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

                                   FORM 10-KSB

         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

                         Commission file number 0-29222

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

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

            9200 INDIAN CREEK PARKWAY
                 SUITE 200
            OVERLAND PARK, KS                           66210
(Address of principal executive offices)              (Zip Code)

                    Issuer's telephone number: (913) 693-8491

       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. __X__

The issuer's revenues for the period ended December 31, 2003 were $930,727.

As of March 19, 2004, 19,210,846 shares of the registrant's common stock, par
value $.004 per share, were outstanding or are issuable upon conversion of the
outstanding shares of Series C Preferred Stock. The aggregate market value of
the voting and common equity held by non-affiliates (assuming 100% conversion of
the outstanding shares of preferred stock) computed by reference to the average
bid and asked prices of the common stock on the OTC Bulletin Board on March 19,
2004, was $6,103,364.

Documents incorporated by reference: None.

Transitional Small Business Disclosure Format:  Yes ____   No __X__


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                            AVAX TECHNOLOGIES, INC.

                              INDEX TO FORM 10-KSB

                                                                           PAGE
                                                                           ----
                                     PART I

Item 1.  Description of Business.............................................1
Item 2.  Description of Property............................................19
Item 3.  Legal Proceedings..................................................19
Item 4.  Submission of Matters to a Vote of Security Holders................19

                                   PART II

Item 5.  Market for Common Equity And Related Stockholder Matters...........20
Item 6.  Management's Plan of Operation.....................................21
Item 7.  Financial Statements...............................................26
Item 8.  Changes in and Disagreements with Accountants on
            Accounting and Financial Disclosure.............................26

                                  PART III

Item 9.  Directors, Executive Officers, Promoters And Control Persons;
         Compliance with Section 16(a) of the Exchange Act..................27
Item 10. Executive Compensation.............................................29
Item 11. Security Ownership of Certain Beneficial Owners and Management
            and Related Stockholder Matters.................................32
Item 12. Certain Relationships and Related Transactions.....................34
Item 13. Exhibits and Reports on Form 8-K...................................35
Item 14. Controls and Procedures............................................35
Item 15. Principal Accountant Fees and Services.............................35

Exhibit Index...............................................................36

Signatures..................................................................38

Financial Statements.......................................................F-1




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           CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

         In this Report, in other filings with the SEC and in press releases and
other public communications throughout the year, AVAX Technologies, Inc.
("AVAX," the "Company," "we" or "us") makes, or will make statements that plan
for or anticipate the future. These forward-looking statements include
statements about the future of biotechnology products and the biopharmaceutical
industry, statements about our future business plans and strategies, and other
statements that are not historical in nature. These forward-looking statements
are based on our current expectations. Many of these statements are found in the
"Description of Business" section beginning on page 1 and in "Management's
Discussion and Analysis of Financial Condition and Plan of Operation."

         Forward-looking statements may be identified by words or phrases such
as "believe," "expect," "anticipate," "should," "planned," "may," "estimated"
and "potential." The Private Securities Litigation Reform Act of 1995 provides a
"safe harbor" for forward-looking statements. In order to comply with the terms
of the safe harbor, and because forward-looking statements involve future risks
and uncertainties, listed below are a variety of factors that could cause actual
results and experience to differ materially from the anticipated results or
other expectations expressed in our forward-looking statements. These factors
might include:

         o        Our history of operating losses, our continuing cash
                  requirements, our immediate need to raise more money, and the
                  uncertainty of our prospects of reaching a meaningful level of
                  revenues.

         o        Uncertainty relating to our ability to enter into, perform
                  under and collect revenue on contract manufacturing agreements
                  and alliances in a manner that provides sufficient revenue to
                  cover all or a substantial part of our operating expenses.

         o        The additional expenses and business uncertainties arising
                  from shifting the focus of our technology development and
                  clinical trial programs from the U.S. to France.

         o        Uncertainty about whether our products will successfully
                  complete the long, complex and expensive clinical trial and
                  regulatory approval process for approval of new drugs in the
                  U.S. and certain European countries.

         o        Uncertainty about whether our AC Vaccine technology can be
                  developed to produce safe and effective products and, if so,
                  whether our AC Vaccine products will be commercially accepted
                  and profitable.

         o        Our difficulty or inability to compete with other clinical
                  trials and treatment regimens for patients and clinical sites
                  for our planned clinical trials.

         o        The expenses, delays, uncertainties and complications
                  typically encountered by development stage biopharmaceutical
                  businesses, many of which are beyond our control.

         o        Our financial and development obligations and our
                  responsibility to meet requisite research funding levels under
                  our license and research agreements in order to protect our
                  rights to our products and technologies.

         o        Each of the other factors discussed in this Report under Item
                  1 - "Description of Business - Risk Factors."


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                             AVAX TECHNOLOGIES, INC.

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

GENERAL

OVERVIEW

         We are a development stage biotechnology company specializing in the
development and commercialization of individualized vaccine therapies and small
molecules for the treatment of cancer and other life-threatening diseases. We
also offer biological manufacturing services to other biotechnology and
pharmaceutical companies. These services are provided utilizing the same
facilities and personnel that produce our products for clinical and commercial
purposes.

         In 1995, we identified the AC Vaccine research being conducted by Dr.
David Berd, an oncologist and professor at Thomas Jefferson University ("TJU")
in Philadelphia, and licensed the rights to Dr. Berd's research. Since then, we
have focused our efforts on the development of an immunotherapy for the
treatment of cancer, the AC Vaccine technology.

         In August 2000, we acquired Genopoietic S.A. and its corporate
affiliate ("Genopoietic"), based in Lyon, France, which developed cell and
gene-based therapies in collaboration with Pierre et Marie Curie University and
Centre National de la Recherche Scientifique. As part of that acquisition, we
acquired a biological clean room facility in Lyon, France. In the last two
years, much of our development and clinical efforts relating to the AC Vaccine
have shifted to our Lyon facility, due to the expertise and staffing at that
facility and recent developments in France and other European countries that
should facilitate development of autologous products, such as the AC Vaccine, in
Europe.

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

         Our principal executive office is located at 9200 Indian Creek Parkway,
Suite 200, Overland Park, Kansas 66210. The telephone number at that address is
(913) 693-8491.

CURRENT CANCER THERAPIES

         Cancer is a diverse and complex disorder with multiple causes and
variable outcomes. Genetic pre-disposition, environmental factors and diet are
among the numerous contributing factors that are associated with the development
and evolution of this heterogeneous disease. Each year in the United States
alone, over 1.5 million new individuals are diagnosed with various forms of
cancer and, as our overall life span increases, the incidence of the disease is
expected to increase.

         In a healthy person, tissues and organs consist of cells that are, in
part, regulated by the immune system. Normal cell function is characterized by
cell growth, cell division and then programmed cell death (the latter referred
to as apoptosis) as new cells are generated and function in place of the
original cell. Cancer is characterized by the unregulated growth of cells that
proliferate as tumors, which can metastasize (i.e., spread) throughout the body,
resulting in deposits of tumor cells, called metastases.

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<PAGE>

Cancer cells have adopted many mechanisms by which they can elude the defense
systems of the body. A significant feature of their proliferation is their
ability to evade recognition by the patient's immune system. The metastatic
tumors disrupt normal tissue and organ functions, which in the worst
circumstances leads to the death of the patient.

         We believe that for a therapy to be effective it must eliminate or
control the growth of the cancer, both at its site of origin and at the site of
metastases. Patients with cancer typically undergo a first line of treatment
through surgical removal of tumors. Treatments that follow surgery (referred to
as adjuvant treatments) include radiation, hormone therapy and chemotherapy.
Initial surgery and radiation therapy treat cancer at its origin, but are
limited because certain tissues cannot be removed surgically or do not tolerate
radiation. Moreover, cancers frequently spread prior to detection, and surgery
and radiation cannot control metastases. Chemotherapy and hormonal therapy are
frequently used to treat tumor metastases. These therapies, however, can cause
severe side effects, including damage to normal tissue. Additionally,
chemotherapy and hormonal therapy may shrink tumors, but rarely eliminate them
completely. Our approach to development of cancer therapies is to find targets
that are novel or to discover compounds that are structurally different from
existing therapies with the intent of making the treatments more specific and
less toxic.

THE IMMUNE SYSTEM

         The immune system is involved intimately in the regulation of the
growth of cells and tissues within the body as well as acting as a natural
defense against disease. These functions are performed by a variety of
specialized cells. These cells recognize specific chemical structures, called
antigens, which are found on disease-causing agents, including tumors. Antigens
trigger an immune response, which results in the eventual removal of antigen
from the body.

         The type of immune response is characterized by the way the response
was initiated through specialized cells known as lymphocytes. There are two main
categories of lymphocytes: B-lymphocytes, or B-cells, and T-lymphocytes, or
T-cells. Each category of lymphocytes has a different role in the immune
response. T-cells combat disease by killing antigen bearing cells directly or by
making chemical called cytokines that work indirectly. In this way, T-cells
eliminate cancers and virally infected tissue. T-cell immunity is also known as
cell-mediated immunity and is commonly thought to be a key defense against
tumors and cells chronically infected by viruses. In contrast, activation of
B-cells leads to the production of specific antibodies. The antibodies are
secreted by B-cells and bind to antigen found on pathogens or tumor cells
resulting in their destruction.

         Cancerous cells are cells that have changed (or mutated) so that they
express certain antigens that may or may not be recognized as foreign by the
immune system. We believe that the antigens are distinct for each patient so
that effective immunization can only be accomplished by using each patient's own
cancer cells. In addition, we believe that by a process called haptenization,
the cancer antigens are changed so that they become visible to the patient's
immune system. This allows, the immune system to mount a response against the
cancer antigens.

DEVELOPMENT AND CLINICAL PROGRAMS

OUR APPROACHES TO THE TREATMENT OF CANCER

         We have three programs that we are developing for the treatment of
cancer. Each of these programs was patented and licensed by AVAX through license
agreements with various U.S. universities. We also entered into a research and
development agreement with the university/licensor of each program to support
ongoing research for the program at that university.

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<PAGE>

AUTOLOGOUS CELL VACCINE IMMUNOTHERAPY (AC VACCINE)

         Our AC Vaccine immunotherapy technology is based on the concept of
haptenization. This idea has a long history, beginning with the work of the
immunologist Karl Landsteiner in the 1920's. He and other scientists showed in
animal models that attaching a small chemical (a hapten) to a protein allowed
that protein to be recognized by the immune system even if the animals were
originally unresponsive to the protein. This work has been expanded by a number
of researchers in various animal models. We now understand that a large number
of T-cells react against the haptenized material and that a small percentage of
the T-cells also react against the unmodified, natural material. We believe that
tumor antigens, which are proteins, are similarly affected by haptenization.

         Our AC Vaccine technology utilizes the patient's tumor as the basis for
a therapeutic vaccine. By extracting cancer cells from a tumor and then treating
them with a hapten call dinitrophenyl (DNP), a vaccine is prepared that should
be able to elicit a systemic immune response to the unmodified, native cancer
cells. The induction of such an immune response has been documented in a number
of scientific publications. We believe that the best test of tumor immunity in
patients is Delayed Type Hypersensitivity (DTH). DTH has long been used as a
test for immunity to microbes, such as tuberculosis and is familiar to patients
as the Tine test or PPD. DTH to cancer cells is tested in the same way, except
that the patient's cancer cells are the test agent. We have demonstrated that
the DTH test to cancer cells is meaningful by showing a strong statistical
relationship between the intensity of DTH and clinical outcomes, especially
5-year survival. We believe that the future acceptance of this relationship
between DTH and clinical outcomes by the U.S. and European regulatory agencies
is critical to the regulatory approval path for our AC Vaccine product
candidates.

         Our leading AC Vaccine product candidate is M-Vax, which is designed as
an immunotherapy for the post-surgical treatment of late stage (stage 3 and 4)
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 U.S., 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. The National Cancer Institute estimates that the incidence of
melanoma is growing at a rate of approximately 4% annually.

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

         o        Stage 1--lesion less than 1.5mm thickness and no apparent
                  spreading (metastasis) from primary cancer site

         o        Stage 2--lesion greater than 1.5mm thickness and no apparent
                  spreading from primary cancer site

         o        Stage 3--metastasis to regional draining lymph nodes; and

         o        Stage 4--distant (bloodbourne) metastasis.

         Historically, patients with stage 3 melanoma have been treated with
surgery followed by a year-long regimen of the drug, alpha interferon. This is a
biological drug and currently the only U.S. Food and Drug Administration
("FDA")-approved post-surgical treatment for patients with stage 3 melanoma.
While alpha interferon has been proven to prolong relapse-free survival, its
impact on overall survival has been questioned. Further, use of alpha interferon
can be 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 limited efficacy and highly toxic side effects,
chemotherapy has not been widely used in the treatment of stage 3 patients.

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<PAGE>

CLINICAL RESULTS ACHIEVED WITH THE AC VACCINE

         We believe that M-Vax is the first immunotherapy to suggest, from
clinical trial results, that its use may result in a significant improvement in
the survival rate for patients with stage 3 melanoma. 214 patients with stage 3
melanoma, who had already had their lymph node tumors excised and processed into
vaccines, were treated with M-Vax. These studies are mature, in that all
surviving patients have completed the planned 5-year follow-up. The 5-year
overall survival of these patients is 44%. This compares with the historical
post-surgical survival rates of approximately 22-32%. In a total of over 480
patients treated at TJU or by AVAX in Phase 1-2 clinical trials, no serious side
effects have been reported. We believe that only relatively minor side effects,
such as brief bouts of mild nausea and soreness and swelling at the site of the
injection, have been observed to date.

         Patients who receive M-Vax may develop an immune response to their own
melanoma cells as measured by a DTH test to autologous melanoma cells. DTH,
which is manifest by the development of a hive at the site of injection of the
test material, is known to be a measure of the activity of T-lymphocytes, which
are white blood cells that are crucial in tumor rejection. In the stage 3
adjuvant studies, patients who developed positive DTH to their own melanoma
cells that were not modified with the hapten had significantly greater chance of
5-year year survival than those who did not (59% vs. 29%). We consider this
difference to be highly statistically significant. In all of these patients DTH
was tested in conjunction with control materials that indicated that all
patients had functioning immune systems.

         We believe that the DTH test can be used as a surrogate marker of
vaccine activity. In our planned future clinical activities, we will propose to
use the DTH test as a primary endpoint to measure activity of the vaccine. As we
expand the use of the vaccine into new indications our intent is to use DTH
response as the primary indicator of activity of the vaccine and the basis upon
which we will proceed further with clinical development. Use of DTH response as
an indicator of vaccine activity significantly decreases the duration of studies
and, thus, reduces the cost of conducting clinical trials and reaching a primary
endpoint.

PLANNED CLINICAL AND COMMERCIAL ACTIVITIES WITH THE AC VACCINE

         In France, we are in the process of preparing a Biological License
Application (BLA) filing with AFSSAPS (the French counterpart of the U.S. Food
and Drug Administration) for the treatment of stage 3 melanoma patients. In
November 2003, we held a pre-BLA meeting with AFSSAPS representatives to discuss
revisions to the manufacturing of the AC Vaccine, the planned testing of the
final product and our desire to file our BLA utilizing the data generated to
date. Based upon this meeting, we intend to complete the preparation of our BLA
and to submit it to AFSSAPS in 2004.

         In 2002, AFSSAPS published the first regulations specific to the
regulation of cell and gene therapies (which includes the AC Vaccine
technology). These regulations differentiate these products from standard
pharmaceutical products. The regulations evaluate cell and gene therapy products
by the level and type of manipulation to the product. Some cellular products,
including M-Vax, will be regulated differently from standard drugs. For these
technologies, marketing approval may be granted if the therapeutic is
manufactured in a current Good Manufacturing Practices (cGMP)-compliant facility
and if a reasonable claim for efficacy can be established. We intend to use the
data generated in the studies conducted at TJU as the basis for our efficacy
claims for M-Vax. In addition, we are designing a potential bridging study to
strengthen our BLA, which study is planned to include multiple locations in
Europe. The design of the bridging study is expected to be completed in the
first half of 2004 and to be filed with AFSSAPS.

         In December 2003/January 2004, we filed two Investigational New Drug
applications (INDs) in France for use of the AC Vaccine for hepatic and
peritoneal cancer that will also include patients that have ovarian and
colorectal cancers that have metastasized to these locations. We believe that
the AC


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Vaccine is a technology that has application in a broad spectrum of solid tumor
cancers. By initiating and completing these trials for other cancer indications,
we are seeking to demonstrate this.

         In 2003 and continuing in 2004, we have made M-Vax available for sale
on a compassionate use basis in various European countries. We treated one
patient on a compassionate use basis in 2003, and have treated or in the process
of treating nine additional patients on a compassionate use basis as of March
2004. We expect to continue to treat patients on a compassionate use basis
throughout the remainder of 2004. This development is important to us and our AC
Vaccine technology because it expands the availability of the AC Vaccine within
the scientific and medical communities that are now seeking out the
compassionate use of M-Vax. These experiences of these oncology leaders in
various European countries may become critical to the overall market and
regulatory acceptance of the AC Vaccine technology in Europe. Additionally, the
compassionate use of our vaccine provides modest revenue for the Company.
Compassionate use sales are paid for by the hospital that contracts for the
acquisition of the vaccine.

         In the United States, we had previously initiated clinical trials for
M-Vax and O-Vax (our AC Vaccine for ovarian cancer). In 2001, the FDA placed
those trials on hold. Based upon our interactions with the FDA regarding the
clinical hold, we decided to inactivate the INDs in place during 2001 for M-Vax
and O-Vax and to prepare to file new INDs during 2002. In working with the FDA
to resolve the issues identified as part of the clinical hold, we concluded that
(1) it would no longer be feasible to continue the clinical development of the
original AC Vaccine format (referred to as the "fresh" vaccine product format),
and (2) a revised product format needed to be established, tested and reviewed
by the FDA. Through these research and development activities we developed a new
product format for the production and distribution of the AC Vaccine, referred
to as the "frozen" vaccine technology.

         During 2002, we filed new INDs with the FDA, which were accepted for
the application of the AC Vaccine technology to treat both melanoma and ovarian
cancer patients. These INDs are based on the "frozen" vaccine product format for
M-Vax and O-Vax. Activation of these two FDA-sanctioned trials has not occurred
for two reasons: first, at that time, we were unable to support financially the
completion of the trials, and second, most recently our plan is to proceed with
regulatory approvals of the AC Vaccine in Europe (particularly France).
Depending upon the regulatory approval path in France and availability of
funding, we may reactivate the U.S. clinical trials in the future.

NOVEL ANTI-ESTROGENS

         We have licensed from The Texas A&M University System ("Texas A&M") an
issued U.S. patent and certain U.S. and foreign patent applications relating to
a series of novel cancer-fighting anti-estrogen compounds that may be especially
effective against hormone-dependent tumors (the "Texas A&M License"). Texas A&M
has filed U.S. patents for both the Texas A&M compounds and their anticancer
uses. During 2001, we announced the issuance of an U.S. patent on the use of our
anti-estrogen compound in combination with tamoxifen. We have made certain
foreign patent applications related to this combined use. We will evaluate
additional U.S. and non-U.S. patent coverage based on the results of ongoing
laboratory research.

         Anti-estrogens have been proven to be clinically useful anticancer
therapies. Current treatments, such as tamoxifen, block the growth of some
cancers by preventing estrogen to bind to the estrogen receptor on cancer cells.
The estrogen receptor is a nuclear protein that upon binding to estrogen binds
to DNA and activates transcription of a series of hormone-responsive genes.
Although tamoxifen and other selective estrogen receptor modifiers have shown
clinical benefit in battling breast cancer, there has been a disconcerting side
effect from these treatments: the increased incidence of endometrial cancer.

         Our anti-estrogen compound works on the estrogen receptor indirectly
through the aryl hydrocarbon receptor. In pre-clinical studies of the compounds,
it has been documented that there is an


                                       5
<PAGE>

inhibitory "cross-talk" between the aryl hydrocarbon receptor and the estrogen
receptor. Additionally, as documented in a recent publication in Cancer Research
(2001 May 15; 61(10):3902-7) this compound has been shown to enhance the
anticancer activity of tamoxifen in the breast while blocking the uterine
estrogenic effects of tamoxifen. Unexpectedly, the compound has also shown
activity against human pancreatic cancer cells. This is a promising finding,
because pancreatic cancer is a devastating disease with no effective therapies.

         Our lead compound, 6-MCDF, was selected by the Drug Development Group
("DDG") of the National Cancer Institute ("NCI") in November 2001 for further
testing under the Developmental Therapeutics Program ("DTP") of the NCI/NIH.
6-MCDF was accepted for a Phase IIa preclinical development program for studies
on formulation, range-finding toxicology and additional efficacy testing.
Studies have been initiated under this program to test the efficacy of the
compound in estrogen-receptor-negative cell lines, a target that is currently
not treatable with existing estrogen receptor modulating drugs.

         Under our agreements with Texas A&M, we intend to continue to expend
resources on the research and development of 6-MCDF and possibly related
compounds. As the development progresses, we anticipate we will continue to
explore strategic opportunities to license our rights to these compounds to
another company.

TOPOISOMERASE TARGETING ANTICANCER AGENTS

         In December 1996, we licensed from Rutgers University and the
University of Medicine and Dentistry of New Jersey (collectively, "Rutgers"),
certain patent applications relating to a series of anticancer agents or
compounds (topoisomerase targeting compounds), that interact with topoisomerase
I and topoisomerase II enzymes (the "Rutgers License").

         Topoisomerases are key enzymes needed for unwinding DNA, a necessary
function for cell division and malignant tumor growth. These enzymes are
over-produced in tumor cells. Interfering with the function of these enzymes
effectively transforms them into cellular poisons that cause cell death. In
addition, there are defense mechanisms in normal cells that can protect against
the adverse effects of topoisomerase targeting agents. Thus, this class of
anticancer compound could achieve selective toxic activity against tumor cells.
Inhibitors of these enzymes have been proven to be clinically useful anticancer
therapies.

         Both U.S. and non-U.S. patents for the Rutgers compounds and their
anticancer and anti-infective uses have been filed. We hold a license to a
number of U.S. patents granting claims to novel compounds that target human
topoisomerase I enzymes. These are novel compounds that are not
camptothecin-based, unlike currently approved topoisomerase I inhibitors. During
2002, we selected a lead compound to undertake further pre-clinical development.
Compared with currently marketed topoisomerase targeting compounds, we believe
this agent has demonstrated a number of potentially superior pharmacological
properties, including reduced serum albumin binding and the ability to overcome
some of the more common forms of resistance to chemotherapy (overexpression of
MDR1 and BCRP) observed with human cancer cells. This agent also offers
significant potential therapeutic advantages relative to those agents in current
clinical use. As the development progresses, we continue to explore strategic
opportunities to license its rights to develop further these compounds to
another company.

         Rutgers University has recently claimed that we are not in compliance
with the terms of our license agreement. See "The Rutgers License and Research
Agreement."

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<PAGE>

CONTRACT MANUFACTURING

         As a result of our clinical activities in the United States and France,
we have developed a level of expertise related to the clinical production and
regulation of cell and gene therapies. Cell and gene therapy research and
development has been ongoing for a number of years, but specific regulations of
these products by most regulatory agencies are just beginning to evolve. In
February 2002 (effective April 2002) the United States Pharmacopia published a
chapter on manufacturing and testing requirements relating to cell and gene
therapies. Prior to the publication of this chapter, there did not exist any
published guidance for companies engaged in the production and testing of cell
and gene therapies. Likewise, in Europe the European Medicines Evaluation Agency
is currently developing guidelines for the production, testing and regulation of
cell and gene therapies.

         Based on our expertise, we have expanded our effort to attract contract
manufacturing relationships, particularly in France. This has been made possible
by the validation of our manufacturing facility first in France by AFSSAPS and
secondly through successful IND filings in the United States and in Europe. A
contract manufacturing engagement normally consists of two components. The first
component of the engagement would be a feasibility study. The feasibility study
typically would involve the transfer of production techniques from a scientific
laboratory to our facilities. After transferring the techniques, we would
develop the required procedures, tests and assays so that the product would then
be produced in compliance with cGMP (current good manufacturing practices)
requirements. After validating the procedures, tests and assays, we would then
produce the necessary components for the manufacturing section to be filed as
part of an IND application.

         Upon acceptance of the IND by a regulatory agency, the second component
of the engagement would then commence. This component consists of the
manufacturing and testing of clinical samples for administration to patients as
part of a clinical trial. As part of this operation, we would maintain all the
necessary paperwork and documentation to demonstrate the work was done in
compliance with standards established by the applicable regulatory agency. In
addition, the documentation would be used to support further IND filings and
could be used as a component of a BLA for approval to market the product.

         During February 2004, our subsidiary, Genopoeitic, entered into an
expanded contract manufacturing alliance with OPISODIA SAS, a French
pharmaceutical company. The agreement requires annual funding from OPISODIA of
$1,500,000 (US) for each of the next two years, and places the existing OPISODIA
facilities and personnel under the direction of Genopoeitic's management. The
funding from OPISODIA will be used to cover a majority of the anticipated
manufacturing costs of the combined facilities in 2004 and 2005. With the
combined personnel and manufacturing facilities, the affiliation will offer
expanded contract manufacturing services to other biotechnology and
pharmaceutical companies.

LICENSE AND RESEARCH AGREEMENTS

THE THOMAS JEFFERSON UNIVERSITY (TJU) LICENSE AND RESEARCH AGREEMENT

         The TJU License is a royalty-bearing license for the rights to the AC
Vaccine technology, and provides for certain payments upon the occurrence of
certain milestones. As partial consideration, we paid $10,000 to TJU for the TJU
License. We also issued to each of TJU and Dr. Berd, 229,121 shares of our
common stock, representing 7.5% (15% in the aggregate) of our total outstanding
voting securities at that time.

         In addition to the milestone payments we have already made to TJU, AVAX
is obligated to make future payments to TJU as follows: $10,000 upon initiation
of the first clinical trial, $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 AVAX of approval from the FDA (or
comparable international


                                       7
<PAGE>

agency) to market products relating to the AC Vaccine technology.

         In connection with the TJU License, we also entered into a Clinical
Study and Research Agreement with TJU (the "TJU Research Agreement"). Under the
TJU License and the TJU Research Agreement, we have agreed to provide TJU with
minimum sponsored research funding relating to the development of additional
immunotherapies based on the AC Vaccine technology. We renewed this agreement
for a three-year period through November 2004. Currently we are in arrears on
payments under the TJU Research Agreement for the contract year 2003
(approximately $290,000) and the first quarter of 2004 (approximately $110,000)
and are in discussions to modify the level of funding for the year 2004.

         We are presently obligated under the TJU License to spend a minimum of
$500,000 per year on the development of the AC Vaccine technology until
commercialized in the United States. This spending includes funding provided
pursuant to the TJU Research Agreement, our internal expenditures and external
expenditures incurred by us. If we file for FDA approval of a Company-sponsored
marketing application for the right to market an AC Vaccine product, we may
elect to spend less than $500,000 per year on the development of the AC Vaccine
technology during the period of time the marketing application is under review
by the FDA.

         We are also obligated to pay royalties on our net sales revenue and a
percentage of all revenues received from sublicenses relating to the AC Vaccine
technology.

THE TEXAS A&M LICENSE AND RESEARCH AGREEMENT

         Under the Texas A&M License, we are obligated to make milestone
payments to Texas A&M as follows: $24,000 upon the initiation of a specified
toxicity evaluation, $12,000 upon completion of a toxicity evaluation
demonstrating acceptable toxicity levels, $12,000 upon the submission of an IND
to the FDA or its equivalent in a major market country, $5,000 upon the
completion of the first Phase 1 clinical investigations and $15,000 upon the
FDA's granting of the first NDA. In addition, AVAX is required to achieve
certain milestones toward development of a licensed product within certain
specified time frames.

         In connection with the Texas A&M License, in May 1997, we entered into
a three-year Sponsored Research Agreement with Texas A&M (the "Texas A&M
Research Agreement"). Under the Texas A&M License and the Texas A&M Research
Agreement, we agreed to provide minimum yearly funding of $108,750 for Texas
A&M's research. Texas A&M waived any up front payment by us for the Texas A&M
License in recognition of our three-year research funding commitment. Currently
there is no research agreement in place with the University. We are evaluating
potential studies with the principal investigator at Texas A&M and may decide to
enter into a further research alliance.

         We are also obligated to pay royalties on any net sales revenue derived
from these compounds and a percentage of net sales revenues received from
sublicenses of the compounds.

THE RUTGERS LICENSE AND RESEARCH AGREEMENT

         We paid $15,000 to Rutgers for the Rutgers License, and issued to
Rutgers warrants to purchase 125,000 shares of our common stock at a price of
$8.24 per share. The warrants are exercisable upon the achievement of certain
development-related milestones. The first 75,000 warrants will expire in 2006
and the final 50,000 warrants will expire in 2011. The warrants provide for
cashless exercise, piggyback registration rights and certain anti-dilution
rights. We have also agreed to pay an additional $15,000 license maintenance fee
each year, but only in years in which our research funding is less than
$100,000.

                                       8
<PAGE>

         In addition to the milestone payments we have already made to Rutgers,
we are obligated to make future payments to Rutgers as follows: $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 us of approval from the
FDA or comparable international agency to market products.

         In connection with the Rutgers License, in May 1997, we entered into a
three-year Sponsored Research Agreement with Rutgers (the "Rutgers Research
Agreement"). Under the Rutgers License and the Rutgers Research Agreement, we
initially agreed to provide minimum yearly funding of approximately $130,000 for
Rutgers' research, including certain overhead costs. Upon its expiration, the
Rutgers Research Agreement was extended for another year, and was further
extended through May 2003.

         We are presently obligated, while exercising prudent and reasonable
business judgment, to spend an aggregate of not less than $500,000 each year
until the first year of commercial marketing of a product derived from the
Rutgers compounds, for the research and development, regulatory approval,
manufacture, and marketing and selling of a product derived from the Rutgers
compounds. This spending includes funding provided pursuant to the Rutgers
Research Agreement, our internal expenditures and external expenditures incurred
by us. The University has notified us that the University believes we are in
default of our obligations under the Rutgers License Agreement. We do not
believe we are in material default of the Rutgers License Agreement and are in
the process of responding to these claims.

         We are also required to pay royalties on our worldwide net sales
revenue derived from the Rutgers compounds and a percentage of all revenues
received from sublicenses of products derived from the compounds.

RESEARCH AND DEVELOPMENT EXPENSE

         In 2003, we incurred research and development expense of $2,208,228
compared to $6,610,167 in 2002. Research and development expenses have been
$40,319,514 for the period from inception through December 31, 2003.

MANUFACTURING AND MARKETING

AC VACCINES - GENERAL

         Our AC Vaccine products under development are individualized therapies
that are manufactured by first receiving cells from a patient, treating those
cells and creating a liquid vaccine using the cells as a raw material, then
delivering the vaccine to the doctor's office for administration to the patient.
We believe that the key to success in developing and distributing individualized
therapies relies upon a model employing central processing, so that
manufacturing cell based products can be a standardized process that can benefit
from economies of scale and efficient distribution. The basic model for the
vaccine is "cells in-product out," where the final product looks like a
traditional mass-produced drug to the end-user, but is manufactured
individually.

MANUFACTURING THE AC VACCINE

         Based upon re-engineering the manufacture of the vaccine technology, we
no longer require regional manufacturing capabilities. We made a strategic
decision in early 2003 to use our facility in Lyon, France as our primary
facility for the production of our cell based therapies. The Lyon facility has
been inspected by AFSSAPS (the French equivalent of the U.S. FDA) and has
received the designation of "Etablissment Pharmacuetique." This designation is
required for the production of any commercial

                                       9
<PAGE>

product to be sold in France. In addition, this designation is recognized by
other regulatory authorities charged with ascertaining compliance with current
Good Manufacturing Practices (cGMP).

OTHER FOREIGN MARKETS FOR M-VAX

         During 2002, we entered into a distribution agreement with Ferrer
Internacional, S.A. for the sales and marketing of the vaccine in certain
territories in Europe, Latin America and Asia. With the assistance of Ferrer, we
are investigating potential market opportunities to begin initiating sales of
M-Vax in certain countries in Europe. The commercialization of M-Vax in one or
more European countries will be subject to meeting certain requirements
determined by each applicable regulatory agency.

SOURCES AND AVAILABILITY OF RAW MATERIALS

         We do not expect to encounter significant difficulties in obtaining raw
materials for M-Vax, O-Vax or any other of our AC Vaccine products, because they
consist primarily of a readily available chemical reagents, 2,4
dinitrofluorobenzene (DNFB), 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, we may encounter problems preparing M-Vax, O-Vax, or any other AC
Vaccine products.

COMPETITION

CANCER DRUGS - GENERAL

         We are aware of estimates that more than 300 companies are reported to
have more than 1,000 cancer drugs, including chemotherapies and immunotherapies,
under development worldwide, many of which are under development in the U.S. A
substantial number of these drugs are, or may be in direct competition with
M-Vax, O-Vax or any other of our immunotherapies or compounds.

         Our competitors include: (i) large established pharmaceutical and
biotechnology companies with commitments to oncology or antiviral research,
development and marketing, including, 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 our products.

OTHER COMPANIES DEVELOPING CANCER VACCINES

         A number of companies or research institutions are developing cancer
vaccines, including Ribi ImmunoChem Research, Inc./Corixa, Cancer Vax, and
Progenics, Inc., in melanoma; AltaRex, Genentech and Biomira, in breast cancer;
Intracel in colorectal cancer; Cell Genesys in lung cancer; Dendreon in
prostate, multiple myeloma, ovarian and breast cancers; and Antigenics in renal
cell and other cancers.

         The principal competitive factors in the area of cancer immunotherapies
are (i) the efficacy of the product, (ii) the timing of the entry of the product
into the market and (iii) cost of goods and ease of use. Initially, we face
competition from these companies for the registration of new patients in planned
clinical trials. There are a limited number of persons eligible for
participation in any particular clinical trial, and we and our research partners
compete directly with other pharmaceutical and biotechnology companies, research
firms, hospitals and universities for the inclusion of patients in the clinical
trials. Enrollment rates for clinical trials are a key determinant in the
timelines for bringing products to market.

                                       10
<PAGE>

CONTRACT MANUFACTURING

         In the contract manufacturing area, we face competition from a number
of larger, established contract manufacturing companies, as well as some
smaller, newly established specialized contract manufacturers in both the United
States and Europe. Potential competitors operate in the biotechnology and
pharmaceutical industries as well as diagnostics and equipment businesses as
divisions of larger, well-capitalized companies.

GOVERNMENT REGULATION

         The research, pre-clinical development, clinical trials, product
manufacturing and marketing conducted by us or on our behalf are subject to
regulation by the FDA in the United States, AFSSAPS (the French equivalent of
the U.S. FDA) in France, and similar health authorities in other foreign
countries. Our proposed products and technologies also may be subject to certain
other international, U. S. federal, state and local government regulations,
including, the Federal Food, Drug and Cosmetic Act, Public Health Service Act,
and their state, local and foreign counterparts.

         Generally, the steps required before a pharmaceutical or therapeutic
biological agent may be marketed in the U.S. include: (i) pre-clinical
laboratory tests, pre-clinical studies in animals, toxicity studies and
formulation studies; (ii) the submission to the FDA of an IND 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;
(v) approval of the manufacturing processes and controls; and (vi) 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 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.

         Clinical trials begin when a drug is approved for testing on humans.
There are usually said to be three main phases of clinical trials that a drug
must go through in the U.S. before the drug is approved to be manufactured and
marketed to the public. These phases may involve testing of drugs in healthy
human volunteers (Phase 1) for assessment of safety, followed by tests of
effectiveness and safety in patients with illnesses the drug is designed to
treat (Phases 2 and 3). In most instances, Phase 3 studies are the final group
of studies that are conducted before a product can be approved by the FDA for
commercial use. In the case of life-threatening illness, the study process and
phases of clinical trials may be compressed and accelerated. In some cases,
Phase 2 trials are deemed sufficient for market approval by the FDA or foreign
regulatory authorities. Pivotal registration trials are large-scale Phase 2 or 3
trials, the data obtained from which are intended to be used to provide for the
registration of a drug or product for market use.

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

         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 or that further information and testing is required. In
some cases, the FDA

                                       11
<PAGE>

may approve a product but require additional clinical tests following approval
(i.e., Phase 4).

         In addition to obtaining FDA approval for each product, each domestic
drug manufacturing facility must be registered with, and approved by the FDA.
Domestic manufacturing facilities are subject to inspections by the FDA and must
comply with Good Manufacturing Practices. To supply products for use in the
U.S., foreign manufacturing facilities also must comply with current Good
Manufacturing Practices, and are subject to periodic inspection by the FDA or by
comparable foreign regulatory agencies under reciprocal agreements with the FDA.

         If marketing approval of any of our products is granted, we must
continue to comply with FDA requirements not only for manufacturing, but also
for labeling, advertising, record keeping, and reporting to the FDA of adverse
experiences and other information. In addition, we must comply with federal and
state health care anti-kickback 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 us 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.

         In France, AFSSAPS has published regulations specific to the regulation
of cell and gene therapies (which includes the AC Vaccine technology). The
rules, to our knowledge, represent the first ever developed regulations in the
world that are specific for the regulation of cell and gene therapy treatments.
These regulations differentiate these products from standard pharmaceutical
products. The regulations evaluate cell and gene therapy products by the level
of manipulation to the product. Some cellular products, including M-Vax, will be
regulated differently from standard drugs. For these technologies, marketing
approval may be granted if the therapeutic is manufactured in a current Good
Manufacturing Practices (cGMP)-compliant facility and if a reasonable claim for
efficacy can be established. The regulatory path in France under these new
regulations is quite uncertain due to their recent adoption and the absence of
prior approvals of autologous products or therapies under the new regulations.

         For clinical investigation and marketing outside the U.S. and France,
we also are 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.

EMPLOYEES

         As of December 31, 2003, we had 17 full-time employees, including 15
full-time employees at the Company's subsidiary in France and two full-time
employees in the U.S., compared to a total of 22 total full-time employees as of
December 31, 2002. Our other consultants, scientific advisors and directors
devote only a portion of their time to our business.

                                       12
<PAGE>

RISK FACTORS

         INVESTING IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. BEFORE
MAKING A DECISION ABOUT INVESTING IN OUR SECURITIES, ONE SHOULD CAREFULLY
CONSIDER THE RISK FACTORS LISTED BELOW, AS WELL AS THE REST OF THE INFORMATION
CONTAINED IN THIS ANNUAL REPORT ON FORM 10-KSB AND OUR OTHER REPORTS FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION.

WE NEED TO RAISE MORE MONEY IMMEDIATELY, AND OUR FAILURE TO DO SO WILL
JEOPARDIZE OUR CONTINUED OPERATIONS.

         We need to raise more money immediately to continue research, product
development and clinical development in 2004 and beyond and to pursue the
manufacture and marketing of any products that we may develop. If we are unable
to raise additional capital in the first half of 2004 or establish a new revenue
source, we will likely cease operations. We raised $950,000 (before expenses) in
a bridge loan financing in November 2003, but have not otherwise raised any
additional capital since March 2000. Because we have not been able to raise
additional funds, we have ceased certain of our product development programs and
have taken numerous other steps to reduce our cash expenditures. Each of these
steps, while conserving cash, has slowed the prospects of success in various
product development efforts. In addition we have not met all of our existing
obligations under certain of our research agreements related to our licensed
technologies, consulting payments to certain of our consultants and their
organizations, our attorneys involved in maintaining and executing our patents,
and vendors for whom we rely upon for the continuation and maintenance of our
business operations.

         We have no way of knowing if we will be able to complete any additional
financings. Even if we are able to obtain future financings, the terms offered
to us may significantly limit our financial or operating flexibility, or may not
be acceptable.

ALTHOUGH WE HAVE CONTRACTUAL COMMITMENTS FROM A THIRD PARTY TO FUND A
SIGNIFICANT PART OF OUR FRENCH FACILITY COSTS, THE PAYMENT OF THOSE CONTRACTUAL
AMOUNTS IS NOT GUARANTEED.

         In February 2004, our subsidiary, Genopoeitic, entered into an expanded
contract manufacturing alliance with OPISODIA SAS, a French pharmaceutical
company ("OPI"). The agreement requires annual funding from OPI of $1,500,000
(US) for each of the next two years, and places the existing OPI facilities and
personnel under the direction of Genopoeitic's management. The funding from
OPISODIA will be used to cover a majority of the anticipated manufacturing costs
of the combined facilities in 2004 and 2005. The OPI contractual commitment to
fund a majority of the combined manufacturing costs of the OPI facilities and
our Lyon facility is critical to our ability to continue to operate in France
until we receive a significant additional capital infusion. If OPI defaults in
its contractual obligations to fund the combined manufacturing operations before
the time that we receive additional capital, our ability to operate the Lyon
facility will be substantially threatened.

WE COULD LOSE THE RIGHTS TO OUR PRODUCTS AND TECHNOLOGIES.

         We are a party to several license and research agreements with respect
to our key product technologies. We have financial, development and other
obligations under those agreements. Our primary responsibility under our
research agreements is to meet requisite research funding levels, which certain
requirements of we have not met to date. Although the funding under the research
agreements is not a condition precedent to maintaining the technology licenses,
we could experience disputes with our licensors if we fail to fulfill our
funding obligations under the research funding agreements. If we fail or are
delayed in meeting our obligations under one of our license agreements, we could
lose the rights to our products and technologies under that agreement. If we
fail or are delayed in meeting our obligations under one of our research funding
agreements, we could lose the rights to future product enhancements technologies
under that agreement. As of the date of this report, we are in arrears in our
payment


                                       13
<PAGE>

obligations to TJU. Rutgers University has asserted that we are in default of
our license agreement with Rutgers relating to the topoisomerase technology.
Although we dispute these assertions, the dispute with Rutgers could threaten
our rights to this technology.

WE ARE PURSUING A REGULATORY APPROVAL PROCESS IN FRANCE THAT IS THE RESULT OF
RECENTLY PUBLISHED REGULATIONS, FOR WHICH THERE IS NO CLEAR APPROVAL PATH, WHICH
COULD DELAY OUR PLANNED REGULATORY APPROVAL GOALS IN FRANCE.

         We plan to submit to AFSSAPS (the French regulatory authority) a
biological license application (BLA) for approval of our AC Vaccine for the
treatment of stage 3 melanoma. The basis upon which we will file this
application is data that were obtained in non-controlled, single site, clinical
trials conducted by Dr. Berd at TJU. The rules under which we are making this
submission are recently enacted and, to our knowledge, represent the first ever
developed regulations that are specific for the regulation of cell and gene
therapy treatments.

         The clinical trials that are the basis upon which we will submit our
clinical data are non-controlled, meaning they do not include a comparative
treatment against which the results of the clinical product are compared. In
general, most drugs require controlled studies that they are compared against
alternate treatments to measure their effect and efficacy. In addition, clinical
trials typically include a number of clinical sites to remove what could be
perceived as investigator bias in the selection and inclusion of patients in
clinical trials.

         The response of AFSSAPS to our planned BLA and certain matters
described above is uncertain, due to the factors noted above and due to the lack
of a clear regulatory path for approval of autologous products in France.
Accordingly, we cannot predict the timing or nature of the response of AFSSAPS
to our planned BLA filing.

THE U.S. CLINICAL TRIAL AND REGULATORY APPROVAL PROCESS FOR OUR PRODUCTS HAS
BEEN AND WILL CONTINUE TO BE EXPENSIVE AND TIME CONSUMING, AND THE OUTCOME
UNCERTAIN.

         To obtain regulatory approval for the commercial sale of our products
in the U.S., we must demonstrate through clinical trials that our products are
safe and effective. We will continue to incur substantial expense for, and
devote a significant amount of time to pre-clinical testing and clinical trials
of our products. The results from pre-clinical testing and early clinical trials
are not totally predictive of results that may be obtained in later clinical
trials. Data obtained from pre-clinical testing and clinical trials are
susceptible to varying interpretations, which may delay, limit or prevent
regulatory approval. In addition, regulatory delays or rejections may be
encountered as a result of many factors, including changes in regulatory policy
during the period of product development. Our business and financial condition
will be materially and adversely affected by any delays in, or termination of,
our clinical trials.

         Our clinical trials for the AC Vaccine were placed on clinical hold by
the FDA in spring 2001. It was fall 2002 before we had re-filed INDs to
recommence clinical trials. That delay was costly to us in terms of both time
and money. During that 16-month period, we were unable to proceed with any
patients in our AC Vaccine clinical trials. Similar delays could occur in the
future, resulting in significant delays, expense and lost opportunities.

WE COMPETE WITH OTHER CLINICAL PROGRAMS AND OTHER TREATMENTS FOR PATIENTS FOR
OUR CLINICAL TRIALS, WHICH WILL AFFECT OUR ABILITY TO ENROLL QUICKLY OUR PLANNED
CLINICAL TRIALS.

         We have competed with numerous clinical trials and other treatment
regimens (both in the U.S. and Europe) for patients for our clinical trials and
will compete with those programs for patients if and when we recommence our
clinical trials. Companies with clinical trials, including us, provide
information and other incentives to oncologists and other specialists as an
inducement to put their patients

                                       14
<PAGE>

in particular clinical trials. A physician is required to place patients in
clinical trials based upon the physician's assessment of the likely benefits of
that clinical trial to the patient. The information provided by us regarding any
future clinical trials may not be sufficient to persuade physicians to place
their patients in our clinical trials. We have experienced intense competition
for patients for our previous clinical trials.

WE ARE OPERATING IN A REGULATED INDUSTRY WHERE THE GUIDANCE FOR ACCEPTABLE
MANUFACTURING AND TESTING OF OUR PRODUCTS AND PROCESSES IS EVOLVING, WHICH
CREATES UNCERTAINTIES, DELAYS AND EXPENSE FOR US.

         Regulatory standards require that we produce our products in compliance
with current Good Manufacturing Practices. These requirements, as dictated by
the applicable U.S. and European regulatory authorities, adopt the methods for
end product standards and methods of analysis, which in the U.S. are published
in the United States Pharmacopeia. In February 2002, the United States
Pharmacopeia issued a new general information chapter entitled "cell and gene
therapy products," which became effective April 2002. This relates to the
production and testing of cell and gene therapy products. This is the first
known industry general guideline specifically related to the manufacture of cell
and gene therapy products. New guidance can be expected as the cell and gene
therapy areas of the pharmaceutical industry expand. We will be required to
adapt our existing physical facilities, process and procedures to these
standards for the production of our products during clinical testing and for
future commercialization. The inability to adapt to these evolving standards
will delay our ability to produce product for clinical testing and would delay
our ability to enter into clinical trials.

         During 2002, the French Regulatory Authorities AFSSAPS published
information defining these regulations. The Company believes that this is the
first guidance by a regulatory authority that defines cell and gene therapy
products separately from other pharmaceutical products. We will need to adapt to
and adhere to these new guidelines to obtain approval for our lead technology.
As with any new regulatory scheme, there is not a clear precedent for resolving
certain issues, which could further delay regulatory reviews and approvals of
our products.

WE ARE A DEVELOPMENT STAGE BIOPHARMACEUTICAL COMPANY, AND WE MAY NEVER DEVELOP
OR SUCCESSFULLY MARKET ANY PRODUCTS.

         Investors must evaluate us in light of the expenses, delays,
uncertainties and complications typically encountered by development stage
biopharmaceutical businesses, many of which are beyond our control. These
include unanticipated problems relating to product development, testing,
regulatory compliance, manufacturing, marketing and competition, and additional
costs and expenses that may exceed current estimates. Our products are at
various stages of research and development and may never be successfully
developed or marketed. We have already experienced many of the difficulties
associated with development stage biopharmaceutical companies and may continue
to experience the same or similar difficulties.

EVEN IF OUR AC VACCINE TECHNOLOGY RESULTS IN PRODUCTS THAT RECEIVE REGULATORY
APPROVAL, WE WILL CONTINUE TO FACE NUMEROUS RISKS.

         Even if we obtain regulatory approval for our products, we will still
face numerous risks associated with that product, including the following:

         o        Even if the AC Vaccine technology is safe and effective, there
                  is no guarantee of commercial acceptance. Because the AC
                  Vaccine technology is a new approach to the treatment of
                  cancer, it must be accepted by both patients and physicians
                  before it can be successfully commercialized. Due to the
                  nature of the vaccine technology it requires that current
                  practitioners revise the way they think about cancer and
                  cancer treatment. The marketplace


                                       15
<PAGE>

                  of ideas, technologies and information is crowded, and we must
                  develop the means to reach leading specialist physicians in
                  each market with the AC Vaccine story.

         o        The availability of governmental and insurance reimbursements
                  of the costs of the vaccine is critical to ultimate physician
                  and patient acceptance of the AC Vaccine technology. In both
                  the U.S. and other countries, sales of our products will
                  depend in part upon the availability of reimbursement from
                  third-party payors, which include government health
                  administration authorities, managed care providers, and
                  private health insurers. In addition, third-party payors are
                  increasingly challenging the price and examining the cost
                  effectiveness of medical products and services. Significant
                  uncertainty surrounds the reimbursement status of newly
                  approved health care products, and our products may not be
                  considered cost effective by a particular governmental
                  authority or insurer. Adequate third-party reimbursement may
                  not be available to enable us to maintain price levels
                  sufficient to realize an appropriate return on our investment
                  in the research and development of our products.

         o        We may have to depend on third parties to develop market and
                  distribute our products. We currently do not have the
                  resources to develop fully, market or distribute M-Vax, O-Vax
                  or any other products that we may develop in the future.
                  Moreover, it is particularly difficult and expensive to
                  develop and distribute the AC Vaccine products, because they
                  are custom made for each individual patient. We may have less
                  control over marketing and distribution activities performed
                  by third parties than if we were performing those functions
                  with our own facilities and employees. This lack of direct
                  control could adversely affect the results of these
                  activities.

         o        Current and future legislation can and likely will continue to
                  affect directly the ultimate profitability of pharmaceutical
                  products and technologies. The U.S. and other countries
                  continue to propose and pass legislation designed to reduce
                  the cost of healthcare. Accordingly, legislation and
                  regulations affecting the pricing of our products may change
                  before the products are approved for marketing to the public.
                  Adoption of new legislation and regulations could further
                  limit reimbursement for our products. If third-party payors
                  fail to provide adequate coverage and reimbursement rates for
                  our products, the market acceptance of the products may be
                  adversely affected. In that case, our business and financial
                  condition will suffer.

         o        Foreign government regulations and programs will likewise
                  affect foreign pricing opportunities for our products.
                  Virtually all foreign countries regulate or set the prices of
                  pharmaceutical products, which is a separate determination
                  from whether a particular product will be subject to
                  reimbursement under that government's health plans. There are
                  systems for reimbursement and pricing approval in each country
                  and moving a product through those systems is time consuming
                  and expensive.

WE MAY NOT BE ABLE TO OBTAIN OR DEFEND OUR PATENTS, OR OPERATE WITHOUT
INFRINGING UPON THE RIGHTS OF OTHERS.

         We, as well as our current and potential future licensors, may be
unable or have difficulty obtaining and defending our patents and maintaining
our trade secrets. If so, we could be delayed or prevented from manufacturing,
using or selling our products. It is also possible that one of our products or
technologies may infringe upon an existing U.S. or foreign patent of a third
party, or that other patents could issue in the future that could interfere with
our ability to make or sell our products. If we are involved in a patent
dispute, we may have to pay significant legal costs, license fees or damages,
and may have to stop producing and selling our products and technologies. It is
also possible that if we require the use of other patents in order to be able to
commercialize our products, we may not be able to obtain licenses for those
patents.

                                       16
<PAGE>

OUR MANAGEMENT TEAM HAS BEEN DRAMATICALLY REDUCED IN ORDER TO REDUCE CURRENT
CASH REQUIREMENTS OF THE COMPANY.

         We have always been dependent upon our small management team to obtain
funding for the research and development of our products, to decide which of our
products to promote, to shepherd the products through the clinical trial and
regulatory approval process, and to stimulate business development and seek out
new products and technologies for development. In December 2002, we terminated
two senior executives, at the recommendation of management, in order to reduce
our cash requirements. It is more difficult for us to implement our plans with a
significantly reduced management team. In addition, our current financial
condition makes it more difficult for us to retain our current executive and key
employees.

WE MAY NOT BE ABLE TO COMPETE WITH OTHER COMPANIES, RESEARCH INSTITUTES,
HOSPITALS OR UNIVERSITIES THAT ARE DEVELOPING AND PRODUCING CANCER TREATMENT
PRODUCTS AND TECHNOLOGIES.

         Many other companies, research institutes, hospitals and universities
are working to develop products and technologies in our specific field of cancer
research. Many of these entities have more experience than do we in developing
and producing cancer treatment products. Most of these entities also have much
greater financial, technical, manufacturing, marketing, distribution and other
resources than we possesses. We believe that numerous pharmaceutical companies
are engaged in research and development efforts for products that could directly
compete with our products under development. In addition, some of our
competitors have already begun testing products and technologies similar to our
own. These other entities may succeed in developing products before us or that
are better than those that we are developing. We expect competition in our
specific area of research to intensify.

THE TRADING VOLUME OF OUR COMMON STOCK IS RELATIVELY LOW AND A MORE ACTIVE
MARKET MAY NEVER DEVELOP.

         The average daily trading volume in our common stock varies
significantly, but is usually low. On many days, the common stock trades less
than 15,000 shares. This low average volume and low average number of
transactions per day may affect the ability of our stockholders to sell their
shares in the public market at prevailing prices. A more active trading market
for our common stock may never develop.

OUR COMMON STOCK WAS DELISTED FROM NASDAQ IN 2003, WHICH WILL LIKELY CONTINUE TO
HAVE AN ADVERSE IMPACT ON THE LIQUIDITY AND PRICING OF OUR COMMON STOCK.

         Our common stock was moved from the Nasdaq National Market to the
Nasdaq SmallCap Market in 2002 and was delisted from the Nasdaq SmallCap Market
in 2003 due to the continuing failure of our stock to meeting the continuing
listing requirements of both the Nasdaq National and SmallCap Markets. We
believe that the delisting has hurt the liquidity and pricing of our common
stock, which trades on the OTC Bulletin Board. The trading efficiencies for our
common stock associated with a listing on Nasdaq or a national security exchange
will continue until our stock is re-listed, which may never occur.

THE RIGHTS OF OUR PREFERRED STOCKHOLDERS ARE SUPERIOR TO THE RIGHTS OF OUR
COMMON STOCKHOLDERS.

         The holders of our Series C preferred stock have certain rights that
are superior to the rights of holders of our common stock, including a
liquidation preference over the common stock. In the case of (1) a liquidation,
(2) if we cease to exist by virtue of a merger in which we are not the surviving
corporation, or (3) if one person or entity acquires more than 50% of the voting
power of the Company, holders of our Series C preferred stock will receive $100
per share in cash or securities (a total of


                                       17
<PAGE>

$3,675,000 as of December 31, 2003), before any distributions are made to the
holders of our common stock. Additionally, the holders of the Series C preferred
stock are entitled to the consideration per share of common stock that they
would have received from the transaction if they had converted all of their
shares of Series C preferred stock into common stock immediately before 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 have received if they had
actually converted their shares of Series C preferred stock into common stock
before the merger transaction. The holders of our common stock would,
accordingly, receive a lesser amount in a merger transaction of that type than
they would have received if there were no outstanding shares of the Series C
preferred stock.




































                                       18
<PAGE>


ITEM 2.  DESCRIPTION OF PROPERTY

         AVAX leases a pharmaceutical and gene therapy clinical manufacturing
facility in Lyon, France. The facility consists of approximately 9,000 square
feet of which approximately 7,000 square feet are utilized for manufacturing
development, including 3,000 square feet of clean rooms and 2,000 square feet
for office space. Currently, the monthly rental on the facility is approximately
$13,250. The lease is for a 9-year period through 2009 and is extendable for
another 9-year period. The lease may be cancelled by the Company after July
2006.

         The Company leases a facility in Philadelphia, Pennsylvania for its
clinical manufacturing facility. The facility consists of approximately 11,900
square feet, of which approximately 9,300 square feet are utilized for
manufacturing development while the remaining 2,600 square feet are used for
office space. The Company has options for additional space. Currently, the
monthly rental on the facility is approximately $13,860.

         The Company's executive offices are located at 9200 Indian Creek
Parkway, Suite 200, Overland Park, Kansas. The Company currently leases
approximately 6,500 square feet of office space for a monthly lease cost of
approximately $9,300.

ITEM 3.  LEGAL PROCEEDINGS

         The Company has been sued by Absorption Systems, L.P. ("Absorption
Systems") in the Court of Common Pleas for Philadelphia County, Pennsylvania.
The complaint, filed in September 2003, alleges that the Company failed to pay
Absorption Systems for conducting a pharmacokinetic study of certain compounds
being developed by the Company. Absorption Systems is seeking $33,900, plus
interest.

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, 2003. On January 29, 2004, the stockholders approved
an amendment to the Company's Certificate of Incorporation to increase the
number of authorized shares of common stock from 50,000,000 to 150,000,000. The
vote on the proposed amendment was 12,522,424 shares for the proposed amendment,
612,288 shares against, and 25,010 shares abstaining at the special meeting.

         The Company did not have an annual meeting of stockholders in 2003 for
the election of directors or other customary matters, due to the cash
constraints of the Company. If the Company is successful in raising additional
capital, the Company anticipates having an annual meeting of stockholders in the
summer of 2004.




















                                       19
<PAGE>


                                     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. From 1997 until 2003, the common stock
was listed for quotation on the Nasdaq under the symbol "AVXT," initially on the
Nasdaq SmallCap Market and later on the Nasdaq National Market. The stock was
moved from the Nasdaq National Market to the Nasdaq SmallCap Market in 2002 and
was delisted from Nasdaq in August 2003 due to the Company's failure to maintain
Nasdaq's minimum continuing listing standards. Since that time, the common stock
has been traded on the OTC Bulletin Board under the symbol "AVXT.OB." The
following table sets forth, for the periods indicated, the high and low sales
price for the common stock, as reported by Nasdaq, or the average of the bid and
asked prices on the OTC market , as applicable for the quarters presented.
Over-the-counter market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.

         ------------------------------------------------------------
                                                    High      Low
                                                    ----      ---

         ------------------------------------------------------------
         Fiscal year ended December 31, 2003
            First quarter                           $0.23    $0.11
            Second quarter                          $0.34    $0.19
            Third quarter                           $0.50    $0.10
            Fourth quarter                          $0.17    $0.06

         ------------------------------------------------------------
         Fiscal year ended December 31, 2002
            First quarter                           $1.00    $0.46
            Second quarter                          $0.69    $0.32
            Third quarter                           $0.50    $0.25
            Fourth quarter                          $0.29    $0.08

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

         The average of the bid and asked prices for the common stock on the OTC
Bulletin Board on March 19, 2004, was $0.32 per share. At March 19, 2004, there
were 18,080,091 shares of common stock outstanding, which were held by
approximately 5,000 record and beneficial stockholders. The 36,750 shares of
Series C preferred stock outstanding at December 31, 2003, are convertible into
1,130,755 shares of common stock, excluding the effect of any fractional shares.

         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, subject to applicable state corporation law on permissible
dividends, within the discretion of the Board of Directors of the Company and
will depend on our earnings, capital requirements, financial condition and other
relevant factors. The Board of Directors of the Company does not 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.














                                       20
<PAGE>



ITEM 6.  MANAGEMENT'S PLAN OF OPERATION

GENERAL

         Since our inception, we have concentrated our efforts and resources on
the development and commercialization of biotechnology and pharmaceutical
products and technologies. We have been unprofitable since our founding and have
incurred a cumulative net loss of $65,324,006 as of December 31, 2003. We expect
to continue to incur operating losses, primarily due to the expenses associated
with our product development efforts in Europe, the cost of maintaining our
manufacturing facility in the United States, activities related to planned
reestablishment of our clinical trials for M-Vax and O-Vax, pre-clinical studies
and potential IND filings for certain of our small molecule compounds.

         Our ability to survive as an independent company depends upon, among
other things, our ability to raise additional capital to allow us to develop
products, obtain regulatory approval for our proposed products, and enter into
agreements for product development, manufacturing and commercialization. Our
M-Vax and O-Vax products do not currently generate any material revenue, and we
may never achieve significant revenues or profitable operations from the sale of
M-Vax, O-Vax, or any other products that we may develop.

PLAN OF OPERATION

BACKGROUND

         In November 1995, we acquired the rights to the AC Vaccine technology
pursuant to the TJU License. Assuming we can obtain the necessary funding, we
intend to continue to be engaged in the development and commercialization of our
AC Vaccine products and our other products and compounds.

         We experienced events during 2001 that significantly affected our
operations during the year. During 2001 we received notification from the FDA
that both the M-Vax and O-Vax clinical trials were placed on clinical hold by
the FDA. In addition, the FDA conducted reviews of our manufacturing facilities
in Philadelphia that resulted in the FDA issuing a Form 483 and later a formal
Warning Letter concerning inconsistencies and non-compliance of our
manufacturing procedures and processes. From these events a cost minimization
and project prioritization plan was put into place and this continued throughout
2002. During 2002, based upon a negative reaction by authorities in Australia to
an application for product reimbursement for M-Vax, we determined that we would
be unable to support further the operation in Australia and a decision was made
to discontinue and liquidate the joint venture companies. The results of the
Australian operation, which was consolidated in our results beginning in the
first quarter of 2002, are treated as a discontinued operation and its results
are separated from our results from continuing operations.

         In 2002 we achieved a number of milestones related to our development
plans which resulted in the filing of and acceptance by the FDA of two INDs for
a revised product format for the AC Vaccine for melanoma and ovarian cancer. Our
facilities were validated and cleared to begin processing clinical samples for
administration to patients in clinical trials. Due to a lack of funding, we
decided not to initiate the clinical trials and instituted further cost
minimization steps which resulted in additional management changes. We have also
begun to pursue more aggressively contract manufacturing relationships in France
and more recently in the United States, as noted above.

         In November 2003, we completed a bridge financing of $950,000 (before
expenses of approximately $26,250), which is providing funding for U.S.
operations (and certain of our European costs) for the balance of 2003 and the
first half of 2004 at current spending levels.

                                       21
<PAGE>

CURRENT PLAN OF OPERATION

         The following is a summary of our plan of operation based on our
current cash resources and assuming no material capital infusion in the next six
months.

         We are currently engaged in contract manufacturing and the development
and commercialization of biotechnology and pharmaceutical products and
technologies. We are seeking to expand our contract manufacturing in the United
States and France for other companies engaged in pharmaceutical and gene therapy
product development programs. In 2003, we had one contract manufacturing
engagement at our Lyon, France facility, which was completed in November 2003.
Our alliance with OPI provides approximately $1,500,000 (US) funding from OPI
for our combined facilities for the next two years, which are under the
management of Genopoietic, our French subsidiary. This funding commitment and
certain other grant revenue, tax refunds and existing cash resources in France,
should be sufficient to fund the manufacturing operations of our French
facilities in 2004 but are not sufficient to fund our research and product
development program for France outlined below. The operation of our Lyon
facility is, however, dependent upon the timely payment by OPI of its funding
commitments and our ability to collect certain accounts receivable on our books.
We continue to pursue additional contract manufacturing agreements in the U.S.
and France, which would provide us with additional revenue to fund our
operations and the costs of the facilities while we continue to explore other
options to finance our product and technology development programs. We believe
that we have developed significant expertise in producing certain pharmaceutical
and gene therapy products for clinical and development purposes, and that this
expertise can be marketed by us to other companies and research institutions
engaged in clinical trials and product development programs. In addition, we
have invested significant amounts to establish and maintain Good Manufacturing
Practices (GMP) at our manufacturing facilities in Philadelphia, Pennsylvania
and Lyon, France. We believe that services provided by these facilities can be
valuable to other companies that wish to avoid the significant cash outlays
associated with buying or building their own GMP facilities.

         Our plan of operation is to obtain one or more additional contract
manufacturing agreements that can generate sufficient revenue to allow us to
maintain these two facilities and to cover certain of our other operating
expenses while we continue to explore financing and strategic options to develop
the AC Vaccine technology and our other product candidates. We need to raise
more money immediately to continue research, product development and clinical
development in 2004 and beyond and to pursue the manufacture and marketing of
any products that we may develop. If we are unable to raise additional capital
in 2004 or establish a new revenue source, we will likely cease operations.
Although we completed a $950,000 bridge financing in November 2003, we have not
been able to raise any additional equity capital since March 2000. Because we
have not been able to raise additional funds, we have ceased certain of our
product development programs and have taken numerous other steps to reduce our
cash expenditures. Each of these steps, while conserving cash, has slowed or
reduced the prospects of success in various product development efforts.

FUTURE PLAN OF OPERATION

         If we are able to complete a significant capital raising transaction in
the first half of 2004, our plan of operations will change significantly. We
have, throughout 2003 and particularly in the second half of 2003 and the first
quarter of 2004, laid the foundation for a significantly more aggressive
development plan for our key technologies than we have been able to pursue
during the past three years. This plan is contingent upon a major cash infusion
in the Company. The steps that have already been taken to implement this plan
include:

         o        Continuing development work on the AC Vaccine, particularly in
                  France.

                                       22
<PAGE>

         o        Pre-BLA filing meetings and follow-up contacts with
                  representatives of AFSSAPS regarding our planned filing of a
                  BLA in France for the AC Vaccine.

         o        Two IND filings in France relating to the AC Vaccine for
                  indications other than melanoma.

         o        Alliance with OPI to place management of their French facility
                  under Genopoietic management control and to obtain majority
                  funding of combined facility manufacturing operations from
                  OPI.

         o        Established and maintained at our Lyon, France facility the
                  designation Establissment Pharmaceutique under applicable
                  French regulations.

         o        Commenced treatment of melanoma patients on a compassionate
                  use basis with our AC Vaccine.

         With this foundation, our plan of operation (assuming appropriate
         funding levels) includes

         o        A planned BLA filing in France in the second half of 2004 for
                  the marketing of M-Vax in France.

         o        Commence a planned bridging study in France with AC Vaccine
                  for melanoma, using the DTH endpoint, to augment the BLA
                  filing.

         o        Commence clinical trials for the AC Vaccine in France in the
                  first half of the year in multiple indications.

         o        Continuing to offer M-Vax on a compassionate use basis in
                  Spain, France and certain other European countries to broaden
                  the acceptance of the therapy within the oncology community.

         o        Prepare to approach the U.S. FDA with clinical data generated
                  from our trials in France, plus with the planned BLA French
                  submission information, to determine a plan for reinitiating
                  our clinical trials in the U.S. for melanoma and ovarian
                  cancers.

         o        Complete preclinical development and IND filings for our two
                  small molecules.

         This plan of operation is completely dependent upon obtaining
significant additional funding in the first half of 2004. We believe we have the
facilities, the facility managers and technical staff, the scientific staff and
consultants in place to implement this plan. If we were able to obtain
additional funding, we would undoubtedly make a minimal number of additional key
employment offers, to re-establish our executive ranks, and possible to add a
Medical Director to our staff.

RESULTS OF OPERATIONS

         Revenue recognized in 2003 was $930,727 compared to revenue in 2002 of
$770,743. The increase in revenues was attributable to our French operations and
was a function of securing a long-term contract manufacturing agreement in 2002
that extended through November 2003. The increase in revenue recognized was due
to the contract ramping up with more activity in 2003 and also encompassing
almost the entire year of 2003 versus seven months in 2002.

                                       23
<PAGE>

         During 2003, our manufacturing, research and development expenses
decreased 67% from $6,610,167 to $2,208,228, largely as a result of various cost
savings initiatives and product prioritization efforts. Expenses for the periods
are broken out by region as follows:

                                       YEAR ENDED DECEMBER 31,
                                        2002             2003
                                  --------------------------------
                 United States        $5,499,663      $1,124,943
                 France                1,110,504       1,083,285
                                  --------------------------------
                                      $6,610,167      $2,208,228
                                  ================================

         In the United States the annual cost decreases were the result of
further cost reductions implemented in the fourth quarter related to headcount
and the discontinuation of various outside consultants services related to
clinical and regulatory activities. In addition, costs for the year were
decreased as a result of staff reductions in our Philadelphia facility and the
closure of its research laboratory in Rennselaer, New York.

         On an annual basis, the decrease in expenses at our French subsidiary
were a function of increasing manufacturing activities, increased costs
associated with facilities and procedures validation in preparing the facility
to receive its Establissment Pharmaceutique designation offset by benefits
received related to research and development tax credit recognized.

         Selling, general and administrative expenses decreased approximately
44%, from $3,554,469 for the year ended 2002 to $1,986,801 for the year ended
2003. Expenses for the periods are broken out by region as follows:

                                        YEAR ENDED DECEMBER 31,
                                   ----------------------------------
                                         2002             2003
                                   ---------------- -----------------
                 United States        $2,924,995       $1,621,917
                 France                  629,474          364,884
                                   ---------------- -----------------
                                      $3,554,469       $1,986,801
                                   ================ =================

         In the United States, the decrease in costs is the result of decreased
administrative salaries and decreased outside professional fees associated with
marketing, business development and legal activities.

         In France, selling, general and administrative expense decreased as a
result of the closure of the Paris office and moving the entire operations to
Lyon, France in 2002.

         Interest income decreased from $111,448 earned in 2002 to $15,557 for
the year 2003. The decline is a function of the decrease in the average invested
asset base combined with a significant reduction in the rates on commercial
paper in which we typically invested.

         If we are able to raise funds, we anticipate that our spending over the
next 12 months for manufacturing, research and development expenses will
increase as compared with 2003 due to the planned clinical trials, the efforts
needed to compile the appropriate documentation for a BLA filing in France, and
additional pre-clinical toxicology studies planned on the small molecules.

CRITICAL ACCOUNTING POLICIES

         In December 2001, the SEC requested that all registrants discuss their
most "critical accounting policies" in management's discussion and analysis of
financial condition and results of operations. The SEC indicated that a
"critical accounting policy" is one which is both important to the portrayal of
our financial condition and results and requires management's most difficult,
subjective or complex


                                       24
<PAGE>

judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain. Our critical accounting policies are
fully described in Note 1 of the attached Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

         We presently anticipate that our current resources should be sufficient
to fund operations through the second quarter of 2004 based upon our current
operating plan. That current operating plan includes anticipated expenses
relating to (1) continuing patent costs associated with each of our
technologies, (2) continuing pre-clinical development of the topoisomerase
compound, (3) continuing maintenance costs associated with the Philadelphia
facility for utilization in production or contract manufacturing, and (4) costs
associated with the production requirements pursuant to contract manufacturing
agreements in Lyon, France. We need to raise more money immediately or to
initiate additional contract manufacturing relationships on terms favorable to
us or enter into a strategic alliance relationship in the first or second
quarter of 2004 to continue to maintain each of our manufacturing facilities and
continue our operations. If we are unable to raise money, secure additional
contract manufacturing relationships or enter into strategic alliances, we will
likely cease operations in 2004. The report of independent auditors on the audit
of our consolidated financial statements for the year ended December 31, 2003
contains an explanatory paragraph about conditions raising substantial doubt
about the Company's ability to continue as a going concern.

         Because our working capital requirements depend upon numerous factors,
including, without limitation, progress of our research and development
programs, pre-clinical and clinical testing, timing and cost of obtaining
regulatory approvals, changes in levels of resources that we devote to the
development of manufacturing and marketing capabilities, competitive and
technological advances, status of competitors, and our ability to establish
collaborative arrangements with other organizations, there can be no assurance
that our current cash resources will be sufficient to fund our operations
through the second quarter of 2004. Because we have no committed external
sources of capital, and expect no significant product revenues for the
foreseeable future, we will require additional financing to fund future
operations or will need to enter into contract manufacturing relationships on
terms favorable to us. There can be no assurance, however, that we will be able
to obtain the additional funds or attract contract manufacturing relationships
that we will require on acceptable terms, if at all. If adequate funds are not
available we will likely cease operations in 2004.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

         In January 2003, the FASB issued Financial Interpretation 46,
Consolidation of Variable Interest Entities (FIN 46). The interpretation expands
upon and strengthens existing accounting guidance that addresses when a company
should include in its financial statements the assets, liabilities and
activities of another entity. A variable interest entity is a corporation,
partnership, trust or any other legal structure used for business purposes that
either (a) does not have equity investors with voting rights or (b) has equity
investors that do not provide sufficient financial resources for the entity to
support its activities. The interpretation requires a variable interest entity
to be consolidated by a company if that company is subject to a majority of the
risk of loss from the variable interest entity's activities or is entitled to
receive a majority of the entity's residual returns or both. The consolidation
requirements of the interpretation applied immediately to variable interest
entities created after January 31, 2003. The consolidation requirements applied
to older entities in the first fiscal year or interim period beginning after
December 15, 2003. In February 2004, we entered into a contract manufacturing
alliance which may qualify as a variable interest entity and result in the
results of the operations of the entity to be consolidated in our future
financial statements. If the results are required to be consolidated, it is not
anticipated that its impact would be material on the overall results of the
Company.

                                       25
<PAGE>

         Effective January 1, 2003, the Company adopted SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities" (SFAS No.
146), which addresses the accounting and reporting for costs associated with
exit or disposal activities, nullifies Emerging Issues Task Force (EITF) Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exist an Activity (including Certain Costs Incurred in a
Restructuring)" (EITF 94-3) and substantially nullifies EITF Issue No. 88-10,
"Costs Associated with Lease Modification or Termination" (EITF 88-10). SFAS No.
146 requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. Under EITF 94-3, a
liability for an exit cost as defined in EITF 94-3 was recognized at the date of
an entity's commitment to an exit plan. The provisions of SFAS No. 146 are
effective for exit or disposal activities initiated after December 31, 2002. The
adoption of SFAS No. 146 did not have a material effect on the Company's
consolidated financial statements.

ITEM 7.  FINANCIAL STATEMENTS

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

         The accompanying Financial Statements have been prepared assuming that
the Company will continue as a going concern. The report of independent auditors
included with the Financial Statements is an unqualified opinion with an
explanatory paragraph about conditions raising substantial doubt about the
Company's ability to continue as a going concern.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
         AND FINANCIAL DISCLOSURE

         None.























                                       26
<PAGE>

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

         The executive officers and directors of the Company, as well as certain
information about them, are as follows:

Name                             Age    Position with the Company
----                             ---    -------------------------

John K. A. Prendergast, Ph.D.    50     Chairman of the Board and Director

Richard P. Rainey                37     President and Corporate Secretary

Edson D. de Castro               65     Director

Andrew W. Dahl, Sc.D.            61     Director

Carl Spana, Ph.D.                41     Director

Andres Crespo                    48     General Manager, Genopoeitic

Henry E. Schea III               51     Director of Quality Systems

         JOHN K. A. PRENDERGAST, PH.D., has been a director of the Company since
July 1996. Dr. Prendergast has served as President and principal of Summercloud
Bay, Inc., a biotechnology-consulting firm, since 1993. He is a co-founder
and/or a member of the Board of Ingenex, Inc., Atlantic Pharmaceuticals, Inc.,
Optex Ophthamologics, Inc., Gemini Gene Therapies, Inc., Channel Therapeutics,
Inc., Xenometrix, Inc., Avigen, Inc., and Palatin Technologies, Inc. From
October 1991 through December 1997, Dr. Prendergast was a Managing Director of
Paramount Capital Investments, LLC and a Managing Director of The Castle Group
Ltd. Dr. Prendergast received his M.Sc. and Ph.D. from the University of New
South Wales, Sydney, Australia and a C.S.S. in Administration and Management
from Harvard University. In November 2003, Dr. Prendergast was named Chairman of
the Board of the Company.

         RICHARD P. RAINEY, C.P.A., has been the President and Secretary of the
Company since December 2002, Vice President for Finance and Administration since
March 28, 2001, and previously served as Controller of the Company since
September 1998. Prior to joining the Company, Mr. Rainey was a partner with
Rainey & Rainey, a certified public accounting firm that he founded in 1993.
During that period, Rainey & Rainey provided accounting and consulting services
to corporations with an emphasis in health care. From 1988 to 1993, Mr. Rainey
was an associate with Ernst & Young, LLP specializing in auditing and
consulting. Mr. Rainey received his B.S. in Accounting from Pennsylvania State
University in 1988.

         EDSON D. DE CASTRO has been a member of the Board of Directors of the
Company since October 1993. Since 1990, Mr. de Castro has been consulting for
companies and participating as a member of certain Boards of Directors. Mr. de
Castro was one of five co-founders of Data General Corporation in 1968 for
which, from 1968 to 1989, he served as its President and Chief Executive
Officer, and from 1989 to 1990, he served as its Chairman of the Board of
Directors. From 1995 to 1997, Mr. de Castro was the Chief Executive Officer and
Chairman of the Board of Directors of Xenometrix, Inc. Mr. de Castro was a
founder and Executive Committee Member of the Massachusetts High Tech Council.
Mr. de Castro is a Trustee of Boston University. Mr. de Castro received his B.S.
in Electrical Engineering from the University of Lowell in 1960.

         ANDREW W. DAHL, SC.D., has been a director of the Company since
September 1999. Dr. Dahl has served as President and CEO of Evolution Benefits,
a Division of Evolution Health, LLC., since July 2000.


                                       27
<PAGE>

From July 1994 through December 1999, Dr. Dahl served as the President and Chief
Executive Officer of HealthNet, Inc. From July 1990 through March 1994, Dr. Dahl
served as President and Chief Executive Officer of IVF America, Inc. (now known
as IntegraMed America), where he was instrumental in taking the corporation
public. Dr. Dahl also served as Executive Vice President and Chief Operating
Officer of St. John Health and Hospital Corporation in Detroit, a
university-affiliated medical center, and was Vice President for Development of
the Hospital Corporation of America, Management Company. Dr. Dahl received his
Sc.D. from The Johns Hopkins University and a M.P.A. from Cornell University.
Dr. Dahl is also a fellow in the American College of Health Care Executives.

         CARL SPANA, PH.D., has been a Director of the Company since September
1995 and was its Interim President from August 1995 to June 15, 1996. Dr. Spana
is currently an Executive Vice President and Chief Executive Officer of Palatin
Technologies, Inc. Since June 1996, Dr. Spana has served as Executive Vice
President and Chief Technology Officer of RhoMed Incorporated. From 1993 to
1996, Dr. Spana was responsible for discovering, evaluating, and commercializing
new biotechnologies through his work at Paramount Capital Investments, LLC where
he was an Associate Director. Dr. Spana has been a co-founder of several private
biotechnology firms. From 1991 to 1993, Dr. Spana was a Research Associate at
Bristol-Myers Squibb where he was involved in scientific research in the field
of immunology that led to the initiation of several new drug discovery programs.
Dr. Spana currently is a member of the Board of Directors of Palatin
Technologies, Inc. Dr. Spana received his Ph.D. in Molecular Biology from The
Johns Hopkins University and a B.S. in Biochemistry from Rutgers University.

         ANDRES CRESPO joined the Company as General Manager of its Genopoietic
subsidiary when it was acquired by the Company in 2000. Prior to joining
Genopoietic, Dr. Crespo was in charge of biopharmaceutical production for
Rhone-Poulenc and later Rhone-Poulenc's Gencell division, where he was
responsible for organizing the coordination of the various Rhone-Poulenc
laboratories specializing in gene therapy. Dr. Crespo was also in charge of the
GMP production of gene therapy vectors while at Rhone-Poulenc. Dr. Crespo
received his M.Sc. and Ph.D. from the University of Toulouse in Pharmaceutical
Sciences.

         HENRY E. SCHEA III has been the Director of Quality Systems for AVAX
since May 2002. Mr. Schea has over 20 years experience in research, product
development, GMP manufacturing and quality control and assurance, with a focus
in cell and gene therapies. From 1981 to 1991, Mr. Schea served in various
manufacturing and quality control positions at Amgen. From 1991 through 2001,
Mr. Schea developed quality systems for new biotech firms including Gene
Medicine and Chimeric Therapies. Mr. Schea received his B.S. in Microbial
Genetics from the University of Massachusetts in 1976.

AUDIT COMMITTEE FINANCIAL EXPERT AND CODE OF ETHICS

         The Board of Directors has determined that Mr. de Castro and Dr. Spana
qualify as "audit committee financial experts" as defined by the rules of the
Securities and Exchange Commission. The Company has not adopted a Code of Ethics
(as defined by the rules of Securities and Exchange Commission). The Company
believes that its time and limited resources are better spent managing the
Company's cash flow and its strategic opportunities than on the development of
these codes and designations. Three of the Company's four directors are
independent within the meaning Nasdaq Rule 4200(a)(14), which is the
independence test utilized by the Board even though the Company's common stock
is no longer listed on Nasdaq.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors, executive officers and holders of more than
10% of the Company's common stock (collectively, "Reporting Persons") to file
with the SEC initial reports of ownership and reports of changes in ownership of
common stock. The Reporting Persons are required by regulations of the SEC to
furnish the Company with copies of all such filings. Specific due dates for
these reports have been established and the Company is required to identify
those persons who failed to timely file these reports. Based on its


                                       28
<PAGE>

review of the copies of filings received by it with respect to the fiscal year
ended December 31, 2003, and representations from certain Reporting Persons, the
Company believes that all Reporting Persons complied with the Section 16(a)
filing requirements in the year ended December 31, 2003.

ITEM 10. EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

         The following Summary Compensation Table sets forth the compensation
earned by the persons serving as the Company's chairman of the board, its chief
executive officer and the other named key employees (who were the only other
employees of the Company who made in excess of $100,000 in 2003) (the "Named
Officers") for the last three fiscal years. The Company has no long-term
incentive plans.

         The Company's Chairman of the Board, Dr. John Prendergast, is not an
employee of the Company. He has served as an independent director of the Company
since 1996. Due to the dramatic reduction in the executive staff of the Company
since 2002, Dr. Prendergast, at the request of the Board of Directors, has
assisted management in certain strategic initiatives and related matters. The
Board of Directors continues to view Dr. Prendergast as an independent director,
but his compensation has significantly exceeded the customary fees for outside
directors due to the services provided by Dr. Prendergast at the request of the
Board. All extraordinary consulting fees paid to Dr. Prendergast have been
approved by the other members of the Board, all of whom are independent within
the meaning of Nasdaq Rule 4200(a)(14), which is the independence test utilized
by the Board even though the Company's common stock is no longer listed on
Nasdaq. Effective December 1, 2003, the Board approved monthly compensation to
Dr. Prendergast of $8,750, plus reimbursement of out-of-pocket expenses for
consulting services provided by Dr. Prendergast to the Company, which will
consist of not less than five days of service per calendar month. In each month
since that date, Dr. Prendergast has devoted more than five full days of service
to the Company.



























                                       29
<PAGE>

         Neither Andres Crespo nor Henry Schea served as an officer of the
Company in 2003. They are included in the following tables because they were key
employees of the Company who made in excess of $100,000 in 2003.

                           SUMMARY COMPENSATION TABLE
                               ANNUAL COMPENSATION

<TABLE>
<CAPTION>
                                                                      SHARES OF
                                                                     COMMON STOCK
                                                                       UNDERLYING         ALL OTHER
                                              SALARY       BONUS      OPTIONS/SARS     COMPENSATION
  NAME AND PRINCIPAL POSITION      YEAR        ($)          ($)           (#)              ($)
-----------------------------------------------------------------------------------------------------
<S>                                <C>            <C>         <C>           <C>          <C>
John K.A. Prendergast, Ph.D. -     2003           $0          $0           -0-           $120,625
Chairman of the Board (1)          2002           $0          $0           -0-             47,500
Richard P. Rainey, C.P.A. -        2003     $182,521    $150,000           -0-                -0-
President and Corporate            2002     $147,875          $0           -0-                -0-
Secretary (2)                      2001     $133,068     $24,000       180,000                -0-
Andres Crespo                      2003     $162,621          $0           -0-                -0-
Henry Schea                        2003     $119,792          $0           -0-                -0-
</TABLE>

---------------
(1)      The other compensation shown for Dr. Prendergast consisted of $11,500
         and $4,000 in customary directors' fees paid in 2002 and 2003,
         respectively, and $36,000 and $116,625 of additional compensation paid
         for the extraordinary services rendered by Dr. Prendergast.
(2)      In February 2003, the Company paid Mr. Rainey a $150,000 retention
         bonus to induce Mr. Rainey to remain in employment with the Company in
         view of its then current financial circumstances and prospects. In
         exchange for this payment, Mr. Rainey agreed to remain an employee of
         the Company for at least the next 12 months in accordance with the
         terms and conditions of his Employment Agreement, as amended. At that
         time, the Company and Mr. Rainey entered into a letter agreement
         amending his employment agreement with the Company. The employment
         agreement, as amended is described below under "Employment Agreement."
(3)      Compensation is paid in Euro's, and is shown in US$ at the rate of
         1.1316 to U.S.$ to one European Euro.


OPTIONS

         No stock options were granted to any officer, employees or directors in
2003. The Company has not granted any stock appreciation rights. In accordance
with the terms of the Company's 2000 Directors' Stock Option Plan, on January 2,
2004, the four directors of the Company were each automatically granted options
to purchase 40,000 shares of common stock, at an option exercise price of $0.17
per share. The options vest quarterly over a four-year period of continuing
service as a director.














                                       30
<PAGE>

         The following table sets forth certain information concerning stock
options held by the Named Officers on December 31, 2003. No stock options were
exercised by the Named Officers during the year ended December 31, 2003.

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                                             Number of Securities                Value of Unexercised
                                                            Underlying Unexercised               In-The-Money Options
                                                         Options at December 31, 2003          at December 31, 2003 (1)
---------------------------------------------------------------------------------------------------------------------------
                                    Shares Acquired
NAME                                 on Exercise (#)     Exercisable     Unexercisable       Exercisable     Unexercisable
---------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>            <C>                <C>                   <C>            <C>
John K.A. Prendergast, Ph.D.              -0-             215,125            25,000                $0             $0
Richard P. Rainey, C.P.A.                 -0-             223,125            86,875                $0             $0
Andres Crespo                             -0-                 -0-               -0-                $0             $0
Henry Schea                               -0-                 -0-               -0-                $0             $0
</TABLE>

---------------
(1)      Value is based on the difference between the option exercise price and
         $0.18, the market value of the common stock on December 31, 2003 (based
         upon the average closing bid and asked prices on the OTC Bulletin
         Board), multiplied by the number of shares of common stock issuable
         upon exercise of the options. At December 31, 2003, all stock options
         had exercise prices in excess of the market value of the common stock
         on that date.

EMPLOYMENT AGREEMENT

         RICHARD P. RAINEY. On June 28, 1998, the Company entered into a letter
of employment with Richard P. Rainey, pursuant to which Mr. Rainey became the
Controller of the Company. Effective March 26, 2001, the Company entered into an
Employment Agreement with Mr. Rainey in order to amend and restate the terms of
the employment letter. Effective February 13, 2003, the Company and Mr. Rainey
entered into a letter agreement to amendment the Employment Agreement.
References below to the Employment Agreement mean the Employment Agreement, as
so amended.

         Pursuant to the terms of the Employment Agreement, Mr. Rainey served as
the Vice President of Finance and Administration of the Company. In accordance
with the February 2003 amendment, Mr. Rainey now serves as the Company's
President. The Employment Agreement is for an initial period of three years
ending March 26, 2004. Not less than nine months before the end of the initial
employment period or any renewal period, the Company and Mr. Rainey will
negotiate whether to extend the term of the Agreement for a further three year
period.

         Under the terms of the Employment Agreement, Mr. Rainey receives a
current annual base salary of $190,000 and is entitled to receive a
discretionary annual incentive bonus targeted to be 30% of his base salary. Mr.
Rainey previously received options to acquire an aggregate 310,000 shares of
common stock at various exercise prices ranging from $0.906 to $3.063 per share.
All such options vest at a rate of 1/16 per quarter over a four-year period, and
are exercisable for a period of seven years from their grant date. Mr. Rainey is
also entitled to additional stock options at the sole discretion of the
Company's Board of Directors.

         If, at any time prior to February 12, 2004, (i) Mr. Rainey's employment
is terminated by the Company without "just cause," or (ii) Mr. Rainey terminates
his employment for "good reason," Mr. Rainey will keep the Retention Bonus in
full satisfaction of any payment or amount that the Company might otherwise owe
to Mr. Rainey under the Employment Agreement prior to the February 2003
amendment upon such termination (other than accrued and unpaid base salary up to
the date of termination). If, however, prior to February 12, 2004, (i) Mr.
Rainey terminates his employment with the Company without good reason, or (ii)
Mr. Rainey is terminated by the Company for just cause, then


                                       31
<PAGE>

Mr. Rainey is obligated to repay to the Company the full amount of the Retention
Bonus within ten (10) days from the date of termination. In addition, subject to
the following paragraph, by accepting the Retention Bonus Mr. Rainey waived any
rights to any severance payment or benefit from the Company upon termination of
his employment that he might otherwise have been entitled and Mr. Rainey
acknowledged that any such obligation on the part of the Company is fully
satisfied.

         The Employment Agreement, prior to the February 2003 amendment,
provided that Mr. Rainey is to receive a lump sum payment equal to two times his
Base Salary (the "Double Payment") upon termination of his employment following
a Change in Control, as defined in the Employment Agreement. By accepting the
Retention Bonus Mr. Rainey waived his right to receive the Double Payment upon
termination following a Change of Control and amended this provision of the
Employment Agreement to provide that upon termination, following a Change of
Control, for any reason other than due to Mr. Rainey's death or to his
disability, by the Company for other than just cause or by Mr. Rainey for good
reason, then the Company is required to pay Mr. Rainey, as his sole damages for
such termination, a lump sum payment equal to $190,000. Such amount will not be
set-off against amounts earned from alternative employment. In addition, any
stock options granted to Mr. Rainey will thereupon become immediately vested.

         The Employment Agreement also contains a two-year covenant not to
compete (assuming Mr. Rainey is dismissed for cause), a three-year covenant not
to disclose confidential information and an 18-month non-solicitation agreement.

COMPENSATION OF DIRECTORS

         Effective November 2, 2001, the Company elected to pay its non-employee
directors a fee of $4,000 per meeting for Board meetings attended in person,
$1,000 per meeting for committee meetings attended in person and $500 per
meeting for telephonic Board and committee meetings. In 2003, the Company had
three in-person Board meetings, no in-person committee meetings, and three
telephonic Board or committee meetings.

         In accordance with the terms of the Company's 2000 Directors' Stock
Option Plan, on January 2, 2004, the four directors of the Company were each
automatically granted options to purchase 40,000 shares of common stock, at an
option exercise price of $0.17 per share. The options vest quarterly over a
four-year period of continuing service as a director.

         See "Executive Compensation" above for a description of certain
compensation paid to Dr. Prendergast in 2002 and 2003 for additional services
provided by Dr. Prendergast to the Company, at the request of the Board of
Directors.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
         AND RELATED STOCKHOLDER MATTERS

         The following table sets forth, as of March 19, 2004, certain
information regarding the beneficial ownership of the common stock (i) by each
person known by the Company to be the beneficial owner of more than five percent
of the outstanding shares of the common stock, (ii) by each of the Named
Officers (as defined herein) and directors of the Company and (iii) by all
executive officers and directors of the Company as a group.







                                       32
<PAGE>

<TABLE>
<CAPTION>
                                                                                                  PERCENTAGE
                                                                           NUMBER                  OF CLASS
    NAME AND ADDRESS OF BENEFICIAL OWNER       TITLE OF STOCK            OF SHARES          BENEFICIALLY OWNED (1)
    ------------------------------------       --------------            ---------          ----------------------
<S>                                            <C>                       <C>                <C>
NAMED EXECUTIVE OFFICERS AND
DIRECTORS (2)
   Richard P. Rainey, C.P.A. (3)               Common Stock                  423,433                  1.58%
   Andres Crespo                               Common Stock                        0                  *
   Henry Schea                                 Common Stock                        0                  *
   Edson D. de Castro (4)                      Common Stock                  101,262                  *
   Andrew W. Dahl, Sc.D. (5)                   Common Stock                   60,222                  *
   John K.A. Prendergast, Ph.D. (6)            Common Stock                  399,487                  1.50%
   Carl Spana, Ph.D. (7)                       Common Stock                  191,179                  *
All executive officers and directors as a      Common Stock                1,175,583                  4.40%
group (5 persons) (8)

5% SHAREHOLDERS
   None
</TABLE>

---------------
*REPRESENTS LESS THAN 1%.

(1)      The percentage of common stock beneficially owned is determined by
         adding the number of shares of common stock outstanding (18,080,091 as
         of March 19, 2004) to the number of shares issuable upon conversion of
         the Series C Preferred Stock (1,130,755 as of March 19, 2004) plus, for
         each beneficial owner or group, any shares of common stock that owner
         or group has the right to acquire within 60 days of March 19, 2004,
         pursuant to options or warrants, plus for participants in the bridge
         financing, the number of shares to be issued upon conversion of the
         bridge loan into common shares.
(2)      The address of the named individuals is c/o AVAX Technologies, Inc.,
         9200 Indian Creek Parkway, Suite 200, Overland Park, Kansas 66210.
(3)      Includes 223,125 shares of common stock that Mr. Rainey may acquire
         within 60 days upon exercise of options held by Mr. Rainey. Also
         includes 192,308 shares upon conversion of the bridge loan into common
         shares. Mr. Rainey holds a 50% interest in a partnership which will be
         entitled to receive 384,616 shares upon the bridge loan conversion.
(4)      Represents shares of common stock that Mr. de Castro may acquire within
         60 days upon the exercise of options held by Mr. De Castro.
(5)      Represents shares of common stock that Dr. Dahl may acquire within 60
         days upon the exercise of options held by Dr. Dahl.
(6)      Includes 126,262 shares of common stock that Dr. Prendergast may
         acquire within 60 days upon the exercise of options by Dr. Prendergast,
         plus 192,308 shares to be received upon conversion of the bridge loan.
(7)      Includes 126,262 shares of common stock that Dr. Spana may acquire
         within 60 days upon the exercise of options held by Dr. Spana.
(8)      Consists only of directors and Richard P. Rainey, the sole executive
         officer if the Company as of the date of this report.



















                                       33
<PAGE>


EQUITY COMPENSATION PLAN INFORMATION

         The following table sets forth as of December 31, 2003 (a) the number
of securities to be issued upon exercise of outstanding options, warrants and
rights, (b) the weighted average exercise price of outstanding options, warrants
and rights and (c) the number of securities remaining available for future
issuance under equity compensation plans (excluding securities reflected in
column (a)).

<TABLE>
<CAPTION>
                                            (A)                          (B)                          (C)
                                                                                             NUMBER OF SECURITIES
                                                                                            REMAINING AVAILABLE FOR
                                                                                             FUTURE ISSUANCE UNDER
                                  NUMBER OF SECURITIES TO         WEIGHTED-AVERAGE            EQUITY COMPENSATION
                                  BE ISSUED UPON EXERCISE         EXERCISE PRICE OF            PLANS (EXCLUDING
                                  OF OUTSTANDING OPTIONS,        OUTSTANDING OPTIONS,       SECURITIES REFLECTED IN
        PLAN CATEGORY               WARRANTS AND RIGHTS          WARRANTS AND RIGHTS               COLUMN (A))
        -------------             -----------------------        --------------------       -----------------------
<S>                                       <C>                           <C>                        <C>
EQUITY COMPENSATION PLANS
APPROVED BY SECURITY HOLDERS              1,145,889                     $2.29                      2,615,015

EQUITY COMPENSATION PLANS NOT
APPROVED BY SECURITY HOLDERS                493,430                     $4.09                            -0-

TOTAL                                     1,639,319                     $2.83                      2,615,015
</TABLE>

         See Note 6 of the Notes to Financial Statements for information
concerning the material terms of equity compensation plans pursuant to which the
foregoing options and warrants have been issued. Equity compensation plans
approved by security holders consist of the 1992 Stock Option Plan, the 2001
Stock Option Plan and the 2000 Director Stock Option Plan.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         On December 4, 2003, the Company completed a bridge financing in the
aggregate principal amount of $950,000 with various institutional and individual
investors. The Company issued $950,000 aggregate principal amount of its 5%
Convertible Notes due May 17, 2004, and warrants to purchase an aggregate of
7,115,300 shares of common stock at an exercise price of $0.143 per share. The
convertible notes are subject to mandatory conversion into either (i) 7.692
shares of common stock of the Company for each $1.00 of unpaid principal and
interest on the Notes on the conversion date (a ratio of $0.13 per share), or
(ii) that number of securities issued by the Company in the Offering (as defined
below) equal to the quotient obtained by dividing the principal and accrued
interest owed hereunder on the conversion date by the price at which the
securities are issued in the Offering and on the same terms and conditions and
with the same rights and preferences as the securities issued in the Offering.
The Offering means any issuance of securities by the Company on or prior to the
maturity date of the convertible notes in which the gross proceeds to the
Company are not less than $1,000,000. The Company has covenanted in the note
purchase agreement to use its reasonable efforts to close an offering of
securities on or before May 17, 2004, in which the gross proceeds to the Company
are not less than $1,000,000 (the "Offering"). Upon the closing of the Offering,
the Note will automatically convert into either (i) shares of common stock, or
(ii) the securities issued in the Offering, as described above

         A partnership in which Mr. Rainey is a 50% partner purchased $50,000
principal amount of the Convertible Notes and associated warrants. Dr.
Prendergast purchased $25,000 principal amount of the Convertible Notes and
associated warrants. The participation of both Mr. Rainey and Dr. Prendergast in
the bridge financing was approved by the Board of Directors.

                                       34
<PAGE>

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.

(B)      REPORTS ON FORM 8-K

         On December 9, 2003, the Company filed a Current Report on Form 8-K,
reporting that the Company had completed a bridge financing.

ITEM 14. CONTROLS AND PROCEDURES

         The Company's principal executive officer and principal accounting
officer, based on his evaluation within 90 days prior to the date of this report
of the Company's disclosure controls and procedures (as defined in Exchange Act
Rule 13a-14(c)), have concluded that the Company's disclosure controls and
procedures are adequate and effective for purposes of Rule 13a-14(c) in timely
alerting them to material information relating to the Company required to be
included in the Company's filings with the SEC under the Securities Exchange Act
of 1934. There were no significant changes in the Company's internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of their evaluation.

ITEM 15. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

         The following table sets forth the aggregate fees billed to the Company
for fiscal years ended December 31, 2003, and 2002 by the Company's principal
accounting firm, Ernst & Young LLP:

                                               2003               2002
                                               ----               ----

         Audit fees (1)                        $56,670         $59,050
         Audit-related fees                          0               0

         Tax fees                                    0               0
         All other fees                              0               0
                                             ---------       ---------
         Total                                 $56,670         $59,050

         ------------
         (1)      Includes services rendered for the audit of the Company's
                  annual financial statements and review of financial statements
                  included in quarterly reports on Form 10-QSB.

         The Audit Committee has adopted a policy (the "Pre-Approval Policy")
under which audit and non-audit services to be rendered by the Company's
independent public accountants are pre-approved by the Audit Committee. Pursuant
to the Pre-Approval Policy, the Audit Committee pre-approves audit and non-audit
services to be provided by the independent auditors, at specified dollar levels,
which dollar levels are reviewed by the Committee periodically, and no less
often than annually. Additionally, the Audit Committee may provide explicit
prior approval of specific engagements not within the scope of a previous
pre-approval resolution. The services performed by the Company's independent
auditor in 2003 were all audit-related and pre-approved by the Audit Committee.
The Pre-Approval Policy also specifies certain services (consistent with the SEC
rules and regulations) that may not be provided by the Company's independent
auditors in any circumstance. The Pre-Approval Policy also includes an exception
from the pre-approval requirement for certain de minimus non-audit engagements
that are not otherwise prohibited by the Policy. Engagements in reliance upon
that de minimus exception must be promptly brought to the attention of Audit
Committee and approved by the Audit Committee or one or more designated
representatives. No services were provided by Ernst & Young LLP in 2003 in
reliance upon this de minimus exception.













                                       35
<PAGE>


                                  EXHIBIT INDEX

      Exhibit No.                      Description
      -----------                      -----------

           3.1    Certificate of Incorporation, as amended (excluding the
                  Certificates of Designations for the Series B and Series C
                  Convertible Preferred Stock).(5)

           3.2    By-Laws.(1)

           4.1    Reference is made to Exhibits 3.1 and 3.2.

           4.2    Specimen of common stock certificate.(1)

           4.7    Investors' Rights Agreement Dated November 20, 1995, by and
                  between the Company and certain investors.(1)

           4.8    Form of Placement Warrant Relating to Offering of Series B
                  Placement Warrants.(2)

           4.9    Certificate of Designation of Series C Convertible Preferred
                  Stock.(3)

          4.10    Series C Convertible Preferred Stock Warrant Purchase
                  Agreement.(3)

          4.11    Form of Class A and Class B common stock Purchase Warrant
                  issued in connection with the Series C Convertible Preferred
                  Stock.(3)

          10.1    Clinical Study and Research Agreement dated November 20, 1995,
                  by and between the Company and Thomas Jefferson University.(4)

          10.2    License Agreement dated November 20, 1995, by and between the
                  Company and Thomas Jefferson University.(4)

          10.3    Extension to the Clinical Study and Research Agreement dated
                  November 20, 1995, by and between the Company and Thomas
                  Jefferson University.(3)

          10.4    Consulting Agreement dated May 9, 1996, between the Company
                  and Dr. David Berd.(1)

          10.5    Employment Agreement effective as of March 26, 2001, between
                  the Company and Richard P. Rainey.(5)

          10.6    Amendment dated February 5, 2003, to Employment Agreement
                  between AVAX Technologies, Inc. and Richard P. Rainey.(9)

          10.7    License Agreement dated December 10, 1996, by and between the
                  Company and Rutgers, The State University of New Jersey and
                  the University of Medicine and Dentistry.(4)

          10.8    License Agreement dated February 17, 1997, by and between the
                  Company and The Texas A&M University System.(4)

          10.9    Sponsored Research Agreement dated May 2, 1997, by and between
                  the Company and Rutgers, The State University of New Jersey
                  and the University of Medicine and Dentistry.(6)

         10.10    Sponsored Research Agreement Dated May 12, 1997, by and
                  between the Company and The Texas A&M University System.(6)

         10.11    2001 Stock Option Plan.(5)

         10.12    Stock Contribution Agreement dated as of July 17, 2000, among
                  the Company, Professor David R. Klatzmann, Professor Jean-Loup
                  Salzmann, GPH, S.A. and Genopoietic, S.A.(7)

                                       36
<PAGE>

      Exhibit No.                      Description
      -----------                      -----------

         10.13    [Tax] Agreement dated as of August 24, 2000, among the
                  Company, GPH, S.A., Genopoietic S.A., Professor David R.
                  Klatzmann and Professor Jean-Loup Salzmann.(7)

         10.14    Rights Agreement dated as of August 24, 2000, between the
                  Company and Professor David R. Klatzmann (an identical
                  agreement was entered into between the Company and Professor
                  Jean-Loup Salzmann).(7)

         10.15    2000 Directors' Stock Option Plan.(8)

         10.16    Termination Deed - Shareholders Agreement for AVAX Australia
                  and AVAX Manufacturing dated January 21, 2002.(8)

         10.17    Royalty Agreement between AVAX Australia Pty Limited and
                  Eastpac, Inc. dated January 21, 2002.(8)

         10.18    Note Purchase Agreement dated as of November 17, 2003.(10)

         10.19    Form of Convertible Note in connection with the December 2003
                  bridge financing.(10)

         10.20    Form of Warrant in connection with the December 2003 bridge
                  financing.(10)

          21.1    Subsidiaries of the Company.*

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

          31.1    Certifications of Chief Executive Officer of the Company under
                  Rule 13a-14(a), as adopted pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002.*

          31.2    Certifications of Chief Financial Officer of the Company under
                  Rule 13a-14(a), as adopted pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002.*

          32      Certification of Principal Executive Officer and Principal
                  Financial Officer Pursuant to Section 1350 of Chapter 63 of
                  Title 18 of the United States Code.*

---------------
*        Filed herewith.

(1)      Incorporated by reference and previously filed as an exhibit to the
         Registration Statement on Form S-3 (File No. 333-09349) filed on August
         1, 1996.

(2)      Incorporated by reference and previously filed as an exhibit to Post
         Effective Amendment No. 6 to the Registration Statement on Form S-3
         filed on August 17, 1998.

(3)      Incorporated by reference and previously filed as an exhibit to the
         Annual Report on Form 10-KSB for the year ended December 31, 1998.

(4)      Incorporated by reference and previously filed as an exhibit to
         Amendment No. 9 to the Registration Statement on Form S-3 filed on July
         3, 1997.

(5)      Incorporated by reference and previously filed as an exhibit to Annual
         Report on Form 10-KSB for year ended December 31, 2001.

(6)      Incorporated by reference and previously filed as an exhibit to Post
         Effective Amendment No. 1 to the Registration Statement on Form S-3
         filed on August 14, 1997.

(7)      Incorporated by reference and previously filed as an exhibit to the
         Current Report on Form 8-K, filed on September 8, 2000, as amended by
         the amendment on Form 8-K/A filed with the Securities and Exchange
         Commission on November 7, 2000.

(8)      Incorporated by reference and previously filed as an exhibit to the
         Annual Report on Form 10-KSB for year ended December 31, 2000.

(9)      Incorporated by reference and previously filed as an exhibit to the
         Annual Report on Form 10-KSB for year ended December 31, 2002.

(10)     Incorporated by reference and previously filed as an exhibit to the
         Current Report on Form 8-K filed on December 9, 2003.





                                       37
<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:    April 14, 2004                  By:      /s/ Richard P. Rainey
                                                  ----------------------------
                                                  Richard P. Rainey
                                                  President

         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/ Richard P. Rainey                Richard P. Rainey                                 April 14, 2004
---------------------------------    President (Principal Executive, Financial
                                     and Accounting Officer)

/s/ Edson D. de Castro               Edson D. de Castro                                April 14, 2004
---------------------------------    Director

/s/ John K. A. Prendergast, Ph.D.    John K. A. Prendergast, Ph.D.                     April 14, 2004
---------------------------------    Director

/s/ Carl Spana, Ph.D.                Carl Spana, Ph.D.                                 April 14, 2004
---------------------------------    Director

/s/ Andrew W. Dahl, Sc.D.            Andrew W. Dahl, Sc.D.                             April 14, 2004
---------------------------------    Director
</TABLE>




















                                       38
<PAGE>

                        CONSOLIDATED FINANCIAL STATEMENTS

                             AVAX TECHNOLOGIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     YEARS ENDED DECEMBER 31, 2003 AND 2002
                      AND THE PERIOD FROM JANUARY 12, 1990
                      (INCORPORATION) TO DECEMBER 31, 2003
                       WITH REPORT OF INDEPENDENT AUDITORS


<PAGE>


                             AVAX Technologies, Inc.
                          (A DEVELOPMENT STAGE COMPANY)

                        Consolidated Financial Statements


YEARS ENDED DECEMBER 31, 2003 AND 2002 AND FOR THE PERIOD FROM JANUARY 12, 1990
                      (INCORPORATION) TO DECEMBER 31, 2003




                                    CONTENTS

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

Consolidated Financial Statements

Consolidated Balance Sheet as of December 31, 2003..........................F-2
Consolidated Statements of Operations and Comprehensive Loss for the years
   ended December 31, 2003 and 2002 and for the period from January 12, 1990
   (incorporation) to December 31, 2003 ....................................F-3
Consolidated Statements of Stockholders' Equity (Deficit) for the years
   ended December 31, 2003 and 2002 and for the period from January 12,
   1990 (incorporation) to December 31, 2003................................F-4
Consolidated Statements of Cash Flows for the years ended December 31,
   2003 and 2002 and for the period from January 12, 1990 (incorporation)
   to December 31, 2003.....................................................F-7
Notes to Consolidated Financial Statements..................................F-9



<PAGE>


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





                         Report of Independent Auditors

The Board of Directors and Stockholders
AVAX Technologies, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheet of AVAX
Technologies, Inc. (a development stage company) and subsidiaries as of December
31, 2003, and the related consolidated statements of operations and
comprehensive loss, stockholders' equity (deficit) and cash flows for the years
ended December 31, 2003 and 2002, and for the period from January 12, 1990
(incorporation) to December 31, 2003. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of AVAX Technologies,
Inc. and subsidiaries at December 31, 2003 and the consolidated results of their
operations and their cash flows for the years ended December 31, 2003 and 2002,
and for the period from January 12, 1990 (incorporation) to December 31, 2003 in
conformity with accounting principles generally accepted in the United States.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 1, the
Company has incurred recurring operating losses and has inadequate capital to
fund existing operations through 2004. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.


                                                           /s/ Ernst & Young LLP

Kansas City, Missouri
March 18, 2004















                                      F-1
<PAGE>


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


                    AVAX Technologies, Inc. and Subsidiaries
                          (A DEVELOPMENT STAGE COMPANY)
                           Consolidated Balance Sheet


                                                               DECEMBER 31,
                                                                  2003
                                                               ------------
ASSETS
Current assets:
   Cash and cash equivalents                                   $  1,125,960
   Marketable securities                                            262,744
   Accounts receivable                                               52,542
   Inventory                                                         48,777
   Prepaid expenses and other current assets                        270,565
                                                               ------------
Total current assets                                              1,760,588
Property, plant and equipment, at cost                            3,373,703
   Less accumulated depreciation                                  2,047,907
                                                               ------------
Net property, plant and equipment                                 1,325,796
Research and development tax credit receivable                      345,426
Goodwill                                                            188,387
                                                               ------------
Total assets                                                   $  3,620,197
                                                               ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable and accrued liabilities                    $  1,699,398
   Loans payable - Convertible notes (Face amount $950,000)         837,355
   Loans payable - ANVAR grant payable                              345,672
                                                               ------------
Total current liabilities                                         2,882,425
Long-term debt                                                           --
Commitments and contingencies
Stockholders' equity:
   Preferred stock, $.01 par value:
     Authorized shares - 5,000,000, including Series B -
      300,000 shares and Series C - 120,000 shares
       Series B convertible preferred stock:
        Issued and outstanding shares - 0                                --
       Series C convertible preferred stock:
        Issued and outstanding shares - 36,750 (liquidation
         preference - $3,675,000)                                       367
   Common stock, $.004 par value:
     Authorized shares - 50,000,000
      Issued and outstanding shares - 18,080,071                     72,320
   Additional paid-in capital                                    65,583,434
   Subscription receivable                                             (422)
   Accumulated other comprehensive income                           406,079
   Deficit accumulated during the development stage             (65,324,006)
                                                               ------------
Total stockholders' equity                                          737,772
                                                               ------------
Total liabilities and stockholders' equity                     $  3,620,197
                                                               ============


SEE ACCOMPANYING NOTES.


                                      F-2

<PAGE>

                    AVAX Technologies, Inc. and Subsidiaries
                          (A DEVELOPMENT STAGE COMPANY)
          Consolidated Statements of Operations and Comprehensive Loss

<TABLE>
<CAPTION>
                                                                                                         PERIOD FROM
                                                                                                       JANUARY 12, 1990
                                                                                YEAR ENDED            (INCORPORATION) TO
                                                                                DECEMBER 31,             DECEMBER 31,
                                                                            2002            2003            2003
                                                                    ------------------------------------------------------
<S>                                                                     <C>             <C>             <C>
Revenue:
   Gain from sale of the Product                                        $         --    $         --    $  1,951,000
   Product and contract service revenue                                      770,743         930,727       2,355,284
                                                                    ------------------------------------------------------
Total revenue                                                                770,743         930,727       4,306,284
Costs and expenses:
   Manufacturing, research and development                                 6,610,167       2,208,228      40,319,514
   Acquired in process research and development                                   --              --       4,420,824
   Write down of acquired intellectual property and
    other intangibles                                                             --              --       3,416,091
   Amortization of acquired intangibles                                           --              --         715,872
   Selling, general and administrative                                     3,554,469       1,986,801      25,843,529
                                                                    ------------------------------------------------------
Total operating loss                                                      (9,393,893)     (3,264,302)    (70,409,546)
Other income (expense):
   Interest income                                                           111,448          15,557       5,627,265
   Interest expense                                                               --         (34,780)       (681,073)
   Other, net                                                                     --          (2,575)        143,193
                                                                    ------------------------------------------------------
Total other income (loss), net                                               111,448         (21,798)      5,089,385
                                                                    ------------------------------------------------------
Loss from continuing operations                                           (9,282,445)     (3,286,100)    (65,320,161)
Loss from discontinued operations                                           (143,119)             --          (3,845)
                                                                    ------------------------------------------------------
Net loss                                                                  (9,425,564)     (3,286,100)    (65,324,006)
Amount payable for liquidation preference                                         --              --      (1,870,033)
                                                                    ------------------------------------------------------
Net loss attributable to common stockholders                            $ (9,425,564)   $ (3,286,100)   $(67,194,039)
                                                                    ======================================================
Loss per common share - basic and diluted
   Loss from continuing operations                                      $      (0.56)   $      (0.19)
   Loss from discontinued operations                                           (0.01)             --
                                                                    -----------------------------------
   Net loss                                                             $      (0.57)   $      (0.19)
                                                                    -----------------------------------
Weighted-average number of common shares outstanding                      16,541,621      17,503,152
                                                                    ===================================

Net Loss                                                                $ (9,425,564)   $ (3,286,100)   $(65,324,006)
Foreign currency translation adjustment                                      354,789          10,175         406,079
                                                                    ------------------------------------------------------
Comprehensive loss                                                      $ (9,070,775)   $ (3,275,925)   $(64,917,927)
                                                                    ======================================================
</TABLE>


SEE ACCOMPANYING NOTES.







                                      F-3
<PAGE>
                    AVAX Technologies, Inc. and Subsidiaries
                          (A DEVELOPMENT STAGE COMPANY)
            Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>

                                            SERIES A               SERIES B             SERIES C
                                           CONVERTIBLE            CONVERTIBLE          CONVERTIBLE
                                         PREFERRED STOCK        PREFERRED STOCK      PREFERRED STOCK           COMMON STOCK
                                     --------------------------------------------------------------------------------------------
                                        SHARES     AMOUNT      SHARES     AMOUNT    SHARES     AMOUNT      SHARES        AMOUNT
                                     --------------------------------------------------------------------------------------------
<S>                                  <C>           <C>         <C>      <C>         <C>        <C>         <C>         <C>
Issuance of common stock for
   services in January 1990                   --   $    --       --     $    --       --       $    --       582,500   $    2,330
   Net loss                                   --        --       --          --       --            --            --           --
                                     --------------------------------------------------------------------------------------------
Balance at December 31, 1990                  --        --       --          --       --            --       582,500        2,330
Issuance of common stock for
   services in August 1991                    --        --       --          --       --            --       230,000          920
   Net loss                                   --        --       --          --       --            --            --           --
                                     --------------------------------------------------------------------------------------------
Balance at December 31, 1991                  --        --       --          --       --            --       812,500        3,250
   Conversion of note payable to
      related party to common stock
      in June 1992                            --        --       --          --       --            --        22,913           92
   Issuance of common stock for
      services in May and June 1992           --        --       --          --       --            --       264,185        1,056
   Issuance of Series A convertible
      preferred stock, net of
      issuance cost in June, July      1,287,500    12,875       --          --       --            --            --           --
      and September 1992
   Net loss                                   --        --       --          --       --            --            --           --
                                     --------------------------------------------------------------------------------------------
Balance at December 31, 1992           1,287,500    12,875       --          --       --            --     1,099,598        4,398
   Issuance of common stock for
      services in July and November
      1993                                    --        --       --          --       --            --         8,717           35
   Net loss                                   --        --       --          --       --            --            --           --
                                     --------------------------------------------------------------------------------------------
Balance at December 31, 1993           1,287,500    12,875       --          --       --            --     1,108,315        4,433
   Issuance of common stock for
      services in July 1994                   --        --       --          --       --            --         3,750           15
   Net loss                                   --        --       --          --       --            --            --           --
                                     --------------------------------------------------------------------------------------------
Balance at December 31, 1994           1,287,500    12,875       --          --       --            --     1,112,065        4,448
   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
      preference                              --        --       --          --       --            --            --           --
   Net income                                 --        --       --          --       --            --            --           --
                                     --------------------------------------------------------------------------------------------
Balance at December 31, 1995           1,287,500    12,875       --          --       --            --     2,581,335       10,325

[TABLE CONTINUES BELOW]
<CAPTION>
                                                                                                          DEFICIT
                                                                              UNREALIZED                ACCUMULATED       TOTAL
                                      ADDITIONAL                               LOSS ON        OTHER      DURING THE    STOCKHOLDERS'
                                        PAID-IN   SUBSCRIPTION    DEFERRED    MARKETABLE  COMPREHENSIVE  DEVELOPMENT     EQUITY
                                        CAPITAL    RECEIVABLE   COMPENSATION  SECURITIES     INCOME        STAGE        (DEFICIT)
                                     -----------------------------------------------------------------------------------------------
<S>                                   <C>           <C>              <C>             <C>          <C>            <C>       <C>
Issuance of common stock for
   services in January 1990          $      920   $     --        $   --      $   --       $    --       $      --     $     3,250
   Net loss                                  --         --            --          --            --             (889)          (889)
                                     -----------------------------------------------------------------------------------------------
Balance at December 31, 1990                920         --            --          --            --             (889)         2,361
Issuance of common stock for
   services in August 1991                5,830         --            --          --            --               --          6,750
   Net loss                                  --         --            --          --            --          (97,804)       (97,804)
                                     -----------------------------------------------------------------------------------------------
Balance at December 31, 1991              6,750         --            --          --            --          (98,693)       (88,693)
   Conversion of note payable to
      related party to common stock
      in June 1992                      160,465         --            --          --            --               --        160,557
   Issuance of common stock for
      services in May and June 1992       6,444         --            --          --            --               --          7,500
   Issuance of Series A convertible
      preferred stock, net of
      issuance cost in June, July     2,258,837         --            --          --            --               --      2,271,712
      and September 1992
   Net loss                                  --         --            --          --            --         (607,683)      (607,683)
                                     -----------------------------------------------------------------------------------------------
Balance at December 31, 1992          2,432,496         --            --          --            --         (706,376)     1,743,393
   Issuance of common stock for
      services in July and November
      1993                               24,965         --            --          --            --               --         25,000
   Net loss                                  --         --            --          --            --       (1,610,154)    (1,610,154)
                                     -----------------------------------------------------------------------------------------------
Balance at December 31, 1993          2,457,461         --            --          --            --       (2,316,530)       158,239
   Issuance of common stock for
      services in July 1994               4,485         --            --          --            --               --          4,500
   Net loss                                  --         --            --          --            --         (781,221)      (781,221)
                                     -----------------------------------------------------------------------------------------------
Balance at December 31, 1994          2,461,946         --            --          --            --       (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
      preference                       (738,289)        --            --          --            --               --       (738,289)
   Net income                                --         --            --          --            --        1,380,571      1,380,571
                                     -----------------------------------------------------------------------------------------------
Balance at December 31, 1995          1,723,657     (7,109)           --          --            --       (1,717,180)        22,568
</TABLE>
                                      F-4


<PAGE>

                    AVAX Technologies, Inc. and Subsidiaries
                          (A DEVELOPMENT STAGE COMPANY)
      Consolidated Statements of Stockholders' Equity (Deficit) (continued)

<TABLE>
<CAPTION>

                                              SERIES A             SERIES B             SERIES C
                                            CONVERTIBLE           CONVERTIBLE          CONVERTIBLE
                                          PREFERRED STOCK       PREFERRED STOCK      PREFERRED STOCK       COMMON STOCK
                                      -----------------------------------------------------------------------------------------
                                        SHARES        AMOUNT   SHARES      AMOUNT    SHARES    AMOUNT      SHARES       AMOUNT
                                      -----------------------------------------------------------------------------------------
<S>                                    <C>         <C>         <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)     --         --      2,386,174      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

[TABLE CONTINUES BELOW]

<CAPTION>
                                                                                                            DEFICIT
                                                                                 UNREALIZED                ACCUMULATED    TOTAL
                                       ADDITIONAL                                 LOSS ON       OTHER      DURING THE  STOCKHOLDERS'
                                        PAID-IN     SUBSCRIPTION    DEFERRED     MARKETABLE COMPREHENSIVE  DEVELOPMENT   EQUITY
                                         INCOME      RECEIVABLE   COMPENSATION   SECURITIES    INCOME        STAGE      (DEFICIT)
                                      ----------------------------------------------------------------------------------------------
<S>                                   <C>             <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>


                                      F-5

<PAGE>

                    AVAX Technologies, Inc. and Subsidiaries
                          (A DEVELOPMENT STAGE COMPANY)
      Consolidated Statements of Stockholders' Equity (Deficit) (continued)

<TABLE>
<CAPTION>
                                          SERIES A            SERIES B              SERIES C
                                         CONVERTIBLE         CONVERTIBLE           CONVERTIBLE
                                       PREFERRED STOCK     PREFERRED STOCK       PREFERRED STOCK             COMMON STOCK
                                      ------------------------------------------------------------------------------------------
                                       SHARES   AMOUNT    SHARES     AMOUNT     SHARES     AMOUNT        SHARES        AMOUNT
                                       -----------------------------------------------------------------------------------------
<S>                                    <C>      <C>       <C>        <C>       <C>        <C>          <C>          <C>
Balance at December 31, 1998             --     $   --    112,689    $1,127         --    $    --      10,007,119   $     40,028
   Conversion of preferred to
      common stock                       --         --    (38,805)     (388)        --         --       1,012,286          4,049
   Issue shares based upon reset
      provisions                         --         --         --        --         --         --          20,885             84
   Issuance of Series C preferred
      stock in a private placement
      in March 1999                      --         --         --        --    101,300      1,013              --             --
   Exercise of Warrants pursuant to
      cashless exercise provisions       --         --         --        --         --         --          37,500            150
   Capital contributed through sale
      of 20% interest in consolidated
      subsidiaries to unrelated third
      party                              --         --         --        --         --         --              --             --
   Amortization of deferred
      compensation                       --         --         --        --         --         --              --             --
   Net loss                              --         --         --        --         --         --              --             --
                                      ------------------------------------------------------------------------------------------
Balance at December 31, 1999             --         --     73,884       739    101,300      1,013      11,077,790         44,311
                                      ------------------------------------------------------------------------------------------
   Conversion of preferred to
      common stock                       --         --    (73,884)     (739)   (14,550)      (146)      2,375,083          9,500
   Private placement of common stock,
      March 2000                         --         --         --        --         --         --       2,259,494          9,039
   Capital contribution by shareholder   --         --         --        --         --         --              --             --
   Exercise of options and warrants      --         --         --        --         --         --          29,254            117
   Shares issued pursuant to
      acquisition of Subsidiary          --         --         --        --         --         --         800,000          3,200
   Elimination of contributed
      capital related to joint
      venture no longer consolidated
      (See NOTE 4)                       --         --         --        --         --         --              --             --
   Amortization of deferred
      compensation                       --         --         --        --         --         --              --             --
   Foreign currency translation
      adjustment                         --         --         --        --         --         --              --             --
   Net loss                              --         --         --        --         --         --              --             --
                                      ------------------------------------------------------------------------------------------
Balance at December 31, 2000             --         --         --        --     86,750        867      16,541,621         66,167
   Foreign currency translation
      adjustment                         --         --         --        --         --         --              --             --
   Net loss                              --         --         --        --         --         --              --             --
                                      ------------------------------------------------------------------------------------------
Balance at December 31, 2001             --         --         --        --     86,750        867      16,541,621         66,167
   Foreign currency translation
      adjustment                         --         --         --        --         --         --              --             --
   Net loss                              --         --         --        --         --         --              --             --
                                      ------------------------------------------------------------------------------------------
Balance at December 31, 2002             --         --         --        --     86,750        867      16,541,621         66,167
   Conversion of preferred to
      common stock                       --         --         --        --    (50,000)      (500)      1,538,450          6,153
   Common stock warrants issued in
   conjunction with convertible
      notes payable                      --         --         --        --         --         --              --             --
   Foreign currency translation
      adjustment                         --         --         --        --         --         --              --             --
   Net loss                              --         --         --        --         --         --              --             --
                                      ------------------------------------------------------------------------------------------
Balance at December 31, 2003             --     $   --         --    $   --     36,750    $   367      18,080,071   $     72,320
                                      ==========================================================================================

[TABLE CONTINUES BELOW]

<CAPTION>
                                                                                                          DEFICIT
                                                                              UNREALIZED                 ACCUMULATED       TOTAL
                                       ADDITIONAL                              LOSS ON        OTHER       DURING THE   STOCKHOLDERS'
                                        PAID-IN    SUBSCRIPTION    DEFERRED   MARKETABLE  COMPREHENSIVE  DEVELOPMENT      EQUITY
                                        CAPITAL     RECEIVABLE   COMPENSATION SECURITIES     INCOME         STAGE        (DEFICIT)
                                      ----------------------------------------------------------------------------------------------
<S>                                   <C>             <C>             <C>       <C>        <C>          <C>            <C>
Balance at December 31, 1998          $ 23,999,855    $(422)      $(425,224)     $ --       $     --    $(13,358,277)  $ 10,257,087
   Conversion of preferred to
      common stock                          (3,661)      --              --        --             --              --             --
   Issue shares based upon reset
      provisions                               (84)      --              --        --             --              --             --
   Issuance of Series C preferred
      stock in a private placement
      in March 1999                      9,283,726       --              --        --             --              --      9,284,739
   Exercise of Warrants pursuant to
      cashless exercise provisions          27,000       --              --        --             --              --         27,150
   Capital contributed through sale
      of 20% interest in consolidated
      subsidiaries to unrelated third
      party                              2,099,200       --              --        --             --              --      2,099,200
   Amortization of deferred
      compensation                              --       --         269,100        --             --              --        269,100
   Net loss                                     --       --              --        --             --      (7,867,563)    (7,867,563)
                                      ----------------------------------------------------------------------------------------------
Balance at December 31, 1999          $ 35,406,036     (422)       (156,124)       --             --     (21,225,840)    14,069,713
                                      ----------------------------------------------------------------------------------------------
   Conversion of preferred to
      common stock                          (8,615)      --              --        --             --              --             --
   Private placement of common stock,
      March 2000                        24,186,656       --              --        --             --              --     24,195,695
   Capital contribution by shareholder      93,637       --              --        --             --              --         93,637
   Exercise of options and warrants        271,273       --              --        --             --              --        271,390
   Shares issued pursuant to
      acquisition of Subsidiary          7,596,800       --              --        --             --              --      7,600,000
   Elimination of contributed
      capital related to joint
      venture no longer consolidated
      (See NOTE 4)                      (2,099,200)      --              --        --             --              --     (2,099,200)
   Amortization of deferred
      compensation                              --       --         156,124        --             --              --        156,124
   Foreign currency translation
      adjustment                                --       --              --        --         80,009              --         80,009
   Net loss                                     --       --              --        --             --     (16,276,749)   (16,276,749)
                                      ----------------------------------------------------------------------------------------------
Balance at December 31, 2000            65,446,587     (422)             --        --         80,009     (37,502,589)    28,090,619
   Foreign currency translation
      adjustment                                --       --              --        --        (38,894)             --        (38,894)
   Net loss                                     --       --              --        --             --              --    (15,109,753)
                                      ----------------------------------------------------------------------------------------------
Balance at December 31, 2001            65,446,587     (422)             --        --         41,115     (52,612,342)    12,941,972
   Foreign currency translation
      adjustment                                --       --              --        --        354,789              --        354,789
   Net loss                                     --       --              --        --             --      (9,425,564)    (9,425,564)
                                      ----------------------------------------------------------------------------------------------
Balance at December 31, 2002            65,446,587     (422)             --        --        395,904     (62,037,906)     3,871,197
   Conversion of preferred to
      common stock                          (5,653)      --              --        --             --              --             --
   Common stock warrants issued in
   conjunction with convertible
      notes payable                        142,500       --              --        --             --              --        142,500
   Foreign currency translation
      adjustment                                --       --              --        --         10,175              --         10,175
   Net loss                                     --       --              --        --             --      (3,286,100)    (3,286,100)
                                      ----------------------------------------------------------------------------------------------
Balance at December 31, 2003          $ 65,583,434    $(422)      $      --      $ --       $406,079    $(65,324,006)  $    737,772
                                      ==============================================================================================
</TABLE>


SEE ACCOMPANYING NOTES.


                                      F-6


<PAGE>

                    AVAX Technologies, Inc. and Subsidiaries
                          (A DEVELOPMENT STAGE COMPANY)
                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                                            PERIOD FROM
                                                                                                          JANUARY 12, 1990
                                                                                                         (INCORPORATION) TO
                                                                               YEAR ENDED DECEMBER 31       DECEMBER 31,
                                                                                 2002          2003             2003
                                                                          -------------------------------------------------
<S>                                                                          <C>            <C>            <C>
OPERATING ACTIVITIES
Net loss                                                                     $(9,425,564)   $(3,286,100)   $ (65,324,006)
Adjustments to reconcile net loss to net cash used in operating
   activities:
     Depreciation and amortization                                               546,227        414,305        3,783,131
     Amortization of discount on convertible notes payable                            --         29,855           29,855
     Extraordinary gain related to negative goodwill on consolidated
       subsidiary                                                               (186,295)            --         (186,295)
     Cumulative effect of change in accounting                                  (902,900)            --         (902,900)
     Amortization of deferred gain on joint venture                                   --             --       (1,805,800)
     Equity in net loss of joint venture                                          14,778             --        1,703,763
     Minority interest in net loss of consolidated subsidiary                    (57,968)            --          (80,427)
     Acquired in-process research and development charge                              --             --        4,420,824
     Write down of acquired intellectual property and other intangibles               --             --        3,416,091
     Compensatory stock issue                                                         --             --           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                                 --             --         (449,000)
     Accretion of interest on amount payable to preferred stockholders
       and Former Officer                                                             --             --          449,000
     Loss on sale of furniture and equipment                                     206,291          3,500          247,178
     Issuance of common stock or warrants for services                                --             --          423,289
     Changes in operating assets and liabilities:
       Accounts receivable                                                        57,620        182,105           67,019
       Inventory                                                                   5,309         (3,621)          (7,786)
       Prepaid expenses and other current assets                                (218,189)       389,180          (51,925)
       Research and development tax credit receivable                           (141,784)       210,998          (31,009)
       Accounts payable and accrued liabilities                                1,123,081     (1,572,262)         594,877
       Deferred revenue                                                            7,223        (63,966)              --
       Amount payable to Former Officer                                               --             --           80,522
                                                                          -------------------------------------------------
Net cash used in operating activities                                         (8,972,171)    (3,696,931)     (55,551,310)

INVESTING ACTIVITIES
Purchases of marketable securities                                              (694,798)    (1,404,292)    (351,027,597)
Proceeds from sale of marketable securities                                      691,816      1,489,000      343,648,381
Proceeds from sale of short-term investments                                          --             --        7,116,472
Purchases of furniture and equipment                                            (221,230)        (6,030)      (3,051,196)
Proceeds from sale of furniture and equipment                                     40,919          5,600           51,119
Cash acquired in acquisition of control of joint venture                         991,634             --          991,634
Organization costs incurred                                                           --             --         (622,755)
                                                                          -------------------------------------------------
Net cash provided by (used in) investing activities                              808,341         84,278       (2,893,942)
</TABLE>


                                      F-7
<PAGE>


                    AVAX Technologies, Inc. and Subsidiaries
                          (A DEVELOPMENT STAGE COMPANY)

                Consolidated Statements of Cash Flows (continued)

<TABLE>
<CAPTION>
                                                                                                               PERIOD FROM
                                                                                                             JANUARY 12, 1990
                                                                                                            (INCORPORATION) TO
                                                                                  YEAR ENDED DECEMBER 31       DECEMBER 31,
                                                                                    2002          2003             2003
                                                                             -------------------------------------------------
<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                                     --              --        (802,000)
Proceeds from loans payable and the related issuance of warrants                         --         925,000       2,314,000
Principal payments on loans payable                                                      --              --      (1,389,000)
Payments for fractional shares from reverse splits and
   preferred stock conversions                                                           --              --             (76)
Financing costs incurred                                                                 --              --         (90,000)
Shareholder capital contribution                                                         --              --          93,637
Payments received on subscription receivable                                             --              --           4,542
Proceeds received from exercise of stock warrants                                        --              --          28,501
Elimination of consolidated accounting treatment for joint
   venture                                                                               --              --      (2,511,701)
Capital contribution through sale of interest in consolidated
   subsidiary                                                                            --              --       2,624,000
Net proceeds received from issuance of preferred and common
   stock                                                                                 --              --      57,972,641
                                                                             -------------------------------------------------
Net cash provided by financing activities                                                --         925,000      59,202,101

Effect of exchange rate changes on cash                                             354,789         (26,793)        369,111
                                                                             -------------------------------------------------

Net increase (decrease) in cash and cash equivalents                             (7,809,041)     (2,714,446)      1,125,960
Cash and cash equivalents at beginning
   of period                                                                     11,649,447       3,840,406              --
                                                                             -------------------------------------------------
Cash and cash equivalents at end of period                                     $  3,840,406    $  1,125,960    $  1,125,960
                                                                             =================================================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Non-cash activity (1 & 2)                                                      $         --    $    167,500    $     25,000
                                                                             =================================================
Interest paid                                                                  $         --    $         --    $    197,072
                                                                             =================================================

(1)   Conversion of accounts payable into notes payable                        $         --    $     25,000    $     25,000
(2)   Common stock warrants issued in conjunction with
      convertible notes payable                                                $         --    $    142,500    $    142,500
</TABLE>


SEE ACCOMPANYING NOTES.







                                      F-8
<PAGE>

                    AVAX Technologies, Inc. and Subsidiaries
                          (A DEVELOPMENT STAGE COMPANY)

                   Notes to Consolidated Financial Statements

                           December 31, 2003 and 2002

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).

In November 1999, the Company entered into a definitive joint venture agreement
with Australia Vaccine Technologies (AVT) (formerly Neptunus International
Holdings Limited), a pharmaceutical group in Australia, under the subsidiary
name, AVAX Holdings Australia Pty Limited (AVAX Holdings). Under the joint
venture agreement, AVAX Holdings, through its affiliated entities AVAX Australia
Pty Limited and AVAX Australia Manufacturing Pty Limited (the Joint Venture
Companies), was organized for the purpose of manufacturing and marketing M-Vax,
an immunotherapy for the post-surgical treatment of Stage 3 and 4 melanoma, in
Australia and New Zealand. In January 2002, the Joint Venture Companies
repurchased 90% of AVT's interest in the two joint venture companies resulting
in AVAX owning a 95% interest in the net equity of both joint venture companies.
The Company was seeking but was unable to obtain a timely governmental
reimbursement for the costs of treatment with the AC Vaccine in Australia, and
determined to discontinue operations in Australia in order to focus the cash
resources of the Company on its U.S. and European operations. In September 2002,
the Company announced that it would be discontinuing its operations in Australia
and in December 2002 the Company completed the liquidation of its Australian
subsidiary (see NOTE 4).

In August 2000, the Company completed its acquisition of GPH, S.A. (Holdings)
and Genopoietic S.A. (Genopoietic) each a French societe anonyme based in Paris,
France. Holdings and Genopoietic were organized in 1993 to develop gene therapy
applications and market gene therapy treatments for cancer. The Company has
designated the Lyon, France operations facility as its primary source facility
for the production of vaccines to be used in clinical trials. In addition, the
Company currently performs contract manufacturing and research activities at its
facilities located in Lyon.

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.


                                      F-9

<PAGE>

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

BASIS OF PRESENTATION

The consolidated financial statements have been prepared assuming that the
Company will continue as a going concern. For the year ended December 31, 2003,
the Company incurred a net loss of $3,286,000 and a use of cash in operating
activities of $3,697,000. The Company's cash requirements were satisfied through
a convertible debt offering completed in December, 2003 (SEE NOTE 7),
maintaining balances in accounts payable and accrued expenses on terms in excess
of those afforded commercial practice and customer agreements and through the
use of available cash. However, the Company has insufficient resources to
maintain existing operations throughout 2004. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. Additional
debt or equity financing will be required to fund ongoing operations in 2004.
The Company is currently negotiating to raise additional capital or secure
revenue sources to fund current operations. However, there can be no assurance
that the Company will successfully obtain the required capital or revenues or,
if obtained, the amounts will be sufficient to fund ongoing operations in 2004.
The inability to secure additional capital could have a material adverse effect
on the Company, including the possibility that the Company could have to cease
operations.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of AVAX
Technologies, Inc., and its subsidiaries. All significant intercompany balances
and transactions have been eliminated.

In 1999, the Joint Venture Companies were included in the consolidated financial
statements of the Company. Due to additional investment by AVT in the Joint
Venture Companies in 2000, whereby AVT acquired a 50% ownership interest, and
AVT's substantial and active involvement in the operations of the Joint Venture
Companies late in 2000, the Company no longer exercised control over the Joint
Venture Companies. During January 2002, the Joint Venture Companies repurchased
90% of AVT's interest in each company in exchange for cash consideration of
approximately $1,860,000 AUD (approximately $970,000 US). This resulted in AVAX
Holdings owning a 95% interest in the Joint Venture Companies as of the date of
the transaction, giving AVAX Holdings control of the companies and requiring
that the results of AVAX Holdings and its majority owned subsidiaries be
consolidated into AVAX's consolidated results.

FOREIGN CURRENCY TRANSLATION

Holdings and Genopoietic used the European Euro as their functional currency as
required by the European Union. The Australian Joint Venture Companies and AVAX
Holdings used the Australian Dollar as their functional currency prior to the
discontinuance of operations discussed above.

In accordance with Statement of Financial Accounting Standards (SFAS) No. 52,
"Foreign Currency Translation", the financial statements of these entities have
been translated into United States dollars, the functional currency of the
Company and its other wholly-owned subsidiaries and the reporting currency
herein, for purposes of consolidation. In addition, there were no material
foreign currency transaction gains or losses in 2003 or 2002.

USE OF ESTIMATES

The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States 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 period. Actual results could differ from those estimates.

REVENUE

The Company's revenues are related to the provision of contract and other
product services. Contract service revenue is recognized in installments based
upon the contractual agreement entered into with clients. The Company currently
only provides contract services out of its facility in Lyon, France. During the
fourth quarter of 2003 the Company completed its only contract that was ongoing
and does not anticipate earning additional revenue from this contractual
agreement.

CASH EQUIVALENTS

For purposes of reporting cash flows, the Company considers all highly liquid
financial instruments with a maturity of three months or less when purchased to
be cash equivalents.

                                      F-10
<PAGE>

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INVENTORIES

Inventories are stated at the lower of cost, determined using the first-in,
first-out method, or market. The Company's inventories include raw materials and
supplies.

ACCRUED EXPENSES

The Company provides a provision for accrued expenses based upon its contractual
obligation, as calculated by the Company, for all claims made for payment to the
Company. During the second quarter ended June 30, 2003 certain estimated
accruals recorded in prior periods were decreased by $770,082 ($.04 for the
twelve month period on a fully diluted basis) as a result of the settlement of
litigation and other claims and lengthy periods of inactivity related to other
disputed charges, for which accruals had been recorded. The total impact of the
adjustment to these accruals was a decrease in research and development expenses
for the twelve-month period of $719,253 and a decrease in administrative
expenses of $50,829 for the twelve-month period ended December 31, 2003.

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 and related
equipment are computed using the straight-line method over estimated useful
lives of 5 to 10 years. Leasehold improvements related to the building are being
amortized using the straight-line method over the actual life of the lease.

GOODWILL

The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets" on
January 1, 2002. This new accounting standard requires that goodwill and
indefinite lived tangible assets no longer be amortized but instead be tested at
least annually for impairment and expensed against earnings when the implied
fair value of a reporting unit, including goodwill, is less than its carrying
amount.

The following pro-forma table reflects the effects of the adoption of SFAS No.
142 on net loss for the period from January 12, 1990 (Incorporation) to December
31, 2003 to exclude amortization of goodwill. The years ending December 31, 2003
and 2002 have been accounted for under SFAS No. 142.

                                                  Period from January 12, 1990
                                                       (Incorporation) to
                                                        December 31, 2003
                                                  ----------------------------
  Loss from continuing operations as reported            $   (65,320,161)
       Goodwill amortization                                     113,032
                                                  ----------------------------
  Loss from continuing operations as adjusted            $   (65,207,129)
                                                  ============================
  Net loss as reported                                   $   (65,324,006)
       Goodwill amortization                                     113,032
                                                  ----------------------------
  Net loss as adjusted                                   $   (65,210,974)
                                                  ============================

RESEARCH AND DEVELOPMENT COSTS

Research and development costs, including payments related to patents and
license agreements, are expensed when incurred. Contractual research expenses
are recorded pursuant to the provisions of the contract under which the
obligations originate.









                                      F-11
<PAGE>

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

MARKETABLE SECURITIES

Management determines the appropriate classification of debt securities at the
time of purchase. 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 Company's debt securities held at December 31,
2003 all mature in 2004. The following is a summary of marketable securities:

                                                    UNREALIZED    ESTIMATED
      DESCRIPTION OF SECURITIES          COST      GAIN/(LOSS)    FAIR VALUE
   -----------------------------------------------------------------------------

   DECEMBER 31, 2003
   Held-to-maturity debt securities:
      U.S. Treasury securities         $  262,744    $   --      $   262,744
                                     ===========================================

STOCK-BASED COMPENSATION

SFAS No. 123, "Accounting for Stock-Based Compensation," 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. SFAS No. 148 "Accounting for Stock
Based Compensation - Transaction and Disclosures" further established accounting
and disclosure requirements using a fair value based method of accounting for
stock based employee compensation plans. The Company has elected to continue to
account for its stock-based compensation plans in accordance with the provisions
of APB 25 using the intrinsic value method.

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:

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                             -----------------------------------
                                                                 2003               2002
                                                            -----------------------------------
<S>                                                           <C>              <C>
   Net loss as reported                                       $ (3,286,100)    $  (9,425,564)
   Stock based compensation expense as reported                         --                 -
   Stock based compensation expense under fair value method       (254,121)       (1,171,614)
                                                            -----------------------------------
   Pro forma net loss attributable to common stockholders     $ (3,540,221)    $ (10,597,178)
                                                            ===================================

   Pro forma net loss per share - basic and diluted           $      (0.20)    $       (0.64)
                                                            ===================================
   Net loss per share, as reported - basic and diluted        $      (0.19)    $       (0.57)
                                                            ===================================
</TABLE>

EARNINGS PER SHARE

Net loss per share is based on net loss divided by the weighted average number
of shares of common stock outstanding during the respective periods. Diluted
earnings per share information is not presented, as the effects of stock
options, warrants and other convertible securities would be anti-dilutive for
the periods presented.



                                      F-12
<PAGE>

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECENTLY ISSUED ACCOUNTING STANDARDS

In January 2003, the FASB issued Financial Interpretation 46, Consolidation of
Variable Interest Entities (FIN 46). The interpretation expands upon and
strengthens existing accounting guidance that addresses when a company should
include in its financial statements the assets, liabilities and activities of
another entity. A variable interest entity is a corporation, partnership, trust
or any other legal structure used for business purposes that either (a) does not
have equity investors with voting rights or (b) has equity investors that do not
provide sufficient financial resources for the entity to support its activities.
The interpretation requires a variable interest entity to be consolidated by a
company if that company is subject to a majority of the risk of loss from the
variable interest entity's activities or is entitled to receive a majority of
the entity's residual returns or both. The consolidation requirements of the
interpretation applied immediately to variable interest entities created after
January 31, 2003. The consolidation requirements applied to older entities in
the first fiscal year or interim period beginning after December 15, 2003. In
February 2004, the Company entered into a contract manufacturing alliance which
may qualify as a variable interest entity and result in the results of the
operations of the entity to be consolidated in the Company's future financial
statements. If the results are required to be consolidated, it is not
anticipated that its impact would be material on the overall results of the
Company.

Effective January 1, 2003, the Company adopted SFAS No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities" (SFAS No. 146), which
addresses the accounting and reporting for costs associated with exit or
disposal activities, nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exist an Activity (including Certain Costs Incurred in a Restructuring)"
(EITF 94-3) and substantially nullifies EITF Issue No. 88-10, "Costs Associated
with Lease Modification or Termination" (EITF 88-10). SFAS No. 146 requires that
a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. Under EITF 94-3, a liability for an
exit cost as defined in EITF 94-3 was recognized at the date of an entity's
commitment to an exit plan. The provisions of SFAS No. 146 are effective for
exit or disposal activities initiated after December 31, 2002. The adoption of
SFAS No. 146 did not have a material effect on the Company's consolidated
financial statements.

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 were 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.

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, 1999.

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.


                                      F-13
<PAGE>


2. SALE OF THE PRODUCT (CONTINUED)

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 1999 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).

Under the terms of the license agreement the Company is obligated to (i) 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, (ii) enter into a research agreement 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, and (iii) following the third year, spend an aggregate of $500,000 per
year (which includes costs incurred pursuant to the research agreement plus
other internal and external costs) 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. During
2000, a payment of $25,000 was made to TJU pursuant to the license agreement. In
addition, the Company is obligated to pay royalties on its worldwide net revenue
derived from the Invention and a percentage of all revenues received from
sub-licensees of the Invention.

The research agreement with TJU mentioned above 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
$341,000 and $409,000 for the years ended December 31, 2003 and 2002,
respectively. This level of funding satisfies the Company's obligations under
its research agreement. The Company has recorded in accounts payable an amount
of $401,000. The research agreement expires in November 2004.

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 issued 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 $100,000 per year for three years. In addition,
the Company is obligated to spend (which includes costs incurred pursuant to the
research agreement plus other internal and external costs) 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. The research
agreement was extended until May 2003 with an annual funding commitment of
approximately $270,000. Expenses incurred related to research funding for
Rutgers was $303,976 and $10,000 for the years ended December 31, 2002 and 2003
respectively. The Company is in arrears on the final two payments under this
research agreement as of December 31, 2003 of $139,000 which is included in
accounts payable. This level of funding satisfies the Company's obligation under
the agreement.



                                      F-14
<PAGE>


3. LICENSE AND RESEARCH AGREEMENTS (CONTINUED)

Under the terms of the Rutgers 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. During 2002, the Company paid $25,000
pursuant to its obligations under this agreement.

The Company is also obligated to pay royalties on its worldwide net 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 addition, under the license agreement the Company is responsible to reimburse
Rutgers for patent expenses incurred related to the compound. During 2003
Rutgers claimed to have incurred patent expenses of $167,000, which covers the
Compounds that are licensed to the Company under the license agreement. In
addition, Rutgers, on two occasions, has sent correspondence to the Company
stating that Rutgers believes the Company is in breach of its obligations under
the License agreement.

The Company, in both instances, does not agree with the University's position as
to the claims made and has responded to the University related to this belief.
In addition, related to the research funding obligations, the Company has
requested certain information from the University which has not been received by
the Company.

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 first 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
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 were $110,713
for the year ended December 31, 2002. This level of funding satisfies the
Company's obligation under the agreement. The research agreement has been
extended until January 2004 with no additional funding requirement.

4. JOINT VENTURE AGREEMENT

In November 1999, the Company's subsidiary AVAX Australia Holdings, Pty Limited
entered into a joint venture agreement with AVT related to commercialization and
sale of the AC Vaccine Technology in Australia and New Zealand. Pursuant to the
joint venture agreement, the Company created two operating companies, AVAX
Australia Pty Limited and AVAX Australia Manufacturing Pty Limited, and AVT
contributed $4 million Australia Dollars giving them a 20% equity interest in
the joint venture.

During 2000, AVT, through a subsidiary, contributed an additional $6 million
Australian Dollars, raising AVT's total ownership percentage in the joint
venture to 50%. Due to the ownership percentage maintained by AVT and their
substantial and active involvement in the management and decision making
processes of the joint venture, the Company determined that it no longer
maintained a controlling interest in the operations of the joint venture.
Accordingly, the Company began to account for its investment in the joint
venture using the equity method of accounting in late 2000.

At the time of the change from the consolidation method to the equity method,
there existed a difference between the Company's cost of its 50% investment in
the joint venture and the net book value of the underlying assets. This
difference, which amounted to approximately $2.7 million, resulted from the
Company's contribution of technology and related licensing rights, which had
little recorded value, and AVT's cash investments of $10 million Australian
Dollars. The resulting deferred gain was being amortized to income over three
years.

                                      F-15
<PAGE>

During January 2002, Joint Venture Companies repurchased 90% of AVT's
outstanding shares for cash consideration of approximately $1.8 million
Australia Dollars. After closing the transaction AVAX Holdings owned a 95%
equity interest in the Joint Venture Companies.

AVAX accounted for its investment in the Australian Joint Venture Companies
using the equity method up through the date of the repurchase of AVT shares. At
the date of that transaction, the Company had recorded on its books an
investment in joint venture (net of unamortized deferred gain) of approximately
$12,282. As a result of the transaction, AVAX's 95% equity in the Joint Venture
Companies had a book value of approximately $1,101,400. Of this difference,
$902,900, which represented the deferred gain as of December 31, 2002, was
recognized as a cumulative effect of change in accounting. The remaining
difference of $186,295 was recognized as an extraordinary gain related to
negative goodwill in the consolidated subsidiary. As discussed further below,
these amounts are both included in the loss from discontinued operations on the
2002 consolidated statement of operations and comprehensive loss.

The following pro-forma disclosures are made to reflect the Company's results of
operations as if the Australian Joint Venture transaction and the application of
SFAS No. 142 occurred as of January 1, 2002.

                                                       YEAR ENDED
                                                       DECEMBER 31,
                                                           2002
                                                     ---------------
         Total revenue                               $     780,222
         Net loss                                      (10,590,114)
         Net loss per common share                          (0.64)

In September 2002 the Company made the decision to discontinue the operations of
the Joint Venture Companies. With the adoption of SFAS No. 144, the Australian
operations were required to be accounted for and presented in the accompanying
financial statements as a discontinued operation.

The Company liquidated, through sale, all of the long-lived assets of the joint
venture companies prior to December 31, 2002. Proceeds received on the sale of
the assets of the Company at the time were $40,919 while the cost basis of the
assets was $247,210, resulting in a net loss on the disposition of the assets of
$206,291, which is included in the loss from discontinued operations.

On December 13, 2002, a liquidator was appointed to oversee the dissolution of
the Joint Venture Companies. The combined assets of the Joint Venture Companies
consist of cash with a value of $52,958 at December 31, 2003. Recorded
liabilities are $87,294 at December 31, 2003. Other long term liabilities
related to leasehold obligations were not recorded as the obligations will not
be required to be met pursuant to the liquidation proceedings.























                                      F-16
<PAGE>

4. JOINT VENTURE AGREEMENT (CONTINUED)

The following is summarized financial information for the discontinued
Australian operation for the years ended December 31, 2002:

                                                                         2002
                                                                         ----
   Total revenue                                                  $     9,749
   Costs and expenses:
      Manufacturing, research and development                         327,485
      Selling, general and administrative                             792,527
                                                                  -----------
   Total operating loss                                            (1,110,263)
   Other income (expense):
      Interest income                                                  26,272
      Minority interest in net loss of consolidated subsidiary         57,968
      Amortization of deferred gain on joint venture                       --
      Equity in net loss of joint venture                                  --
      Other, net (loss on asset disposal)                            (206,291)
                                                                  -----------
   Total other expense                                               (122,051)
                                                                  -----------
   Loss from discontinued operations before cumulative effect
      and extraordinary item                                       (1,232,314)
   Extraordinary gain related to negative goodwill on
      consolidated subsidiary                                         186,295
   Cumulative effect of change in accounting for deferred credit
      related to equity method investment in joint venture            902,900
                                                                  -----------
   Loss from discontinued operations                              $  (143,119)
                                                                  ===========

5. ACQUISITION OF GPH AND GENOPOIETIC

On August 24, 2000, the Company completed its acquisition of GPH, S.A.
(Holdings) and Genopoietic S.A. (Genopoietic), each a French societe anonyme
based in Paris, France. In this transaction, 100% of the outstanding shares of
both Holdings, which is the majority shareholder of Genopoietic, and Genopoietic
have been contributed to the Company by the shareholders of those two entities
in exchange for an aggregate of 800,000 shares of the Company's common stock
valued at $7,600,000 as of the acquisition date and $5,000 in notes payable. Of
the 800,000 shares issued to Professors David R. Klatzmann and Jean-Loup
Salzmann, 659,756 shares have been placed in escrow to secure their
indemnification obligations under the Contribution Agreement. In addition the
Company incurred $621,397 in acquisition costs, which were capitalized as part
of the purchase price and allocated to the net assets acquired.

Upon the closing of the transaction, the Company entered into the Rights
Agreements dated as of August 24, 2000 between the Company and the two primary
shareholders of Holdings, pursuant to which each individual has the right to
acquire up to an additional 1,100,000 shares of the Company's common stock, upon
the successful and timely achievement of development and commercialization
milestones by Genopoietic. These contingent shares have not been included as
part of the purchase price.

Simultaneously with the closing of the transaction the Company entered into a
Research Funding Agreement with Genopoietic whereby the Company agreed to
provide funding to Genopoietic over the next five years in the amount of
$8,000,000. Provision of this funding is contingent upon the Company's financial
health and may be withheld at the discretion of Company management. In
connection with the termination of various agreements between the Company and
the former owners of Genopoietic, the Company also terminated this Research
Funding Agreement.

The acquisition of Holdings and Genopoietic was accounted for as a purchase. The
assets and liabilities of both companies have been recorded on the books of the
Company at their fair market values. The operating results of the acquired
business have been included in the consolidated statements of operations and
comprehensive loss from August 24, 2000, the effective date of the acquisition.






                                      F-17
<PAGE>

5. ACQUISITION OF GPH AND GENOPOIETIC (CONTINUED)

Aggregate consideration for the acquisition of $8,226,397 was allocated, based
on estimated fair values on the acquisition date, as follows:

      Acquired in-process research and development               $  4,420,824
      Acquired intellectual property and other intangibles:
         Acquired existing technology                               3,114,671
         Patents                                                      904,259
         Assembled workforce                                          301,420
      Assets acquired                                                 895,423
      Liabilities assumed                                          (1,410,200)
                                                                 -------------
      Total purchase price                                       $  8,226,397
                                                                =============

The acquired existing technology and patents was amortized over their estimated
useful lives of ten years and the intangible asset related to assembled
workforce is being amortized over its estimated useful life of four years
through 2001. Pursuant to the adoption of SFAS No. 142, the assembled workforce
has been reclassified as goodwill and is no longer amortized.

Acquired in-process research and development represented the present value of
the estimated after-tax cash flows expected to be generated by the purchased
technology, which, at the acquisition date, had not yet reached technological
feasibility. The cash flow projections for revenues were based on estimates of
growth rates and the aggregate size of the respective market for each product;
probability of technical success given the stage of development at the time of
acquisition; products sales cycles; and the estimated life of a product's
underlying technology. Estimated operating expenses and income taxes were
deducted from estimated revenue projections to arrive at estimated after-tax
cash flows. The rates utilized to discount projected cash flows were 25% to 55%
depending upon the relative risk of each technology and the technologies stage
of development. In-process research and development acquired in this transaction
is reflected as an expense in the accompanying consolidated statements of
operations and comprehensive loss.

All estimates and projections were based upon assumptions the Company believed
to be reasonable at the time of acquisition, but which are inherently uncertain
and unpredictable. If these projects are not successfully developed, the
business, operating results and financial condition of the Company may be
adversely affected. As of the date of the acquisition, the Company concluded
that once completed, the technologies under development can only be economically
used for their specific and intended purposes and that such in-process
technology has no alternative future use after taking into consideration the
overall objectives of the project, progress toward the objectives and uniqueness
of developments to these objectives. If the projects fail, the economic
contribution expected to be made by the acquired in-process research and
development will not materialize.

Due to various changes in 2001 in the Company's scope of operations and the
availability of capital to pursue product development and marketing initiatives,
the Company undertook an evaluation of the strategic value of each of its core
technologies for purposes of determining future development plans. Based upon
this review that was completed in the fourth quarter of 2001, the Company
determined they would not pursue further development and marketing of the
technologies and patents capitalized in the 2000 acquisition of Holdings and
Genopoietic. As such, future cash flows related to these acquired intangible
assets were determined to be minimal and uncertain. Based on these factors, the
net book value of the acquired existing technology ($2,647,471) and patents
($768,620) capitalized in the acquisition, amounting to $3,416,091 in the
aggregate, was considered impaired and written off in 2001.

The Company has notified Professors Klatzmann and Salzmann that they are in
default of their obligations under the Contribution agreement and has put them
on notice that the escrow shares are being cancelled and will revert back to the
Company as treasury shares. As of the date of the financial statements the
shares have not been formally cancelled.

6. 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.


                                      F-18
<PAGE>

6. EQUITY TRANSACTIONS (CONTINUED)

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.

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 Paramount Capital (Paramount), 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. During 2000, 19,127 shares of
common stock were issued upon exercise of these warrants.

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.

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-19
<PAGE>

6. EQUITY TRANSACTIONS (CONTINUED)

On March 1, 1999, the Company authorized and consummated an offering of Series C
Convertible Preferred Stock (the "Series C Offering") pursuant to which the
Company raised aggregate gross proceeds of approximately $10,130,000. In the
Series C Offering, the Company sold an aggregate of 101,300 shares of Series C
Preferred Stock combined with Class A Warrants to purchase an aggregate of
311,692 shares of Common Stock at an exercise price of $4.00 per share and Class
B Warrants to purchase an aggregate of 311,692 shares of Common Stock at an
exercise price of $4.50 per share. During 2000 2,462 of these Class A and Class
B warrants were exercised. The Series C Preferred Stock, the Class A Warrants
and the Class B Warrants were sold as a unit in the Series C Offering. The Class
A Warrants and Class B Warrants are exercisable until March 1, 2004.

The Series C preferred stockholders are entitled to voting rights equivalent to
the number of common shares into which their preferred shares are convertible.
The Series C preferred stockholders are also entitled to receive, in preference
to the holders of common stock, an amount per preferred share of $100 plus any
declared but unpaid dividends.

Pursuant to the terms of the private placement, each share of Series C preferred
stock was convertible at any time, in whole or in part, at the discretion of the
holders, into common stock at $3.25 per share.

In connection with the private placement, the Company paid $845,261 in finder's
fees and non-accountable expenses. Of this amount $709,100 was paid to
Paramount, a related party, in the form of a finders fee. In addition, Paramount
was issued warrants to acquire 187,014 shares of Common Stock at an exercise
price of $3.58, exercisable until March 1, 2004. Upon exercise of the option
granted to it in connection with the Series C Offering, Paramount would be
issued warrants to purchase 37,402 shares of Common Stock of which 18,701 will
be exercisable at $4.00 and the remaining 18,701 will be exercisable at $4.50,
all for an aggregate exercise price of $828,472. The warrants are exercisable
until March 1, 2004.

In September 1999, a vendor of the Company's exercised warrants pursuant to the
cashless exercise provision of the warrant. This resulted in the Company issuing
an additional 37,500 shares of Common Stock. Expense related to this transaction
of $27,150 was recorded during the year which represented the fair value of the
services on the date of issuance.

In March 2000, the Company completed a $25,137,000 private placement with
institutional investors. The Company sold an aggregate of 2,259,494 newly issued
shares of common stock, and issued warrants to purchase an additional 225,951
shares of common stock at an exercise price of $12.79 per share, for an
aggregate warrant exercise price of $2,890,817. The warrants are exercisable
until March 10, 2005.

In connection with services rendered in connection with the private placement,
the Company paid Gruntal & Co., L.L.C., who acted as the placement agent, a cash
fee of approximately $747,000 and issued warrants to purchase 83,927 shares of
common stock at an exercise price of $11.125. The warrants are exercisable until
March 10, 2005. In addition the Company issued to Sagres Group Ltd. warrants to
purchase 124,045 shares of common stock at an exercise price of $11.125 per
share as a finder's fee in connection with the private placement. The Warrants
are exercisable until March 10, 2005. Other share issuance expenses amounted to
approximately $54,000.

Pursuant to a prior agreement, Paramount was paid a fee due to the participation
in the private placement of certain investors previously introduced to the
Company by Paramount. As a result of this agreement, the Company paid Paramount
a cash fee of approximately $140,000 and issued to Paramount warrants to
purchase 10,787 shares of common stock of the Company at an exercise price of
$11.125 per share. The warrants are exercisable until March 10, 2005.

During 2000 holders of 14,550 shares the Series C Preferred stock converted
these shares into 650,931 fully paid nonassessable shares of common stock.
During 2001 holders of 50,000 shares of the Series C Preferred stock converted
these shares into 1,538,450 fully paid nonassessable shares of common stock. The
36,750 shares of Series C preferred stock, outstanding at December 31, 2003, is
convertible into 1,130,755 shares of common stock excluding the effect of any
fractional shares.

In March 2000, the Company announced the conversion of all outstanding shares of
Series B Convertible preferred stock into fully paid nonassessable shares of
common stock. As of the conversion date there were 66,093 shares of Series B
Convertible Preferred Stock outstanding that were convertible into 1,724,152
shares of Common Stock.



                                      F-20
<PAGE>

6. EQUITY TRANSACTIONS (CONTINUED)

CONVERSION RESET

In accordance with the terms of the Series B 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 Series B 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, 1999.
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.

STOCK OPTIONS - 1992 STOCK OPTION PLAN

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 1999, to increase the number of shares issuable to
1,500,000. The Plan was further amended in June 2000, to increase the number of
shares issuable to 2,500,000. 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.










                                      F-21
<PAGE>

6. EQUITY TRANSACTIONS (CONTINUED)

The following summarizes activity in the Plan:

                                                          NUMBER OF
                                                           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
    Granted                                                 955,397
    Expired                                                (240,000)
Balance at December 31, 1999                              1,345,397
    Granted                                                 430,000
    Expired                                                 (13,430)
    Exercised                                                (7,955)
Balance at December 31, 2000                              1,754,012
    Granted                                               1,039,696
    Expired                                                (386,684)
Balance at December 31, 2001                              2,407,024
    Expired                                                (567,365)
Balance at December 31, 2002                              1,839,659
    Expired                                              (1,058,755)
Balance at December 31, 2003                                780,904

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

STOCK OPTIONS - 2001 STOCK OPTION PLAN

In November 2001 the Board of Directors approved the 2001 Stock Option Plan (the
2001 Plan), subject to shareholder approval, authorizing up to 2,500,000 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 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 2001 Plan's adoption date and generally expire
10 years from the date of grant. During 2001, options to purchase 175,108 shares
of common stock were granted under this plan and remained outstanding at
December 31, 2001. During 2002, 59,435 options expired leaving 115,673 options
outstanding at December 31, 2002. During 2003, 90,688 options expired without
being exercised leaving 24,985 options outstanding at December 31, 2003.

DIRECTOR OPTION PLAN

In June 2000, the Company adopted the 2000 Director Stock Option plan and
authorized the plan to issue up to 480,000 shares of common stock as
compensation to the outside directors of the Company for services to be received
from the Directors. During 2000, each of the Company's six outside director
received options to purchase 40,000 shares of common stock, which vest quarterly
at the rate 2,500 shares, with the first vesting period being January 1, 2000.
Pursuant to the plan documents an additional 40,000 options are scheduled to be
issued as of January 1, 2004, vesting over a four-year period.

In November 2001, two Directors received options to purchase 50,000 shares of
common stock, which vest quarterly at the rate of 3,125 shares, with the first
vesting period being January 1, 2002.



                                      F-22
<PAGE>

6. EQUITY TRANSACTIONS (CONTINUED)

STOCK OPTIONS - OTHER

Certain officers and employees were also granted stock options in 1996, as
authorized by the Board of Directors, apart from the Plan and the 2001 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 has been
amortized over four years. These options expired during 2003 and were
unexercised.

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 has been amortized over four
years. During 2000, 9,688 of these options were exercised. During 2001, 125,000
of these options were forfeited. During 2003, the remaining options outstanding
expired and were unexercised.

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. During 2001, these options were forfeited.

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. During 2001, 65,000 of these options were forfeited. During 2003,
an additional 65,000 of these options were forfeited.

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, 1999, 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, four directors each received grants to purchase 8,101 shares
of common stock each at $2.47 per share. In March 2000, one director received a
grant to purchase 4,938 shares of common stock at $3.38 per share. In August
2000, two directors each received grants to purchase 2,222 shares of common
stock each at $3.00 per share. All options vested as of December 31, 2000 based
upon the issuance date, and are exercisable for a period of seven years.

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.

In November 1999, two directors each received grants to purchase 10,000 shares
of common stock each at $2.94 per share. Such options vest in equal increments
annually over one year, and are exercisable for a period of seven years.

In December 2000, options were issued to two employees of AVT, the Company's
joint venture in Australia, to purchase 18,000 shares of common stock at $2.938
per share. Such options vest over a four-year period and expire in December
2007. These options expired during 2002 unexercised.


                                      F-23
<PAGE>

6. EQUITY TRANSACTIONS (CONTINUED)

In May 2001, options were issued to the General Manager of AVT, the Company's
joint venture in Australia, to purchase 35,000 shares of common stock at $.89
per share. Such options vest over a four-year period and expire in May 2008.
These options expired during 2002 unexercised.

WARRANTS

In May 1993, the Company issued warrants to purchase 7,750 shares of the
Company's common stock at a price of $11.00 per share. These warrants expired in
May of 1999 unexercised.

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, of which
66,250 warrants were exercised in 1996. The remaining 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. These warrants expired in October 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 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. During 2002, these warrants expired.

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. During 2000, 64,346 of these warrants vested and the
remaining 50,654 expired pursuant to the terms of the agreement.

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. During 2000, these warrants expired.

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
1998 resulting in only 40,000 shares vesting as of December 31, 1998. During
2000, 6,000 shares were exercised. These warrants expired 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. These warrants became fully
vested in 1999 and were exercised, utilizing the cashless exercise provisions of
the warrant, resulting in the issuance of 37,500 shares of common stock.

In December 1999, warrants were issued to a financial consultant to purchase
150,000 shares of common stock at $5.09 per share. Such warrants vested over a
three-month period and expire in December 2004.



                                      F-24
<PAGE>

6. EQUITY TRANSACTIONS (CONTINUED)

Authorized but unissued shares of common stock were reserved for issuance at
December 31, 2003 as follows:


Series C convertible preferred stock                                 1,130,775
1992 Stock option plan                                               2,500,000
2001 Stock option plan                                               2,500,000
2000 Directors option plan                                             480,000
Non plan options                                                       493,430
Warrants to purchase common stock                                      471,096
Warrants to purchase Series B convertible preferred stock              654,437
Warrants to purchase common stock issued in connection with
  Series C convertible preferred stock                                 845,339
Warrants to purchase Common Stock pursuant to 2000 fund raising        444,710
Convertible shares to issue upon conversion of the 2003 Bridge
  Financing                                                          7,308,000
Warrants to purchase common stock pursuant to the 2003 Bridge
  Financing                                                          7,308,000
                                                                    ----------
                                                                    24,135,787
                                                                    ==========

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.

There were no options granted during 2002 and 2003.

This model was developed for use in estimating the fair value of traded options
that 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.








                                      F-25

<PAGE>

6. EQUITY TRANSACTIONS (CONTINUED)

A summary of applicable stock option and warrant activity and related
information for the years ended December 31, 2003 and 2002 is as follows:

<TABLE>
<CAPTION>
                                                               2003                       2002
                                                     -------------------------------------------------------

                                                                      WEIGHTED-                  WEIGHTED-
                                                                       AVERAGE                   AVERAGE
                                                     OPTIONS AND      EXERCISE   OPTIONS AND     EXERCISE
                                                       WARRANTS        PRICE      WARRANTS        PRICE
                                                     -------------------------------------------------------
<S>                                                     <C>            <C>        <C>             <C>
       Outstanding at beginning of year                 5,777,217      $3.84      6,422,017       $3.84
       Granted                                          7,308,000       0.14             --        --
       Exercised                                               --       --               --        --
       Forfeited                                       (1,772,315)      1.90       (644,800)       3.78
                                                     --------------             -------------
       Outstanding at end of year                      11,312,902      $1.76      5,777,217       $3.84
                                                     ==============             =============
       Exercisable at end of year                      11,117,078      $1.75      4,734,809       $4.22
                                                     ==============             =============
</TABLE>

Exercise prices for options and warrants outstanding range from $0.14 to $12.79.
The option and warrant contracts expire at various times through October of
2011.

7. LOANS PAYABLE

CONVERTIBLE DEBT OFFERING

On December 4, 2003, the Company completed a bridge financing in the aggregate
principal amount of $950,000 with eight institutional and individual investors,
of which $50,000 and $25,000 were received from an officer and a director,
respectively. The notes have a stated interest rate of 5% and mature on May 17,
2004 but carry a mandatory conversion option upon the completion of an equity
fundraising of $1,000,000 dollars or greater. The notes plus interest are
convertible into common stock upon the completion of an equity offering prior to
maturity, at the lower of $0.13 per common share or the price at which the
equity offering is completed. The notes were accompanied by warrants to purchase
an aggregate of 7,308,000 shares of common stock at an exercise price of $0.143
per share. The notes, common stock the notes may convert into and the common
stock underlying the warrants are not registered securities.

The estimated fair value of the warrants issued on December 4, 2003, amounting
to $142,500, was recorded as a discount on the related notes payable. The
discount is being amortized to interest expense over the six month term of the
notes payable using the interest method. For the year ended December 31, 2003,
the Company recorded amortization expense of $29,855, which is included in
interest expense in the consolidated statement of operations and comprehensive
loss.

ANVAR GRANT PAYABLE

The Company's French subsidiary receives financial support from a French
governmental agency (ANVAR). The grants, which are subject to conditions
specifying that non-compliance with such conditions could result in the
forfeiture of all or a portion of the future amounts to be received, as well as
the repayment of all or a portion of amounts received to date, are accounted for
as long term debt. If certain products are commercialized, the December 31, 2003
balance of $247,752 (1,800,000 French Francs) is repayable based on an annual
royalty equal to 47% of the revenue related to the project. As such, the total
amount of grant proceeds received is recorded as a liability in the accompanying
consolidated balance sheet. In case of failure or partial success, as defined in
the agreement, $55,056 (400,000 French Francs) is payable. The due date for the
obligation has past but the grantor agency has not demanded repayment of the
obligation.


                                      F-26
<PAGE>

8. INCOME TAXES

At December 31, 2003, the Company has net operating loss carryforwards of
approximately $63,728,000 for federal income tax purposes that expire in varying
amounts between 2005 and 2023, if not utilized.

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,
                                                             2003
                                                       ---------------
Deferred tax assets:
   Net operating losses                                 $  24,483,000
   Deferred compensation                                      413,000
   Depreciation                                               148,000
   Other                                                        1,000
                                                       ---------------
Total deferred tax assets                                  25,045,000
Valuation allowance                                       (25,045,000)
                                                       ---------------
Net deferred tax assets                                $           --
                                                       ===============

The valuation allowance at December 31, 2002 was $23,813,000.

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 income tax benefit at the federal statutory
rate with the actual income tax provision (benefit):

                                                  YEAR ENDED DECEMBER 31,
                                              -----------------------------
                                                   2002           2003
                                              -----------------------------

Income taxes (benefit) at statutory rate       $(3,205,000)   $(1,117,000)
State income taxes, net of federal benefit        (415,000)      (145,000)
Change in the valuation allowance                3,643,000      1,232,000
Other                                              (23,000)        30,000
                                              -----------------------------
Income tax provision (benefit)                 $        --    $        --
                                              =============================

9. COMMITMENTS AND CONTINGENCIES

LEASES

In May of 1999, the Company entered into a five-year lease agreement for office
space that amended the Company's previous lease agreement. The Company provided
the landlord with an irrevocable letter of credit in the amount of $7,595 as
security related to the lease. Monthly lease payments escalate each year of the
lease beginning at approximately $13,170 per month and increasing to $14,450 per
month throughout the lease. In November of 2001 the Company entered into a
sub-lease agreement related to this office space. The sub-lease agreement calls
for the lessee to pay the entire amount of the Company's obligation under the
lease agreement for the remaining term of the lease. Pursuant to the sub-lease
agreement, the rent is paid directly to the landlord.

In November of 2001, the Company entered into a three year lease agreement for
new office space. The Company provided the landlord with an unconditional
commercial letter of credit in the amount of $37,001 as security for the lease.
Monthly lease payments are fixed at approximately $9,300 per month throughout
the lease.


                                      F-27
<PAGE>

9. COMMITMENTS AND CONTINGENCIES (CONTINUED)

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. During 2003 rental expense
associated with this lease was approximately $144,500. 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.

In July 2000, the Company entered into a 9-year lease agreement for
manufacturing and research space in Lyon, France. The lease may be cancelled by
the Company after July 2006. The monthly rental was approximately $11,400 during
2003.

The marketable securities in the amount of $262,744 plus a certificate of
deposit in the amount of $37,001 are held by the bank as collateral for the
commercial letters of credit noted above and the use of these funds is
restricted.

Rent expense under these agreements was approximately $392,000 and $363,000 for
the years ended December 31, 2003 and 2002, respectively.

Future minimum lease payments under the non-cancellable operating leases consist
of the following at December 31, 2003:

       YEAR ENDING           OPERATING LEASE           AMOUNTS RECEIVABLE
       DECEMBER 31,             PAYMENTS             PURSUANT TO SUB-LEASE
       ------------          ---------------         ---------------------
           2004                 $487,618                    $57,795
           2005                  325,231                         --
           2006                  245,740                         --
           2007                  152,396                         --

CONSULTING AGREEMENTS

Effective in June 1996, the Company entered into consulting agreements with the
Scientist that runs through May 2003. Annual consulting fees payable pursuant to
the agreement with the Scientist are $48,000. The Company has continued this
agreement through the end of 2003 and anticipates continuing the agreement
through 2004.

In April, May and July 1997, the Company entered into agreements with four
members of the Scientific Advisory Board. These agreements were 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. The
agreement calls for annual compensation of $20,000 plus options to acquire
30,000 shares of common stock at $4.50 per share. In December 1998, the Company
entered into a three year consulting agreement with a second member 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. The options vest annually in arrears.













                                      F-28
<PAGE>

9. COMMITMENTS AND CONTINGENCIES (CONTINUED)

In November 1999, the Company extended a Technical Testing Agreement with a
Consultant. The agreement, which is for a period of two years, calls for annual
payments of $110,000 annually in advance. This agreement was extended in
November 2001 at an annual cost of $110,000 through October 2002.

In January 2000, the Company entered into an Agreement for Services with a
contract research organization to assist the Company in the performance of its
clinical trials. The agreement was to extend over the life of the clinical
trials, which has an expected term of in excess of seven years with payments
made upon the achievement of various milestones in the study. At signing, total
expected payments under this agreement were approximately $11,138,000. This
agreement was terminated in June of 2001. Expenses incurred related to this
agreement were $597,346 and $1,500,950 for the years ended December 31, 2001 and
2000, respectively. Currently the Company is in dispute with the vendor as the
amount and the method of calculation of the liability due upon the termination
of this agreement. The Company accrued during 2001 and 2002 approximately
$700,000 which represents what the Company has calculated as the balance due
under the agreement plus additional costs estimated to settle the matter while
the vendor has claimed the Company's liability is approximately $1,500,000.
During 2003 the Company settled this matter for the amount of $250,000 and
recorded a decrease in expenses in research and development expenses of
$434,000.

10. PROPERTY, PLANT AND EQUIPMENT

The following shows the composition of the assets included in property, plant
and equipment at December 31, 2003:

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

Office furniture and equipment    $   288,802     $   265,201    $    23,601
Manufacturing facility and
   related equipment                3,084,901       1,782,706      1,302,195
                                  -----------     -----------    -----------
Total                             $ 3,373,703     $ 2,047,907    $ 1,325,796
                                  ===========     ===========    ===========

Depreciation expense was $414,305 and $546,227 for the years ended December 31,
2003 and 2002, respectively.

11. EMPLOYEE BENEFIT PLAN

During 1996, the Company established a discretionary 401(k) plan for all
employees over the age of 21. Employee contributions are subject to normal
401(k) plan limitations. The Company was not required to make a contribution in
2003 or 2002.

12. RELATED PARTY TRANSACTIONS

During 2002 and 2003 the Company paid additional compensation of $36,000 and
$116,625, respectively, to one of its Board Members who took a more active role
in assisting existing management of the Company. It is anticipated that this
role will continue until such time as additional management personnel are hired.
The compensation was voted upon and approved by the Board of Directors.

13. LEGAL PROCEEDINGS

         In addition to litigation discussed in Note 9 above, the Company was
         also involved in the following other legal proceedings at December 31,
         2003. A vendor has obtained arbitration which is to occur in May, 2004,
         with the Company related to an outstanding invoice for services. The
         Company has accrued the full amount of the obligation due to the vendor
         in its accompanying financial statements.

Additionally, the Company, as a result of extending the payment of certain
obligations to vendors beyond agreed upon or reasonable terms has been notified
in a number of instances of collection efforts related to certain balances due
from the company to vendors. The Company has recorded as a liability balances
claimed as due from vendors for products or services upon the invoices of the
vendors.

                                      F-29
<PAGE>

14. SUBSEQUENT EVENT

On January 29, 2004, the stockholders of the Company approved an amendment to
the Company's Certificate of Incorporation to increase the number of authorized
shares of common stock from 50 million shares to 150 million shares.


























                                      F-30