding in the third year
to no less than $100,000. Following the third year, the Company is obligated to
spend a minimum of $500,000 per year on the development of the Invention until
commercialized in the United States. If following the third year, the Company
files for United States marketing approval through a Company sponsored NDA, the
Company may elect to spend less than $500,000 per year on the development of the
Invention during the period of time the NDA is under review by the FDA. The
research agreement will continue until completion of the Study, although it is
terminable, upon notice by either party to the other, at any time. Expenses
incurred related to research funding for TJU were $230,602 and $274,732 for the
years ended December 31, 1998 and 1997, respectively. This level of funding
satisfies the Company's obligation under the agreement.

In December 1996, the Company entered into an agreement with Rutgers for the
exclusive worldwide license to develop, manufacture and sell products embodying
the Compounds. In consideration for the license agreement, the Company paid cash
of $15,000, has agreed to pay $15,000 in each subsequent year as a license
maintenance fee and has committed to the issuance of warrants to Rutgers to
purchase 125,000 shares of common stock at a price of $8.24 per share based on
the achievement of certain development milestones. The first 75,000 warrants
will expire in 2006, and the final 50,000 warrants will expire in 2011. These
warrants, once issued, shall provide for cashless exercise, piggyback
registration rights and certain antidilution rights. The Company has agreed to
fund research in the amount of one hundred thousand dollars ($100,000) per year
for three years. In addition, the Company is obligated to spend an aggregate of
$200,000 in the first year, $300,000 in the second year and $500,000 each year
thereafter until the first year of commercial marketing of a product derived
from the Compounds. The license maintenance fee shall not be payable in years
where research funding is equal to or greater than $100,000. Expenses incurred
related to research funding for Rutgers were $97,500 and $173,612 for the years
ended December 31, 1998 and 1997, respectively. This level of funding satisfies
the Company's obligation under the agreement.

Under the terms of the license agreement, the Company is obligated to pay
certain milestone payments as follows: $15,000 on the earlier of October 31,
1999 or the date of first filing of an Investigational New Drug (IND)
application with the FDA, or comparable international agency; $25,000 on the
earlier of October 31, 2001 or the date of initiation of Phase II trials in the
United States or another major market country; $45,000 on the earlier of October
31, 2005 or the date of first filing of an NDA application with the FDA, or
comparable international agency; and $150,000 on the earlier of October 31, 2008
or the date of receipt by the Company of approval from the FDA, or comparable
international agency, to market products.


                                      F-13
<PAGE>

                                AVAX Technologies
                          (a development stage company)

                    Notes to Financial Statements (continued)

3. License and Research Agreements (continued)

In addition, the Company is obligated to pay royalties on its worldwide net
sales revenue derived from the Compounds and a percentage of all revenues
received from sublicensees of products derived from the Compounds. Such royalty
payments shall be no less than $100,000 in the first year of commercial
marketing, $200,000 in the second year, $250,000 in the third year, $300,000 in
the fourth year, and $350,000 in the fifth and all following years.

In February 1997, the Company entered into an agreement with Texas A&M for the
exclusive worldwide license to develop, manufacture and sell products embodying
the Texas A&M Compounds. Under the terms of the license agreement, the Company
has agreed to fund research in the amount of approximately $108,000 per year for
the next three years. The Company is also obligated to pay certain milestone
payments as follows: $24,000 upon initiation of certain toxicity evaluations;
$12,000 upon completion of toxicity evaluations demonstrating certain acceptable
toxicity levels; $12,000 upon the submission of an IND to the FDA, or comparable
international agency; $5,000 upon completion of the first Phase I clinical
investigation; and $15,000 upon receipt by the Company of NDA approval from the
FDA to market products.

In addition, the Company is obligated to pay royalties on its worldwide net
sales revenue derived from the Compounds and a percentage of all revenues
received from sublicensees of products derived from the Compounds. Such royalty
payments shall be no less than $50,000 in the first year of commercial
marketing, $100,000 in the second year and $200,000 in the third year and all
following years. Expenses incurred related to research funding for Texas A&M was
$81,563 and $108,750 for the years ended December 31, 1998 and 1997,
respectively. This level of funding satisfies the Company's obligation under the
agreement.

4. Equity Transactions

Common and Preferred Stock

Common stock issued for services since 1990 has been recorded based on the value
of the services provided.

In April 1995, in accordance with the terms of his resignation and related
severance arrangements, the Former Officer returned 111,330 shares of common
stock and options to purchase 62,500 shares of common stock. The common stock
returned was valued at $.004 per share. The common stock and options returned
were canceled.

In May 1995, in accordance with the terms of a settlement agreement with a
former officer and director of the Company, the Company agreed to release and
relinquish any claim it may have on certain intellectual property, excluding the
Product, in exchange for 196,618 shares of the Company's common stock owned by
her and her family. The common stock was valued at $.004 per share and was
canceled.

On September 13, 1995, the Company issued 402,490 shares of common stock to
officers of the Company at $.004 per share.

On November 20, 1995, the Company issued an aggregate of 458,243 shares of
common stock to TJU and the Scientist (see Note 3). In addition, on November 20,
1995, the Company issued, in aggregate, an additional 916,485 shares to a
principal stockholder, a third party designated by the principal stockholder,
and an officer, at $.004 per share.


                                      F-14
<PAGE>

                                AVAX Technologies
                          (a development stage company)

                    Notes to Financial Statements (continued)

4. Equity Transactions (continued)

On March 24, 1996, the Company repurchased 77,901 shares of common stock
previously issued to an officer at $.004 per share. The repurchased shares were
canceled.

In May 1996, the Company's authorized capital was increased to 50,000,000 shares
of common stock, par value $.004, and 5,000,000 shares (of which 2,500,000
shares were designated as Series A preferred stock and 300,000 shares were
designated as Series B preferred stock) of preferred stock, par value $.01. In
June 1998, the Company's authorized common stock, par value $.004, was decreased
to 30,000,000 shares.

Pursuant to a private placement in May and June 1996, the Company issued 258,198
shares of Series B convertible preferred stock. The preferred stockholders also
received 129,099 shares of common stock. The total consideration was
$25,819,800. The per share price allocated to common stock and Series B
convertible preferred stock was $1 and $99, respectively. In connection with the
private placement, the Company paid $3,357,000 in commissions and nonaccountable
expenses to the placement agent, a related party, and issued 500 shares of
common stock and 1,000 shares of Series B convertible preferred stock as
consideration for legal services valued at $100,000. In addition, the placement
agent received warrants to purchase 25,819.8 shares of Series B convertible
preferred stock at an exercise price of $110 per share. Such warrants are
exercisable until June 11, 2006, contain certain antidilution provisions and may
be exercised pursuant to a cashless exercise feature. Other share issuance
expenses amounted to $142,000.

The Series B preferred stockholders are entitled to voting rights equivalent to
the number of common shares into which their preferred shares are convertible.
The Series B preferred stockholders are also entitled to receive, in preference
to the holders of common stock, an amount per preferred share of $135 plus any
declared but unpaid dividends.

Pursuant to the terms of the private placement, each share of Series B preferred
stock was convertible at any time, in whole or in part, at the discretion of the
holders, into common stock at $4 per share (the Initial Conversion Price), which
amounted to 6,479,950 shares at December 31, 1996. Twelve months after the final
closing date (the Reset Date), the Company could, at its option, cause
conversion of the preferred stock, in whole or in part, into common stock at the
Initial Conversion Price if the closing price of the common stock exceeded 150%
of the Initial Conversion Price for at least 20 trading days in any
30-consecutive-trading-day period.

At the second closing of the private placement on June 11, 1996, the 1,287,500
shares of Series A preferred stock were automatically converted to 321,875
shares of common stock. Notwithstanding such conversion, holders of the Series A
preferred stock have received pro rata 95.85% of shares of common stock of IPI
associated with the sale of the Product, as discussed in Note 2.

At December 31, 1998, the remaining 112,689 shares of Series B preferred stock
are convertible into 2,939,679 shares of common stock, excluding the effect of
any fractional shares.

In September 1998, the Company issued 9,301 shares of common stock, which is
restricted from trading, to the Company's President. The stock issue was in
compensation for services rendered and accordingly an expense of $25,000 (the
fair market value at issue date) was recorded in general and administrative
expenses.


                                      F-15
<PAGE>

                                AVAX Technologies
                          (a development stage company)

                    Notes to Financial Statements (continued)

4. Equity Transactions (continued)

Conversion Reset

In accordance with the terms of the placement, the Initial Conversion Price was
to be adjusted and reset effective as of the Reset Date if the average closing
bid price for the 30 consecutive trading days immediately preceding the Reset
Date (the 12-Month Trading Price) was less than 135% of the Initial Conversion
Price or $5.40. If such was the case, the Initial Conversion Price would be
reduced to be equal to the greater of the 12-Month Trading Price divided by 1.35
or 50% of the Initial Conversion Price.

The Initial Conversion Price was adjusted effective June 11, 1997, because the
average closing bid price of the common stock for the 30 consecutive trading
days immediately preceding such date was less than $5.40. The average was, in
fact, $5.175 per share. Accordingly, the conversion price was adjusted to $3.83
per share, which corresponds to a new conversion rate of 26.0875 shares of
common stock per share of Series B preferred stock.

Staggered Lock-up

Pursuant to the terms of the placement, 25% of each holder's shares of common
stock issuable upon conversion of the Series B preferred shares (the Conversion
Shares) were not subject to any restriction on resale (Lock-up). The remaining
75% of each holder's Conversion Shares were subject to a staggered Lock-up,
whereby 25% of the Conversion Shares were released from the Lock-up every three
months after the final closing, through and including March 11, 1997.

In March 1997, the Company completed a revision to the staggered Lock-up and
Conversion Reset provision of the private placement. Shareholders owning
approximately 94% of the Series B preferred shares agreed to a modification of
the original subscription agreement, such that the staggered Lock-up would
expire beginning three months after both listing and effectiveness under the
Securities Act of 1933 of the Company's Registration Statement for its common
stock (Effectiveness). As so modified, upon listing and Effectiveness, which
occurred on July 10, 1997, 25% of the Conversion Shares were not subject to any
Lock-up provisions. The remaining 75% of the Conversion Shares were subject to a
staggered Lock-up, such that every three months after July 10, 1997, 25% of the
Conversion Shares were released from Lock-up until April 10, 1998 at which point
all Conversion Shares were no longer subject to any Lock-up.

In addition, for those shareholders who accepted the Lock-up modifications, the
Company agreed to provide additional reset protection, extending the Reset Date
to 12 months following the later of Effectiveness and listing, or July 10, 1998.
The terms of this modified reset were the same as the original reset provision,
except that the Company would not adjust the conversion price, but would issue
additional shares of common stock to effect the principles of the original reset
provision. The average closing bid price for the 30 consecutive trading days
preceding July 10, 1998 was $3.1544 and accordingly, the Company issued
3,029,339 shares of common stock to those holders of Series B Preferred Stock
who had agreed to the lockup and had not converted their Preferred Stock to
Common Stock.


                                      F-16
<PAGE>

                                AVAX Technologies
                          (a development stage company)

                    Notes to Financial Statements (continued)

4. Equity Transactions (continued)

Stock Options

In April 1992, the Board of Directors approved the 1992 Stock Option Plan (the
Plan), which, as amended, authorized up to 437,500 shares of common stock for
granting both incentive and nonqualified stock options to employees, directors,
consultants and members of the scientific advisory board of the Company. The
Plan was amended in June 1998, to increase the number of shares issuable to
1,500,000. The exercise price and vesting period of the options are determined
by the Board of Directors at the date of grant. Options may be granted up to 10
years after the Plan's adoption date and generally expire 10 years from the date
of grant.

The following summarizes activity in the Plan:

                                                                     Options
                                                                 ---------------

Balance at December 31, 1994                                            276,375
Canceled                                                               (246,375)
                                                                 --------------
Balance at December 31, 1995, 1996 and 1997                              30,000
Granted                                                                 600,000
                                                                 --------------
Balance at December 31, 1998                                            630,000
                                                                 ==============

In March 1998, options to purchase 30,000 shares of common stock at an exercise
price of $4.00 per share were granted to an employee. Such options vest over
three years and are exercisable for a period of seven years. In June 1998,
options to purchase 75,000 shares of common stock at an exercise price of $2.563
per share were granted to an employee. Such options vest over four years and are
exercisable for a period of seven years. In September 1998, options to purchase
240,000 shares of common stock at an exercise price of $1.81 per share were
granted to an employee. These options vest 40,000 after one year with the
remaining options vesting upon the completion of certain milestones. In October
1998, options to purchase 235,000 shares of common stock at an exercise price of
$1.25 per share were granted to four different employees. The options vest over
four year periods and are exercisable for a period of seven years. In December
1998, options to purchase 20,000 shares of common stock at an exercise price of
$2.25 per share were granted to an employee. Such options vest over four years
and are exercisable for a period of seven years.

Certain officers and employees were also granted stock options in 1996, as
authorized by the Board of Directors, apart from the Plan. In May 1996, the
Company's President and Chief Executive Officer (the President) received options
to purchase 318,873 shares of common stock at $1.00 per share. Such options vest
at a rate of 1/16 per quarter over four years and are exercisable for a period
of seven years. Because the fair value of the Company's common stock at the date
of grant was determined to be $2 per share, the Company recorded $318,873 as
deferred compensation. Such deferred compensation is being amortized over four
years.

In September 1996, certain officers and an employee also received options to
purchase 252,500 shares of common stock at $1.00 per share. Such options vest at
a rate of 1/16 per quarter over four years and are exercisable for a period of
seven years. Because the fair value of the Company's common stock at the date of
grant was determined to be $4 per share, the Company recorded $757,500 as
deferred compensation. Such deferred compensation is being amortized over four
years.


                                      F-17
<PAGE>

                                AVAX Technologies
                          (a development stage company)

                    Notes to Financial Statements (continued)

4. Equity Transactions (continued)

In March 1997, one other employee of the Company received options to purchase
52,500 shares of common stock at $6.00 per share, the closing market price on
the date of grant. In July 1997, the Company withdrew such options and replaced
them with options to purchase 90,000 shares of common stock at an exercise price
of $4.50, the closing market price on the date of grant. The options vest as
follows: 5,000 shares vest on September 1, 1997, 30,000 shares vest at a rate of
1/6 every six months over a three-year period, thereafter, and the remaining
55,000 shares will vest upon the occurrence of certain milestone events relating
to the Company's manufacturing program. Such options are exercisable for a
period of seven years.

In July 1997, the President, certain officers and an employee also received
options to purchase 280,000 shares of common stock at $4.50 per share. The
President's options, which represent 150,000 of these options, vest at a rate of
1/12 per quarter over a three-year period. The remaining options vest at a rate
of 1/16 per quarter over four years and all are exercisable for a period of
seven years.

In July 1997, options were issued to a scientific consultant to purchase 30,000
shares of common stock at $4.50 per share. Such options vest at a rate of 1/3
per year over three years and are exercisable for a period of seven years.

In September 1997, four directors of the Company each received a grant of 40,000
options to purchase common stock at $4.50 per share. Such options vest at a rate
of 1/16 per quarter over four years, commencing on December 1, 1997, and are
exercisable for a period of seven years.

In December 1997, four directors of the Company each received a grant of 5,161
options to purchase common stock at $3.88 per share. Such options vest at a rate
of 1/4 per quarter over one year, commencing on March 1, 1998, and are
exercisable for a period of seven years.

In March 1998, in consideration for consulting services, the Company issued
options to purchase 50,000 shares of common stock to a consultant of the
Company, exercisable for seven years at an exercise price of $4.00 per share.
Such options vest at a rate of 1/12 per month.

In December 1998, the Company issued options to purchase 21,000 shares of common
stock to a consultant of the Company, exercisable for seven years at an exercise
price of $2.25 per share. Such options vest in equal increments annually over
three years.

Warrants

In June, July and September 1992, the Company issued warrants to purchase 88,769
shares (adjusted to comply with antidilution provisions of the warrants) of the
Company's common stock at a price of $2.59. These warrants were exercised in
April and June 1997 under a cashless exercise provision, resulting in the
issuance of 49,770 shares of common stock.


                                      F-18
<PAGE>

                                AVAX Technologies
                          (a development stage company)

                    Notes to Financial Statements (continued)

4. Equity Transactions (continued)

The Company has issued warrants to purchase 7,750 (May 1993) and 90,000
(January, February and August 1995) shares of the Company's common stock at a
price of $11.00 and $.04 per share, respectively. These warrants are exercisable
at any time and expire in 1998 and 2006, respectively.

In January and February of 1996, the Company issued warrants to purchase 97,500
shares of the Company's common stock at a price of $.04 per share. Such warrants
are exercisable at any time and expire in 2007.

In October 1996, the Company issued warrants to purchase 50,000 shares of common
stock at $6 per share, 25,000 of which were subsequently canceled in April of
1997 (see Note 7). These warrants are exercisable at December 31, 1997 and
expire in 2001.

In December 1996, the Company committed to the future issuance of warrants to
purchase 125,000 shares of the Company's common stock at a price of $8.24 per
share (see Note 3).

In June and July of 1996, warrants to purchase 156,250 shares of common stock at
$.04 per share were exercised.

In February 1997, the Company issued warrants to three outside consultants to
purchase a total of 25,500 shares of common stock at $6.00 per share. These
warrants vested immediately upon issuance and expire in 2004.

In April 1997, the Company issued warrants to purchase 50,000 shares of common
stock at $8.00 per share (see Note 7). Such warrants vest on various dates
through April 1998 and expire in July 2002.

In July 1997, warrants were issued to a consultant to purchase 45,000 shares of
common stock at $4.50 per share. Such warrants were to vest upon the occurrence
of certain milestones and were exercisable for a period of five years. In
December 1997, these warrants were canceled and new warrants to purchase 115,000
shares of common stock at $3.50 per share were issued to the consultant. Such
warrants vest upon the occurrence of certain milestones and are exercisable for
a period of five years.

In December 1997, warrants were issued to a consultant to purchase 200,000
shares of common stock at $3.75 per share. Such warrants vest upon the
achievement of certain performance-based milestones and are exercisable for a
period of five years.

In May 1998, warrants were issued to a financial consultant to purchase 80,000
shares of common stock at $4.03 per share. The agreement was terminated during
the year resulting in only 40,000 shares vesting as of December 31, 1998. These
warrants expire in May 2003.

In October 1998, warrants were issued to a financial consultant to purchase
75,000 shares of common stock at $1.625 per share. Such options vest at various
dates through February 1999 and expire in September 2003.


                                      F-19
<PAGE>

                                AVAX Technologies
                          (a development stage company)

                    Notes to Financial Statements (continued)

4.   Equity Transactions (continued)

Authorized but unissued shares of common stock were reserved for issuance at
December 31, 1998 as follows:

                                                                   December 31,
                                                                        1998
                                                                  --------------

Series B convertible preferred stock (Note 4)                        2,939,679
Stock option plan                                                    1,500,000
Non Plan options                                                     1,223,016
Warrants to purchase common stock                                      686,750
Warrants to purchase Series B convertible
  preferred stock                                                      673,564
                                                                  ==============
                                                                     7,023,009
                                                                  ==============

SFAS No. 123 Disclosures

Pro forma information regarding net loss and net loss per share is required by
SFAS No. 123 and has been determined as if the Company had accounted for its
applicable stock options and warrants under the fair value method of the
statement.

The fair value for these options and warrants was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1998, including a risk free interest rate of 4.63%, a volatility
factor of the expected market price of the Company's common stock of .823 and a
weighted-average remaining contractual life of the option or warrant of 49
months.

This model was developed for use in estimating the fair value of traded options
which have no vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective assumptions,
including the expected stock price volatility. Because the Company's stock
options and warrants have characteristics significantly different from those of
traded options and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options or warrants.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the option or warrant vesting period. The effects
of applying SFAS No. 123 for pro forma disclosures are not likely to be
representative of the effects on reported net income or losses for future years.
The Company's pro forma information follows:

                                                      1997             1998
                                                  ----------------------------

Pro forma net loss attributable
  to common stockholders                          $(4,392,301)     $(6,246,238)

Pro forma net loss per share                            (1.17)            (.93)


                                      F-20
<PAGE>

                                AVAX Technologies
                          (a development stage company)

                    Notes to Financial Statements (continued)

4. Equity Transactions (continued)

A summary of applicable stock option and warrant activity and related
information for the years ended December 31, 1997 and 1998 is as follows:

<TABLE>
<CAPTION>
                                                 1997                   1998
                                        ---------------------  ---------------------
                                                     Weighted               Weighted
                                                     Average                Average
                                        Options and  Exercise  Options and  Exercise
                                          Warrants    Price      Warrants     Price
                                          ------------------     ------------------
<S>                                       <C>         <C>        <C>         <C>   
Outstanding at beginning of year          1,549,636   $ 3.21     2,435,080   $ 3.70
Granted                                     999,213     4.43       786,000     2.00
Exercised                                    88,769     2.59            --       --
Forfeited                                    25,000     6.00         7,750    11.00
                                          ---------              ---------
Outstanding at end of year                2,435,080     3.70     3,213,330     3.27
                                          =========              =========
Exercisable at end of year                1,104,047   $ 3.82     1,603,222   $ 3.64
                                          =========              =========
</TABLE>

The weighted-average fair value of options and warrants granted during 1997 and
1998 was $1.39 and $1.20, respectively. Exercise prices for options and warrants
outstanding range from $.04 to $8.24. The option contracts expire at various
times through June of 2006.

5. Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consist of the following:

Professional fees                                                       $222,450
Construction  fees and equipment (for
   manufacturing
facility)                                                                638,159
Other                                                                     26,037
                                                                        --------
                                                                        $886,646
                                                                        ========

6. Income Taxes

At December 31, 1998, the Company has net operating loss carryforwards of
approximately $12,700,000 for federal income tax purposes that expire in varying
amounts between 2005 and 2013, if not utilized.


                                      F-21
<PAGE>

                                AVAX Technologies
                          (a development stage company)

                    Notes to Financial Statements (continued)


6. Income Taxes (continued)

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities for federal income tax
purposes are as follows:

                                                                   December 31,
                                                                       1998
                                                                   ------------
          Deferred tax assets:                             
            Net operating losses                                   $  4,880,000
            Deferred compensation                                       250,000
            Other                                                         1,000
                                                                   ------------
          Total deferred tax assets                                   5,131,000
          Deferred tax liabilities:                        
            Depreciation expense                                        (12,000)
                                                                   ------------
                                                                      5,119,000
          Valuation allowance                                        (5,119,000)
                                                                   ============
          Net deferred tax assets                                  $         --
                                                                   ============
                                                 
The valuation allowance at December 31, 1997 was $2,883,000.

Under Section 382 of the Tax Reform Act of 1986, the Company's net operating
loss carryforward could be subject to an annual limitation if it should be
determined that a change in ownership of more than 50% of the value of the
Company's stock occurred over a three-year period.

The following summary reconciles the federal statutory rate with the actual
income tax provision (benefit):

                                                            December 31,
                                                       1997              1998
                                                  -----------------------------

       Income taxes (benefit) at
         statutory rate                           $(1,450,000)      $(1,985,000)
       State income taxes, net of
         federal benefit                             (197,000)         (270,000)
       Change in the valuation
         allowance                                  1,649,000         2,236,000
       Other                                            2,000            19,000
                                                  -----------------------------
       Provision for income
         taxes (benefit)                          $        --       $        --
                                                  =============================


                                      F-22
<PAGE>

                                AVAX Technologies
                          (a development stage company)

                    Notes to Financial Statements (continued)

7. Commitments

Leases

In August 1996, the Company entered into a three-year lease for office
facilities. The lease commenced in October 1996 with a monthly rental of
approximately $5,400, beginning in the fourth month. This lease was amended in
December 1997 to add additional office space for the remainder of the original
lease term which increased the monthly rental by approximately $2,700. This
lease is secured by an irrevocable standby letter of credit whereby the lessor
is the named beneficiary. This $107,000 letter of credit expires at the end of
the original lease term and is automatically reduced by an equal amount each
year.

In December 1997, the Company entered into a 10-year lease agreement for
manufacturing facility space that commenced in February 1998 and contains an
option to terminate after five years. The termination option requires a lump sum
payment at the termination of the lease of $236,057. The monthly rental is
approximately $10,400. The first month's rent was payable upon signing of the
lease along with a security deposit equivalent to two months rental. This lease
is secured by a one-year irrevocable standby letter of credit whereby the lessor
is the named beneficiary. This $379,530 letter of credit automatically renews
each December and will be reduced by the amortized reduction of the landlord
investment each year.

Rent expense under these agreements was approximately $176,000 and $79,000 for
the years ended December 31, 1998 and 1997, respectively.

Future minimum lease payments under the noncancellable operating leases,
assuming the termination payment is made in 2002 on the manufacturing facility
lease, consisted of the following at December 31, 1998:

                Year ending                  
                December 31,
               ---------------
               
                    1999                          $196,908
                    2000                          $124,071
                    2001                          $140,318
                    2002                          $377,852
               
Consulting Agreements

Effective in June 1996, the Company entered into consulting agreements with the
Scientist, a director and a former officer. These agreements are for an initial
term of three years through June 1999. Annual consulting fees payable pursuant
to these agreements approximate $66,000.

In April 1997, the Company entered into an agreement with an investment banker
pursuant to which the investment banker may, at the Company's request, perform
certain investment banking services for the Company. In connection with this
agreement, the investment banker was granted warrants to purchase 50,000 shares
of common stock at $8 per share (see Note 4).


                                      F-23
<PAGE>

                                AVAX Technologies
                          (a development stage company)

                    Notes to Financial Statements (continued)

7. Commitments (continued)

In April, May and July 1997, the Company entered into agreements with four
members of the Scientific Advisory Board. These agreements are for initial terms
of two years and require compensation of $2,000 per person per meeting of the
Scientific Advisory Board. In July 1997, the Company entered into a consulting
agreement with a member of its Scientific Advisory Board. In connection with
this agreement, the Company granted options to acquire 30,000 shares of common
stock at $4.50 per share (see Note 4). In addition, the Company entered into a
three year consulting agreement with one of the members of its Scientific
Advisory Board for additional consulting services. The agreement calls for
annual compensation of $20,000 plus options to acquire 21,000 shares of common
stock at $2.25 per share (see Note 4). The options vest annually in arrears.

In August 1998, the Company entered into a consulting agreement with a contract
research organization to assist the Company in performance of its clinical
trials. The agreement has an expected term of over seven years and requires
fixed payments of $120,000 per quarter over a two year period.

In September 1998, the Company entered into an agreement with a financial
advisor, pursuant to which the advisor may, at the Company's request, perform
certain financial advisory services for the Company. The agreement has an
initial term of one year. In connection with this agreement, the advisor was
granted warrants to purchase 75,000 shares of common stock at $1.625.

8. Property, Plant and Equipment

The Company began construction of its GMP (Good Manufacturing Practices)
compliant clinical manufacturing facility during 1998. Costs incurred related to
the planning and construction of the facility have been capitalized and are
included in property, plant and equipment. The facility has not been placed in
service and thus no depreciation has been recorded related to the facility.

As of December 31, 1998, the Company anticipates it will incur an additional
$1,500,000 to complete construction of this facility.

The following shows the composition of the assets included in property, plant
and equipment:

                                                       Accumulated
                                             Cost      Depreciation      Net
                                          --------------------------------------

Office furniture and equipment            $  118,476    $   35,477    $   82,999
Manufacturing facility and
   related equipment                       1,107,415            --     1,107,415

                                          ======================================
Total                                     $1,225,891    $   35,478    $1,190,414
                                          ======================================

Depreciation expense was $20,510 and $12,962 for the years ended December 31,
1998 and 1997, respectively.


                                      F-24
<PAGE>

                                AVAX Technologies
                          (a development stage company)

                    Notes to Financial Statements (continued)


9. Employee Benefit Plan

During 1996, the Company established a 401(k) plan for all employees over the
age of 21. Employee contributions are subject to normal 401(k) plan limitations.
The Company made no matching contributions in 1997 and a $4,000 contribution was
made in 1998.

10. Year 2000 Disclosure (Unaudited)

The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. As a result, those
computer programs having date-sensitive software would recognize a date with the
year "00" as the year 1900 rather than the year 2000. Systems that calculate,
compare or sort using the incorrect date may malfunction.

The Company's only date-sensitive information technology is its accounting
software applications, which the Company intends to upgrade to be Year 2000
compliant by June 30, 1999. To the degree the software is found to be
non-compliant, the Company has alternative methods in place to ensure the
functions performed by the software will be completed. Because the Company has
already planned to replace its software in 1999, the Company does not
contemplate any software replacement costs due to Year 2000 issues.

The Company has made inquiries of suppliers and parties with whom it has
significant business relationships regarding compliance with Year 2000 issues.
These include a clinical processing site at Thomas Jefferson University ("TJU"),
various other clinical sites and certain financial institutions such as
commercial banks. The Company has been informed by TJU that TJU will be Year
2000 compliant insofar as the Company is concerned. Specifically, clinical trial
information that is maintained at TJU is on a standalone computer system. TJU
has indicated that the software used to monitor clinical trial information will
be upgraded to a Year 2000 compliant version during 1999.

To date, the Company is not aware of any financial institution or other third
party with a Year 2000 issue that would materially impact the Company's results
of operations, liquidity or capital resources. The Company has also been advised
by its financial institutions that it will receive certifications confirming
that the computer systems of these institutions are Year 2000 compliant.

Generally, the Company intends to develop contingency plans to address any other
Year 2000 compliance-risks that are uncovered by its continuing evaluation
efforts. Although the Company has no means of ensuring that its suppliers and
financial institutions will be Year 2000 ready, it will continue to monitor, to
the extent practicable, their compliance with the Year 2000 problem. There can
be no assurance, however, that such problems will not arise.


                                      F-25
<PAGE>

                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                             AVAX TECHNOLOGIES, INC.

Date: March 29, 1999      By:  /s/ Jeffrey M. Jonas, M.D.
                               --------------------------------------
                               Jeffrey M. Jonas, M.D.
                               President, Chief Executive Officer and Director

In accordance with the Exchange Act, this Report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

<TABLE>
<CAPTION>
           Signature                          Name & Title                        Date
           ---------                          ------------                        ----
    <S>                                  <C>                                      <C>
    /s/ Jeffrey M. Jonas, M.D.           Jeffrey M. Jonas, M.D.                   March 29, 1999
    ---------------------------------    President, Chief Executive Officer    
                                         and Director                          
                                         
                                         
    /s/ David L. Tousley                 David L. Tousley                         March 29, 1999
    ---------------------------------    Chief Financial Officer and Secretary 
                                         (Principal Financial Officer)         
                                         
                                         
    /s/ Edson D. de Castro               Edson D. de Castro                       March 29, 1999
    ---------------------------------    Director
                                                                                           
    /s/ John K. A. Prendergast, Ph.D.    John K. A. Prendergast, Ph.D.            March 29, 1999
    ---------------------------------    Director
                                         
    /s/ Carl Spana, Ph.D.                Carl Spana, Ph.D.                        March 29, 1999
    ---------------------------------    Director

    /s/ James Currie                     James Currie                             March 29, 1999
    ---------------------------------    Director
                                         
    /s/ Michael S. Weiss                 Michael S. Weiss                         March 29, 1999
    ---------------------------------    Director                        
</TABLE>


                                       27
<PAGE>

Index to Exhibits

The following exhibits are filed with this Report, or incorporated by reference
as noted:

  Exhibit No.                             Description

       ## 3.1     Certificate of Incorporation of the Registrant, as amended to
                  date.

        * 3.2     By-laws of the Registrant, as amended to date.

        E 3.3     Certificate of Designation of Series C Convertible Preferred
                  Stock

        * 4.1     Reference is made to Exhibits 3.1 and 3.2.

        * 4.2     Specimen of Common Stock certificate.

        * 4.3     Specimen of Series B Convertible Preferred Stock certificate.

        * 4.4     Investors' Rights Agreement dated November 20, 1995, by and
                  between the Registrant and certain investors.

       ** 4.5     Form of Subscription Agreement, by and between the Registrant
                  and certain purchasers of Series B Preferred Stock and Common
                  Stock.

      *** 4.6     Form of Placement Warrant Relating to Offering of Series B
                  Placement Warrants.

    ***** 4.7     Form of Amendment to Subscription Agreement--Lock-Up
                  Provisions.

        E 4.8     Form of Class A and Class B Common Stock Purchase Warrant

    ###+ 10.1     Clinical Study and Research Agreement dated November 20, 1995,
                  by and between the Registrant and Thomas Jefferson University.

       * 10.2     The Registrant's 1992 Stock Option Plan.

      ## 10.3     Letter of Employment dated May 17, 1996, between the
                  Registrant and Dr. Jeffrey M. Jonas.

       * 10.4     Consulting Agreement dated February 22, 1996, between the
                  Registrant and Dr. Carl Spana.

       * 10.5     Consulting Agreement dated May 9, 1996, between the Registrant
                  and Dr. David Berd.

    ###+ 10.6     License Agreement dated November 20, 1995, by and between the
                  Registrant and Thomas Jefferson University.

      ## 10.7     Letter of Employment dated September 13, 1996, between the
                  Registrant and David L. Tousley.

      ## 10.8     Letter of Employment dated September 13, 1996, between the
                  Registrant and Ernest W. Yankee, Ph.D.

    ###+ 10.9     License Agreement dated December 10, 1996, by and between the
                  Registrant and Rutgers, The State University of New Jersey and
                  the University of Medicine and Dentistry.

   ###+ 10.10     License Agreement dated February 17, 1997, by and between the
                  Registrant and The Texas A&M University System.


                                       i
<PAGE>

     ## 10.11     Investment Banking Services Agreement dated April 17, 1997, by
                  and between the Registrant and Hill, Thompson, Magid & Co.

  ####+ 10.12     Sponsored Research Agreement dated May 2, 1997, by and between
                  the Registrant and Rutgers, The State University of New Jersey
                  and the University of Medicine and Dentistry.

  ####+ 10.13     Sponsored Research Agreement dated May 12, 1997, by and
                  between the Registrant and The Texas A&M University System.

   #####10.14     Lease Agreement dated December 1, 1997 for Kansas City
                  Facility, as amended.

  ##### 10.15     Lease Agreement dated December 1, 1997 for Philadelphia
                  Facility.

     E+ 10.16     Series C Convertible Preferred Stock and Warrant Purchase
                  Agreement 

     E+ 10.17     Extension to the Clinical Study and Research Agreement dated 
                  November 20, 1995, by and between the Registrant and Thomas 
                  Jefferson University.

       E 23.1     Consent of Ernst & Young LLP, Independent Auditors.

       E 27.1     Financial Data Schedule.

E     Enclosed herewith.
*     Previously filed with the Registration Statement on Form SB-2 filed with
      the Commission on August 1, 1996.
**    Previously filed with Amendment No. 1 to the Registration Statement of
      Form SB-2 filed with the Commission in September 23, 1996 and which
      superseded such exhibit as previously filed with the Registration
      Statement on Form SB-2 filed with the Commission on August 1, 1996.
***   Previously filed with Post Effective amendment No. 6 to the Registration
      Statement on Form SB-2 filed with the Commission on August 17, 1998.
****  Previously filed with Amendment No. 2 to the Registration Statement on
      Form SB-2 filed with the Commission on November 6, 1996.
***** Previously filed with Amendment No. 4 to the Registration Statement on
      Form SB-2 filed with the Commission on February 26, 1997.
##    Previously filed with Amendment No. 6 to the Registration Statement on
      Form SB-2 filed with the Commission on May 7, 1997.
###   Previously filed with Amendment No. 9 to the Registration Statement on
      Form SB-2 filed with the Commission on July 3, 1997.
####  Previously filed with Post Effective Amendment No. 1 to the Registration
      Statement on Form SB-2 filed with the Commission on August 14, 1997.
##### Previously filed with Post Effective Amendment No. 3 to the Registration
      Statement on Form SB-2 filed with the Commission on March 16, 1998.

+     Confidential treatment requested as to certain portions of these exhibits.
      Such portions have been redacted.


                                       ii