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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

| |           | 
| | --------- | 
| |           | 
| | FORM 10-K | 
| |           | 

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31,
2007

Commission file number 0-29222

| |  | 
| |  | 
| |  | 

AVAX
TECHNOLOGIES, INC.(Exact name of registrant as specified in its charter)

|                                                                 |  |                                     
|---------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                         |  | 13-3575874                          
|(State or other jurisdiction 
 of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                                 |  |                                     
|2000 Hamilton Street
 Suite 204 Philadelphia, PA                 |  | 19130                               
|(Address of principal executive offices)                         |  | (Zip Code)                          

Registrants telephone number, including area
code: (215)
241-9760

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)

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Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.


Yes o No x


Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act.


Yes o No x


Indicate by check mark
whether the registrant (1) has 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 o


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

Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of large accelerated filer, accelerated filer and smaller
reporting company in Ruler 12b-2 of the Exchange Act. (Check one):

| |                            |                             
| | -------------------------- | ----------------------------
| | o Large Accelerated
 Filer | o Accelerated Filer         
| | o Non-accelerated
 Filer   | x Smaller Reporting
 Company

Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).                o

The aggregate market value of
the voting and non-voting common equity held by non-affiliates (assuming 100%
conversion of the outstanding shares of preferred stock) computed by reference
to the price at which the common equity was last sold on the OTC Bulletin Board
on June 30, 2007, was $27,808,122.

As of April 11, 2008,
142,605,753 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.

Documents incorporated by
reference: None.







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AVAX
Technologies, Inc.

Index to Form 10-K

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|---------------------------------- |  | ------------------------------------------------------------------------------------------------ |  | ----
|                                   |  |                                                                                                  |  | Page
|                                   |  |                                                                                                  |  |     
|                                   |  |                                                                                                  |  |     
|PART I                             |  |                                                                                                  |  |     
|                                   |  |                                                                                                  |  |     
|Item 1.                            |  | Business                                                                                         |  | 1   
|Item 1A.                           |  | Risk Factors                                                                                     |  | 17  
|Item 2.                            |  | Properties                                                                                       |  | 24  
|Item 3.                            |  | Legal Proceedings                                                                                |  | 25  
|Item 4.                            |  | Submission of Matters to a Vote of Security Holders                                              |  | 25  
|                                   |  |                                                                                                  |  |     
|PART II                            |  |                                                                                                  |  |     
|                                   |  |                                                                                                  |  |     
|Item 5.                            |  | Market for Registrants Common Equity, and Related Stockholder
 Matters                          |  | 26  
|Item 7.                            |  | Managements Discussion and Analysis of Financial Condition and
 Results of Operations           |  | 27  
|Item 8.                            |  | Financial Statements and Supplementary Data                                                      |  | 35  
|Item 9.                            |  | Changes in and Disagreements with Accountants on Accounting and
 Financial Disclosure            |  | 36  
|Item 9A(T).                        |  | Controls and Procedures                                                                          |  | 36  
|Item 9B.                           |  | Other Information                                                                                |  | 38  
|                                   |  |                                                                                                  |  |     
|PART III                           |  |                                                                                                  |  |     
|                                   |  |                                                                                                  |  |     
|Item 10.                           |  | Directors, Executive Officers, and Corporate Governance                                          |  | 38  
|Item 11.                           |  | Executive Compensation.                                                                          |  | 41  
|Item 12.                           |  | Security Ownership of Certain Beneficial Owners and Management and
 Related Stockholder Matters. |  | 48  
|Item 13.                           |  | Certain Relationships, and Related Transactions, and Director
 Independence                      |  | 50  
|Item 14.                           |  | Principal Accountant Fees and Services                                                           |  | 51  
|                                   |  |                                                                                                  |  |     
|PART IV                            |  |                                                                                                  |  |     
|                                   |  |                                                                                                  |  |     
|Item 15.                           |  | Exhibits, Financial Statement Schedules                                                          |  | 52  
|                                   |  |                                                                                                  |  |     
|Signatures                         |  | 53                                                                                              
|                                   |  |                                                                                                 
|Exhibit Index                      |  | 54                                                                                              
|                                   |  |                                                                                                 
|Consolidated
 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 Results of Operations.

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
include:

| |   |                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our history
 of operating losses, our continuing cash requirements, our need to raise
 additional capital in the first half of 2008, and the uncertainty of our
 prospects of reaching a meaningful level of revenues.                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                  
| |  | The business
 uncertainties arising from our decision to conduct all AC Vaccine
 manufacturing activities at our Lyon, France facility and the logistical
 issues and risks relating to shipping biologics from the U.S. and other
 countries to France and the vaccine from France to patients in the U.S. and
 other countries.
| |   |                                                                                                                                                                                                                                                                                                                                  
| |  | 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.                                                                                                        
| |   |                                                                                                                                                                                                                                                                                                                                  
| |  | 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.                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                  
| |  | Difficulties arising from our competition
 with other companies conducting clinical trials and treatment regimens for
 patients and clinical sites for our clinical trials.                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                  
| |  | The expenses, delays, uncertainties and
 complications typically encountered by development stage biopharmaceutical
 businesses, many of which are beyond our control.                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                  
| |  | Our financial and development obligations
 and our responsibility to meet requisite research funding levels under our
 license agreements in order to protect our rights to our products and
 technologies.                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                  
| |  | Each of the
 other factors discussed in this report, under Item 1A  Risk Factors.                                                                                                                                                                                                                                             

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AVAX
TECHNOLOGIES, INC.

PART
I

|        |         
|------- | --------
|ITEM 1. | Business

GENERAL

Overview

We
are a development stage biotechnology company specializing in the development
and future commercialization of individualized vaccine therapies and other
technologies for the treatment of cancer. Our vaccine consists of autologous
(the patients own) cancer cells that have been treated with a chemical
(haptenized) to make them more visible to the patients immune system. We
refer to our cancer vaccine technology as autologous cell vaccine immunotherapy
and to the vaccine as the AC Vaccine. Our previous clinical trials for the AC
Vaccine have concentrated on melanoma, ovarian carcinoma, which are our primary
indications, and non-small cell lung cancer. We refer to our AC Vaccine
candidates as:

|  |                                                                                                                            |                                                                                                                                                                                                                       
|- | -------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | M-Vax® for
 the treatment of melanoma. The current clinical status of our M-Vax program
 is as follows:                   
|  |                                                                                                                            |                                                                                                                                                                                                                       
|  | o                                                                                                                          | Phase I-II 
 Dose-response safety and immunological efficacy study launched in June 2005
 and completed in December 2007.                                                                                            
|  |                                                                                                                            |                                                                                                                                                                                                                       
|  | o                                                                                                                          | Phase III 
 Registration study enrollment commenced in November 2007. The study is the
 subject of a Special Protocol Assessment granted by the U.S. Food and Drug
 Administration (FDA).                          
|  |                                                                                                                            |                                                                                                                                                                                                                       
| | L-Vax  for
 the treatment of non-small cell lung cancer. The current clinical status of
 our L-Vax program is as follows:
|  |                                                                                                                            |                                                                                                                                                                                                                       
|  | o                                                                                                                          | Phase I-II 
 Dose-response, safety and immunological efficacy study launched in December
 2005.                                                                                                                      
|  |                                                                                                                            |                                                                                                                                                                                                                       
| | O-Vax  for
 the treatment of ovarian cancer. The current clinical status of our O-Vax
 program is as follows:            
|  |                                                                                                                            |                                                                                                                                                                                                                       
|  | o                                                                                                                          | Phase I-II 
 Dose-response, safety and immunological efficacy study anticipated to launch
 in 2008, subject to obtaining sufficient financing to implement fully our
 plan of operation described in this prospectus.

M-Vax®, L-Vax and O-Vax
are registered trade names or trademarks of the company.

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 Europe, and more recently in South America, we have made M-Vax
available for patient treatment on a compassionate use basis. Compassionate use
is considered for patients who have failed to respond to accepted standards of
care for their cancer and are facing a prognosis of imminent death. Although it
is not the primary purpose of compassionate use of our vaccine, we receive
payments for the vaccine from the hospitals that contract for the acquisition
of the vaccine.

In
1995, we identified the AC Vaccine research being conducted by Dr. David Berd,
an oncologist and professor at Thomas Jefferson University 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. On November 1, 2004, Dr. Berd joined our company as our
Chief Medical Officer.

In
August 2000, we acquired Genopoietic S.A. and its corporate affiliate, 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, at which we now conduct all AC Vaccine manufacturing.
In the last three years, much of our development and manufacturing 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.

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The
Lyon facility has been inspected, and is the subject of ongoing inspections, by
AFSSAPs (the French equivalent of the U.S. Food and Drug Administration) and
received the designation of Etablissement Pharmaceutique in 2002 and obtained
the designation Etablissement Thérapies Gèniques et Cellulaires in 2004. The
Etablissement Pharmaceutique designation is required for the production of any
commercial product to be sold in France and throughout Europe. The
Etablissement Therapies Geniques et Cellulaires designation is required in
France for the commercial production of cell and gene therapy products.

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 U.S. 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 distant deposits of tumor cells, called metastases. 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 the 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.

2

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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 chemicals
called cytokines that work indirectly. In this way, T-cells eliminate cancers
and virally infected tissue. T-cell immunity is an example of 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

Autologous Cell
Vaccine Immunotherapy (AC Vaccine)

The
only major program that we are presently developing for the treatment of cancer
is our AC Vaccine technology, licensed from Thomas Jefferson University. The AC
Vaccine immunotherapy technology is based on the concept of haptenization. This
idea has a long history, beginning with the work of the immunologist and Nobel
laureate 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 (or T-lymphocytes, which are white blood cells that are crucial in
tumor rejection) 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 called 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 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.

Our
leading AC Vaccine product candidate is M-Vax, which is designed as an
immunotherapy for the post-surgical treatment of late stage (stages 3 and 4)
melanoma. Melanoma is a highly malignant tumor that can spread so rapidly that
it can be fatal within months of diagnosis. According to a report published in
the British Journal of Dermatology, worldwide, the number of cases of melanoma
is increasing faster than any other cancer. Although there are several
causative factors, rising exposure by the general population to ultraviolet
radiation in sunlight appears to be the most significant. According to the
American Cancer Society, it is estimated that in 2007 there will be 59,940 new
cases of melanoma in the U.S. and there will be an estimated 8,110 deaths
related to melanoma.

3

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

| |   |                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------
| |  | Stage
 1lesion less than 1.5mm thickness and no apparent spreading (metastasis)
 from primary cancer site;
| |   |                                                                                                            
| |  | Stage 2lesion
 greater than 1.5mm thickness and no apparent spreading from primary cancer
 site;          
| |   |                                                                                                            
| |  | Stage
 3metastasis to regional draining lymph nodes; and                                                  
| |   |                                                                                                            
| |  | 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 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. Stage 4 melanoma is usually treated with chemotherapy or cytokines,
such as interferon or IL-2. Long-term remissions, however, are unusual and
five-year survival rate for stage 4 melanoma is very low.

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. There have been 214 patients with
stage 3 melanoma treated with M-Vax, who had already had their lymph node
tumors excised and processed into vaccines. 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 600
patients treated with the AC Vaccine by us or at Thomas Jefferson University in
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 a significantly greater chance of 5-year year
survival than those who did not (59% vs. 29%, P<.001). This difference is
highly statistically significant. In all of these patients, DTH to autologous
melanoma cells was tested in conjunction with control materials that indicated
that all patients had functioning immune systems and that the DTH reactions
were not artifactual.

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.

As
is noted below, we currently treat patients outside the U.S. on a compassionate
use basis. Certain clinicians have reported to us that they have administered
the M-Vax vaccine with IL-2 or interferon, which are two current cytokine
therapies available to melanoma patients. These European clinicians have
reported to us what they believe were positive clinical responses to the
combined treatment regimes. Additional published work in a peer-reviewed
journal by another clinician who has treated patients with their DNP modified
tumor cells, using techniques similar to M-Vax, followed by IL-2 reported
response rates in patients of 35%. This compares with previously reported response
rates of patients treated with M-Vax alone of 11%. Response rates are defined
by clinical criteria known as RECIST (or Response Evaluation Criteria in Solid
Tumors, as defined by the National Cancer Institute). This means that the
patients tumors have decreased by 50% or more from their base-line evaluation
(partial response), or that their tumors have completely disappeared (complete
response).

4

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These
published and unpublished reports were used by us in developing our Phase III
registration trial for M-Vax, including the submissions to the FDA that
supported the Special Protocol Assessment agreement we have with the FDA for
accelerated approval of M-Vax.

Current Commercial
and Clinical Activities with the AC Vaccine

The
FDA has authorized us to begin our Phase III registration study of M-Vax. We
are not able to continue our Phase III registration study for M-Vax, beyond
preliminary planning efforts, until we raise additional capital, as discussed
in our Current Plan of Operation under Item 7 below. Related to the protocol,
the FDA has issued to us a Special Protocol Assessment for the study, agreeing
that the proposed protocol, as designed, will allow us to gain regulatory
approval with the successful conduct of the study. In addition the Special
Protocol Assessment indicates that we may use response rate (using modified
RECIST criteria) as an acceptable surrogate endpoint as a basis to obtain
accelerated approval. The Special Protocol Assessment is a written agreement
between us and the FDA regarding the trial design, surrogate endpoints to be
used as a basis for filing for accelerated approval of M-Vax and the
statistical analysis plan necessary to support the full regulatory approval of
M-Vax.

The
Phase III study will enroll up to 387 patients with stage 4 melanoma, who will
be assigned in a double-blind fashion at a 2:1 ratio to M-Vax or a placebo
vaccine. The M-Vax arm will consist of an initial dose of M-Vax (autologous
DNP-modified tumor cells) followed by cyclophosphamide (CY) and six weekly
doses of M-Vax administered with Bacillus of Calmette and Guerin (BCG).
Following vaccine administration, patients will receive a course of low dose
IL-2 administered subcutaneously. Patients assigned to the control group will
receive a treatment identical to the M-Vax group, except that a placebo vaccine
will replace M-Vax. The primary endpoints of the study are best overall
anti-tumor response rate and the percentage of patients surviving 2 years.
Secondary endpoints of the study will include overall survival time, response
duration, percentage complete and partial responses, progression free survival
and treatment related adverse events.

In
December 2007, we successfully completed the Phase I-II clinical trial in the
U.S. for M-Vax for the treatment of Stage 3 and 4 melanoma patients. That study
was launched in June 2005. Patients were treated with M-Vax after being
assigned to one of four dosage arms, one of which was a zero dose. The study
was designed to evaluate four doses of M-Vax with dose defined by the number of
cells injected in each vaccine; the doses tested were: 5x106 cells (high dose),
2.5x106 cells (medium dose), 0.5x106 cells (low dose), and zero cells (zero
dose). All dosages were administered according to a previously developed
optimum schedule, which included an induction dose without adjuvant followed by
low dose cyclophosphamide and then 6 doses admixed with the immunological
adjuvant, BCG. Endpoints of the study were safety and an immunological endpoint
of delayed-type hypersensitivity (DTH), which is a T-cell-mediated immune
response to autologous melanoma cells. Patients were tested for DTH response to
their own DNP-modified and unmodified melanoma cells prior to treatment and
after the initial seven weekly vaccine injections. DTH results were obtained at
2 1⁄2-months, and the maximum duration of the study for an individual
patient was 9 months. The study was also designed to demonstrate that the
frozen formulation of M-Vax is bio-equivalent to the original, freshly-prepared
autologous, hapten-modified vaccine.

The
high dose arm of vaccine was highly effective immunologically with positive DTH
responses to hapten-modified autologous melanoma cells observed in 22/29 (76%)
patients following a course of M-Vax; baseline DTH responses were negative, as
a condition of enrollment. In contrast, the zero dose arm was ineffective.
Linear regression analysis of DTH responses of all evaluable patients showed a
clear dose-response relationship when DTH responses for each patient were
plotted against the M-Vax dose received. These results are important, because
previously published studies by AVAX and others showed a statistically
significant relationship was seen between survival and induction of DTH after
M-Vax administration.

5

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The
safety profile of M-Vax appeared to be very favorable. There were no serious
adverse events attributed to M-Vax. Non-serious adverse events were similar to
what has been observed in previous trials of the autologous, haptenized
vaccine: mild-moderate injection site reactions in all patients, mild nausea
from cyclophosphamide in some patients, and mild constitutional symptoms, such
as fatigue, in some patients after M-Vax administration.

Eight
clinical sites in the U.S. participated in the Phase I-II clinical study of
M-Vax, and we are targeting up to 50 centers in the U.S., Europe and Israel to
participate in the Phase III registration trial.

In
March 2005, we submitted a Biological License Application filing with AFSSAPs
(the French counterpart of the U.S. FDA) for the treatment of stage 3 and 4
melanoma patients in France. In February 2006, AFSSAPs notified us that the
filing was not approvable with the current data and that additional data would
be necessary to support an approval. We are continuing to work with AFSSAPs to
define what additional data are necessary and to evaluate the opportunities to
treat patients in France under a compassionate use protocol while we are
generating the additional data.

We
have previously conducted clinical trials to evaluate the safety and efficacy
of M-Vax and O-Vax (our AC Vaccine for ovarian cancer). In March and April
2001, we received first oral notification and then written confirmation from
the FDA that clinical activities then underway for both our M-Vax and O-Vax
autologous cancer vaccines were placed on clinical hold pending further review
by the agency. The written notification from the FDA confirming the clinical
hold identified the specific issues that the FDA wanted addressed, which dealt
primarily with the sterility of autologous tumors received by us at the
Philadelphia facility and the assurance that vaccines being provided to
patients would meet FDA sterility guidelines.

In
conjunction with the clinical hold, the FDA conducted an inspection of our
manufacturing facility in Philadelphia, which inspection was completed in May
2001. As a result of that facility inspection, we received a Form 483,
which is a finding of manufacturing facility deficiencies, to which we
initially responded at the end of June 2001. The issues raised in the Form 483
were essentially consistent with those in the clinical hold letters, focusing
primarily with the sterility of autologous tumors received by us at the
Philadelphia facility, the handling of sterile and non-sterile tumors and
assurance that vaccines being provided to patients would meet FDA sterility
guidelines. No significant new areas of concern were identified in the Form
483.

In
developing our response to the FDA clinical hold letters and the Form 483, we
identified and began to implement a number of product development initiatives
related to the AC Vaccine technology. As a result, we determined certain
product improvements to the vaccine could be instituted that would address
certain concerns of the FDA and make the vaccine more viable from a regulatory
and commercial perspective. Throughout the remainder of 2001 and into 2002, we
continued to evaluate (1) the prospect of freezing the haptenized cells
for distribution to the end user, (2) steps that could be taken to help
ensure that final released vaccines prepared by us are sterile and
(3) tests to determine the minimal number of cells necessary for the
vaccine to be effective. Based upon the results of these efforts, we
reengineered the manufacturing steps to create and release the vaccine
technology to take advantage of these potential product improvements.

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 without the ability to
ensure clinical samples have completed sterility testing prior to
administration (referred to as the fresh vaccine product format), and (2) a
revised product format needed to be established, tested and reviewed by the FDA
which allowed us to test the vaccine for sterility prior to administration of
the vaccine to patients. 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. Based upon the changes
to the manufacturing of the product, the FDA recommended that we consider
preparing and filing new Investigational New Drug Applications for the frozen
vaccine. At the recommendation of the FDA, we inactivated the INDs for M-Vax
and O-Vax, given the FDAs view that the revisions to the manufacturing
process, necessary to address the FDAs concerns, would result in a new product
from a regulatory perspective and given the FDAs recommendation that we file
new INDs for indications utilizing the new product.

Based
upon the continuing interactions with the FDA, in 2002, we determined it was
necessary to file new INDs for the revised product format for the AC Vaccine
for melanoma and ovarian cancer, which IND filings were accepted by the FDA.
Our Philadelphia facility was cleared to begin processing clinical samples for
administration to patients in clinical trials. Due to a lack of funding at that
time, we decided not to initiate the clinical trials at that time.

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Non-Small-Cell Lung
Cancer

According
to the American Cancer Society, lung cancer is the leading cause of cancer
death for both men and women. The American Cancer Society estimates that there
will be 213,380 new cases of lung cancer and 160,390 deaths from lung cancer in
the U.S. in 2007. Historically, 80-85% of lung cancer cases have been non-small
cell lung cancer (NSCLC). The low cure rate associated with NSCLC can be
attributed to the absence of effective screening, the propensity for early
spread, and the lack of effective treatment options for metastatic spread.

We
believe that NSCLC may be a good target for our AC Vaccine immunotherapy
approach. Lung cancers are chemically induced, which increases the likelihood
that they will express antigens recognized by the immune system. Also, in
clinical trials of M-Vax, we observed that melanoma lung metastases were more
likely to respond well to the AC Vaccine than metastases in other sites.

In
February 2004, we announced a collaboration with the thoracic surgery team at
the University of Pennsylvania Cancer Center. This collaboration allowed us to
complete a feasibility study of the autologous, hapten-modified AC Vaccine for
NSCLC. The study demonstrated that vaccines could be manufactured successfully
from most early stage tumors. All the vaccines manufactured as part of the
feasibility study also passed sterility tests. These results formed the basis
of our Phase I-II clinical trial of L-Vax to determine the safety of an
autologous, hapten-modified NSCLC vaccine and its ability to induce a positive
DTH response, as described below.

In
November 2005, the FDA approved our IND for the treatment of resectable NSCLC.
We commenced a Phase I-II clinical study of L-Vax for the treatment of NSCLC at
the University of Pennsylvania Cancer Center in January 2006. The study
subjects are patients with completely resectable primary NSCLC (stage 1, 2, and
early 3). They undergo standard surgical resection, and the tumor tissue will
be sent to us for manufacture of the L-Vax vaccine. Eligible patients are
assigned to one of three dosage groups. The schedule of administration is the
same as the one optimized in previous melanoma trials. The regimen for the
NSCLC Phase I-II study includes low dose cyclophosphamide, which potentiates
the immune response, probably by inhibiting regulatory T-cells, which, in turn,
dampen the anti-tumor immune response. Also, BCG is admixed with the vaccines
because it functions as an immunological adjuvant.

The
major endpoints of this study are the development of immunity to the patients
own NSCLC cells and a formal assessment of the safety of L-Vax. Patients are
tested for DTH response to their own DNP-modified and unmodified NSCLC cells
prior to treatment and after the initial seven weekly vaccine injections.
Following completion of the post-vaccine DTH testing, patients are offered
standard chemotherapy, which is now considered a standard of care, as an
adjuvant treatment. After chemotherapy, patients who remain well will be
eligible for a booster injection of L-Vax at the eight-month point. Adverse
events caused by the L-Vax vaccine will be measured and recorded, with DTH
results obtained at 2 1⁄2 months and the maximum duration of the study for
an individual patient being 12 months.

We
do not have the current cash resources to continue this Phase I-II clinical
study unless we raise additional capital, as discussed in our Current Plan of
Operation under Item 7. Even if we are successful in raising additional
capital, we anticipate that we will seek to enter into one or more alliances or
strategic partnerships with large pharmaceutical companies for the further
development and eventual commercialization of O-Vax or L-Vax.

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Compassionate Use of
M-Vax

Beginning
in 2003 and continuing through the present, we have made M-Vax available on a
compassionate use basis in various European countries. We have recently made
M-Vax available on a compassionate use basis in various South American
countries. Compassionate use is considered for patients who have failed to
respond to accepted standards of care for their cancer and are facing a
prognosis of imminent death. Compassionate use of M-Vax has been permitted by
regulatory authorities in France, Spain, Greece, Venezuela and Belgium (even
though there is no approval for marketing of M-Vax in those countries) when the
patients prognosis is poor and there are no alternative treatments available.
Through December 31, 2007, we had 128 patients present for treatment on a
compassionate use basis, of which 60 patients were treated and 16 vaccines have
been produced and tested and are awaiting release to the clinical site. The
patients who were not treated were untreatable with the vaccine as a result of
inadequate cell count in the tumor sample received, the tumor samples received
were not melanoma, sterility issues with the tumor sample, or the death of the
patient prior to treatment being available. We expect to continue to treat
patients on a compassionate use basis outside the U.S. 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
oncology leaders in various countries may become critical to the overall
scientific acceptance of the AC Vaccine technology in these countries. This
also will allow us to educate practitioners to maintain and aseptically handle
and ship tumors to reduce incidences where tumors become contaminated.
Additionally, although it is not the primary purpose of compassionate use of
our vaccine, we receive payments for the vaccine from the hospitals that
contract for the acquisition of the vaccine.

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Contract Manufacturing

As
a result of our clinical activities in the U.S. and France, we have developed a
level of expertise related to the clinical production and regulation of cell
and gene therapy, and biological products. Cell and gene therapy, and
biological products 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 was no 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 therapy, and biological
products.

Based
on our expertise, we have entered into various contract manufacturing
relationships in France. Contract manufacturing has been made possible by the
validation of our manufacturing facility first in France by AFSSAPs and
secondly through successful IND filings in the U.S. and in Europe. A contract manufacturing
engagement normally consists of two components. The first component of the
engagement is a feasibility study. The feasibility study typically involves the
transfer of production techniques from an unrelated scientific laboratory to
our facilities. After transferring the techniques, we are engaged to develop
the required procedures, tests and assays so that the product can be produced
in compliance with current Good Manufacturing Practices requirements. After
validating the procedures, tests and assays, we would then contract to 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 contract to 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 Biological License Application for approval
to market the product.

We
have entered into new agreements and intend to enter into future contract
manufacturing arrangements only to the extent the required work does not limit
or interfere with our own clinical development programs.

License and Research Agreements

The
Thomas Jefferson University License and Research Agreement

We
entered into a license agreement with Thomas Jefferson University for the AC
Vaccine technology in November 1995. The TJU license is a perpetual
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, $10,000 upon
initiation of the first clinical trial, and $25,000 upon our receipt of
approval from the FDA (or comparable international agency) to market products
relating to the AC Vaccine technology (which payment was triggered by our
receipt of that regulatory approval in Australia). 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, we are
obligated to pay TJU $10,000 upon the first filing of a marketing application
with the FDA (or comparable filing with a comparable international agency).

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 U.S. 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.

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In
connection with the TJU license, we also entered into a Clinical Study and
Research Agreement with TJU in 1995. Under the TJU license and the TJU research
agreement, we 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. The research conducted by Dr. Berd and TJU under the TJU
research agreement pertained to applications of the AC Vaccine technology
beyond the core vaccine products we are developing.

In
2004, we reached an agreement with TJU to terminate the TJU research agreement
and all our obligations thereunder in exchange for a final payment by us to TJU
of $300,000, half of which we paid in 2004. In April 2005, we paid the balance
of $150,000 to TJU. We do not believe that the termination of the TJU research
agreement has had any meaningful effect upon us or our ability to continue our
AC Vaccine development efforts.

In
November 2004, Dr. Berd joined our staff as our Chief Medical Officer. Dr. Berd
continues to be instrumental to our regulatory and development efforts for the
AC Vaccine technology.

We
are also obligated to pay TJU royalties on our net sales revenue and a
percentage of all revenues received from sublicenses relating to the AC Vaccine
technology. We bear the expense of
maintaining and defending the patents that are subject to the TJU license.

Research and Development Expense

Our
research and development activities focus primarily on clinical development and
trials of our AC Vaccine technology for the treatment of melanoma, ovarian
cancer, lung cancer and other cancers. Our clinical development program
includes the development of techniques, procedures and tests that need to be
developed as part of the manufacturing of our biological product so that the
product can be evaluated and potentially approved by regulatory authorities.

Our
research and development expenses consist primarily of costs associated with
the clinical trials of our product candidates, compensation and other expenses
for research personnel, payments to collaborators under contract research
agreements, costs for our consultants and compensation, materials, maintenance
and supplies for the operation and maintenance of our biological clean room
facilities, which are necessary for the production of materials to be used in
clinical trials. All of these costs qualify as research and development
expenses in accordance with the guidance included in Statement of Financial
Accounting Standards No. 2 Accounting for Research and Development Costs.

Manufacturing
costs included in this category relate to the costs of developing, supporting
and maintaining facilities and personnel that produce clinical samples in
compliance with current Good Manufacturing Practices. Our facilities and the
personnel maintained for manufacturing are currently at what we feel are the
minimum required for compliance with cGMP. Based upon the current capacity of
our facilities, our personnel and our current and future planned clinical
trials, we have excess capacity for the production and testing of biological
products. We use this excess capacity to generate cash in the form of contract
manufacturing alliances. Because the incremental costs incurred to provide
these services are not material or quantifiable, they are not presented
separately.

Contract
manufacturing encompasses services we provide to other biotechnology or
pharmaceutical companies that are pursuing the clinical development of
biological products. The engagements generally consist of two components. The
first component is process validation in which the contracting company provides
information on its product and the processes and techniques used to produce the
product. Procedures are developed, documented and cataloged for the cGMP production
of the product using known and acceptable techniques, tests and materials.
Small-scale lots are produced, and techniques, feasibility of the production
processes and tests validated. The end product of the first phase of an
engagement is a pilot batch of product and the necessary production formulation
and techniques to be used to file an IND with regulatory authorities for human
clinical trials. The second phase of an engagement consists of the production
of batches of product to be used in human clinical trials. The typical
engagement results in production of small batches of product to be used in
early stage (Phase I and II) clinical trials.

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In
2007, we incurred research and development expense of $4,595,972 compared to
$4,244,268 in 2006, and $3,534,948 in 2005. Research and development expenses
were $52,247,740 for the period from inception through December 31, 2007. The
majority of these costs relate to clinical research and development of the AC
Vaccine technology. Our management estimates that greater than 90% of the
periodic and cumulative research and development expenses incurred relate to
our one major program, the AC Vaccine. At this time, due to the risks inherent
in the clinical trial process, risks associated with the product and product
characterization and risks associated with regulatory review and approval of
clinical product candidates, we are unable to estimate with any certainty the
costs we will incur in the continued development of our product candidates for
commercialization.

Intellectual Property
and Other Technology Protections

| |                                                           |                                                                                                                
| | --------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------
| | Our success
 will depend in large part on our ability to:
| |                                                           |                                                                                                                
| |                                                          | Maintain and
 obtain patent and other proprietary protection for products, processes and
 uses of our products;
| |                                                           |                                                                                                                
| |                                                          | Defend
 patents;                                                                                               
| |                                                           |                                                                                                                
| |                                                          | Preserve
 trade secrets; and                                                                                   
| |                                                           |                                                                                                                
| |                                                          | Operate without infringing
 the patents and proprietary rights of third parties.                               

We
intend to seek appropriate patent protection for our proprietary technologies
by filing patent applications when possible in the U.S. and selected other
countries. In November 1995, we entered into an exclusive, worldwide license
agreement with Thomas Jefferson University for all of its patents and pending
patent applications relating to the AC Vaccine. Currently, five U.S. patents
have been issued, all of which are subject to the TJU license. In addition, one
European patent (EP1162996) has been granted and validated in France, Germany,
Spain and the United Kingdom, and one European patent has been allowed by the
European Patent Office (pending grant), both of which are subject to the TJU
license. Also, three Australian patents (AU727316, AU757980, and AU785031) have
been issued that are subject to this license. Several patent applications are
currently pending in the U.S. and other jurisdictions. The following table
summarizes the issued U.S. patents relating to the AC Vaccine:

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|           |  |                                                                              |  |                    |  |                   
|---------- |  | ---------------------------------------------------------------------------- |  | ------------------ |  | ------------------
|Patent No. |  | Title                                                                        |  | Issue Date         |  | Expiration
Date   
|           |  |                                                                              |  |                    |  |                   
|6,248,585  |  | Composition
 for preserving haptenized tumor cells for uses in vaccines      |  | June
 19, 2001     |  | November
 16, 2019
|           |  |                                                                              |  |                    |  |                   
|6,333,028  |  | Methods
 of using haptenized ovarian carcinoma tumor cells                   |  | December
 25, 2001 |  | July
 24, 2017    
|           |  |                                                                              |  |                    |  |                   
|6,403,104  |  | Hapten-conjugated
 mammalian cells and methods of making and using thereof   |  | June
 11, 2002     |  | March
 16, 2020   
|           |  |                                                                              |  |                    |  |                   
|6,458,369  |  | Composition
 comprising tumor cells and extracts and method of using thereof |  | October
 1, 2002   |  | May
 4, 2019      
|           |  |                                                                              |  |                    |  |                   
|7,297,330  |  | Low
 dose haptenized tumor cell and tumor cell extract immunotherapy         |  | November
 20, 2007 |  | May
 14, 2023     

U.S.
Patent No. 5,290,551, Treatment of Melanoma with a Vaccine comprising
Irradiated Autologous Melanoma Tumor Cells Conjugated to a Hapten, was
originally issued on March 1, 1994, and was placed in reissue. The reissue application
was subsequently abandoned.

These
patents cover methods of making the vaccine, composition of matter, as well as
therapeutic use. We intend to continue using our scientific expertise to pursue
and file patent applications on new developments with respect to processes,
methods and compositions to enhance our intellectual property position in the
field of cancer treatment.

Any
patents or patent rights that we obtain may be circumvented, challenged or
invalidated by our competitors. In addition, others may challenge that our
products and processes specifically infringe their patents. On
September 17, 1999, a complaint was filed against us in the U.S. District
Court for the District of Maryland by Intracel Corporation. Intracel sought
monetary damages and an injunction against the use of our autologous cell
vaccine technologies. Intracel claimed that our technologies infringed their
U.S. patent entitled Active Specific Immunotherapy. Intracel later withdrew
their case.

We
also rely on trade secrets and proprietary know-how related to the production
and testing of our products, especially when we do not believe that patent
protection is appropriate or can be obtained. Our policy is to require each of
our employees, consultants and advisors to execute a confidentiality and
inventions agreement prohibiting the disclosure of our confidential information
and requiring assignment of all inventions to us before they begin a
relationship with us. Likewise, we require a confidentiality agreement with all
third parties with whom we collaborate.

Manufacturing and Marketing

AC Vaccines -
General

Our
AC Vaccine products under development are individualized therapies that are
manufactured by first receiving tumors from a patient, treating those tumors to
break them down to the basic cancer cell 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. We are not currently treating patients in the
U.S. or Europe, other than on a compassionate use basis in certain European
countries, because the AC Vaccine products have not yet been approved for
treatment.

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We are in
the process of revalidating our Philadelphia facility with the FDA for the
purpose of re-establishing that facility as a current Good Manufacturing
Practices facility in which our vaccines and other biologics can be produced.
We anticipate completing this process by the second half of 2008.

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 Etablissement Pharmaceutique and more recently has obtained
the designation Etablissement Thérapies Gèniques et Cellulaires. The Etablissement
Pharmaceutique designation is required for the production of any commercial
product to be sold in France and throughout Europe. The Etablissement Therapies
Geniques et Cellulaires designation is required in France for the commercial
production of cell and gene therapy products.

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, L-Vax or any of our other AC Vaccine products, because they
consist primarily of a readily available chemical reagents and the patients
own tumor cells. We administer the AC Vaccine with BCG. BCG is an approved
product for other cancer indications and is being administered by other
companies as a separate vaccine. There are several sources of BCG, each
formulation of which differs based upon the original source of the product. If
we are unable to continue to obtain the current strain of BCG used in our
clinical trials, we may not be permitted by regulatory authorities to use
another strain of BCG without conducting additional clinical studies with the
new strain of BCG.

For
our Phase III registration trial for M-Vax, the six weekly doses of M-Vax
administered with BCG will be followed by the patients receiving a course of
low dose IL-2 administered subcutaneously. IL-2 is produced exclusively by
Novartis AG. While IL-2 is not a raw material used in our vaccines, it is an
important part of our current Phase III registration trial.

Competition

We
face substantial competition in the development of our products. Competition
comes from other companies that are developing the same type of products as
ours, as well as other companies that are developing different types of
products that are designed for the same uses as our products. Competition also
comes in the form of new product types or extension of existing product types
that are being continuously researched and developed by scientists, government
contractors and other companies. We expect that this competition will continue
in both the U.S. and international markets.

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Cancer
immunotherapies continue to evolve rapidly with new scientific breakthroughs
that are expected to continue in the coming years with the evolution of new
techniques and equipment. We are aware of a number of groups that are currently
developing cancer immunotherapies that include academic institutions,
government agencies and research institutions, early stage and developed
biotechnology companies and pharmaceutical companies. For example, MEDAREX, in
partnership with Bristol-Myers Squibb, launched two Phase III programs for the
treatment of late stage melanoma patients with immunotherapy products. IDM
Pharma has an ongoing Phase II clinical trial for a cell based therapeutic for
the treatment of melanoma. Other companies that are developing immontherapies
for the treatment of cancer include Dendreon Corporation, Opexa Therapeutics,
Therion Biologics Corporation, Onyvax Ltd., Antigenics, Genitope Corporation,
Cell Genesys Corporation, Biomira, Inc and Favrille, Inc. Vical Incorporated
and Genta Incorporated both indicate that they have Phase III programs underway
for melanoma. At the National Institute of Healths website,
clinicaltrials.gov, there are 275 clinical studies that are recruiting patients
that reference melanoma.

The
competition we face from these companies is in the areas of clinical trial site
and patient recruitment, in establishing alliances with academic institutions
and thought leaders, recruiting and retaining employees, hiring contractors to
provide services in the execution of clinical studies and in establishing
relationships with large bio-tech or pharmaceutical partners for joint
development and collaboration relationships. Negative clinical studies by other
immunotherapy companies as well as failures in later stage clinical trials in
our key indications could also have a negative effect on our development
efforts, the acceptance of our development plans or the future
commercialization of our products.

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 U.S., AFSSAPs (the French equivalent of the U.S. FDA) in France, and
similar health authorities in other foreign countries, as well as the European
Medical Evaluations Agency (EMEA) which has broad oversight over most
European Member States. 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 I) for assessment of safety, followed by tests of effectiveness and
safety in patients with illnesses the drug is designed to treat (Phases II and
III). In most instances, Phase III 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 II trials are
deemed sufficient for market approval by the FDA or foreign regulatory
authorities. Pivotal registration trials are large-scale Phase II or III
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. In
addition, when a sponsor has more than one clinical site participating in a
study, they typically establish a Data Safety Monitoring Board that has
oversight responsibilities for the safe conduct of the clinical studies.

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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 may approve a product but require additional clinical tests
following its approval, which are referred to as post marketing studies (i.e.,
Phase IV).

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 current 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.

The
regulatory approval process for new drugs in France is substantially similar to
the process described above for the U.S. Generally, the steps required before a
pharmaceutical or therapeutic biological agent may be marketed in France
include (i) pre-clinical laboratory tests, pre-clinical studies in animals,
toxicity studies and formulation studies; (ii) the submission to AFSSAPs of an
IND for human clinical testing, that must be approved 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 AFSSAPs; (v) approval of the manufacturing processes
and controls; and (vi) AFSSAPs approval of the marketing application prior to
any commercial sale or shipment of the drug.

The
primary difference between the U.S. and French regulatory processes is the evolution
of the thinking of each regulatory agency to the application of the procedures
described above, which were designed for traditional, mass-produced
prescription drugs and similar procedures, to the regulation of autologous
products, meaning those products, such as the AC Vaccine, whose origin is
primarily from the patient with minimal manipulation.

In
2002, AFSSAPs published the first regulations specific to the regulation of
cell and gene therapies that are produced on an individual patient basis, which
includes the AC Vaccine technology. These regulations differentiate these
products from standard pharmaceutical products. We interpret that these
regulations will evaluate cell and gene therapy products by the level and type
of manipulation to the product. We believe that certain cellular products,
including M-Vax, will be regulated differently from standard drugs. For these
technologies, marketing approval will be authorized upon the satisfaction of
two criteria. One of the requirements will be that the therapeutic is
manufactured in a cGMP-compliant facility and manner. Secondly, the therapeutic
will need to be able to demonstrate a reasonable claim for efficacy.

Using
the data generated in the studies conducted at Thomas Jefferson University as
the basis for the efficacy claims of M-Vax, we submitted the equivalent of a
Biologics License Application to the French authorities in March 2005 under
their Cell and Gene Therapy Regulations. In preparing the submission, we
utilized the format for the Common Technical Document (CTD) provided by the
International Conference of Harmonization and adopted by the U.S., Europe and
Japan. The purpose of the CTD is to harmonize the filing requirements for
biologic products in the various regions. We received acknowledgement from
AFSSAPs of receipt of our submission effective March 23, 2005. In February
2006, we received notification from AFSSAPs that additional clinical data will
be necessary for approval of the product under these regulations. We have met
and will continue to meet with the agency to discuss the additional
requirements, potential planned studies to obtain the information and to
discuss our ability to make the vaccine available on a compassionate use basis
while this data is being accumulated.

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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, 2007, we had 29 employees, consisting of 23 full-time employees
at our subsidiary in France and 6 full-time employees in the U.S.

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|         |             
|-------- | ------------
|ITEM 1A. | 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-K and our other reports
filed with the Securities and Exchange Commission.

Because of our immediate need for
capital, our ability to continue as a going concern is in question.

We
presently anticipate that our current cash resources will be sufficient to fund
operations through May 2008. We have only a limited ability to generate
revenues from operations, and any revenues we generate are almost certain to be
substantially less than our operating expenses. Accordingly, we have an
immediate need to raise additional equity capital. Because of our limited cash
and financial resources, our ability to continue as a going concern beyond May
2008, without a meaningful cash infusion, is in question.

In
the past, we have had periods in which we have been unable to raise adequate
capital, and as a result, 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. We have recently slowed our development
efforts, particularly in the ramp up of our Phase III registration study for
M-Vax. The slowdown in our clinical trials can impair the timing of and
ultimate success of those trials.

We
have no way of knowing if we will be able to complete any additional
financings.

We now conduct all AC Vaccine
manufacturing out of our Lyon, France facility, which creates business
uncertainties and logistical risks for the treatment of patients in our
clinical trials.

We
previously manufactured our AC Vaccine for U.S. patients enrolled in our
clinical trials at our facility in Philadelphia. We now conduct all AC Vaccine
manufacturing at our Lyon, France facility. In our current clinical trials in
the U.S. for M-Vax and L-Vax, we encounter various business uncertainties and
logistical risks associated with the transport of biologics (consisting of
human tumor cells) to France and shipping a patients individualized AC Vaccine
back to the U.S. Had we been using this business model in September 2001, the
September 11 attacks in the U.S. and the resultant suspensions and
interruptions of international travel and shipments would have significantly
disrupted our treatment of patients. There are additional risks associated with
the transport of biologics and vaccines, including the time constraints under
which a tumor must be received and processed and the specialized shipping
requirements of the vaccine after it is manufactured. Although we have
developed plans to manage these risks, we may encounter disruptions that we are
unable to control, which could adversely affect the willingness of U.S.
patients to enroll in our clinical studies or otherwise disrupt our clinical
development of the AC Vaccine.

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We may not be successful in revalidating our Philadelphia
facility, and may be unable to produce vaccines at that facility in the future.

We
are in the process of revalidating our Philadelphia facility for the purpose of
re-establishing that facility as a current Good Manufacturing Practices
facility in which our vaccines and other biologics can be produced. We may not
be successful in those efforts, or those efforts may take longer or cost more
than we currently anticipate. Our failure to revalidate the Philadelphia
facility will heighten our continued reliance upon our Lyon, France facility
for the production of all vaccines, and the logistical risks associated with
manufacturing the vaccine in Europe while many of our clinical trials sights
are in the U.S. Our current objective is to have approximately half of the
patients in the Phase III registration trail for M-Vax be from the U.S., with
the vaccine produced in the U.S., and approximately half of the patients from Europe,
with the vaccine produced at the Lyon facility.

We will be required to produce the vaccine for commercial
purposes from the same facility at which vaccines were produced for clinical
trial purposes, which may limit our manufacturing options after regulatory
approval is received.

Under
current FDA regulations, if we obtain FDA regulatory approval for the
commercialization or one or more of our vaccines, we will be required initially
to produce the vaccine for commercial purposes at the same facility or
facilities at which we produced the vaccine during the Phase III registration
trail for that indication. Accordingly, we may have limited flexibility to
change our manufacturing facilities after commercialization of a vaccine has
been approved by the FDA until a new facility can be validated and pass all
required FDA regulatory approvals for the production of the vaccine. The FDA
may even require a new or expanded clinical trial of the vaccine produced at a
new manufacturing facility before the vaccine may be produced for commercial
purposes at that facility. Those additional regulatory approvals could be time
consuming and expensive and could delay commercialization of the approved
vaccine product.

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 in the U.S. 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. We did not re-file the INDs until fall 2002 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. Even though the new INDs
have been initiated, we still may not be able to obtain the funding to complete
the U.S. regulatory approval process or we may fail to obtain FDA approval for
our products. We may never be able to commercialize our AC Vaccine products in
the U.S.

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The European regulatory approval
process for our products has been and will continue to be expensive and time
consuming and the outcome uncertain.

To
offer any of our vaccine products for commercial sale in European Union
countries, we must either obtain the regulatory approval from the European
Medicines Evaluation Agency (EMEA), which approval will be binding upon all
European Union countries, or from the applicable regulatory body in each
European or other country in which we desire to offer the product for
commercial sale. We have encountered regulatory delays in Europe in the past
and may well experience further delays in our desired regulatory approval path
in the future.

For
example, in March 2005, we submitted a Biological License Application filing
with AFSSAPs (the French counterpart of the U.S. FDA) for the treatment of
stage 3 and 4 melanoma patients in France. In February 2006, AFSSAPs notified
us that the filing was not approvable with the current data and that additional
data would be necessary to support an approval. Our business and financial
condition may be materially and adversely affected by future delays in the
regulatory approval process in Europe, and we may never be able to commercialize
our AC Vaccine products in Europe.

We utilize two products in our AC
Vaccines or clinical trials that are produced by third parties, and the
unavailability of those products could adversely affect our regulatory approval
process in the U.S. or Europe.

We administer the AC Vaccine
with Bacillus Calmette-Guerin (BCG), which is an approved product for other
cancer indications and is being administered by other companies as a separate
vaccine. There are several sources of BCG, each formulation of which differs
based upon the original source of the product. If we are unable to continue to
obtain the current strain of BCG used in our clinical trials, we may not be
permitted by regulatory authorities to use another strain of BCG without
conducting additional clinical studies with the new strain of BCG.

For
our Phase III registration trial for M-Vax, the M-Vax arm will consist of an
initial dose of M-Vax (autologous DNP-modified tumor cells) followed by
cyclophosphamide (CY) and six weekly doses of M-Vax administered with BCG.
Following vaccine administration, patients will receive a course of low dose
IL-2 administered subcutaneously. IL-2 is produced exclusively by Novartis AG,
and if we or our clinicians are unable to continue to obtain IL-2 from Novartis,
we may not be permitted by the FDA to continue our current Phase III clinical
trial for M-Vax.

We compete with other clinical
programs and other treatments for patients for our clinical trials, which will
affect our ability to enroll quickly our clinical trials.

We
compete 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 for our clinical trials. Companies with clinical
trials, including us, provide information and other incentives to oncologists
and other specialists as an inducement to participate in 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.

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We raise capital in U.S. dollars, but have
significant expenses in France, which exposes us to currency exchange rate
fluctuation risk.

We
conduct our capital raising efforts in U.S. dollars, while a significant
portion of our revenues and expenses are generated and incurred in currencies
other than U.S. dollars, mainly Euros. To the extent that we are unable to
match revenues received in foreign currencies with costs paid in the same
currency, exchange rate fluctuations in any such currency could have an adverse
effect on our results of operations and cash flows.

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, for which the U.S. guidance is published in
the United States Pharmacopoeia (similar guidance for Europe is published in
the European Pharmacopoeia). 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.

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 we have already experienced and many of which are
beyond our control. The risks of a development stage biopharmaceutical company
that we have already encountered include:

|  |                                                                                                                                                                                                                                                                                                    
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | the FDA
 clinical hold of our AC Vaccine clinical trials in 2001 and the resultant
 substantial expenses and delays in resolving the FDA concerns and refiling
 new INDs for the reformulated AC Vaccine products;                                                                                 
|  |                                                                                                                                                                                                                                                                                                    
| | manufacturing
 challenges relating to the production of a vaccine from the patients own
 cancer cells, such as the sterility issues we previously experienced at our
 Philadelphia facility;                                                                                                      
|  |                                                                                                                                                                                                                                                                                                    
| | our failure
 to develop a market for the AC Vaccine in Australia, notwithstanding
 substantial expenditures of time and money to do so;                                                                                                                                                            
|  |                                                                                                                                                                                                                                                                                                    
| | our past
 inability to agree with the FDA on an acceptable potency assay (which is a
 biological measure of the drugs active ingredients) of our product prior to
 administration of the vaccine, which agreement was required before we could
 commence a Phase III registration trial for M-Vax;
|  |                                                                                                                                                                                                                                                                                                    
| | our
 inability to generate any meaningful revenues from any other products or
 services while we work to develop our lead products and technologies; and                                                                                                                                           
|  |                                                                                                                                                                                                                                                                                                    
| | the cutbacks
 in our development plans and programs due to the limited cash resources in
 recent years, and our continual need to raise additional capital.                                                                                                                                        

As
a result of these and likely continuing challenges of being a development stage
biopharmaceutical company, our products may never be successfully developed or
marketed.

Even if our AC Vaccine technology receives
regulatory approval and is determined to be safe and effective, our products
may not gain commercial acceptance.

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 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.

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If governmental and insurance reimbursement
is not available or is insufficient, a market for our products may never
develop or be economically feasible.

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. For new products or technologies,
reimbursement must be established under existing governmental or insurance
regulations or practices. We will be required to obtain reimbursement approvals
(both governmental and insurance) in each country in which we obtain
appropriate regulatory authority to market the AC Vaccine products.

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.

We may lose control over the development,
marketing and distribution of our vaccines if we enter into third party
arrangements to perform or assist us in performing any of those functions.

We
may seek alliances or strategic partnerships for one or more of our AC Vaccine
products with large pharmaceutical companies to maximize our regulatory,
clinical and commercialization efforts. We may also have to depend on third
parties to market and distribute our products. We currently do not have the
resources to develop fully, market or distribute M-Vax, O-Vax, L-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.

If
we enter into alliances, strategic partnerships or distribution agreements with
third parties, we may have less control over the development, 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.

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Current and future legislation may make our
products unprofitable.

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. We are not aware of any specific
legislation or regulation in the U.S. or Europe designed to limit reimbursement
for products like ours, but we believe that there is a credible risk that
political and budget considerations could change dramatically the funding
available for vaccine reimbursement.

We may not be able to control the pricing of
our products overseas.

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.

We are heavily dependent upon the personal
reputation and personal contacts of our Chief Medical Officer, and the loss of
his services could materially adversely affect our plan of operation.

The
inventor of the AC Vaccine technology is Dr. David Berd, who has served as our
Chief Medical Officer since November 1, 2004. Prior to then, we obtained his
services in directly through our research and license agreements with Thomas
Jefferson University, where Dr. Berd was a professor in the Medical School. The
acceptance of the AC Vaccine technology within the oncology world is highly
dependent upon the personal reputation and the personal contacts of Dr. Berd.
Dr. Berd is also critical in guiding the technology through the regulatory
process in both the U.S. and Europe. If we lost his services, the development
of our AC Vaccine technology could be significantly slower and less successful
that it otherwise would be with his services.

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We have recently appointed a new Chief
Executive Officer, and the transition to a new Chief Executive Officer could
disrupt our plan of operation.

Effective
December 1, 2007, we appointed Francois R. Martelet, M.D. as our new President
and Chief Executive Officer, and Richard P. Rainey, our then current President,
Chief Executive Officer and Chief Financial Officer, agreed to remain with the
company as our Principal Accounting Officer until May 31, 2008. We do not
anticipate that Mr. Rainey will continue in his current position with the
company beyond May 31, 2008. The change to a new Chief Executive Officer and
the future loss of our current Principal Accounting Officer could result in
delays to or future changes in the implementation of the plan of operation,
which delays or changes could adversely affect our current plan of operation.
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 addition, our current
financial condition makes it more difficult for us to retain our current
executives 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 we do 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 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 Small Cap
Market in 2002 and was delisted from the NASDAQ Small Cap Market in 2003 due to
the continuing failure of our stock to meet the continuing listing requirements
of both the NASDAQ National and Small Cap Markets (currently the NASDAQ Global
and NASDAQ Capital Markets, respectively). 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.

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Because our common stock is a penny stock,
you may have difficulty selling our common stock in the secondary trading
market.

The
SEC has adopted regulations that generally define a penny stock to be any
equity security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share. Additionally, if the equity
security is not registered or authorized on a national securities exchange or
NASDAQ, the equity security also would constitute a penny stock. Because our
common stock falls within the definition of penny stock, these regulations require
the delivery, prior to certain transactions involving our common stock, of a
risk disclosure schedule explaining the penny stock market and the risks
associated with it. Disclosure is also required to be made in certain
circumstances regarding compensation payable to both the broker-dealer and the
registered representative and current quotations for the securities. In
addition, monthly statements are required to be sent disclosing recent price
information for the penny stocks. Accordingly, the ability of broker-dealers to
sell our common stock and the ability of stockholders to sell our common stock
in the secondary market is limited. As a result, the market liquidity for our
common stock is adversely affected by the application of these penny stock rules.
Trading in our common stock will likely continue to be adversely affected by
the application of these rules.

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 $3,350,000 as of
December 31, 2007), 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.

|        |           
|------- | ----------
|ITEM 2. | Properties

We
lease a pharmaceutical and gene therapy clinical manufacturing facility in
Lyon, France. The facility consists of approximately 13,500 square feet, of
which approximately 10,100 square feet are utilized for manufacturing
development, including 3,000 square feet of clean rooms and 3,400 square feet
for office space. Currently, the monthly rental on the facility at the current
exchange rate is approximately $21,100. The lease is for a 9-year period
through 2009 and is extendable for another 9-year period.

We
lease a facility in Philadelphia, Pennsylvania, which is used for our executive
offices and is suitable for our clinical manufacturing activities. The facility
consists of approximately 11,900 square feet, of which approximately 9,300
square feet are suitable for manufacturing development, while the remaining
2,600 square feet are used for office space. We have options for additional
space. Currently, the monthly rental on the facility is approximately $16,625.
The lease was recently extended for a 5-year period through January 2013 and is
extendable for one additional five-year period.

24

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|        |                  
|------- | -----------------
|ITEM 3. | Legal Proceedings

On
February 1, 2008, we were sued by the Texas A&M University System in the
District Court of Brazos County, Texas, case no. 08-000255-CV-85. In February
1997, we licensed from the University 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 we believed could be effective against
hormone-dependent tumors. We determined several years ago that the development
of the anti-estrogen compounds was no longer a significant part of our plan of
operation and ceased any development work with the compounds. The lawsuit by
the University alleges that we are in breach of our license agreement with the
University by failing to reimburse the University approximately $62,000 for
patent expenses incurred by the University with respect to the anti-estrogen
compounds. We have filed our answer to the petition, denying any liability to
the University. No discovery has commenced in this matter.

In
April 2007, we completed a private placement of securities to various
institutional and accredited investors. The Company had previously entered into
an engagement letter, as subsequently amended, with MDB Capital Group LLC in connection
with the proposed capital raising engagement. MDB Capital has made a demand
that we pay MDB Capital $195,000 in cash and issue MDB Capital warrants to
purchase 2,080,000 shares of common stock of the company at an exercise price
of $0.15 per share, all as compensation to MDB Capital under the engagement
letter. We have conceded that we owe MDB Capital $15,000 in placement agent
fees and a placement agent warrant to purchase 160,000 shares of common stock
of the company at $0.15 per share under the engagement letter. We believe that
MDB Capital had no role in identifying the other investors in the offering for
which MDB Capital claims compensation, and thus have denied that we owe MDB
Capital any additional cash compensation or placement agent warrants under the
engagement letter. MDB Capital has indicated its intention to pursue binding
arbitration of this dispute in accordance with the terms of the engagement
letter, but has to date made no effort to pursue any arbitration of this
matter.

We
are periodically involved in ordinary, routine litigation and administrative
proceedings incidental to our business. As of the date of this report, there
are no other pending or, to our knowledge, threatened material claims against us.

|        |                                                    
|------- | ---------------------------------------------------
|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, 2007.

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PART II

|        |                                                                       
|------- | ----------------------------------------------------------------------
|ITEM 5. | Market For Registrants Common Equity and Related Stockholder Matters.

Our
common stock was publicly traded on the OTC Bulletin Board from December 19,
1996, through July 9, 1997. From 1997 until 2003, our common stock was listed
for quotation on NASDAQ under the symbol AVXT, initially on the NASDAQ Small
Cap Market and later on the NASDAQ National Market (Currently, the NASDAQ
Capital and NASDAQ Global Markets, respectively). The stock was moved from the
NASDAQ National Market to the NASDAQ Small Cap Market in 2002 and was delisted
from NASDAQ in August 2003 due to our 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 OTC 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
 ending December 31, 2006 |  |      |      |     |  |   |     
|First quarter                         |  | $    | 0.28 |     |  | $ | 0.21 |  | 
|Second quarter                        |  |      | 0.33 |     |  |   | 0.13 |  | 
|Third quarter                         |  |      | 0.20 |     |  |   | 0.10 |  | 
|Fourth quarter                        |  |      | 0.29 |     |  |   | 0.10 |  | 
|                                      |  |      |      |     |  |   |      |  | 
|Fiscal year
 ended December 31, 2007  |  |      |      |     |  |   |      |  | 
|First quarter                         |  | $    | 0.33 |     |  | $ | 0.09 |  | 
|Second quarter                        |  |      | 0.46 |     |  |   | 0.19 |  | 
|Third quarter                         |  |      | 0.22 |     |  |   | 0.12 |  | 
|Fourth quarter                        |  |      | 0.17 |     |  |   | 0.05 |  | 

The
last reported sale price for our common stock on the OTC Bulletin Board on
April 8, 2008, was $0.09 per share. At April 11, 2008, there were 141,574,997
shares of common stock outstanding, which were held by approximately 4,000
record and beneficial stockholders. The 33,500 shares of Series C preferred
stock outstanding at December 31, 2007, are convertible into 1,030,756 shares
of common stock, excluding the effect of any fractional shares.

DIVIDEND POLICY

We
have not paid any cash dividends on our common stock since our formation. We do
not intend to declare any dividends on our common stock in the foreseeable
future. We anticipate that all our earnings and other resources, if any, will
be retained for investment in our business.

26

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RECENT SALES OF UNREGISTERED SECURITIES

On
April 5, 2005, we closed a private placement of 25,343,430 shares of common
stock at a purchase price of $0.34 per share with 12 accredited or
institutional investors. We received gross proceeds of approximately
$8,616,000. In connection with the private placement, we also issued to the
investors warrants to purchase 3,801,515 shares of common stock at a warrant
exercise price of $0.41 per share, and warrants to purchase 3,801,515 shares of
common stock at a warrant exercise price of $0.48 per share. In addition, the
company issued warrants to its advisors relating to this fundraising to
purchase 2,287,293 shares of common stock at a warrant exercise price of $0.37
per share. These warrants were valued at $435,705 using the Black-Scholes
pricing model. Offering related expenses in connection with this fundraising
amounted to $1,065,945 of which $630,240 was paid in cash and the balance
relates to the warrants issued to the advisors. We are using the proceeds of
this private offering for general working capital purposes, including funding
our current plan of operation discussed below. The common stock and warrants
were issued to accredited investors only in reliance upon Regulation D under
Section 4(2) of the Securities Act.

In
addition, on April 13, 2007, we closed a private placement of 80,060,000 shares
of common stock at a purchase price of $0.125 per share with 25 accredited or
institutional investors. We received gross proceeds of $10,007,500. In
connection with the private placement, we also issued to the investors warrants
to purchase 80,060,000 shares of common stock at a warrant exercise price of
$0.15 per share. In addition, we have agreed to pay $580,350 and to issue
warrants to purchase 6,190,400 shares of common stock at a warrant exercise
price of $0.15 per share to certain advisors relating to this private offering.
We received net proceeds from this private offering, after offering related
expenses, of approximately $9.0 million. We are using the net proceeds to
continue to implement the plan of operation described in the prospectus. The
common stock and warrants were issued to accredited investors only in reliance
upon Regulation D of the Securities Act.

|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|ITEM 7. | Managements Discussion and Analysis of Financial Condition and
 Results of Operations

GENERAL

Since
our inception, we have concentrated our efforts and resources on the
development and commercialization of individualized vaccine therapies and other
technologies for the treatment of cancer. These efforts require that we expend
money in the development and clinical testing of our products.

We
have been unprofitable since our founding and we fund our losses primarily
through equity offerings of common stock. We incurred net losses of $6,413,648,
$5,355,500, $3,703,768, $3,457,908, $3,286,100 and $9,425,564 for the 12 months
ended December 31, 2007, 2006, 2005, 2004, 2003 and 2002, respectively, and
have a cumulative net loss of $84,254,830 as of December 31, 2007. We expect to
continue to incur operating losses, primarily due to the expenses associated
with our product development efforts, the cost of maintaining our manufacturing
facilities in Europe and the U.S. and Europe.

Our
ability to continue as an operating company depends upon our immediate need to
raise additional capital before the end of May 2008, and if we are successful
in raising capital in 2008, our ability in the future to raise additional
capital from time to time 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 product does not currently
generate any material revenue, and we may never achieve significant revenues or
profitable operations from the sale of M-Vax or any other products that we may
develop.

The
major challenges for us and others in the biopharmaceutical industry are the
significant costs, time and uncertainties related to efforts to obtain
regulatory approval to market drug products in the U.S. and foreign countries.
We have encountered a number of these challenges in our efforts to develop the
AC Vaccine into marketable products including the following:

| |   |                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the FDA
 clinical hold of our AC Vaccine clinical trials in 2001 and the resultant
 substantial expenses and delays in resolving the FDA concerns and refiling
 new INDs for a revised AC Vaccine;

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| |   |                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | manufacturing
 challenges relating to the production of a vaccine from the patients own
 cancer cells, such as the sterility issues we previously experienced at our
 Philadelphia facility;                                                                                              
| |   |                                                                                                                                                                                                                                                                                            
| |  | our failure
 to develop a market for the AC Vaccine in Australia notwithstanding
 substantial expenditures of time and money to do so;                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                            
| |  | our past
 inability to agree with the FDA on an acceptable potency assay (which is a
 biological measure of the drugs active ingredients) of our product prior to
 administration of the vaccine, which was required before we could commence
 our Phase III registration trial for M-Vax;
| |   |                                                                                                                                                                                                                                                                                            
| |  | our
 inability to generate any meaningful revenues from any other products or
 services while we work to develop our lead products and technologies; and                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                            
| |  | the periodic
 cutbacks in our development plans and programs due to the limited cash
 resources from time to time in recent years.                                                                                                                                                         

As
a result of the FDA clinical hold, we concluded that (1) it would no longer be
feasible to continue the clinical development of the original AC Vaccine using
the established manufacturing 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 re-engineered the manufacturing steps for the production and
distribution of the AC Vaccine, referred to as the frozen vaccine technology,
which we believe has substantial advantages over the former fresh product.

Research and Development Expenses

Our
research and development activities focus primarily on clinical development and
trials of our AC Vaccine technology for the treatment of melanoma, ovarian
cancer, lung cancer and other cancers. Our clinical development program
includes the development of techniques, procedures and tests that need to be
developed as part of the manufacturing of our biological product so that the product
can be evaluated and potentially approved by regulatory authorities.

Our
research and development expenses consist primarily of costs associated with
the clinical trials of our product candidates, compensation and other expenses
for research personnel, payments to collaborators under contract research
agreements, costs for our consultants and compensation, materials, maintenance
and supplies for the operation and maintenance of our biological clean room
facilities, which are necessary for the production of materials to be used in
clinical trials. All of these costs qualify as research and development
expenses in accordance with the guidance included in Statement of Financial
Accounting Standards No. 2 Accounting for Research and Development Costs.

Manufacturing
costs included in this category relate to the costs of developing, supporting
and maintaining facilities and personnel that produce clinical samples in
compliance with current Good Manufacturing Practices (cGMP). Our facilities
and the personnel maintained for manufacturing are currently at what we feel
are the minimum required for compliance with cGMP. Based upon the current
capacity of our facilities, our personnel and our current and future planned
clinical trials, we have excess capacity for the production and testing of
biological products. We use this excess capacity to generate cash in the form
of contract manufacturing alliances. Because the incremental costs incurred to
provide these services are not material or quantifiable, they are not presented
separately.

Contract
manufacturing encompasses services we provide to other biotechnology or
pharmaceutical companies that are pursuing the clinical development of
biological products. The engagements generally consist of two components. The
first component is process validation in which the contracting company provides
information on its product and the processes and techniques used to produce the
product. Procedures are developed, documented and cataloged for the cGMP
production of the product using known and acceptable techniques, tests and
materials. Small-scale lots are produced, and techniques, feasibility of the
production processes and tests validated. The end product of the first phase of
an engagement is a pilot batch of product and the necessary production
formulation and techniques to be used to file an IND with regulatory
authorities for human clinical trials. The second phase of an engagement
consists of the production of batches of product to be used in human clinical
trials. The typical engagement results in production of small batches of
product to be used in early stage (Phase I and II) clinical trials.

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Research
and development costs incurred through December 31, 2007, were $52,247,740.
Research and development costs were $4,595,972 and $4,244,268, for the twelve
months ended December 31, 2007 and 2006, respectively. The majority of these
costs relate to clinical research and development of our AC Vaccine technology.
Our management estimates that greater than 90% of the periodic and cumulative
research and development expenses incurred relate to our one major program, the
AC Vaccine. At this time, due to the risks inherent in the clinical trial
process, risks associated with the product and product characterization and
risks associated with regulatory review and approval of clinical product
candidates, we are unable to estimate with any certainty the costs we will
incur in the continued development of our product candidates for commercialization.

PLAN OF OPERATION

Background

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

We
experienced events during 2001 that significantly affected our operations. In
March and April 2001, we received first oral notification and then written
confirmation from the FDA that clinical activities for both our M-Vax and O-Vax
autologous cancer vaccines were placed on clinical hold pending further review
by the agency. The written notification from the FDA confirming the clinical
hold identified the specific issues that the FDA wanted addressed, which
primarily dealt with the sterility of autologous tumors received by us at the
Philadelphia facility and the assurance that vaccines being provided to
patients would meet FDA sterility guidelines.

In
conjunction with the clinical hold, the FDA conducted an inspection of our
manufacturing facility in Philadelphia, which inspection was completed in May
2001. As a result of that facility inspection, we received a Form 483, which is
a finding of manufacturing facility deficiencies, to which we initially
responded at the end of June 2001. The issues raised in the Form 483 were
essentially consistent with those in the clinical hold letter, with no new
significant areas of concern identified.

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In
developing our response to the FDA clinical hold letters and the Form 483, we
identified and began to implement a number of product development initiatives
related to the AC Vaccine technology. As a result, we determined certain
product improvements to the vaccine could be instituted that would address
certain concerns of the FDA and make the vaccine more viable from a regulatory
and commercial perspective. Throughout the remainder of 2001 and into 2002, we
continued to evaluate (1) the prospect of freezing the haptenized cells
for distribution to the end user, (2) steps that could be taken to help
ensure that final released vaccines prepared by us are sterile and
(3) tests to determine the minimal number of cells necessary for the vaccine
to be effective. Based upon the results of these efforts, we re-engineered the
manufacturing steps to create and release the vaccine technology to take
advantage of these potential product improvements.

Based
upon the changes to the product, the FDA recommended that we consider preparing
and filing new INDs for the frozen vaccine. At the recommendation of the FDA,
we decided to place our original INDs for M-Vax and O-Vax on inactive status,
given the FDAs view that the revisions to the manufacturing process, necessary
to address the FDAs concerns, would result in a new product from a regulatory
perspective and given the Agencys recommendation that we file new INDs for
indications utilizing the new product. Based upon the continuing interactions
with the FDA in 2002, we decided to file new INDs for the revised product
format for the AC Vaccine for melanoma and ovarian cancer. Our Philadelphia
facility was validated and cleared to begin processing clinical samples for
administration to patients in clinical trials. Due to a lack of funding at that
time, however, we decided not to initiate the clinical trials at that time.

Also
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 Australian joint venture companies. We had not
received formal rejection of our reimbursement application, but a panel of
oncologists selected by the regulatory authority in Australia had recommended
against governmental reimbursement for M-Vax in Australia. Subsequent to our
liquidation of the Australian entity, we received formal notification of our
rejection of reimbursement by the appropriate authorities. Our experience in
Australia demonstrated the importance of obtaining support for the technology
among the leading oncologists within a particular country or community, which
we were never able to achieve in Australia during that period.

On
April 13, 2007, we closed a private placement of 80,060,000 shares of
common stock at a purchase price of $0.125 per share with 25 accredited or
institutional investors. We received gross proceeds of $10,007,500. In
connection with the private placement, we also issued to the investors warrants
to purchase 80,060,000 shares of common stock at a warrant exercise price of
$0.15 per share. In addition, we agreed to pay up to $580,350 and to issue warrants to purchase up to 6,190,400 shares
of common stock at a warrant exercise price of $0.15 per share to certain
advisors relating to this private offering. We received net proceeds from this
private offering, after offering related expenses, of approximately $9.3 million.
We are using the net proceeds of this private placement to continue to
implement the plan of operation described below.

Current Plan of Operation

Our
plan of operation is to continue on a limited basis our Phase III registration
trial for M-Vax and to initiate the Phase II clinical trial for O-Vax. To
continue to operate and to continue our development programs, including these
two clinical trials, we need to raise additional capital by the end of May
2008. Assuming we are able to raise a minimum of $10.0 million of additional
capital, the key components of our plan of operation for the balance of 2008
are:

|  |                                                                                                                                                                                                                                               
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Enroll patients in our Phase III registration trial
 U.S. for M-Vax for the treatment of Stage 3 and 4 melanoma patients, which
 trial will proceed under the Special Protocol Assessment that we received
 from the U.S. FDA in October 2006.
| 
| | Continue the treatment of melanoma patients outside
 the U.S. on a compassionate use basis with M-Vax.                                                                                                                                        
| 
| | Initiate the launch of the O-Vax study with Cancer
 Treatment Centers of America.                                                                                                                                                             

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|  |                                                                                                                                                                                                                                                                                         
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| | Continue our discussions with the European Medical
 Evaluations Agency and AFSSAPs, the FDA equivalent regulatory bodies for the European Union and France,
 respectively, regarding the regulatory requirements for the AC Vaccine and
 its continued development in Europe and France.
| 
| | Initiate discussion with Japanese regulatory
 authorities regarding the regulatory approval process for autologous products
 like our AC Vaccines and the requirements for making M-Vax available for
 compassionate use in Japan.                                                      

As
noted above, the continuation of our current plan of operation requires us to
raise additional capital immediately. If we are unable to do so, our ability to
continue as a going concern may be in jeopardy.

Liquidity and Capital Resources

We
presently anticipate that our current cash resources will be sufficient to fund
operations through May 2008, and we must raise additional capital immediately
if we are to continue as a going concern. Our current limited cash resources
require that we significantly curtail our efforts to enlist new clinical sites
for the Phase III registration trial for M-Vax and to significantly slow the
patient enrollment in that trial until we are successful in raising additional
capital. We will use the proceeds of any offering primarily to fund the
additional costs associated with enlisting clinical sites for and patient
enrollment in the Phase III trial. To implement the current plan of operation
described above for the balance of 2008 and into the first quarter of 2009, we
need to raise a minimum of $10.0 million in additional capital.

We
continually evaluate our plan of operation discussed above to determine the
manner in which we can most effectively utilize our limited cash resources. The
timing of completion of any aspect of our plan of operations is highly
dependant upon the availability of cash to implement that aspect of the plan
and other factors beyond our control.

Even
if we raise additional capital in the near future, if our current and planned
clinical trials for the AC Vaccine in the U.S. and Europe do not demonstrate
continuing progress toward taking one or more products to market, our ability
to raise additional capital in the future to fund our product development
efforts would likely be seriously impaired. The ability of a biotechnology
company, such as AVAX, to raise additional capital in the marketplace to fund
its continuing development operations is conditioned upon the company
continuing to move its development products toward ultimate regulatory approval
and commercialization. If in the future we are not able to demonstrate adequate
progress in the development of one or more products, we will not be able to
raise the capital we need to continue our then-current business operations and
business activities, and we will likely not have sufficient liquidity or cash
resources to continue operating.

We
conduct our capital raising efforts in U.S. dollars, while a significant
portion of our revenues and expenses are generated and incurred in currencies
other than U.S. dollars, mainly Euros. To the extent that we are unable to
match revenues received in foreign currencies with costs paid in the same
currency, exchange rate fluctuations in any such currency could have an adverse
effect on our results of operations and cash flows.

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Because
our working capital requirements depend upon numerous factors, including
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 beyond May 2008. 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 sought in this offering or
attract contract manufacturing relationships on acceptable terms, if at all. We
have begun to curtail certain initiatives and projects due to the fact we have
not raised additional capital as of the date of this report.

Results of Operations for the Year Ended December 31, 2007,
Compared with the Year Ended December 31, 2006

Revenue
recognized in 2007 was $617,384 compared to revenue recognized in 2006 of $734,774.
The decrease in revenues was due to lower manufacturing reimbursements related
to compassionate use treatments and lower revenues realized from contract
manufacturing. The decrease in revenues was partially offset by a higher
exchange rate in the current year and the realization of deferred revenue
related to the completion of participation in certain French government grants.

During
2007, our research and development expenses increased 8.3% from $4,244,268 in
2006 to $4,595,972 in 2007. Expenses for the periods are broken out by region
as follows:

| |               |  |                         |           |      |   |           | 
| | ------------- |  | ----------------------- | --------- | ---- | - | --------- | 
| |               |  | Year Ended December 31, |          
| |               |  |                         |          
| |               |  | 2006                    |           | 2007 |  
| |               |  |                         |           |      |  
| | United States |  | $                       | 2,225,226 |      | $ | 2,348,550 | 
| | France        |  |                         | 2,019,042 |      |   | 2,247,422 | 
| |               |  |                         |           |      |   |           | 
| |               |  | $                       | 4,244,268 |      | $ | 4,595,972 | 
| |               |  |                         |           |      |   |           | 

In
the U.S., the expense increase is the result of the launch of the Phase III
registration study, MAVALDI, for M-Vax in the U.S., Europe and Israel. Costs
incurred related to new site initiation plus costs incurred for the contract
research organization. These increased expenses were partially offset by a
decline in expenses for the Phase I/II study in M-Vax, which was completed
during 2007. The increase in costs in France was due to higher salaries and
taxes for new employees plus higher facility costs related to an increase in
the amount of space.

Selling,
general and administrative expenses increased approximately 36.0%, from
$1,989,188 for the year ended 2006 to $2,714,292 for the year ended 2007.
Expenses for the periods are broken out by region as follows:

| |               |  |                         |           |      |   |           |  
| | ------------- |  | ----------------------- | --------- | ---- | - | --------- | -
| |               |  | Year Ended December 31, |          
| |               |  |                         |          
| |               |  | 2006                    |           | 2007 |  
| |               |  |                         |           |      |  
| | United States |  | $                       | 1,461,491 |      | $ | 2,253,861 |  
| | France        |  |                         | 527,697   |      |   | 500,306   |  
| | Australia     |  |                         |          |      |   | (39,875   | )
| |               |  |                         |           |      |   |           |  
| |               |  | $                       | 1,989,188 |      | $ | 2,714,292 |  
| |               |  |                         |           |      |   |           |  

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In
the U.S., the increase in costs relates to higher salary costs with the
addition of a new Chief Executive Officer, salary adjustments and the accrual
of a $350,000 past services bonus for the services of the Principal Accounting
Officer. In addition, there were increased legal costs for securities counsel,
general counsel related to employment agreements and modifications and patent
counsel fees related to the filing and execution of ongoing patent expenses.
Also, there were increased travel costs associated with investor relations and
public relations activities. The decrease in administrative costs in France is
due to lower salaries paid in France and lower taxes, which were partially
offset by increased costs related to facility lease. Other decrease in expenses
recorded in 2007 was the reversal of previously recorded obligations related to
our Australian subsidiaries that were placed into liquidation proceedings in
the fourth quarter of 2002.

Interest
income increased from $143,182 earned in 2006 to $279,232 in 2007. The increase
is the function of higher interest rates with the overall rise in short-term
interest rates plus a higher average invested balance of cash after completing
the financing in April 2007.

Assuming
we are successful in raising additional capital, we anticipate our spending
over the next 12 months for research and development and selling, general and
administrative expenses will increase as compared with 2007, as we continue to
implement and accelerate the plan of operation described above.

Off-Balance Sheet Arrangements

As
of December 31, 2007, we did not have any off-balance sheet arrangements.

Critical Accounting Policies

Our
discussion and analysis of our financial condition and results of operations
are based on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the U.S. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities and expenses
and related disclosure of contingent assets and liabilities. We review our
estimates on an ongoing basis. We base our estimates on historical experience
and on various other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities. Actual results may differ from
these estimates under different assumptions or conditions. Our accounting
policies are described in more detail in Note
1 to our consolidated financial statements. We have identified the
following as the most critical accounting policies and estimates used in the
preparation of our consolidated financial statements.

Goodwill.In accordance with Statement of Financial Accounting
Standards, or SFAS, No. 142, Goodwill and Other Intangible Assets, we do not
amortize goodwill. Instead, we review goodwill for impairment at least annually
and when events or changes in circumstances indicate a reduction in the fair
value of the reporting unit to which the goodwill has been assigned. Conditions
that necessitate a goodwill impairment assessment include (i) a
significant adverse change in legal factors or in the business climate,
(ii) an adverse action or assessment by a regulator,
(iii) unanticipated competition, (iv) a loss of key personnel, or
(v) the presence of other indicators that would indicate a reduction in
the fair value of our Genopoeitic subsidiary to which the goodwill has been
assigned. SFAS No. 142 prescribes a two-step process for impairment testing of
goodwill. The first step of the impairment test is used to identify potential
impairment by comparing the fair value of the entity to which the goodwill has
been assigned to its carrying amount, including the goodwill. Such a valuation
requires significant estimates and assumptions, including estimating future
cash inflows from contracts and other sources, and developing appropriate
discount rates and probability rates. If the carrying value of the reporting
unit exceeds the fair value, the second step of the impairment test is
performed in order to measure the impairment loss.

Our
goodwill had a carrying value of $188,387 at December 31, 2007, resulting from
our acquisition of Genopoeitic in August 2000. We performed our annual goodwill
impairment test in accordance with SFAS No. 142 and determined that the
carrying amount of goodwill was recoverable. We considered internal
risk-adjusted cash flow projections, which utilize several key assumptions,
including estimated timing of cash inflows into Genopoeitic.

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Impairment
of Long-Lived Assets. Long-lived assets to be held and used,
including property and equipment and intangible assets subject to amortization,
are reviewed for impairment at least annually and whenever events or changes in
circumstances indicate that the carrying amount of the assets might not be
recoverable. Conditions that would necessitate an impairment assessment include
a significant decline in the market price of an asset or asset group, a
significant adverse change in the extent or manner in which an asset or asset
group is being used, a significant adverse change in legal factors or in the
business climate that could affect the value of a long-lived asset or asset
group, or the presence of other indicators that would indicate that the
carrying amount of an asset or asset group is not recoverable. Determination of
recoverability is based on the undiscounted future cash flows resulting from
the use of the asset or asset group and its eventual disposition. The
determination of the undiscounted cash flows requires significant estimates and
assumptions including determining the timing and expected costs to complete
in-process projects, projecting regulatory approvals and estimating future cash
inflows from product sales and other sources. In the event that such cash flows
are not expected to be sufficient to recover the carrying amount of the asset
or asset group, the carrying amount of the asset is written down to its
estimated fair value. Following our long-lived asset impairment review for the
fiscal year ended December 31, 2007, we have determined that no impairment
of long-lived assets existed.

Research
and Development Costs. Research and development costs,
including payments related to research and license agreements, are expensed
when incurred. Contractual research expenses are recorded pursuant to the
provisions of the contract under which the obligations originate. Research and
development costs include all costs incurred related to the research and
development, including manufacturing costs incurred, related to our research
programs. We are required to produce our products in compliance with current
Good Manufacturing Practices, which requires a minimum level of staffing,
personnel and facilities testing and maintenance. Based upon our current
staffing level required to be in compliance with cGMP, we have excess capacity.
Utilizing this excess capacity, revenue is generated in the form of contract
manufacturing engagements. Accordingly, costs associated with the contract
manufacturing revenues are not broken out from our research and development
costs, as these costs would not differ even if the contracts were not in place.

Impact of Recently Issued Accounting Standards

On
January 1, 2007, we adopted the provisions of the Financial Accounting
Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes  an
interpretation of FASB Statement No. 109, (FIN 48), which
clarifies the accounting for uncertainty in tax positions. FIN 48 seeks to
reduce the diversity in practice associated with certain aspects of measurement
and recognition in accounting for income taxes. In addition, FIN 48 provides
guidance on de-recognition, classification, interest and penalties, and
accounting in interim periods and requires expanded disclosure with respect to
the uncertainty in income taxes. FIN 48 requires that we recognize in our
financial statements the impact of a tax position if that position is more
likely than not to be sustained on audit, based on the technical merits of the
position. At the adoption date and as of December 31, 2007, we did not have
any unrecognized tax benefits and no adjustments to liabilities or results of
operations were required.

34

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In
September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements. FAS No. 157 defines fair value, establishes a
framework for measuring fair value in accordance with accounting principles
generally accepted in the United States of America and expands disclosures
about fair value measurements. SFAS No. 157 applies under other accounting
pronouncements that require or permit fair value measurements. Accordingly,
this pronouncement does not require any new fair value measurements. We are
required to adopt FAS No. 157 beginning January 1, 2008. We have
evaluated the impact of adopting FAS 175 on our consolidated financial statements
and do not expect any impact on our results of operations or financial
position.

In
February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No.
159, The Fair Value Option for Financial Assets and Financial Liabilities 
Including an Amendment of FASB Statement 115. FAS No. 159 permits all entities
to choose to elect, at specified election dates, to measure eligible financial
instruments at fair value. An entity shall report unrealized gains and losses
on items for which the fair value option has been elected in earnings at each
subsequent reporting date and recognize upfront costs and fees related to those
items in earnings as incurred and not deferred. FAS No. 159 applies to fiscal
years beginning after November 15, 2007, with early adoption permitted for an
entity that has also elected to apply the provisions of SFAS No. 157, Fair
Value Measurements. We have evaluated the impact of adopting FAS 159 on our
consolidated financial statements and do not expect any impact on our results
of operations or financial position.

In
September 2006, the FASB issued SFAS No. 158, Employers Accounting
for Defined Benefit Pension and Other Postretirement Plans, an amendment of
FASB Statements No. 87, 88, 106, and 132(R). SFAS No. 158 requires an
employer to recognize the over-funded or under-funded status of a defined
benefit postretirement plan (other than a multiemployer plan) as an asset or
liability in its statement of financial position and to recognize changes in
that funded status in the year in which the changes occur through comprehensive
income. In addition, with limited exceptions, this pronouncement requires an
employer to measure the funded status of a plan as of the date of its year-end
statement of financial position. SFAS No. 158 is effective for fiscal years
ending after December 15, 2006. As we do not have any defined benefit
pension plans or other postretirement plans, the adoption of this standard did
not have any impact on our financial statements.

In
June 2007, the FASB ratified Emerging Issues Task Force, or EITF, Issue
No. 07-3, Accounting for Nonrefundable Advance Payments for Goods or
Services to Be Used in Future Research and Development Activities, or Issue
07-3, which addresses the accounting for nonrefundable advance payments. The
EITF concluded that nonrefundable advance payments for goods or services to be
received in the future for use in research and development activities should be
deferred and capitalized. The capitalized amounts should be expensed as the
related goods are delivered or the services are performed. If an entitys
expectations change such that it does not expect it will need the goods to be
delivered or the services to be rendered, capitalized nonrefundable advance
payments should be charged to expense. Issue 07-3 is effective for new
contracts entered into during fiscal years beginning after December 15,
2007, including interim periods within those fiscal years. We have evaluated
the impact of adopting Issue 07-3 on our consolidated financial statements and
do not expect any impact on our results of operations or financial position.

In
December 2007, the FASB ratified the final consensuses in Emerging Issues Task
Force Issue No. 07-1, Accounting
for Collaborative Arrangements,
or Issue 07-1, which requires certain income statement presentation of
transactions with third parties and of payments between parties to the
collaborative arrangement, along with disclosure about the nature and purpose
of the arrangement. Issue 07-1 is effective for us beginning January 1,
2009. We have evaluated the impact of adopting Issue 07-1 on our consolidated
financial statements and do not expect any impact on our results of operations
or financial position.

|         |                                             
|-------- | --------------------------------------------
|ITEM
 8. | Financial
 Statements and Supplementary Data

Our
consolidated financial statements appear following the signature page to this
report. See Financial Statements.

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The
accompanying Financial Statements have been prepared assuming that we will continue
as a going concern. The report of independent registered public accounting firm
included with the Financial Statements is an unqualified opinion with an
explanatory paragraph about conditions raising substantial doubt about our
ability to continue as a going concern.

|        |                                                                                      
|------- | -------------------------------------------------------------------------------------
|ITEM 9. | Changes In and Disagreements With
 Accountants on Accounting and Financial Disclosure

None.

|            |                        
|----------- | -----------------------
|ITEM 9A(T). | Controls and
Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls
and Procedures

We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports filed or submitted pursuant
to the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commissions rules and forms, and that information required to be
disclosed by us is accumulated and communicated to management, including our
President and Chief Executive Officer, Principal Accounting Officer and our
Executive Chairman to allow timely decisions regarding required disclosure.

Under
the supervision and with the participation of our management, including our
President and Chief Executive Officer, Principal Accounting Officer and our
Executive Chairman, we carried out an evaluation of the effectiveness of the
design and operation of our disclosure controls and procedures pursuant to
Exchange Act Rule 13a-15(e) and 15d-15(e) as of December 31, 2007. Based upon
that evaluation, our President and Chief Executive Officer, Principal
Accounting Officer and Executive Chairman concluded that our disclosure
controls and procedures were not effective as of December 31, 2007, due to the
material weakness described below in Managements Report on Internal Control
Over Financial Reporting (Item 9A(b)).

In
light of the material weaknesses, in preparing our consolidated financial
statements as of and for the fiscal year ended December 31, 2007, we performed
additional analyses and other post-closing procedures to ensure our
consolidated financial statements included in this annual report fairly
present, in all material respect, our financial condition, results of
operations and cash flows for the fiscal years covered thereby in conformity
with generally accepted accounting principles.

Managements Report on Internal Control Over Financial
Reporting

Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is identified in Exchange Act
Rule 13a-15(f) and 15d-15(f). Our internal control system is a process designed
to provide reasonable assurance to our management, Board of Directors and
shareholders regarding the reliability of financial reporting and the
preparation and fair presentation of financial statements for external
reporting purposes in accordance with U.S. generally accepted accounting
principles.

In
order to ensure that our internal control over financial reporting is effective,
management regularly assesses controls for our financial reporting, and did so
as of December 31, 2007. This assessment was based on criteria for effective
internal controls over financial reporting described in Internal Control
Integrated Framework issued by the Committee of Sponsoring Organizations (COSO)
of the Treadway Commission. Based on this assessment, management has concluded
that our internal control over financial reporting was not effective as of
December 31, 2007.

A
material weakness is defined as a deficiency, or a combination of deficiencies,
in internal control over financial reporting such that there is reasonable
possibility that a material misstatement of the registrants annual or interim
financial statements will not be prevented or detected on a timely basis.

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As
a result of our assessment, we have identified the following material
weaknesses in our internal control over financial reporting for the year ended
December 31, 2007:

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|o | Our lack of sufficient personnel at the U.S.
  headquarters in the accounting, treasury and financial reporting functions
  affected our ability to have adequate segregation of duties over financial
  transactions and adequate monitoring controls over the annual and quarterly
  financial close processes.                                                                                                                                                                      
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|o | The lack of segregation of duties often results in
  the same individual performing two or more of the following functions:
  initiation and authorization of financial transactions, recording of
  transactions, and custody of financial assets. The lack of segregation of
  duties also prevented us from satisfying important monitoring control
  objectives, such as authorization, completeness and accuracy, and
  reconciliation of accounting transactions and information.

We
are currently undergoing an effort in preparation for compliance with Section
404 of the Sarbanes-Oxley Act of 2002. This effort, under the direction of
senior management, includes the documentation, testing and review of our
internal controls over financial transactions and financial statement
preparation and reporting. During the course of these activities, we will
identify other potential improvements to our internal controls over financial
reporting.

This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Managements report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only managements report in this annual
report.

Changes in Internal Control Over Financial Reporting

There
were no changes in our internal control over financial reporting, as such term
is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the
three months ended December 31, 2007 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.

We
plan to take corrective actions to remediate the material weaknesses noted above.
Specifically, assuming we are successful in raising additional capital, we plan
to hire additional qualified personnel to assist it with various accounting and
finance functions within the organization. We believe this new personnel will
reduce the risk associated with our lack of segregation of duties and thus
enhance our system of internal controls over financial reporting.

Management
believes that the actions described above, when fully implemented, will be
effective in remediation of the specific material weakness discussed above.

Limitations of Effectiveness of Controls

As
of the date of this filing, we are satisfied that actions implemented to date
and the planned actions described above will remediate the material weaknesses
and deficiencies in the internal controls and information systems that have
been identified. We note that, like other companies, any system of internal
controls, however well designed and operated, can provide only reasonable
assurance, and not absolute assurance, that the objectives of the internal
control system will be met. The design of any control system is based, in part,
upon the benefits of the control system relative to its costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and that controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people or by management override of control. In addition, over time,
controls may become inadequate because of changes in conditions, or the degree
of compliance with the policies or procedures may deteriorate. In addition, the
design of any control system is based in part upon certain assumptions about
the likelihood of future events. Because of the limitations inherent in a
cost-effective control system, misstatements due to error or fraud may occur
and may not be detected.

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This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Managements report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only managements report in this annual
report.

|         |                  
|-------- | -----------------
|Item 9B. | Other Information

None.

PART III

|           |                                                         
|---------- | --------------------------------------------------------
|ITEM
  10. | Directors,
  Executive Officers and Corporate Governance

Our
executive officers and directors, as well as certain information about them,
are as follows:

|                              |  |     |  |                                                 |  |  | 
|----------------------------- |  | --- |  | ----------------------------------------------- |  |  | 
|Name                          |  | Age |  | Position
  with the Company                    
|                              |  |     |  |                                                 |  |  | 
|                             
|John K. A. Prendergast, Ph.D. |  | 52  |  | Chairman of the Board and Director             
|                              |  |     |  |                                                
|Francois R. Martelet, MD      |  | 48  |  | Chief Executive Officer, President and Director
|                              |  |     |  |                                                
|Richard P. Rainey             |  | 41  |  | Principal Accounting Officer                   
|                              |  |     |  |                                                
|David Berd, M.D.              |  | 62  |  | Chief Medical Officer                          
|                              |  |     |  |                                                
|Edson D. de Castro            |  | 69  |  | Director                                       
|                              |  |     |  |                                                
|Andrew W. Dahl, Sc.D.         |  | 65  |  | Director                                       
|                              |  |     |  |                                                
|Carl Spana, Ph.D.             |  | 45  |  | Director                                       

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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 a member of the board of
directors of Avigen, Inc. and Palatin
Technologies, Inc. as well as Lead Director of MediciNova, Inc. He also serves
as the Executive Chairman of Antyra, Inc., a private company located in Edison,
NJ From October 1991 through December 1996, Dr. Prendergast was 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.

Francois
R. Martelet, MD.,was
elected to the board of directors of the company, effective July 20, 2007, and
was appointed as Chief Executive Officer and President of the company as of
December 1, 2007. Throughout 2007, Dr. Martelet provided consulting services to
clients in the life sciences and biotechnology industry. Dr. Martelet served as
Vice-President and Global Franchise Head, Oncology at Merck & Co. from July
2005 through December 2006. From July 2003 through July 2005, Dr. Martelet was
the Regional Pharma Head, Central & Eastern Europe, Middle East and Africa
for Novartis Pharma, AG. Prior to that, Dr. Martelet served in various other
senior officer positions within various units of Novartis Pharmaceutical,
including leading the Oncology Business Units in Asia, Latin America, Central
and Europe, the Middle East and Africa. Prior to joining Novartis, Dr. Martelet
served in various oncology-related capacities with Schering-Plough
International, Eli Lilly Corporation and F. Hoffman-la Roche, AG. Dr. Martelet
received a Doctorate in Medicine with distinction and a Pharmaceutical
Marketing Masters Degree in Business from Dijon University, France. He also
holds a degree in Legal Medicine from R. Descartes University School of
Medicine, Paris.

Richard
P. Rainey, C.P.A.,is
currently the Principal Accounting Officer of the company. In February 2008,
Mr. Rainey entered into a new employment agreement with the company, effective
as of December 1, 2007, under which he agreed to remain with the company
as our Principal Accounting Officer until May 31, 2008. We do not anticipate
that Mr. Rainey will continue in his current position with the company beyond
May 31, 2008. Since joining the company in
September 1998, Mr. Rainey has served in various positions, including Chief
Executive Officer, President, and Chief Financial Officer until December 1,
2007, when he became Principal Accounting Officer. Mr. Rainey has also served
as Vice President for Finance and Administration and Controller and as a
director of the company from May 2007 until January 23, 2008. 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.

David
Berd, M.D., joined the company as Chief Medical Officer in
November 2004. He has been Professor of Medicine at Thomas Jefferson University
since 1984. Dr. Berd is the inventor of the AC Vaccine technology, and
conducted all the clinical trials of the vaccine completed to date. He is the
author of numerous published papers on the basic science and clinical testing
of the vaccine. Dr. Berd is a board-certified medical oncologist, and received
training at the University of Pennsylvania and Yale University School of
Medicine.

Edson
D. de Castro has been a
director 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 an Overseer 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. Since May 2007, Dr. Dahl has
served as Chief Innovation Executive of Fairview Health Services, a $2.5
Billion nonprofit health organization, that is a clinical arm of the University
of Minnesota. From March 2005 to March 2007, Dr. Dahl served as the Vice
President of Consumer Driven Health and Human Resources of Alegent Health, a
nonprofit, multi-hospital and health system headquartered in Omaha, Nebraska.
He served as President and CEO of Evolution Health, LLC., from July 2000
through February 2005. 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), 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.

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Carl
Spana, Ph.D., has been a director of the company since
September 1995 and was our Interim President from August 1995 to June 15, 1996.
Dr. Spana is a co-founder of Palatin Technologies, Inc. and has been its
president and chief executive officer since June 2000. He has been a director
of Palatin since June 1996 and has been a director of RhoMed Incorporated since
July 1995. Dr. Spana has served Palatin in other executive capacities prior to
June 2000. Dr. Spana was vice president of Paramount Capital Investments, LLC,
a biotechnology and biopharmaceutical merchant-banking firm, and of The Castle
Group Ltd., a medical venture capital firm. Through his work at Paramount
Capital Investments and Castle Group, Dr. Spana co-founded and acquired several
private biotechnology firms. From July 1991 to June 1993, Dr. Spana was a
Research Associate at Bristol-Myers Squibb, where he was involved in scientific
research in the field of immunology. Dr. Spana received his Ph.D. in molecular
biology from The Johns Hopkins University and his B.S. in biochemistry from
Rutgers University.

Audit Committee, Financial Expert and Code of Ethics

Our
Audit Committee consists of our independent directors, Dr. Dahl, Mr. de Castro
and Dr. Spana. Our 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. Mr. de Castro and Dr. Spana,
Dr. Dahl are independent within the meaning of
NASDAQ Rule 4200(a)(15), which is the independence test utilized by the Board
even though our common stock is no longer listed on NASDAQ.

Our
Compensation Committee consists of Mr. de Castro, Dr. Dahl and Dr. Spana.

We
adopted a Code of Ethics at a meeting of the board of directors held on June 14, 2005, which applies to our
principal executive officer and principal financial officer.

Section
16(a) Beneficial Ownership Reporting Compliance

Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our
directors, executive officers and holders of more than 10% of our 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 us with copies of all
such filings. Specific due dates for these reports have been established and we
are required to identify those persons who failed to timely file these reports.
Based on our review of the copies of filings received by it with respect to the
fiscal year ended December 31, 2007, and representations from certain Reporting
Persons, we believe that all Reporting Persons complied with the Section 16(a)
filing requirements in the year ended December 31, 2007, except for those
noted below.

Dr.
Francois Martelet, our current President and Chief Executive Officer, was
appointed as a director of the company on July 20, 2007, and was granted
certain stock options on the date of his appointment. A Form 3 for Dr. Martelet
was filed on July 31, 2007, and all subsequent reports required to be filed by
Dr. Martelet on Form 4 have been filed on a timely basis.

40

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Table of Contents

|           |                         
|---------- | ------------------------
|ITEM
  11. | Executive
  Compensation

Executive
Compensation

The
following Summary Compensation Table sets forth the compensation earned by the
persons serving as our chairman of the board, chief executive officer and the
other named key employees (who were the only other employees who made in excess
of $100,000 in 2007) (the Named Officers) for the last three fiscal years. We
have no long-term incentive plans.

Our
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 our
reduction in the executive staff in 2002, Dr. Prendergast, at the request of
the board of directors, has assisted management in certain strategic
initiatives and related matters since that time. 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 independent members of the Board. Effective December 1,
2003, the Board approved monthly compensation to Dr. Prendergast of $10,500,
plus reimbursement of out-of-pocket expenses for consulting services provided
by Dr. Prendergast to us, which will consist of not less than five days of
service per calendar month.

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Summary Compensation Table 
Annual Compensation

|                                                         |  |      |      |             |   |            |  |                     |   |                              |   |                      |  |   |         |  |   |         | 
|-------------------------------------------------------- |  | ---- | ---- | ----------- | - | ---------- |  | ------------------- | - | ---------------------------- | - | -------------------- |  | - | ------- |  | - | ------- | 
|Name and
 Principal Position                             |  | Year |      | Salary
 ($) |   | Bonus
 ($) |  | Option
 Awards
 ($) |   | All Other
 Compensation
 ($) |   | TotalCompensation($) | 
|                                                         |  |      |      |             |   |            |  |                     |   |                              |   |                      | 
|John K.A.                                                |  |      | 2007 |             | $ |           |  | $                   |  |                              | $ | 28,859               |  | $ | 126,000 |  | $ | 154,859 | 
|Prendergast,
 Ph.D.  Chairman of the Board 1            |  |      | 2006 |             |   |           |  |                     |  |                              |   | 24,684               |  |   | 126,000 |  |   | 150,684 | 
|Francois R.
 Martelet, M.D.  President, CEO, Director 2 |  |      | 2007 |             |   | 37,500     |  |                     |  |                              |   | 10,781               |  |   | 5,000   |  |   | 53,281  | 
|Richard P.
 Rainey,                                      |  |      | 2007 |             |   | 331,250    |  |                     |  |                              |   | 54,235               |  |   |        |  |   | 385,485 | 
|C.P.A. 
 Principal Accounting Officer 3                 |  |      | 2006 |             |   | 275,000    |  |                     |  |                              |   | 31,872               |  |   |        |  |   | 306,872 | 
|David Berd,
 M.D.                                       |  |      | 2007 |             |   | 243,333    |  |                     |  |                              |   | 35,779               |  |   |        |  |   | 279,112 | 
|Chief
 Medical Officer 4                                 |  |      | 2006 |             |   | 220,000    |  |                     |  |                              |   | 18,000               |  |   |        |  |   | 238,000 | 

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|1 | The other
 compensation shown for Dr. Prendergast consisted of $126,000 of additional
 compensation paid for the services rendered by Dr. Prendergast as a
 non-employee director of the Company for each of the years 2006 and 2007.                                                                                                                                                                                                                                    
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|2 | Option
 Awards includes the value of the 300,000 options granted to Dr. Martelet upon
 his appointment as director of the company, prior to his appointment as
 President and Chief Executive Officer. Dr. Martelets Other Compensation
 consists of the director fees he received for his service as director prior
 to his appointment as President and Chief Executive Officer. Dr. Martelets
 employment agreement provides for a base salary of $450,000 per year.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|3 | Amount shown
 does not include a $350,000 bonus paid to Mr. Rainey on January 23, 2008 for
 prior services in conjunction with his execution of a new employment
 agreement described below. Mr. Raineys current employment agreement provides
 for a base salary of $275,000 per year.                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|4 | Dr. Berds
 employment commenced November 1, 2004, and his prior agreement provided for a
 minimum annual base salary of $180,000. Dr Berds new agreement, effective
 November 1, 2007, provides for a minimum annual base salary of $255,000.                                                                                                                                                                                                                          

42

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Table of Contents

Outstanding
Equity Awards at Fiscal Year-End

|                             |  |                                                                           |         |                                                                             |  |                              |  |                         |       |  |  |          |  
|---------------------------- |  | ------------------------------------------------------------------------- | ------- | --------------------------------------------------------------------------- |  | ---------------------------- |  | ----------------------- | ----- |  |  | -------- | -
|                             |  | Option Awards                                                             |        
|                             |  |                                                                           |        
|Name and Principal
 Position |  | Number of
 Securities
 Underlying
 Unexercised
 Options
 (#)
 Exercisable |         | Number of
 Securities
 Underlying
 Unexercised
 Options
 (#)
 Unexercisable |  | Option
 Exercise
 Price
 ($) |  | Option
 Expiration Date |      
|                             |  |                                                                           |         |                                                                             |  |                              |  |                         |      
|Francois R.
 Martelet, M.D.  |  |                                                                           |        |                                                                             |  | 7,130,288                    |  |                         | 0.09  |  |  | 12/01/14 | 1
| CEO,
 President and        |  |                                                                           | 75,000  |                                                                             |  | 225,000                      |  |                         | 0.18  |  |  | 7/20/17  | 2
|Director                     |  |                                                                           |         |                                                                             |  |                              |  |                         |       |  |  |          |  
|Richard P.
 Rainey, C.P.A.   |  |                                                                           | 50,000  |                                                                             |  |                             |  |                         | 0.906 |  |  | 3/26/08  | 3
| Principal
 Accounting      |  |                                                                           | 130,000 |                                                                             |  |                             |  |                         | 0.890 |  |  | 11/02/08 | 3
|Officer and
 Corporate       |  |                                                                           | 203,125 |                                                                             |  | 46,875                       |  |                         | 0.125 |  |  | 10/01/11 | 3
|Secretary                    |  |                                                                           | 312,500 |                                                                             |  | 187,500                      |  |                         | 0.300 |  |  | 6/07/12  | 3
|                             |  |                                                                           | 250,000 |                                                                             |  | 750,000                      |  |                         | 0.190 |  |  | 8/27/14  | 3
|                             |  |                                                                           |         |                                                                             |  |                              |  |                         |       |  |  |          |  
|Dr. David
 Berd  Chief      |  |                                                                           | 162,500 |                                                                             |  | 37,500                       |  |                         | 0.150 |  |  | 11/01/11 | 3
|Medical
 Officer             |  |                                                                           | 156,250 |                                                                             |  | 93,750                       |  |                         | 0.300 |  |  | 6/07/12  | 3
|                             |  |                                                                           | 187,500 |                                                                             |  | 562,500                      |  |                         | 0.190 |  |  | 8/27/14  | 3

|  |                                                                                                                                                                    | 
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 
|  |                                                                                                                                                                   
|1 | Options
 expire seven years from the date of grant and vest yearly over a four-year
 period of continuing service as an employee, commencing December 1, 2008.    
|  |                                                                                                                                                                    | 
|2 | Options
 expire ten years from the date of grant and vest yearly over a four-year
 period of continuing service as an employee, commencing on the date of grant.  
|  |                                                                                                                                                                    | 
|3 | Options
 expire seven years from the date of grant and vest yearly over a four-year
 period of continuing service as an employee, commencing on the date of grant.

43

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Table of Contents

Compensation
of Directors

Director Compensation

|                             |  |                                    |        |                     |   |                              |  |                      |         |  |   |         | 
|---------------------------- |  | ---------------------------------- | ------ | ------------------- | - | ---------------------------- |  | -------------------- | ------- |  | - | ------- | 
|Name and Principal
 Position |  | Fees earned
 or paid in
 cash
 ($) |        | Option
 Awards
 ($) |   | All Other
 Compensation
 ($) |  | TotalCompensation($) |        
|                             |  |                                    |        |                     |   |                              |  |                      |        
|John K.A.
 Prendergast,      |  | $                                  |       |                     | $ | 28,859                       |  | $                    | 126,000 |  | $ | 163,500 | 
|Ph.D. 
 Chairman of the     |  |                                    |        |                     |   |                              |  |                      |         |  |   |         | 
|Board1                       |  |                                    |        |                     |   |                              |  |                      |         |  |   |         | 
|Francois R.
 Martelet, M.D.  |  |                                    | 6,500  |                     |   |                             |  |                      |        |  |   | 6,500   | 
| CEO,
 President and Board  |  |                                    |        |                     |   |                              |  |                      |         |  |   |         | 
|of Directors2                |  |                                    |        |                     |   |                              |  |                      |         |  |   |         | 
|Carl Spana,
 Ph.D.  Board   |  |                                    | 19,000 |                     |   | 12,890                       |  |                      |        |  |   | 31,890  | 
|of Directors3                |  |                                    |        |                     |   |                              |  |                      |         |  |   |         | 
|Andy Dahl,
 Sc. D  Board    |  |                                    | 18,250 |                     |   | 4,742                        |  |                      |        |  |   | 22,992  | 
|of Directors4                |  |                                    |        |                     |   |                              |  |                      |         |  |   |         | 
|Edson
 deCastro  Board of   |  |                                    | 18,250 |                     |   | 4,742                        |  |                      |        |  |   | 22,992  | 
|Directors5                   |  |                                    |        |                     |   |                              |  |                      |         |  |   |         | 

|    |                                                                                                                                                                                    | 
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|    |                                                                                                                                                                                   
|(1) | As of
 December 31, 2007, Dr. Prendergast had 960,000 option awards outstanding.                                                                                                  
|    |                                                                                                                                                                                   
|(2) | Amounts
 shown reflect Dr. Martelets compensation prior to his appointment as CEO and
 President. As of December 31, 2007, Dr. Martelet had 7,430,288 option awards
 outstanding.
|    |                                                                                                                                                                                   
|(3) | As of
 December 31, 2007, Dr. Spana had 560,000 option awards outstanding.                                                                                                        
|    |                                                                                                                                                                                   
|(4) | As of
 December 31, 2007, Dr. Dahl had 410,000 option awards outstanding.                                                                                                         
|    |                                                                                                                                                                                   
|(5) | As of
 December 31, 2007, Mr. de Castro had 410,000 option awards outstanding.                                                                                                    

In
2007, we had two in-person Board meetings, one in-person committee meeting, and
eleven telephonic Board or committee meetings.

Effective
January 1, 2006, the Compensation Committee of the Board of Directors approved
the following cash compensation for non-employee directors, which compensation
will not be paid to Dr. Prendergast for so long as he is separately compensated
for the additional services he is providing to the company as our Chairman of
the Board:

Non-Employee Director Compensation

Cash Compensation

|                                 |                                       
|-------------------------------- | --------------------------------------
|In-Person
 Board Meeting         | $5,000                                
|Telephonic
 Board Meeting        | 750 per hour
 up to a maximum of 2,000
|In-Person
 Committee Meeting     | 1,000                                 
|Telephonic
 Committee Meeting    | 750                                   
|Audit
 Committee Chairman        | 6,000 per
 year                       
|Compensation
 Committee Chairman | 3,000 per
 year                       

In
conjunction with the addition of Dr. Martelet to the Board of Directors, he was
issued options to purchase 300,000 shares of common stock. At that time, the
other members of the Board of Directors determined that options to purchase
300,000 shares of common stock was a fair annual grant to the other independent
members of the Board, as described above.

See
Executive Compensation above for a description of certain compensation paid
to Dr. Prendergast 2006 and 2007 and stock options awarded to Dr. Prendergast
for additional services provided by Dr. Prendergast to us, at the request of
our board of directors.

44

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Table of Contents

Employment Agreements

Dr.
Francois R. Martelet. Pursuant to the terms of Dr.
Martelets employment agreement, as amended, he will serve as our President and
Chief Executive Officer for a term commencing December 1, 2007, and ending on
December 1, 2010. If Dr. Martelets employment is terminated for any reason, he
will also be required to resign from his current position as member of the
Board of Directors.

The
terms of the employment agreement provide that Dr. Martelet will receive an
annual base salary of $450,000, subject to yearly review for increase.
Additionally, Dr. Martelet is entitled to participate in our annual
discretionary bonus program. Under the discretionary bonus program, Dr.
Martelet is eligible to receive up to 50% of his then current base salary based
on milestones to be mutually agreed on between the Compensation Committee and
Dr. Martelet. Dr. Martelet is guaranteed a minimum bonus of 30% of the base
salary for his first year of employment. Dr. Martelet is also eligible for cash
performance bonuses upon attainment of certain pre-determined milestones based
on market capitalization met within the first 42 months of employment.

In
conjunction with Dr. Martelets initial employment, the Board of Directors
awarded Dr. Martelet options to purchase common stock in an amount equal to 5%
of the outstanding shares of common stock of the company (Equity Grant A).
Dr. Martelet was awarded options to purchase 1,000,000 shares of common stock
under the companys 2006 Equity Incentive Plan and inducement stock options to
purchase 6,130,288 shares of common stock outside of the 2006 Equity Incentive
Plan. The options vest in four equal annual installments on each of the first
four anniversaries of the effective date of the employment agreement, have an
option exercise price per share of $0.09, and expire on December 1, 2014.

If
at any time prior to December 1, 2008, our valuation reaches or exceeds
$75,000,000 (as calculated in accordance with the employment agreement) for a
period of 30 consecutive days, we will grant to Dr. Martelet additional equity
grants pursuant to the equity plan then in effect (Equity Grant B). Equity
Grant B will be issued as a combination of stock options and restricted stock
units pursuant to the same terms and conditions as set forth above for the
initial stock option grant, except that options will be granted at the fair
market value of the common stock on the effective date of Equity Grant B. The
amount of shares comprising Equity Grant B will be determined using the
following formula; provided however, that if it the formula calculates Equity
Grant B to be equal to 0 or a negative number of shares, the number of shares
to be issued as Equity Grant B shall be determined by the compensation
committee of the Board: Equity Grant B = (0.035 x common outstanding shares) 
7,130,288 options under Equity Grant A. For purposes of this formula, common
outstanding shares is defined as the number of shares of common stock
outstanding as of the date of determination plus the number of shares of common
stock as to which any shares of preferred stock are then convertible.

Dr.
Martelet is also entitled to additional stock options and restricted stock
grants at the sole discretion of the Board of Directors.

The
employment agreement provides for the accelerated vesting of the options (both
Equity Grant A and Equity Grant B) if there is a change in control of the
company or he is terminated for certain reasons specified in the employment
agreement.

Pursuant
to the employment agreement, Dr. Martelets employment will terminate upon the
occurrence of any of the following: (i) the expiration of the employment
period, unless the company and Dr. Martelet agree to extend the term or
otherwise continue Dr. Martelets employment on mutually agreeable terms, (ii)
at the election of the company for cause, immediately upon written notice by
the company to Dr. Martelet, which notice of termination will have been
approved by a majority of the Board, (iii) immediately upon death or
disability, (iv) at the election of Dr. Martelet, for good reason, immediately
upon written notice of not less than 60 days, (v) at our election, upon or
within 12 months following a change in control, or at the election of Dr.
Martelet for good reason upon or within 12 months following a change in
control, immediately upon written notice of termination, or (vi) at the
election of the company or Dr. Martelet, upon written notice of termination.

45

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If
we elect to terminate Dr. Martelets employment, other than for cause, or
within 60 days prior to the expiration of the employment agreement, the company
and Dr. Martelet fail to agree to extend the employment agreement or otherwise
reach a mutually acceptable agreement to continue Dr. Martelets employment, we
will pay to Dr. Martelet the salary in effect on the date of termination for a
20 month period following the date of termination, plus medical and dental
benefits and any pro rata portion of any non-discretionary bonus.

If
we terminate Dr. Martelets employment for cause or Dr. Martelet elects to
terminate employment, other than for good reason, no severance or benefits will
be paid, and Dr. Martelet will be entitled only to receive payment of earned
but unpaid salary, and accrued vacation, as of the date of termination.

If
Dr. Martelet terminates employment for good reason, other than following a
change in control, we will pay Dr. Martelets then current salary for a 20
month period following the date of termination, plus medical and dental
benefits and the pro rata portion of any non-discretionary bonus earned.

If
we terminate the employment relationship upon or following a change in control,
or if Dr. Martelet terminates employment for good reason upon or following a
change in control, we will pay the then current annual salary in a lump sum
amount, calculated at two times the annual salary, plus medical and dental care
benefits and any pro rata portion of any non-discretionary bonus.

If,
prior to the expiration of the employment period, Dr. Martelets employment is
terminated by death or disability, we will pay to Dr. Martelet, the then
current base salary for a 20 month period in the case of death, and a six month
period in the case of disability, following the date of termination, plus
medical and dental benefits and any pro rata portion of any non-discretionary
bonus.

Dr.
Martelet has agreed that during the employment period and after the termination
of employment, for any reason, Dr. Martelet will not render services of any
nature, directly or indirectly, to any competing organization in connection
with any competing product within any geographical territory as the company and
the competing organization are or would be in actual competition, for a period
of 20 months, commencing on the date of termination. Additionally, Dr. Martelet
has agreed that he will not, during his employment and for a period of 20
months commencing on the date of termination, directly or indirectly employ,
solicit for employment, or advise or recommend to any other person that they
employ or solicit for employment, any person whom he knows to be an employee of
the company or any parent, subsidiary or affiliate of the company.

Richard
P. Rainey. On January 23, 2008, we entered into and
executed a new employment agreement with Mr. Rainey, effective as of December
1, 2007, which sets forth the terms of Mr. Raineys continued employment with
us through May 31, 2008. The new agreement supersedes the previous employment
agreement between us and Mr. Rainey dated as of April 1, 2004, as amended by a
letter agreement dated October 2, 2007, except as set forth in the new
agreement. Upon execution of the new agreement, Mr. Rainey received a bonus payment
of $350,000 for prior services rendered.

The
new agreement provides that Mr. Rainey will continue in employment with the
company until May 31, 2008, in the capacity of Principal Accounting Officer.
Under the terms of the new agreement, Mr. Rainey receives a base salary of
$275,000 per year. The new agreement also provides that Mr. Rainey will receive
a severance payment of $350,000, payable in 12 monthly installments, if (i) Mr.
Raineys employment is terminated without Cause, as defined below, (ii) upon
Mr. Raineys death or disability, (iii) after Achievement of the Milestones, as
defined below, (iv) due to Mr. Raineys resignation for Good Reason, as defined
below, or (v) upon the expiration of the employment term on May 31, 2008. The
new agreement also provides that the exercise date for all stock options held
by Mr. Rainey is extended 18 months from the termination date of Mr. Raineys
employment with us and that all such stock options will thereupon be
accelerated and fully vested as of the termination date, if the agreement is
terminated in a manner that triggers the severance payment described in the
preceding sentence. We may terminate Mr. Rainey for Cause or without Cause, Mr.
Rainey may terminate his employment for Good Reason, or no reason, and Mr.
Raineys employment will terminate at the end of the term of the employment
term on May 31, 2008, unless earlier terminated.

46

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Table of Contents

For
purposes of the agreement, Cause for termination means (a) Mr. Raineys
material breach of, or habitual neglect or failure to perform the material
duties which he is required to perform under the terms of the agreement; the
willful or intentional failure to follow the reasonable directives or policies
established by us; or engaging in conduct that is materially detrimental to our
interests such that we sustain a material loss or injury as a result thereof,
provided that the breach or failure of performance by the Mr. Rainey has not
been cured by Mr. Rainey within 30 days after he shall have received written
notice from us stating with reasonable specificity the nature of such conduct;
(b) Mr. Raineys conviction or entry of nolo contendere to any felony or a
crime involving moral turpitude, fraud or embezzlement of our property; or (c)
Mr. Raineys material breach of his duties under the agreement. For purposes of
the agreement, Good Reason means, without Mr. Raineys written consent, (a)
the assignment to Mr. Rainey of duties inconsistent in any material respect
with the duties of a Principal Accounting Officer; or (b) a material reduction
in his base salary or other benefits. For purposes of the agreement,
Achievement of the Milestones, means the filing by the company of its Annual
Report on Form 10-K for the year ended December 31, 2007, and the filing and
effectiveness of a registration for a primary offering of securities by us, in
each instance, with the participation of Mr. Rainey in his capacity as
Principal Accounting Officer.

The
employment agreement also contains a nondisclosure agreement, a 12-month
covenant not to compete, and a 12- month non-solicitation agreement.

Dr.
David Berd.On March 11, 2008, we executed a new
employment agreement with Dr. Berd, effective as of November 1, 2007, which
supersedes the prior employment letter agreement between the company and Dr.
Berd. Under the new employment agreement, Dr. Berd continues to serve as the
Chief Medical Officer of the company, has a base salary of $255,000, and is
eligible to receive a discretionary annual incentive bonus (targeted to be 35%
of base salary) upon achieving performance standards to be established by the
company with Dr. Berd.

Upon
termination of Dr. Berds employment for any reason other than, (i) due to Dr.
Berds death or to his disability, (ii) by the company for just cause, or
(iii) by Dr. Berd for good reason, then the company is required to pay Dr.
Berd, as his sole damages for his termination, his annual base salary for the
next 18 months. Such amount will not be set-off against amounts earned from
alternative employment. In addition, any stock options granted to Dr. Berd will
continue to vest during that 18 month period. If, (i) Dr. Berds employment is
terminated by the company with just cause, (ii) Dr. Berd terminates his employment
other than for good reason, or (iii) Dr. Berds employment is terminated due
to death or disability, we are required to pay Dr. Berd, or his estate, his
base salary accrued but unpaid as of the date of termination. The employment
agreement also contains a nondisclosure agreement, a two-year covenant not to
compete, and an 18-month non-solicitation agreement.

47

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Table of Contents

|         |                                                                                                
|-------- | -----------------------------------------------------------------------------------------------
|ITEM 12. | Security Ownership of Certain Beneficial Owners and Management and
 Related Stockholder Matters

The
following table sets forth, as of December 31, 2007, certain information
regarding the beneficial ownership of the common stock (i) by each person known
by us to be the beneficial owner of more than five percent of the outstanding
shares of the common stock, (ii) by each of our Named Executive Officers (as
defined herein) and directors and (iii) by all our executive officers and
directors as a group.

|                                                                                                                                                                               |  |                 |  |                                             |  |                                              |       
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------- |  | ------------------------------------------- |  | -------------------------------------------- | ------
|Name and Address of Beneficial Owner                                                                                                                                           |  | Title of
 Stock |  | Amount and
 Nature of
 Beneficial Ownership |  | Percentage
 of Class
 Beneficially Owned (1)
|                                                                                                                                                                               |  |                 |  |                                             |  |                                             
|                                                                                                                                                                               |  |                 |  |                                             |  |                                             
|Named Officers and Directors (2)                                                                                                                                               |  |                 |  |                                             |  |                                             
|Francois R.
 Martelet, M.D.                                                                                                                                                    |  | Common Stock    |  | 75,000                                      |  |                                              | *     
|Richard P.
 Rainey, C.P.A. (3)                                                                                                                                                 |  | Common Stock    |  | 4,003,604                                   |  |                                              | 2.76% 
|Edson D. de
 Castro (4)                                                                                                                                                        |  | Common Stock    |  | 185,000                                     |  |                                              | *     
|Andrew W.
 Dahl, Sc.D. (5)                                                                                                                                                     |  | Common Stock    |  | 505,000                                     |  |                                              | *     
|John K.A.
 Prendergast, Ph.D. (6)                                                                                                                                              |  | Common Stock    |  | 1,828,111                                   |  |                                              | 1.27% 
|Carl Spana,
 Ph.D. (7)                                                                                                                                                         |  | Common Stock    |  | 707,417                                     |  |                                              | *     
|David Berd,
 M.D.(8)                                                                                                                                                           |  | Common Stock    |  | 857,247                                     |  |                                              | *     
|                                                                                                                                                                               |  |                 |  |                                             |  |                                              |       
|All
 executive officers and directors as a group 
 (7 persons)                                                                                                                 |  | Common Stock    |  | 7,304,132                                   |  |                                              | 5.04% 
|                                                                                                                                                                               |  |                 |  |                                             |  |                                              |       
|5% Stockholders                                                                                                                                                                |  |                 |  |                                             |  |                                              |       
|Carmignac
 Innovation Shares(9)
 c/o Natexis Banques Populaire
 45 rue Saint Dominique
 75007 Paris                                                                            |  | Common Stock    |  | 16,000,000                                  |  |                                              | 10.62%
|                                                                                                                                                                               |  |                 |  |                                             |  |                                              |       
|Park Place
 Columbia LTD(10)
 Chancery Hall, 52 Reid Street
 Hamilton HM 12 Bermuda                                                                                            |  | Common Stock    |  | 13,405,616                                  |  |                                              | 9.02% 
|                                                                                                                                                                               |  |                 |  |                                             |  |                                              |       
|Aqua RIMCO
 LTD(11)
 1-5-8 Nishi-Shimbashi
 Minato-Ku
 Tokyo, Japan 105-0003                                                                                                   |  | Common Stock    |  | 9,558,937                                   |  |                                              | 6.60% 
|                                                                                                                                                                               |  |                 |  |                                             |  |                                              |       
|Firebird
 Global Master Fund, Ltd.(12)
 c/o Citco Fund Services (Cayman Islands) Limited
 Regatta Office Park, West Bay Road
 P.O. Box 31106 SMB
 Grand Cayman, Cayman Islands |  | Common Stock    |  | 52,021,167                                  |  |                                              | 31.07%
|                                                                                                                                                                               |  |                 |  |                                             |  |                                              |       
|Yoshinori
 Shirono(13)
 Ebisu Prime Square, 1-1-39 Hiroo
 Shibuya-Ku
 Tokyo, Japan 150-0012                                                                                    |  | Common Stock    |  | 9,558,823                                   |  |                                              | 6.60% 
|                                                                                                                                                                               |  |                 |  |                                             |  |                                              |       
|BioCentive (14)
 c/o Winchester Global Trust Co
 PO Box HM 3396
 Hamilton HM PX Bermuda                                                                                        |  | Common Stock    |  | 24,800,000                                  |  |                                              | 18.11%
|                                                                                                                                                                               |  |                 |  |                                             |  |                                              |       
|JFE
 Hottinger & Affiliates (15)
 Hottingerstrasse 21
 CH-8032 Zurich
 Switzerland                                                                                             |  | Common Stock    |  | 31,502,199                                  |  |                                              | 20.14%

48

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Table of Contents

| | 
| | 
| | 

*Represents less than 1%.


|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1)  | The
 percentage of common stock beneficially owned is determined by adding the
 number of shares of common stock outstanding 141,574,997 as of December 31,
 2007, to the number of shares issuable upon conversion of the Series C
 preferred stock, 1,030,756 as of December 31, 2007, plus, for each beneficial
 owner or group, any shares of common stock that owner or group has the right
 to acquire within 60 days after December 31, 2007, pursuant to options or
 warrants.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(2)  | The address
 of the named individuals is c/o AVAX Technologies, Inc., 2000 Hamilton
 Street, Suite 204, Philadelphia, Pennsylvania 19130.                                                                                                                                                                                                                                                                                                                                             
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(3)  | Includes
 1,117,500 shares of common stock that Mr. Rainey may acquire within 60 days
 upon exercise of options held by Mr. Rainey and also includes 1,193,504
 shares and 1,184,600 warrants owned by a partnership in which Mr. Rainey
 holds a 50% interest.                                                                                                                                                                                                                       
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(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)  | Includes
 185,000 shares of common stock that Dr. Dahl may acquire within 60 days upon
 the exercise of options held by Dr. Dahl and also includes 160,000 shares and
 160,000 vested warrants owned by Dr. Dahl.                                                                                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(6)  | Includes
 574,063 shares of common stock that Dr. Prendergast may acquire within 60
 days upon exercise of options held by Dr. Prendergast and also includes
 661,748 shares and 592,300 warrants owned by Dr. Prendergast.                                                                                                                                                                                                                                                           
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(7)  | Includes
 322,500 shares of common stock that Dr. Spana may acquire within 60 days upon
 the exercise of options held by Dr. Spana and also includes 224,917 shares
 and 160,000 warrants owned by Dr. Spana.                                                                                                                                                                                                                                                                         
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(8)  | Includes
 628,125 shares of common stock that Dr. Berd may acquire within 60 days upon
 the exercise of options held by Dr. Berd.                                                                                                                                                                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(9)  | Includes 8,000,000
 warrants to purchase common stock owned by Carmignac Gestion                                                                                                                                                                                                                                                                                                                                                                                                      
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(10) | Includes
 6,067,600 warrants to purchase common stock owned by Park Place Columbia LTD.                                                                                                                                                                                                                                                                                                                                                                                               
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(11) | Includes
 2,205,908 warrants to purchase common stock owned by Aqua RIMCO LTD.                                                                                                                                                                                                                                                                                                                                                                                                        
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(12) | Includes
 24,800,000 warrants to purchase common stock owned by Firebird Global Master
 Fund, Ltd.                                                                                                                                                                                                                                                                                                                                                                                    
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(13) | Includes
 2,205,882 warrants to purchase common stock owned by Yoshinori Shirono.                                                                                                                                                                                                                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(14) | Includes
 14,200,000 warrants to purchase common stock owned by BioCentive Limited.                                                                                                                                                                                                                                                                                                                                                                                                   
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(15) | Includes
 13,796,690 warrants to purchase common stock owned by JFE Hottinger &
 Affiliates.                                                                                                                                                                                                                                                                                                                                                                                          

49

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Table of Contents

Equity Compensation
Plan Information

The
following table sets forth as of December 31, 2007, (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)).

|                                                           |  |                                                                                                 |  |                                                                                |  |                                                                                                                                                    |  | 
|---------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|                                                           |  | (a)                                                                                             |  | (b)                                                                            |  | (c)                                                                                                                                                | 
|Plan Category                                              |  | Number of
 securities to
 be issued upon exercise
 of outstanding options,
 warrants and rights |  | Weighted-average
 exercise price of
 outstanding options,
 warrants and rights |  | Number of
 securities
 remaining available for
 future issuance under
 equity compensation
 plans (excluding
 securities reflected in
 column (a)) | 
|                                                           |  |                                                                                                 |  |                                                                                |  |                                                                                                                                                    | 
|                                                           |  |                                                                                                 |  |                                                                                |  |                                                                                                                                                    | 
|Equity compensation plans approved by security
holders     |  | 8,311,125                                                                                       |  | $0.29                                                                          |  | 5,100,000                                                                                                                                          |  | 
|                                                           |  |                                                                                                 |  |                                                                                |  |                                                                                                                                                    |  | 
|Equity compensation plans not approved by security
holders |  | 16,337,938                                                                                      |  | 0.23                                                                           |  |                                                                                                                                                   |  | 
|                                                           |  |                                                                                                 |  |                                                                                |  |                                                                                                                                                    |  | 
|Total                                                      |  | 24,649,063                                                                                      |  |                                                                                |  | 5,100,000                                                                                                                                          |  | 

The
warrants and options issued without stockholder approval include: (1) warrants
to purchase 288,450 shares of common stock at an exercise price of $0.143 per
share issued to a broker in connection with the companys 2003 bridge
financing, which expire on December 1, 2008; (2) warrants to purchase 566,667
shares of common stock at an exercise price of $0.33 per share issued to a
broker in connection with the companys 2004 private placement of securities,
which expire on May 10, 2009; (3) warrants to purchase 2,287,293 shares of
common stock at an exercise price of $0.33 per share issued to two brokers in
connection with the companys 2005 private placement of securities, which
expire on May 10, 2009; (4) warrants to purchase 300,000 shares of common stock
at an exercise price of $0.14 per share issued to two individuals for certain
financial advisory services, which expire on December 16, 2009; (5) warrants to
purchase 270,000 shares of common stock at an exercise price of $0.35 per share
issued to two individuals for advisory services, which expire on October 31,
2012; (6) warrants to purchase 125,000 shares of common stock at an exercise
price of $8.24 per share issued to a University pursuant to a license
agreement, which expire on October 31, 2011; and (7) warrants to purchase
6,270,400 shares of common stock at an exercise price of $0.15 per share issued
to three brokers in connection with the companys 2007 private placement of
securities.

The
warrants and options issued without stockholder approval also include 100,000
options to acquire common stock issued to current and former directors outside
of the companys stock option plans, which options were granted in conjunction
with services (including extraordinary levels of services) provided by those
directors to the company. Those options expire on November 2, 2008, and have
option exercise prices of $0.89 per share.

The
warrants and options issued without stockholder approval also include 6,130,288
options issued to Dr. Francois Martelet, our current President and CEO, which
have an exercise price of $0.09 and expire on December 1, 2014. These options
were granted to Dr. Martelet in conjunction with his appointment to President
and CEO of the company.

|         |                                                                           
|-------- | --------------------------------------------------------------------------
|ITEM 13. | Certain Relationships and Related Transactions, and Director
 Independence

On April
13, 2007, we completed a private financing in the aggregate principal amount of
$10,007,500 at a price of $0.125 per share with various institution and
individual investors in reliance upon the exemption from registration in
Section 4(2) of the Securities Act of 1933. We issued 80,060,000 shares of our
common stock and associated warrants to purchase an additional 80,060,000
shares of common stock at an exercise price of $0.15 per share.

50

---

Table of Contents

A
partnership in which Mr. Rainey, our then President and CEO, is a 50% partner
and Mr. Raineys brother is the other 50% partner, purchased $50,000 of common
stock and related warrants to purchase common stock in the April 2007 offering.
Mr. Rainey also, individually, purchased an additional $50,000 of common stock and associated warrants to purchase
common stock in the private placement. John K.A. Prendergast, Carl Spana and Andrew Dahl, directors of the
company also purchased $50,000, $50,000, $20,000 and $20,000, respectively, of
common stock and associated warrants to purchase common stock, in this
offering. The board of directors approved the participation of Dr. Prendergast,
Mr. Spana, Dr. Dahl and Mr. Rainey in the private placement.

|         |                                       
|-------- | --------------------------------------
|ITEM 14. | Principal Accountant Fees and Services

The
following table sets forth the aggregate fees billed to the Company for fiscal
years ended December 31, 2006 and 2007, by the Companys principal accounting
firms:

|                    |  |      |        |      |   |        | 
|------------------- |  | ---- | ------ | ---- | - | ------ | 
|                    |  | 2006 |        | 2007 |  
|                    |  |      |        |      |  
|                    |  |      |        |      |   |        | 
|Audit fees (1)      |  | $    | 56,000 |      | $ | 59,500 | 
|Audit-related
 fees |  |      |       |      |   |        | 
|Tax fees            |  |      |       |      |   |        | 
|All other
 fees     |  |      |       |      |   |        | 
|                    |  |      |        |      |   |        | 
|Total               |  | $    | 56,000 |      | $ | 59,500 | 
|                    |  |      |        |      |   |        | 

| | 
| | 

|    |                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes
 services rendered for the audit of the Companys annual financial statements,
 review of financial statements included in quarterly reports on Form 10-QSB
 and review of registration statements filed by the Company.

The
Audit Committee has adopted a policy (the Pre-Approval Policy) under which
audit and non-audit services to be rendered by our 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 Audit 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 our independent
auditor in 2006 were all audit-related and pre-approved by the Audit Committee.
The Pre-Approval Policy also specifies certain services that may not be
provided by our independent auditors in any circumstance, which is consistent
with SEC rules and regulations. 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.

51

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Table of Contents

PART
IV

|         |                                         
|-------- | ----------------------------------------
|ITEM 15. | Exhibits, Financial Statement
 Schedules

|    |                                                             |                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The following documents are filed as a part of this
report:
|    |                                                             |                                                                                                                                                                                                                           
|    | (1)                                                         | Financial Statements.
 The following consolidated financial statements, contained on pages F-1
 through F-23 of this report, are filed as part of this report under Item 8
 Financial Statements and Supplementary Data.
|    |                                                             |                                                                                                                                                                                                                           
|    |                                                             | Report of Independent Registered Public Accounting
 Firm                                                                                                                                                                  
|    |                                                             | Consolidated Balance Sheets  December 31, 2007 and
 2006                                                                                                                                                                 
|    |                                                             | Consolidated Statements of Operations and
 Comprehensive Loss  Years Ended December 31, 2007 and 2006                                                                                                                    
|    |                                                             | Consolidated Statements of Stockholders Equity 
 Years Ended December 31, 2007 and 2006                                                                                                                                 
|    |                                                             | Consolidated Statements of Cash Flows  Years Ended
 December 31, 2007 and 2006                                                                                                                                           
|    |                                                             | Notes to Consolidated Financial Statements                                                                                                                                                                                
|    |                                                             |                                                                                                                                                                                                                           
|    | (3)                                                         | Exhibits.Exhibits
 are listed on the Exhibit Index at the end of this report.                                                                                                                                             

52

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Table of Contents

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 15,
 2008 | By:                     | /s/ | Francois R. Martelet               
|                      |                         |     |                                    
|                      |                         |     | Francois R. Martelet, M.D.         
|                      |                         |     | President & Chief Executive Officer

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.

|                                |  |                                                                                  |  |               
|------------------------------- |  | -------------------------------------------------------------------------------- |  | --------------
|Signature                       |  | Name
& Title                                                                     |  | Date          
|                                |  |                                                                                  |  |               
|                               
|/s/
 Francois R. Martelet, M.D. |  | Francois R. Martelet, M.D.                                                       |  | April 15, 2008
|                                |  |                                                                                  |  |               
|                                |  | President, Chief Executive
 Officer and Director 
 (Principal Executive Officer) |  |               
|                                |  |                                                                                  |  |               
|/s/
 Richard P. Rainey          |  | Richard P. Rainey                                                                |  | April 15, 2008
|                                |  |                                                                                  |  |               
|                                |  | Principal Financial
 Officer 
 Principal Accounting Officer                      |  |               
|                                |  |                                                                                  |  |               
|/s/
 John K.A. Prendergast      |  | John K. A. Prendergast,
 Ph.D.                                                   |  | April 15, 2008
|                                |  |                                                                                  |  |               
|                                |  | Chairman of the Board and
 Director                                              |  |               
|                                |  |                                                                                  |  |               
|/s/
 Andrew Dahl                |  | Andrew Dahl                                                                      |  | April 15, 2008
|                                |  |                                                                                  |  |               
|                                |  | Director                                                                         |  |               
|                                |  |                                                                                  |  |               
|/s/
 Edson D. de Castro         |  | Edson D. de Castro                                                               |  | April 15, 2008
|                                |  |                                                                                  |  |               
|                                |  | Director                                                                         |  |               
|                                |  |                                                                                  |  |               
|/s/
 Carl Spana                 |  | Carl Spana, Ph.D.                                                                |  | April 15, 2008
|                                |  |                                                                                  |  |               
|                                |  | Director                                                                         |  |               

53

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Table of Contents

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).1                                                 
|            |  |             |                                                                                                                                                                                                     
|3.2         |  |             | Certificate of Amendment
 of Certificate of Incorporation Dated May 10, 2004.2                                                                                                                      
|            |  |             |                                                                                                                                                                                                     
|3.3         |  |             | Certificate of Amendment
 of Certificate of Incorporation Dated February 20, 2007.16                                                                                                                
|            |  |             |                                                                                                                                                                                                     
|3.4         |  |             | By-Laws.3                                                                                                                                                                                           
|            |  |             |                                                                                                                                                                                                     
|4.1         |  |             | Reference is made to
 Exhibits 3.1, 3.2 and 3.3.                                                                                                                                                    
|            |  |             |                                                                                                                                                                                                     
|4.2         |  |             | Specimen of common stock
 certificate.3                                                                                                                                                             
|            |  |             |                                                                                                                                                                                                     
|4.3         |  |             | Certificate of Designation
 of Series C Convertible Preferred Stock.4                                                                                                                               
|            |  |             |                                                                                                                                                                                                     
|10.1        |  |             | Clinical Study and Research
 Agreement dated November 20, 1995, by and between the Company and Thomas
 Jefferson University.7                                                                       
|            |  |             |                                                                                                                                                                                                     
|10.2        |  |             | License Agreement dated
 November 20, 1995, by and between the Company and Thomas Jefferson
 University.5                                                                                           
|            |  |             |                                                                                                                                                                                                     
|10.3        |  |             | Extension to the Clinical
 Study and Research Agreement dated November 20, 1995, by and between the
 Company and Thomas Jefferson University.4                                                      
|            |  |             |                                                                                                                                                                                                     
|10.4        |  |             | 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.A11                             
|            |  |             |                                                                                                                                                                                                     
|10.5        |  |             | 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.11                                         
|            |  |             |                                                                                                                                                                                                     
|10.6        |  |             | 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).11
|            |  |             |                                                                                                                                                                                                     
|10.7        |  |             | 2001 Stock Option Plan.1                                                                                                                                                                            
|            |  |             |                                                                                                                                                                                                     
|10.8        |  |             | 2000 Directors Stock
 Option Plan.6                                                                                                                                                                
|            |  |             |                                                                                                                                                                                                     
|10.9        |  |             | 2006 Equity Incentive
 Plan.13                                                                                                                                                                      
|            |  |             |                                                                                                                                                                                                     
|10.10       |  |             | Note Purchase Agreement
 dated as of November 17, 2003.7                                                                                                                                            
|            |  |             |                                                                                                                                                                                                     
|10.11       |  |             | Form of Warrant in
 connection with the December 2003 bridge financing.7                                                                                                                            
|            |  |             |                                                                                                                                                                                                     
|10.12       |  |             | Form of Series 2004A
 Warrant to purchase common stock.9                                                                                                                                            
|            |  |             |                                                                                                                                                                                                     
|10.13       |  |             | Form of Series 2004B
 Warrant to purchase common stock.9                                                                                                                                            
|            |  |             |                                                                                                                                                                                                     
|10.16       |  |             | Employment Agreement
 between AVAX Technologies, Inc. and Richard P. Rainey dated as of December 1,
 2007. 15                                                                                       
|            |  |             |                                                                                                                                                                                                     
|10.17       |  |             | Employment Agreement
 between AVAX Technologies, Inc. and Dr. David Berd dated as of
 December 1, 2007.10                                                                                           
|            |  |             |                                                                                                                                                                                                     
|10.18       |  |             | Employment Agreement
 between AVAX Technologies, Inc. and Dr. Francois R. Martelet dated as of
 December 1, 2007.15                                                                                 

54

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Table of Contents

|             |       |             |                                                                                                                                                              
|------------ | ----- | ----------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
 No. |       | Description
|             |       |            
|            
|             | 10.19 |             | Amendment to Employment
 Agreement between AVAX Technologies, Inc. and Dr. Francois R. Martelet dated
 as of December 1, 2007.15                             
|             |       |             |                                                                                                                                                              
|             | 10.20 |             | Form of Series 2005A
 Warrant to purchase common stock.11                                                                                                    
|             |       |             |                                                                                                                                                              
|             | 10.21 |             | Form of Series 2005B
 Warrant to purchase common stock.11                                                                                                    
|             |       |             |                                                                                                                                                              
|             | 10.22 |             | Securities Purchase
 Agreement dated as of April 13, 2007.14                                                                                                 
|             |       |             |                                                                                                                                                              
|             | 10.23 |             | Form of Series 2007A
 Warrant to purchase common stock.14                                                                                                    
|             |       |             |                                                                                                                                                              
|             | 14    |             | Code of Ethics. 17                                                                                                                                           
|             |       |             |                                                                                                                                                              
|             | 21    |             | Subsidiaries of the
 Company.*                                                                                                                               
|             |       |             |                                                                                                                                                              
|             | 23    |             | Consent of Briggs, Bunting
 & Dougherty LLP, Independent Registered Public Accounting Firm.*                                                                 
|             |       |             |                                                                                                                                                              
|             | 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 Annual Report on Form 10-KSB for year
 ended December 31, 2001.                                
|   |                                                                                                                                                                 
|2  | Incorporated by reference and
 previously filed as an exhibit to the Quarterly Report on Form 10-QSB for the
 first quarter of the year ended December 31, 2004.
|   |                                                                                                                                                                 
|3  | 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.          
|   |                                                                                                                                                                 
|4  | Incorporated by reference
 and previously filed as an exhibit to the Annual Report on Form 10-KSB for
 the year ended December 31, 1998.                        
|   |                                                                                                                                                                 
|5  | 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.              
|   |                                                                                                                                                                 
|6  | Incorporated by reference
 and previously filed as an exhibit to the Annual Report on Form 10-KSB for
 year ended December 31, 2000.                            
|   |                                                                                                                                                                 
|7  | Incorporated by reference
 and previously filed as an exhibit to the Current Report on Form 8-K filed on
 December 9, 2003.                                     
|   |                                                                                                                                                                 
|8  | Incorporated by reference
 and previously filed as an exhibit to the Registration Statement on Form SB-2
 (File No. 333-118334) filed on August 18, 2004.       
|   |                                                                                                                                                                 
|9  | Incorporated by reference
 and previously filed as an exhibit to the Current Report on Form 8-K filed on
 June 2, 2004.                                         
|   |                                                                                                                                                                 
|10 | Incorporated by reference
 and previously filed as an exhibit to the Current Report on Form 8-K filed on
 March 25, 2008.                                       
|   |                                                                                                                                                                 
|11 | Incorporated by reference
 and previously filed as an exhibit to the Current Report on Form 8-K filed on
 April 7, 2005.                                        
|   |                                                                                                                                                                 
|12 | Incorporated by reference
 and previously filed as an exhibit to the Annual Report on Form 10-KSB for
 year ended December 31, 2000.                            
|   |                                                                                                                                                                 
|13 | Incorporated by reference
 and previously filed as an exhibit to the Proxy Statement on Schedule 14A as
 filed with the SEC on June 28, 2006.                   
|   |                                                                                                                                                                 
|14 | Incorporated by reference
 and previously filed as an exhibit to the Current Report on Form 8-K filed on
 April 19, 2007.                                       

55

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Table of Contents

|   |                                                                                                                                               
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------
|15 | Incorporated by reference
 and previously filed as an exhibit to the Current Report on Form 8-K/A,
 Amendment No. 1 filed on February 1, 2008.
|   |                                                                                                                                               
|16 | Incorporated by reference
 and previously filed as an exhibit to the Annual Report on Form 10-KSB for
 the year ended December 31, 2006.      
|   |                                                                                                                                               
|17 | Incorporated by reference
 and previously filed as an exhibit to the Annual Report on Form 10-KSB for
 year ended December 31, 2005.          

56

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Table of Contents

Consolidated Financial Statements

AVAX Technologies, Inc.(a
development stage company)

Years ended December 31, 2007 and
2006
and the period from January 12, 1990
(Incorporation) to December 31, 2007
With Report of Independent Registered Public Accounting Firm

---

Table of Contents

AVAX Technologies,
Inc.(a
development stage company)

Consolidated
Financial Statements

Years
ended December 31, 2007 and 2006 and for the period from January 12, 1990
(Incorporation) to December 31, 2007

Contents

|                                                                                                                                                                                             |     
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|Report
 of Independent Registered Public Accounting Firm                                                                                                                                     | F-1 
|                                                                                                                                                                                             |     
|Consolidated
 Financial Statements                                                                                                                                                           |     
|                                                                                                                                                                                             |     
|Consolidated
 Balance Sheets as of December 31, 2007 and 2006                                                                                                                                | F-2 
|Consolidated
 Statements of Operations and Comprehensive Loss for the years ended December
 31, 2007 and 2006 and for the period from January 12, 1990 (incorporation) to
 December 31, 2007 | F-3 
|Consolidated
 Statements of Stockholders Equity (Deficit) for the years ended December 31,
 2007 and 2006 and for the period from January 12, 1990 (incorporation) to
 December 31, 2007    | F-4 
|Consolidated
 Statements of Cash Flows for the years ended December 31, 2007 and 2006 and
 for the period from January 12, 1990 (incorporation) to December 31, 2007                         | F-8 
|Notes
 to Consolidated Financial Statements                                                                                                                                                  | F-10

---

Table of Contents

Report
of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
AVAX Technologies, Inc.

We have audited the accompanying consolidated balance
sheets of AVAX Technologies, Inc. (a development stage company) and
subsidiaries as of December 31, 2007 and 2006, and the related consolidated
statements of operations and comprehensive loss, stockholders equity (deficit),
and cash flows for each of the two years in the period ended December 31, 2007 and for the
period from January 12, 1990 (incorporation) to December 31, 2007. These
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. 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 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 as of December 31, 2007
and 2006, and the consolidated results of their operations and their cash flows
for each of the two years in the period then ended and for the period from
January 12, 1990 (incorporation) to December 31, 2007 in conformity with U.S.
generally accepted accounting principles.

The accompanying
consolidated financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the consolidated
financial statements, the Company has incurred recurring losses from operations
and may not have adequate capital to fund its operations through 2008. These
conditions raise substantial doubt about the Companys ability to continue as a
going concern. Managements plans concerning these matters are also described
in Note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

As discussed in Note 1 to the financial statements, effective January 1, 2006, the Company changed its method of accounting
for stock-based compensation in accordance with the Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment.

/s/ Briggs,
Bunting & Dougherty, LLP

Philadelphia, Pennsylvania
April 15, 2008

F-1

---

Table of Contents

AVAX Technologies,
Inc. and Subsidiaries(a development stage company)Consolidated Balance Sheet

|                                                                                                                                                                 |  |                     |             |                     |   |             |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------- | ----------- | ------------------- | - | ----------- | -
|                                                                                                                                                                 |  | December
 31,
 2007 |             | December
 31,
 2006 |  
|                                                                                                                                                                 |  |                     |             |                     |  
|Assets                                                                                                                                                           |  |                     |             |                     |   |             |  
|Current assets:                                                                                                                                                  |  |                     |             |                     |   |             |  
|Cash                                                                                                                                                             |  | $                   | 5,903,207   |                     | $ | 1,484,570   |  
|Accounts
 receivable                                                                                                                                             |  |                     | 131,387     |                     |   | 220,161     |  
|Inventory                                                                                                                                                        |  |                     | 11,520      |                     |   | 10,508      |  
|VAT receivable                                                                                                                                                   |  |                     | 82,896      |                     |   | 50,937      |  
|Prepaid expenses
 and other current assets                                                                                                                       |  |                     | 317,105     |                     |   | 210,343     |  
|                                                                                                                                                                 |  |                     |             |                     |   |             |  
|Total current assets                                                                                                                                             |  |                     | 6,446,115   |                     |   | 1,976,519   |  
|Property, plant and equipment, at cost                                                                                                                           |  |                     | 4,247,706   |                     |   | 3,967,928   |  
|Less accumulated
 depreciation                                                                                                                                   |  |                     | 3,505,051   |                     |   | 3,088,687   |  
|                                                                                                                                                                 |  |                     |             |                     |   |             |  
|Net property, plant and equipment                                                                                                                                |  |                     | 742,655     |                     |   | 879,241     |  
|Goodwill                                                                                                                                                         |  |                     | 188,387     |                     |   | 188,387     |  
|                                                                                                                                                                 |  |                     |             |                     |   |             |  
|Total assets                                                                                                                                                     |  | $                   | 7,377,157   |                     | $ | 3,044,147   |  
|                                                                                                                                                                 |  |                     |             |                     |   |             |  
|                                                                                                                                                                 |  |                     |             |                     |   |             |  
|Liabilities
 and stockholders equity                                                                                                                            |  |                     |             |                     |   |             |  
|Current liabilities:                                                                                                                                             |  |                     |             |                     |   |             |  
|Accounts payable                                                                                                                                                 |  | $                   | 2,091,674   |                     | $ | 1,030,187   |  
|Accrued expenses                                                                                                                                                 |  |                     | 551,777     |                     |   | 430,457     |  
|Accrued and
 withheld payroll taxes and liabilities                                                                                                              |  |                     | 699,603     |                     |   | 716,918     |  
|Deferred revenue                                                                                                                                                 |  |                     | 250,000     |                     |   | 160,678     |  
|ANVAR advances                                                                                                                                                   |  |                     | 400,691     |                     |   | 362,109     |  
|                                                                                                                                                                 |  |                     |             |                     |   |             |  
|Total current liabilities                                                                                                                                        |  |                     | 3,993,745   |                     |   | 2,700,349   |  
|Stockholders equity:                                                                                                                                            |  |                     |             |                     |   |             |  
|Preferred stock,
 $.01 par value:                                                                                                                                |  |                     |             |                     |   |             |  
|Authorized
 shares  5,000,000, including Series C  120,000 shares                                                                                              |  |                     |             |                     |   |             |  
|Series C
 convertible preferred stock:                                                                                                                           |  |                     |             |                     |   |             |  
|Issued and outstanding
 shares  36,750 at December 31, 2006 and 33,500 at December 31, 2007
 (liquidation preference - $3,670,000 and $3,350,000, respectively) |  |                     | 335         |                     |   | 367         |  
|Common stock,
 $.004 par value:                                                                                                                                  |  |                     |             |                     |   |             |  
|Authorized
 shares  150,000,000 at December 31, 2006, and 500,000,000 at December 31,
 2007                                                                     |  |                     |             |                     |   |             |  
|Issued and
 outstanding shares  61,414,998 at December 31, 2006 and 141,574,997 at
 December 31, 2007                                                           |  |                     | 566,300     |                     |   | 245,660     |  
|Additional
 paid-in capital                                                                                                                                      |  |                     | 86,657,058  |                     |   | 77,460,158  |  
|Subscription
 receivable                                                                                                                                         |  |                     | (422        | )                   |   | (422        | )
|Accumulated
 other comprehensive income                                                                                                                          |  |                     | 414,971     |                     |   | 479,217     |  
|Deficit accumulated during the development stage                                                                                                                 |  |                     | (84,254,830 | )                   |   | (77,841,182 | )
|                                                                                                                                                                 |  |                     |             |                     |   |             |  
|Total stockholders equity                                                                                                                                       |  |                     | 3,383,412   |                     |   | 343,798     |  
|                                                                                                                                                                 |  |                     |             |                     |   |             |  
|Total liabilities and stockholders equity                                                                                                                       |  | $                   | 7,377,157   |                     | $ | 3,044,147   |  
|                                                                                                                                                                 |  |                     |             |                     |   |             |  

See accompanying notes.

F-2

---

Table of Contents

AVAX Technologies, Inc. and Subsidiaries(a
development stage company)Consolidated Statements of Operations and Comprehensive Loss

|                                                                    |  |                          |             |                                                                   |   |            |   |   |             |  
|------------------------------------------------------------------- |  | ------------------------ | ----------- | ----------------------------------------------------------------- | - | ---------- | - | - | ----------- | -
|                                                                    |  | Year ended
 December 31, |             | Period from 
 January 12, 1990
 (Incorporation) to 
 December 31, |  
|                                                                    |  | 2007                     |             | 2006                                                              |   | 2007       |  
|                                                                    |  |                          |             |                                                                   |   |            |  
|Revenue:                                                            |  |                          |             |                                                                   |   |            |   |   |             |  
|Gain from sale of the Product                                       |  | $                        |            |                                                                   | $ |           |   | $ | 1,951,000   |  
|Product and contract service revenue                                |  |                          | 411,272     |                                                                   |   | 734,774    |   |   | 6,816,094   |  
|Grant revenue                                                       |  |                          | 206,112     |                                                                   |   |           |   |   | 206,112     |  
|                                                                    |  |                          |             |                                                                   |   |            |   |   |             |  
|Total revenue                                                       |  |                          | 617,384     |                                                                   |   | 734,774    |   |   | 8,973,206   |  
|Costs and expenses:                                                 |  |                          |             |                                                                   |   |            |   |   |             |  
|Research and development                                            |  |                          | 4,595,972   |                                                                   |   | 4,244,268  |   |   | 52,247,740  |  
|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                                 |  |                          | 2,714,292   |                                                                   |   | 1,989,188  |   |   | 37,959,381  |  
|                                                                    |  |                          |             |                                                                   |   |            |   |   |             |  
|Total operating loss                                                |  |                          | (6,692,880  | )                                                                 |   | (5,498,682 | ) |   | (89,786,702 | )
|Other income (expense):                                             |  |                          |             |                                                                   |   |            |   |   |             |  
|Interest income                                                     |  |                          | 279,232     |                                                                   |   | 143,182    |   |   | 6,204,591   |  
|Interest expense                                                    |  |                          |            |                                                                   |   |           |   |   | (812,067    | )
|Other, net                                                          |  |                          |            |                                                                   |   |           |   |   | 143,193     |  
|                                                                    |  |                          |             |                                                                   |   |            |   |   |             |  
|Total other income (expense), net                                   |  |                          | 279,232     |                                                                   |   | 143,182    |   |   | 5,535,717   |  
|                                                                    |  |                          |             |                                                                   |   |            |   |   |             |  
|Loss before income taxes                                            |  |                          | (6,413,648  | )                                                                 |   | (5,355,500 | ) |   | (84,250,985 | )
|Income taxes                                                        |  |                          |            |                                                                   |   |           |   |   |            |  
|                                                                    |  |                          |             |                                                                   |   |            |   |   |             |  
|Loss from continuing operations                                     |  |                          | (6,413,648  | )                                                                 |   | (5,355,500 | ) |   | (84,250,985 | )
|Loss from discontinued operations                                   |  |                          |            |                                                                   |   |           |   |   | (3,845      | )
|                                                                    |  |                          |             |                                                                   |   |            |   |   |             |  
|Net loss                                                            |  |                          | (6,413,648  | )                                                                 |   | (5,355,500 | ) |   | (84,254,830 | )
|Amount payable for liquidation preference                           |  |                          |            |                                                                   |   |           |   |   | (1,870,033  | )
|                                                                    |  |                          |             |                                                                   |   |            |   |   |             |  
|Net loss attributable to common
 stockholders                       |  | $                        | (6,413,648  | )                                                                 | $ | (5,355,500 | ) | $ | (86,124,863 | )
|                                                                    |  |                          |             |                                                                   |   |            |   |   |             |  
|Loss per common share  basic and diluted                           |  |                          |             |                                                                   |   |            |   |   |             |  
|Loss from continuing operations                                     |  | $                        | (0.05       | )                                                                 | $ | (0.09      | ) |   |             |  
|Loss from discontinued operations                                   |  |                          |            |                                                                   |   |           |   |   |             |  
|                                                                    |  |                          |             |                                                                   |   |            |   |   |             |  
|Net loss                                                            |  | $                        | (0.05       | )                                                                 | $ | (0.09      | ) |   |             |  
|                                                                    |  |                          |             |                                                                   |   |            |   |   |             |  
|Weighted-average number of common shares
 outstanding               |  |                          | 118,913,409 |                                                                   |   | 61,414,998 |   |   |             |  
|                                                                    |  |                          |             |                                                                   |   |            |   |   |             |  
|Net loss                                                            |  | $                        | (6,413,648  | )                                                                 | $ | (5,355,500 | ) |   |             |  
|Foreign currency translation adjustment                             |  |                          | (64,246     | )                                                                 |   | 23,535     |   |   |             |  
|                                                                    |  |                          |             |                                                                   |   |            |   |   |             |  
|Comprehensive loss                                                  |  | $                        | (6,477,894  | )                                                                 | $ | (5,331,965 | ) |   |             |  
|                                                                    |  |                          |             |                                                                   |   |            |   |   |             |  

See accompanying notes.

F-3

---

Table of Contents

AVAX Technologies, Inc. and Subsidiaries(a
development stage company)Consolidated Statements of Stockholders Equity (Deficit)

|                                                                                                         |  |                                        |   |                                        |         |                                        |   |               |   |        |  |        |  |        |   |        |           |   |   |        |  
|-------------------------------------------------------------------------------------------------------- |  | -------------------------------------- | - | -------------------------------------- | ------- | -------------------------------------- | - | ------------- | - | ------ |  | ------ |  | ------ | - | ------ | --------- | - | - | ------ | -
|                                                                                                         |  | Series A
 Convertible
 Preferred Stock |   | Series B
 Convertible
 Preferred Stock |         | Series C
 Convertible
 Preferred Stock |   | Common
 Stock |  
|                                                                                                         |  |                                        |   |                                        |         |                                        |   |               |  
|                                                                                                         |  | Shares                                 |   | Amount                                 |         | Shares                                 |   | Amount        |   | Shares |  | Amount |  | Shares |   | Amount |          
|                                                                                                         |  |                                        |   |                                        |         |                                        |   |               |   |        |  |        |  |        |   |        |          
|                                                                                                         |  |                                        |   |                                        |         |                                        |   |               |   |        |  |        |  |        |   |        |          
|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 and September 1992 |  | 1,287,500                              |   |                                        | 12,875  |                                        |  |               |   |       |  |       |  |        |  |        |          |   |   |       |  
|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 |  
|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  |  

[TABLE
CONTINUES]

|                                                                                                         |  |                               |           |                          |   |                        |   |                                             |   |                                            |   |                                                          |  |                                           |   |  |   |            |   |   |            |  
|-------------------------------------------------------------------------------------------------------- |  | ----------------------------- | --------- | ------------------------ | - | ---------------------- | - | ------------------------------------------- | - | ------------------------------------------ | - | -------------------------------------------------------- |  | ----------------------------------------- | - |  | - | ---------- | - | - | ---------- | -
|                                                                                                         |  | Additional
 Paid-In 
 Capital |           | Subscription
 Receivable |   | Deferred
 Compensation |   | Unrealized
 Loss on
 Marketable
 Securities |   | Accumulated
 Other 
 Comprehensive
 Income |   | Deficit 
 Accumulated 
 During the 
 Development 
 Stage |  | Total
 Stockholders 
 Equity 
 (Deficit) |  
|                                                                                                         |  |                               |           |                          |   |                        |   |                                             |   |                                            |   |                                                          |  |                                           |  
|                                                                                                         |  |                               |           |                          |   |                        |   |                                             |   |                                            |   |                                                          |  |                                           |  
|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 and September 1992 |  |                               | 2,258,837 |                          |   |                       |   |                                             |  |                                            |   |                                                         |  |                                           |  |  |   |           |   |   | 2,271,712  |  
|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     |  
|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    |                          |   |                       |   |                                             |  |                                            |   |                                                         |  |                                           |  |  |   |           |   |   |           |  

F-4

---

Table of Contents

AVAX Technologies, Inc. and Subsidiaries(a
development stage company)Consolidated Statements of Stockholders Equity (Deficit)
(continued)

|                                                                                                        |  |                                     |   |                                     |  |                                     |  |               |         |        |   |        |   |        |         |        |  |       |  |  |            |   |  |        | 
|------------------------------------------------------------------------------------------------------- |  | ----------------------------------- | - | ----------------------------------- |  | ----------------------------------- |  | ------------- | ------- | ------ | - | ------ | - | ------ | ------- | ------ |  | ----- |  |  | ---------- | - |  | ------ | 
|                                                                                                        |  | Series AConvertiblePreferred
 Stock |   | Series BConvertiblePreferred
 Stock |  | Series CConvertiblePreferred
 Stock |  | Common
 Stock |        
|                                                                                                        |  |                                     |   |                                     |  |                                     |  |               |        
|                                                                                                        |  | Shares                              |   | Amount                              |  | Shares                              |  | Amount        |         | Shares |   | Amount |   | Shares |         | Amount | 
|                                                                                                        |  |                                     |   |                                     |  |                                     |  |               |         |        |   |        |   |        |         |        | 
|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 | 
|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 |  |                                     |  |                                     |  |                                    |  |               |        |        |   |       |   |        |        |        |  |      |  |  |           |   |  |       | 

[TABLE
CONTINUES]

|                                                                                                        |  |                              |            |                          |  |                        |   |                                         |            |                                         |  |                                                      |   |                                        |   |  |  |             |   |  |            |  
|------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ---------- | ------------------------ |  | ---------------------- | - | --------------------------------------- | ---------- | --------------------------------------- |  | ---------------------------------------------------- | - | -------------------------------------- | - |  |  | ----------- | - |  | ---------- | -
|                                                                                                        |  | AdditionalPaid-In
 
 Capital |            | Subscription
 Receivable |  | Deferred
 Compensation |   | UnrealizedLoss onMarketable
 Securities |            | AccumulatedOther
 Comprehensive
 Income |  | DeficitAccumulated
 
 During the Development 
 Stage |   | TotalStockholders
 Equity 
 (Deficit) |  
|                                                                                                        |  |                              |            |                          |  |                        |   |                                         |            |                                         |  |                                                      |   |                                        |  
|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 |  
|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  |  

F-5

---

Table of Contents

AVAX Technologies, Inc. and Subsidiaries(a
development stage company)Consolidated Statements of Stockholders Equity (Deficit) (continued)

|                                                                                     |  |                                          |  |                                          |   |                                          |         |              |   |        |   |         |   |        |       |        |            |  |   |         | 
|------------------------------------------------------------------------------------ |  | ---------------------------------------- |  | ---------------------------------------- | - | ---------------------------------------- | ------- | ------------ | - | ------ | - | ------- | - | ------ | ----- | ------ | ---------- |  | - | ------- | 
|                                                                                     |  | Series A
  Convertible
  Preferred Stock |  | Series B
  Convertible
  Preferred Stock |   | Series C
  Convertible
  Preferred Stock |         | Common Stock |  
|                                                                                     |  |                                          |  |                                          |   |                                          |         |              |  
|                                                                                     |  | Shares                                   |  | Amount                                   |   | Shares                                   |         | Amount       |   | Shares |   | Amount  |   | Shares |       | Amount |           
|                                                                                     |  |                                          |  |                                          |   |                                          |         |              |   |        |   |         |   |        |       |        |           
|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 |  |                                         |  |                                          |  |                                          |        |              |   |       |   |        |   |        |      |        |           |  |   |        | 
|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  | 
|Exercise of warrants                                                                 |  |                                         |  |                                          |  |                                          |        |              |   |       |   |        |   |        |      |        | 338,400    |  |   | 1,354   | 
|Conversion of bridge notes to
  common stock                                         |  |                                         |  |                                          |  |                                          |        |              |   |       |   |        |   |        |      |        | 7,486,430  |  |   | 29,945  | 
|Private placement of common
  stock                                                  |  |                                         |  |                                          |  |                                          |        |              |   |       |   |        |   |        |      |        | 10,166,667 |  |   | 40,667  | 
|Foreign currency translation
  adjustment                                            |  |                                         |  |                                          |  |                                          |        |              |   |       |   |        |   |        |      |        |           |  |   |        | 
|Net loss                                                                             |  |                                         |  |                                          |  |                                          |        |              |   |       |   |        |   |        |      |        |           |  |   |        | 
|                                                                                     |  |                                          |  |                                          |   |                                          |         |              |   |        |   |         |   |        |       |        |            |  |   |         | 
|Balance at December 31, 2004                                                         |  |                                         |  | $                                        |  |                                          |        |              | $ |       |   | 36,750  |   | $      | 367   |        | 36,071,568 |  | $ | 144,286 | 
|Private placement of common
  stock                                                  |  |                                         |  |                                          |  |                                          |        |              |   |       |   |        |   |        |      |        | 25,343,430 |  |   | 101,374 | 
|Foreign currency translation
  adjustment                                            |  |                                         |  |                                          |  |                                          |        |              |   |       |   |        |   |        |      |        |           |  |   |        | 
|Net loss                                                                             |  |                                         |  |                                          |  |                                          |        |              |   |       |   |        |   |        |      |        |           |  |   |        | 
|                                                                                     |  |                                          |  |                                          |   |                                          |         |              |   |        |   |         |   |        |       |        |            |  |   |         | 
|Balance at December 31, 2005                                                         |  |                                         |  | $                                        |  |                                          |        |              | $ |       |   | 36,750  |   | $      | 367   |        | 61,414,998 |  | $ | 245,660 | 

[TABLE CONTINUES]

|                                                                                     |  |                                |            |                           |   |                         |   |                                                |          |                                              |   |                                                          |  |                                            |         |   |   |             |   |   |             |  
|------------------------------------------------------------------------------------ |  | ------------------------------ | ---------- | ------------------------- | - | ----------------------- | - | ---------------------------------------------- | -------- | -------------------------------------------- | - | -------------------------------------------------------- |  | ------------------------------------------ | ------- | - | - | ----------- | - | - | ----------- | -
|                                                                                     |  | Additional
  Paid-In
  Capital |            | Subscription
  Receivable |   | Deferred
  Compensation |   | Unrealized
  Loss on
  Marketable
  Securities |          | Accumulated
  Other
  Comprehensive
  Income |   | Deficit
  Accumulated
  During the
  Development
  Stage |  | Total
  Stockholders
  Equity
  (Deficit) |        
|                                                                                     |  |                                |            |                           |   |                         |   |                                                |          |                                              |   |                                                          |  |                                            |        
|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 |  |                                | (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 | ) |   | (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     |  
|Exercise of warrants                                                                 |  |                                | 47,037     |                           |   |                        |   |                                                |         |                                              |   |                                                         |  |                                            |        |   |   |            |   |   | 48,391      |  
|Conversion of bridge notes to
  common stock                                         |  |                                | 943,330    |                           |   |                        |   |                                                |         |                                              |   |                                                         |  |                                            |        |   |   |            |   |   | 973,275     |  
|Private placement of common
  stock                                                  |  |                                | 2,852,656  |                           |   |                        |   |                                                |         |                                              |   |                                                         |  |                                            |        |   |   |            |   |   | 2,893,323   |  
|Foreign currency translation
  adjustment                                            |  |                                |           |                           |   |                        |   |                                                |         |                                              |   |                                                         |  |                                            | 20,739  |   |   |            |   |   | 20,739      |  
|Net loss                                                                             |  |                                |           |                           |   |                        |   |                                                |         |                                              |   |                                                         |  |                                            |        |   |   | (3,457,908  | ) |   | (3,457,908  | )
|                                                                                     |  |                                |            |                           |   |                         |   |                                                |          |                                              |   |                                                          |  |                                            |         |   |   |             |   |   |             |  
|Balance at December 31, 2004                                                         |  | $                              | 69,426,457 |                           | $ | (422                    | ) | $                                              |         |                                              | $ |                                                         |  | $                                          | 426,818 |   | $ | (68,781,914 | ) | $ | 1,215,592   |  
|Private placement of common
  stock                                                  |  |                                | 7,885,153  |                           |   |                        |   |                                                |         |                                              |   |                                                         |  |                                            |        |   |   |            |   |   | 7,986,527   |  
|Foreign currency translation
  adjustment                                            |  |                                |           |                           |   |                        |   |                                                |         |                                              |   |                                                         |  |                                            | 28,864  |   |   |            |   |   | 28,864      |  
|Net loss                                                                             |  |                                |           |                           |   |                        |   |                                                |         |                                              |   |                                                         |  |                                            |        |   |   | (3,703,768  | ) |   | (3,703,768  | )
|                                                                                     |  |                                |            |                           |   |                         |   |                                                |          |                                              |   |                                                          |  |                                            |         |   |   |             |   |   |             |  
|Balance at December 31, 2005                                                         |  | $                              | 77,311,610 |                           | $ | (422                    | ) | $                                              |         |                                              | $ |                                                         |  | $                                          | 455,682 |   | $ | (72,485,682 | ) | $ | 5,527,215   |  

F-6

---

Table of Contents

AVAX Technologies, Inc. and Subsidiaries(a
development stage company)Consolidated Statements of Stockholders Equity (Deficit) (continued)

|                                          |  |                                          |  |                                          |   |                                          |   |              |   |        |  |        |   |        |     |        |             |  |   |         | 
|----------------------------------------- |  | ---------------------------------------- |  | ---------------------------------------- | - | ---------------------------------------- | - | ------------ | - | ------ |  | ------ | - | ------ | --- | ------ | ----------- |  | - | ------- | 
|                                          |  | Series A
  Convertible
  Preferred Stock |  | Series B
  Convertible
  Preferred Stock |   | Series C
  Convertible
  Preferred Stock |   | Common Stock |  
|                                          |  |                                          |  |                                          |   |                                          |   |              |  
|                                          |  | Shares                                   |  | Amount                                   |   | Shares                                   |   | Amount       |   | Shares |  | Amount |   | Shares |     | Amount |            
|                                          |  |                                          |  |                                          |   |                                          |   |              |   |        |  |        |   |        |     |        |            
|Balance at December 31, 2005              |  |                                         |  | $                                        |  |                                          |  |              | $ |       |  | 36,750 |   | $      | 367 |        | 61,414,998  |  | $ | 245,660 | 
|Stock based compensation
  expense        |  |                                         |  |                                          |  |                                          |  |              |   |       |  |       |   |        |    |        |            |  |   |        | 
|Foreign currency translation
  adjustment |  |                                         |  |                                          |  |                                          |  |              |   |       |  |       |   |        |    |        |            |  |   |        | 
|Net loss                                  |  |                                         |  |                                          |  |                                          |  |              |   |       |  |       |   |        |    |        |            |  |   |        | 
|                                          |  |                                          |  |                                          |   |                                          |   |              |   |        |  |        |   |        |     |        |             |  |   |         | 
|Balance at December 31, 2006              |  |                                         |  | $                                        |  |                                          |  |              | $ |       |  | 36,750 |   | $      | 367 |        | 61,414,998  |  | $ | 245,660 | 
|Conversion of Series C Shares             |  |                                         |  |                                          |  |                                          |  |              |   |       |  | (3,250 | ) |        | (32 | )      | 99,999      |  |   | 400     | 
|Private placement of common
  stock       |  |                                         |  |                                          |  |                                          |  |              |   |       |  |       |   |        |    |        | 80,060,000  |  |   | 320,240 | 
|Stock based compensation
  expense        |  |                                         |  |                                          |  |                                          |  |              |   |       |  |       |   |        |    |        |            |  |   |        | 
|Foreign currency translation
  adjustment |  |                                         |  |                                          |  |                                          |  |              |   |       |  |       |   |        |    |        |            |  |   |        | 
|Net loss                                  |  |                                         |  |                                          |  |                                          |  |              |   |       |  |       |   |        |    |        |            |  |   |        | 
|                                          |  |                                          |  |                                          |   |                                          |   |              |   |        |  |        |   |        |     |        |             |  |   |         | 
|Balance at December 31, 2007              |  |                                         |  | $                                        |  |                                          |  |              | $ |       |  | 33,500 |   | $      | 335 |        | 141,574,997 |  | $ | 566,300 | 
|                                          |  |                                          |  |                                          |   |                                          |   |              |   |        |  |        |   |        |     |        |             |  |   |         | 

[TABLE CONTINUES]

|                                          |  |                                 |            |                           |   |                         |   |                                          |   |                                         |   |                                                          |  |                                           |         |   |   |             |   |   |            |  
|----------------------------------------- |  | ------------------------------- | ---------- | ------------------------- | - | ----------------------- | - | ---------------------------------------- | - | --------------------------------------- | - | -------------------------------------------------------- |  | ----------------------------------------- | ------- | - | - | ----------- | - | - | ---------- | -
|                                          |  | Additional
  Paid-In 
  Capital |            | Subscription
  Receivable |   | Deferred
  Compensation |   | UnrealizedLoss onMarketable
  Securities |   | AccumulatedOther Comprehensive
  Income |   | DeficitAccumulated 
  During the 
  Development 
  Stage |  | TotalStockholders 
  Equity 
  (Deficit) |        
|                                          |  |                                 |            |                           |   |                         |   |                                          |   |                                         |   |                                                          |  |                                           |        
|Balance at December 31, 2005              |  | $                               | 77,311,610 |                           | $ | (422                    | ) | $                                        |  |                                         | $ |                                                         |  | $                                         | 455,682 |   | $ | (72,485,682 | ) | $ | 5,527,215  |  
|Stock based compensation
  expense        |  |                                 | 148,548    |                           |   |                        |   |                                          |  |                                         |   |                                                         |  |                                           |        |   |   |            |   |   | 148,548    |  
|Foreign currency translation
  adjustment |  |                                 |           |                           |   |                        |   |                                          |  |                                         |   |                                                         |  |                                           | 23,535  |   |   |            |   |   | 23,535     |  
|Net loss                                  |  |                                 |           |                           |   |                        |   |                                          |  |                                         |   |                                                         |  |                                           |        |   |   | (5,355,500  | ) |   | (5,355,500 | )
|                                          |  |                                 |            |                           |   |                         |   |                                          |   |                                         |   |                                                          |  |                                           |         |   |   |             |   |   |            |  
|Balance at December 31, 2006              |  | $                               | 77,460,158 |                           | $ | (422                    | ) | $                                        |  |                                         | $ |                                                         |  | $                                         | 479,217 |   | $ | (77,841,182 | ) | $ | 343,798    |  
|Conversion of Series C Shares             |  |                                 | (368       | )                         |   |                        |   |                                          |  |                                         |   |                                                         |  |                                           |        |   |   |            |   |   |           |  
|Private placement of common
  stock       |  |                                 | 8,998,120  |                           |   |                        |   |                                          |  |                                         |   |                                                         |  |                                           |        |   |   |            |   |   | 9,318,360  |  
|Stock based compensation
  expense        |  |                                 | 199,148    |                           |   |                        |   |                                          |  |                                         |   |                                                         |  |                                           |        |   |   |            |   |   | 199,148    |  
|Foreign currency translation
  adjustment |  |                                 |           |                           |   |                        |   |                                          |  |                                         |   |                                                         |  |                                           | (64,246 | ) |   |            |   |   | (64,246    | )
|Net loss                                  |  |                                 |           |                           |   |                        |   |                                          |  |                                         |   |                                                         |  |                                           |        |   |   | (6,413,648  | ) |   | (6,413,648 | )
|                                          |  |                                 |            |                           |   |                         |   |                                          |   |                                         |   |                                                          |  |                                           |         |   |   |             |   |   |            |  
|Balance at December 31, 2007              |  | $                               | 86,657,058 |                           | $ | (422                    | ) | $                                        |  |                                         | $ |                                                         |  | $                                         | 414,971 |   | $ | (84,254,830 | ) | $ | 3,383,412  |  
|                                          |  |                                 |            |                           |   |                         |   |                                          |   |                                         |   |                                                          |  |                                           |         |   |   |             |   |   |            |  

See accompanying notes.

F-7

---

Table of Contents

AVAX Technologies,
Inc. and Subsidiaries(a development stage company) Consolidated Statements of Cash Flows

|                                                                                       |  |                          |            |                                                                       |   |            |   |   |              |  
|-------------------------------------------------------------------------------------- |  | ------------------------ | ---------- | --------------------------------------------------------------------- | - | ---------- | - | - | ------------ | -
|                                                                                       |  |                          |            | Period
  from
  January 12, 1990 
  (Incorporation) to
  December 31, |  
|                                                                                       |  |                          |            |                                                                      
|                                                                                       |  | Year ended
  December 31 |            |                                                                      
|                                                                                       |  |                         
|                                                                                       |  |                          | 2007       |                                                                       |   | 2006       |   |   | 2007         |  
|                                                                                       |  |                          |            |                                                                       |   |            |   |   |              |  
|Operating
  activities                                                                 |  |                          |            |                                                                       |   |            |   |   |              |  
|Net loss                                                                               |  | $                        | (6,413,648 | )                                                                     | $ | (5,355,500 | ) | $ | (84,254,830  | )
|Adjustments to reconcile net loss to net cash used
  in operating activities:          |  |                          |            |                                                                       |   |            |   |   |              |  
|Depreciation and
  amortization                                                        |  |                          | 301,005    |                                                                       |   | 290,434    |   |   | 5,084,727    |  
|Amortization of
  discount on convertible notes payable                                |  |                          |           |                                                                       |   |           |   |   | 142,500      |  
|Extraordinary
  gain related to negative goodwill on consolidated subsidiary           |  |                          |           |                                                                       |   |           |   |   | (902,900     | )
|Cumulative
  effect of change in accounting                                            |  |                          |           |                                                                       |   |           |   |   | (186,295     | )
|Amortization of
  deferred gain on joint venture                                       |  |                          |           |                                                                       |   |           |   |   | (1,805,800   | )
|Equity in net
  loss of joint venture                                                  |  |                          |           |                                                                       |   |           |   |   | 1,703,763    |  
|Employee stock
  option expense                                                        |  |                          | 199,148    |                                                                       |   | 148,548    |   |   | 347,696      |  
|Minority
  interest in net loss of consolidated subsidiary                             |  |                          |           |                                                                       |   |           |   |   | (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                                              |  |                          |           |                                                                       |   |           |   |   | 246,254      |  
|Issuance of
  common stock or warrants for services                                    |  |                          |           |                                                                       |   |           |   |   | 423,289      |  
|Changes in
  operating assets and liabilities:                                         |  |                          |            |                                                                       |   |            |   |   |              |  
|Accounts
  receivable                                                                  |  |                          | 101,425    |                                                                       |   | (119,980   | ) |   | 17,228       |  
|Inventory                                                                              |  |                          | 97         |                                                                       |   | 3,286      |   |   | 30,764       |  
|Prepaid expenses
  and other current assets                                            |  |                          | (122,349   | )                                                                     |   | 74,016     |   |   | (156,031     | )
|Research and
  development tax credit receivable                                       |  |                          |           |                                                                       |   | 81,087     |   |   | 320,488      |  
|Accounts payable
  and accrued liabilities                                             |  |                          | 1,142,440  |                                                                       |   | 731,967    |   |   | 2,203,067    |  
|Deferred revenue                                                                       |  |                          | 59,985     |                                                                       |   | 52,295     |   |   | 210,292      |  
|Amount payable
  to former officer                                                     |  |                          |           |                                                                       |   |           |   |   | 80,522       |  
|                                                                                       |  |                          |            |                                                                       |   |            |   |   |              |  
|Net cash used in operating activities                                                  |  | $                        | (4,731,897 | )                                                                     | $ | (4,093,847 | ) | $ | (70,665,565  | )
|                                                                                       |  |                          |            |                                                                       |   |            |   |   |              |  
|Investing
  activities                                                                 |  |                          |            |                                                                       |   |            |   |   |              |  
|Purchases of marketable securities                                                     |  |                          |           |                                                                       |   |           |   |   | (351,973,210 | )
|Proceeds from sale of marketable securities                                            |  |                          |           |                                                                       |   |           |   |   | 344,856,738  |  
|Proceeds from sale of short-term investments                                           |  |                          |           |                                                                       |   |           |   |   | 7,116,472    |  
|Purchases of furniture and equipment                                                   |  |                          | (127,402   | )                                                                     |   | (40,307    | ) |   | (3,730,065   | )
|Proceeds from sale of furniture and equipment                                          |  |                          |           |                                                                       |   |           |   |   | 51,119       |  
|Cash acquired in acquisition of control of joint
  venture                             |  |                          |           |                                                                       |   |           |   |   | 991,634      |  
|Organization costs incurred                                                            |  |                          |           |                                                                       |   |           |   |   | (622,755     | )
|                                                                                       |  |                          |            |                                                                       |   |            |   |   |              |  
|Net cash used in investing activities                                                  |  | $                        | (127,402   | )                                                                     | $ | (40,307    | ) | $ | (3,310,067   | )

F-8

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Table of Contents

AVAX Technologies, Inc. and Subsidiaries(a development stage company)Consolidated Statements of Cash Flows
(continued)

|                                                                                    |  |                          |           |                                                                       |   |            |   |   |            |  
|----------------------------------------------------------------------------------- |  | ------------------------ | --------- | --------------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|                                                                                    |  |                          |           | Period
  from
  January 12, 1990 
  (Incorporation) to
  December 31, |  
|                                                                                    |  |                          |           |                                                                      
|                                                                                    |  | Year ended
  December 31 |           |                                                                      
|                                                                                    |  |                         
|                                                                                    |  |                          | 2007      |                                                                       |   | 2006       |   |   | 2007       |  
|                                                                                    |  |                          |           |                                                                       |   |            |   |   |            |  
|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                    |  |                          |          |                                                                       |   |           |   |   | 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                                   |  |                          |          |                                                                       |   |           |   |   | 76,892     |  
|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                   |  |                          | 9,318,360 |                                                                       |   |           |   |   | 78,170,851 |  
|                                                                                    |  |                          |           |                                                                       |   |            |   |   |            |  
|Net cash provided by financing activities                                           |  |                          | 9,318,360 |                                                                       |   |           |   |   | 79,448,702 |  
|                                                                                    |  |                          |           |                                                                       |   |            |   |   |            |  
|Effect of exchange rate changes on cash                                             |  |                          | (40,424   | )                                                                     |   | 45,574     |   |   | 430,137    |  
|                                                                                    |  |                          |           |                                                                       |   |            |   |   |            |  
|                                                                                    |  |                          |           |                                                                       |   |            |   |   |            |  
|Net increase (decrease) in cash                                                     |  |                          | 4,418,637 |                                                                       |   | (4,088,580 | ) |   | 5,903,207  |  
|Cash at beginning of period                                                         |  |                          | 1,484,570 |                                                                       |   | 5,573,150  |   |   |           |  
|                                                                                    |  |                          |           |                                                                       |   |            |   |   |            |  
|Cash at end of period                                                               |  | $                        | 5,903,207 |                                                                       | $ | 1,484,570  |   | $ | 5,903,207  |  
|                                                                                    |  |                          |           |                                                                       |   |            |   |   |            |  
|                                                                                    |  |                          |           |                                                                       |   |            |   |   |            |  
|Supplemental disclosure of cash flow information                                    |  |                          |           |                                                                       |   |            |   |   |            |  
|Interest Paid                                                                       |  | $                        |          |                                                                       | $ |           |   | $ |           |  
|                                                                                    |  |                          |           |                                                                       |   |            |   |   |            |  
|Non-cash activity:                                                                  |  |                          |           |                                                                       |   |            |   |   |            |  
|Issuance of restricted stock compensation                                           |  | $                        |          |                                                                       | $ |           |   | $ | 25,000     |  
|                                                                                    |  |                          |           |                                                                       |   |            |   |   |            |  
|Common stock warrants issued with convertible notes                                 |  | $                        |          |                                                                       | $ |           |   | $ | 142,500    |  
|                                                                                    |  |                          |           |                                                                       |   |            |   |   |            |  
|Conversion of bridge loan into common stock                                         |  | $                        |          |                                                                       | $ |           |   | $ | 950,000    |  
|                                                                                    |  |                          |           |                                                                       |   |            |   |   |            |  
|Payment of interest with common stock                                               |  | $                        |          |                                                                       | $ |           |   | $ | 23,275     |  
|                                                                                    |  |                          |           |                                                                       |   |            |   |   |            |  

See accompanying notes.

F-9

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Table of Contents

Notes to Consolidated
Financial StatementsDecember 31, 2007 and 2006

|   |                                                             
|-- | ------------------------------------------------------------
|1. | Description of Business and Significant
 Accounting Policies

Description of
Business

AVAX
Technologies, Inc. and its subsidiaries (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 agreement was 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. 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%.

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) (seeNote
2).

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. During
2004 the Company and Rutgers agreed to cancel the license agreement and all of
the Companys obligations associated with the license agreement(see Note 2).

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) (seeNote 2).

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 M-Vax 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.

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 with its principal operating facility in Lyon, 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 December
31, 2007 consolidated balance sheet includes approximately $122,239 in net
assets related to these subsidiaries.

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-10

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Table of Contents

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, 2007, the
Company incurred a net loss of $6,413,648 and a use of cash in operating
activities of $4,731,897. The Companys cash requirements were satisfied
through a private placement of common stock in April 2007 (see Note 4), maintaining balances in
accounts payable and accrued expenses on terms in excess of those afforded in
commercial practice and customer agreements and through the use of available
cash. However, the Company does not have sufficient resources to maintain its
existing plan of operations throughout 2008. These conditions raise substantial
doubt about the Companys ability to continue as a going concern. Management
anticipates that additional debt or equity financing will be required to fund
ongoing operations in 2008. The Company is currently seeking to raise
additional capital or secure revenue sources to fund current operations.
However, there is 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 2008. 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. These financial statements do not include any adjustments relating to
the recoverability and classification of assets, carrying amounts or the amount in classification of liabilities that may
be required, should the Company be unable to continue as a going concern.

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.

Foreign Currency
Translation

Holdings and
Genopoietic use the 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.

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
reporting period. Actual results could differ from those estimates.

Revenue Recognition

The Companys
revenues are related to the provision of contract services and the sale of its
product, the AC Vaccine Technology, for the treatment of melanoma. Contract
service revenue is recognized in installments based upon the contractual
agreement entered into with clients (see
Note 3). Product revenues represent fees received or payable to the
Company related to the manufacture and sale of the vaccine. Product revenue is
recognized when the vaccine is received by the hospital administering the
vaccine.

The Company records as deferred revenue amounts received in advance of
the provision of services in accordance with contracts or grants. Deferred
revenue consisted of $250,000 received pursuant to a clinical development and
manufacturing agreement for which the activities needed to be completed to earn
the funds had not been completed as of December 31, 2007. Pursuant to the
agreement, if the companies manufacturing facility in Philadelphia, PA is not
able to produce products pursuant to the agreement by May 31, 2008 then
$125,000 of the funds received will default to the collaboration partner. If
the facility is not able to produce products pursuant to the agreement by
August 31, 2008 then the remaining $125,000 will default and be payable back to
the collaboration partner.

Accounts Receivable

Accounts
receivable are stated at the amount management expects to collect from
outstanding balances. Management provides for probable uncollectible accounts
through a charge to earnings and a credit to a valuation allowance based on its
assessment of the current status of individual accounts. Balances that are
still outstanding after management has used reasonable collection efforts are
written off through a charge to the valuation allowance and a credit to
accounts receivable. There was no valuation allowance at December 31, 2007. The
Company generally does not charge interest on accounts receivable.

F-11

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Table of Contents

Concentrations of Credit Risk

Financial
instruments that potentially subject the Company to credit risk are principally
cash and accounts receivable. Cash consists of checking accounts, money market
accounts and a certificate of deposit. The Company places its cash with its
principal bank that is a high credit quality financial institution. Cash
deposits generally are in excess of the FDIC insurance limits. Credit limits,
ongoing credit evaluations, and account monitoring procedures are utilized to
minimize the risk of loss from accounts receivable. Collateral is generally not
required.

Fair Value of Financial Instruments

The carrying
amount of accounts receivable, accounts payable and accrued liabilities are
considered to be representative of their respective fair values due to their
short-term nature.

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 used in
research and development activities.

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.

Depreciation

Depreciation
is computed using the straight-line method over the estimated useful lives of
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 accounting standard requires that
goodwill and indefinite lived 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 Company performed its annual goodwill impairment test in
accordance with SFAS No. 142 and determined that the carrying amount of
goodwill was reasonable.

Prior to the adoption of SFAS No. 142, the company had recorded
cumulative amortization of $113,032. If SFAS No. 142 had been applied to
earlier periods the adjusted loss from continuing operations would be $84,137,953
and the adjusted net loss would be $84,141,798.

Research and
Development Costs

Research and
development costs, including payments related to research and license
agreements, are expensed when incurred. Contractual research expenses are
recorded pursuant to the provisions of the contract under which the obligations
originate. Research and development costs include all costs incurred related to
the research and development, including manufacturing costs incurred, related
to the Companys research programs. The Company is required to produce its
products in compliance with current Good Manufacturing Practices (cGMP),
which requires a minimum level of staffing, personnel and facilities testing
and maintenance. Based upon its current staffing level required to be in
compliance with cGMP, the Company has excess capacity. Utilizing this excess
capacity, revenue is generated through contract manufacturing engagements (see
Note 3). Costs for production of products will be capitalized and charged to
cost of goods sold only after the Company has received approval to market the
drug by a Regulatory Authority.

F-12

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Table of Contents

Stock-Based
Compensation

Effective
January 1, 2006, the Company has adopted SFAS 123R, Share-Based Payment.
SFAS 123R establishes standards for the accounting for transactions in
which an entity exchanges its equity instruments for goods or services and
requires that the compensation cost relating to share-based payment
transactions be recognized in financial statements, measured by the fair value of
the equity or liability instruments issued, adjusted for estimated forfeitures.
We transitioned to SFAS 123R using the modified-prospective method, under which
prior periods have not been revised for comparative purposes. The valuation
provisions of SFAS 123R apply to new grants and to grants that were outstanding
as of the effective date and are subsequently modified. Estimated compensation
for grants that were outstanding as of the effective date will be recognized
over the remaining service period using the compensation cost previously
estimated for our SFAS 123 pro forma disclosures. Recognized stock-based
compensation expense for the year ended December 31, 2007 includes compensation
expense for share-based payment awards granted prior to, but not yet vested as
of December 31, 2005, based on the grant date fair value estimated in
accordance with the pro forma provisions of SFAS 123 and compensation expense
for the share-based payment awards granted subsequent to December 31, 2005
based on the grant date fair value estimated in accordance with the provisions
of SFAS 123R.

Prior to the
adoption of SFAS 123R, the Company applied the intrinsic-value-based method of
accounting prescribed by Accounting Principles Board Opinion (APB) 25,
Accounting for Stock Issued to Employees, and related interpretations, to
account for its fixed-plan stock options to employees. Under this method,
compensation cost was recorded only if the market price of the underlying stock
on the date of grant exceeded the exercise price. SFAS 123, Accounting for
Stock-Based Compensation, established accounting and disclosure requirements
using a fair-value-based method of accounting for stock-based employee
compensation plans. As permitted by SFAS 123, the Company elected to continue
to apply the intrinsic-value-based method of accounting described above, and
adopted only the disclosure requirements of SFAS 123, as amended by SFAS No.
148, Accounting for Stock-Based Compensation, Transition and Disclosure. The
fair-value-based method used to determine historical pro forma amounts under
SFAS 123 was similar in most respects to the method used to determine
stock-based compensation expense under SFAS 123R. However, in its pro forma
disclosures, the Company accounted for option forfeitures as they occurred,
rather than based on estimates of future forfeitures.

The Company
maintains three employee stock option plans, a director stock option plan and
has issued non-qualified stock options to an executive officer and a director
outside of the existing stock option plans, which non-plan option grants have
been approved by the Board of Directors and the stockholders of the Company.
These plans are more fully discussed in the Companys Annual Report on Form
10-K filed for the year ended December 31, 2007. In addition, the Company
issues warrants to consultants at the discretion of the Board of Directors of
the Company. The Company accounts for warrants granted to consultants in
accordance with Emerging Issues Task Force Issue 96-18, Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services. The Company determines the value
of stock warrants utilizing the Black-Scholes option-pricing model.

Compensation
costs for fixed awards with pro rata vesting are allocated to periods on the
straight-line basis. The estimated weighted average fair value of options
granted was calculated based on the following assumptions:

|                          |  |                                        |   |                                        |      |   | 
|------------------------- |  | -------------------------------------- | - | -------------------------------------- | ---- | - | 
|                          |  | Twelve Months Ended
 December 31, 2006 |   | Twelve Months Ended
 December 31, 2007 |     
|                          |  |                                        |   |                                        |     
|Expected
 term (in years) |  | 4.50                                   |   |                                        | 4.00 |   | 
|Volatility                |  | 79.4                                   | % |                                        | 75.4 | % | 
|Risk-free
 interest rate  |  | 4.30                                   | % |                                        | 3.52 | % | 
|Expected
 dividends       |  | 0                                      |   |                                        | 0    |   | 

For the twelve
months ended December 31, 2007, compensation expense of $105,127 was charged to
administrative expenses and $94,021 was charged to research and development
expenses related to stock options outstanding and not vested. As of
December 31, 2007, total compensation cost related to non-vested stock
options not yet recognized was $805,057, is expected to be allocated to
expenses over a weighted-average period of 18 months.

The fair value
of option grants is estimated at the date of grant using the Black-Scholes
model.

F-13

---

Table of Contents

The following
table shows the options and warrants outstanding by strike price with the
average expected remaining term of the instruments, in years, as of December
31, 2007.

|                      |  |                                  |  |                                  |      |                             |             |                                  |  |      | 
|--------------------- |  | -------------------------------- |  | -------------------------------- | ---- | --------------------------- | ----------- | -------------------------------- |  | ---- | 
|Exercise
 Price Range |  | Options
 & Warrants
 Outstanding |  | Weighted-Average
 Remaining Term |      | Vested
 Options &
 Warrants |             | Weighted-Average
 Remaining Term | 
|                      |  |                                  |  |                                  |      |                             |             |                                  | 
|$0.090 - $0.143       |  | 15,188,178                       |  |                                  | 3.85 |                             | 7,964,300   |                                  |  | 1.10 | 
|                      |  |                                  |  |                                  |      |                             |             |                                  |  |      | 
|$0.150 - $0.190       |  | 90,865,400                       |  |                                  | 4.42 |                             | 88,331,025  |                                  |  | 4.34 | 
|                      |  |                                  |  |                                  |      |                             |             |                                  |  |      | 
|$0.285 - $0.330       |  | 2,347,792                        |  |                                  | 3.89 |                             | 1,720,183   |                                  |  | 3.68 | 
|                      |  |                                  |  |                                  |      |                             |             |                                  |  |      | 
|$0.340 - $0.390       |  | 5,682,293                        |  |                                  | 1.84 |                             | 5,682,293   |                                  |  | 1.84 | 
|                      |  |                                  |  |                                  |      |                             |             |                                  |  |      | 
|$0.410 - $0.490       |  | 7,603,030                        |  |                                  | 2.26 |                             | 7,603,030   |                                  |  | 2.26 | 
|                      |  |                                  |  |                                  |      |                             |             |                                  |  |      | 
|$0.890 - $0.906       |  | 280,000                          |  |                                  | 0.73 |                             | 280,000     |                                  |  | 0.73 | 
|                      |  |                                  |  |                                  |      |                             |             |                                  |  |      | 
|$2.940                |  | 240,000                          |  |                                  | 0.73 |                             | 240,000     |                                  |  | 0.73 | 
|                      |  |                                  |  |                                  |      |                             |             |                                  |  |      | 
|$8.240                |  | 125,000                          |  |                                  | 3.84 |                             | 125,000     |                                  |  | 3.84 | 
|                      |  |                                  |  |                                  |      |                             |             |                                  |  |      | 
|                      |  | 122,331,693                      |  |                                  |      |                             | 111,945,831 |                                  |  |      | 
|                      |  |                                  |  |                                  |      |                             |             |                                  |  |      | 

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.

Recently Issued Accounting Standards

On
January 1, 2007, we adopted the provisions of the Financial Accounting
Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes  an
interpretation of FASB Statement No. 109, (FIN 48), which
clarifies the accounting for uncertainty in tax positions. FIN 48 seeks to
reduce the diversity in practice associated with certain aspects of measurement
and recognition in accounting for income taxes. In addition, FIN 48 provides
guidance on de-recognition, classification, interest and penalties, and accounting
in interim periods and requires expanded disclosure with respect to the
uncertainty in income taxes. FIN 48 requires that we recognize in our financial
statements the impact of a tax position if that position is more likely than
not to be sustained on audit, based on the technical merits of the position. At
the adoption date and as of December 31, 2007, we did not have any
unrecognized tax benefits and no adjustments to liabilities or results of
operations were required.

In September
2006, the FASB issued SFAS No. 157, Fair Value Measurements.
FAS No. 157 defines fair value, establishes a framework for measuring
fair value in accordance with accounting principles generally accepted in the
United States of America and expands disclosures about fair value measurements.
SFAS No. 157 applies under other accounting pronouncements that require or
permit fair value measurements. Accordingly, this pronouncement does not
require any new fair value measurements. We are required to adopt
FAS No. 157 beginning January 1, 2008. The Company has evaluated the
impact of adopting FAS 175 on our consolidated financial statements and does
not expect any impact on its results of operations or financial position.

In February 2007, the Financial
Accounting Standards Board (FASB) issued SFAS No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities  Including an Amendment of FASB
Statement 115. FAS No. 159 permits all entities to choose to elect, at
specified election dates, to measure eligible financial instruments at fair
value. An entity shall report unrealized gains and losses on items for which
the fair value option has been elected in earnings at each subsequent reporting
date and recognize upfront costs and fees related to those items in earnings as
incurred and not deferred. FAS No. 159 applies to fiscal years beginning after
November 15, 2007, with early adoption permitted for an entity that has also
elected to apply the provisions of SFAS No. 157, Fair Value Measurements. The
Company has evaluated the impact of adopting FAS 159 on the Companys
consolidated financial statements and does not expect any impact on its results
of operations or financial position.

F-14

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Table of Contents

In September 2006, the FASB issued
SFAS No. 158, Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans, an amendment of FASB Statements No. 87, 88,
106, and 132(R). SFAS No. 158 requires an employer to recognize the
over-funded or under-funded status of a defined benefit postretirement plan
(other than a multiemployer plan) as an asset or liability in its statement of
financial position and to recognize changes in that funded status in the year
in which the changes occur through comprehensive income. In addition, with
limited exceptions, this pronouncement requires an employer to measure the
funded status of a plan as of the date of its year-end statement of financial
position. SFAS No. 158 is effective for fiscal years ending after
December 15, 2006. As the Company does not have any defined benefit
pension plans or other postretirement plans, the adoption of this standard did
not have any impact on its financial statements.

In June 2007, the FASB ratified Emerging Issues Task
Force, or EITF, Issue No. 07-3, Accounting for Nonrefundable Advance
Payments for Goods or Services to Be Used in Future Research and Development
Activities, or Issue 07-3, which addresses the accounting for nonrefundable
advance payments. The EITF concluded that nonrefundable advance payments for
goods or services to be received in the future for use in research and
development activities should be deferred and capitalized. The capitalized
amounts should be expensed as the related goods are delivered or the services
are performed. If an entitys expectations change such that it does not expect
it will need the goods to be delivered or the services to be rendered,
capitalized nonrefundable advance payments should be charged to expense. Issue
07-3 is effective for new contracts entered into during fiscal years beginning
after December 15, 2007, including interim periods within those fiscal
years. The Company has evaluated the impact of adopting Issue 07-3 on its
consolidated financial statements and does not expect any impact on its results
of operations or financial position.

In December 2007, the FASB ratified the final
consensuses in Emerging Issues Task Force Issue No. 07-1, Accounting for Collaborative Arrangements,
or Issue 07-1, which requires certain
income statement presentation of transactions with third parties and of
payments between parties to the collaborative arrangement, along with
disclosure about the nature and purpose of the arrangement. Issue 07-1 is
effective for us beginning January 1, 2009. The Company has evaluated the
impact of adopting Issue 07-1 on its consolidated financial statements and does
not expect any impact on its results of operations or financial position.

|   |                                 
|-- | --------------------------------
|2. | 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 (see Note 1).
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 was to
continue until completion of the study, although it is terminable, upon notice
by either party to the other, at any time. The Company has maintained the appropriate
level of spending on the development of the invention in accordance with the
license agreement.

In February 1997, the Company licensed from The Texas
A&M University System 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 development of the anti-estrogren compounds is no longer a part of the
Companys plan of operation. The Company has been notified by Texas A&M
that Texas A&M considers the Company to be in violation of the license
agreement and that the Companys rights under the license agreement have been
revoked. The Company disputes the contention by Texas A&M and the Company
is attempting to return the technology to the University. Texas A&M has
filed a lawsuit against the company seeking reimbursement from AVAX for certain
patent expenses incurred by the University from AVAX. Although the disputed
amount is fully accrued in the attached financial statements, the Company
continues to dispute certain amounts that are claimed by the University.

F-15

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Table of Contents

|   |                     
|-- | --------------------
|3. | Equity
 Transactions

Common and Preferred Stock

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,
300,000 shares were designated as Series B preferred stock and 120,000 shares
were designated as Series C 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. In January 2004, the Companys authorized
common stock, par value $.004, was increased to 150,000,000 shares. In January 2007,
the Companys authorized common stock, par value $.004, was increased to
500,000,000 shares. As of June 2006, no shares of the Series B preferred stock
were issued or outstanding, and the Certificate of Designation for the Series B
preferred stock was cancelled.

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 (see Note 1).

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.

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 were 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 in the form of a finders fee.

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. During 2007 holders of 3,250 shares of the Series C
Preferred stock converted those shares into 99,999 fully paid non-assessable
shares of common stock. The 33,500 shares of Series C preferred stock,
outstanding at December 31, 2007, is convertible into 1,030,756 shares of
common stock excluding the effect of any fractional shares.

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 expired on March 10, 2005.

In connection with services rendered in connection
with the private placement, the Company paid the placement agent a cash fee of
approximately $747,000. 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.

F-16

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Table of Contents

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 (the primary shareholders), 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.

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.

On May 21, 2004, the Company closed the private
placement of 10,166,167 shares of the Companys common stock plus warrants to
purchase 1,525,000 shares of common stock at $0.35 per share (Series A
Warrants) and warrants to purchase 1,525,000 shares of common stock at $0.39
per share (Series B Warrants). Net proceeds to the Company, after offering
costs, amounted to approximately $2,893,000.

On May 21, 2004, in compliance with the Note Purchase
Agreements entered into in December, 2003, the Company converted the principal
($950,000) and interest ($23,275) on the bridge notes into common stock at an
exercise price of $0.13 per share resulting in the issuance of 7,486,430 shares
of the Companys common stock.

On April 5, 2005, the Company closed a private
placement of 25,343,430 shares of common stock at a purchase price of $0.34 per
share with 12 accredited or institutional investors. The Company received gross
proceeds of approximately $8,616,000. In connection with the private placement,
the Company also issued to the investors warrants to purchase 3,801,515 shares
of common stock at a warrant exercise price of $0.41 per share, and warrants to
purchase 3,801,515 shares of common stock at a warrant exercise price of $0.48
per share. Net proceeds to the Company, after offering costs, amounted to
approximately $7,986,000.

On April 13, 2007, the Company closed a private
placement of 80,060,000 shares of common stock at a purchase price of $0.125
per share with 25 accredited and institutional investors. In connection with
the private placement, the Company also issued to the investors warrants to
purchase 80,060,000 shares of common stock at a warrant exercise price of $0.15
per share. All warrants issued in this private placement expire on April 13,
2012. Net proceeds to the Company, after offering costs, amounted to
approximately $9,318,000.

Stock Options  1992 Stock Option Plan

In April 1992, the Board of Directors approved the
1992 Stock Option Plan (the 1992 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 1992 Plan was amended in June
1999, to increase the number of shares issuable to 1,500,000. The 1992 Plan was
further amended in June 2000, to increase the number of shares issuable to
2,500,000. The Board of Directors determines the exercise price and vesting
period of the options at the date of grant. Options may be granted up to 10
years after the 1992 Plans adoption date and generally expire 7 years from the
date of grant.

F-17

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Table of Contents

The following summarizes activity in the 1992 Plan:

|                                            |  |                     |  
|------------------------------------------- |  | ------------------- | -
|                                            |  | Number of 
 Options |  
|                                            |  |                     |  
|                                            |  |                     |  
|Granted                                     |  | 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             |  
|Expired                                     |  | (1,621              | )
|                                            |  |                     |  
|Balance at December 31, 2004                |  | 779,283             |  
|Expired                                     |  | (195,000            | )
|                                            |  |                     |  
|Balance at December 31, 2005                |  | 584,283             |  
|Expired                                     |  | (353,889            | )
|                                            |  |                     |  
|Balance at December 31, 2006                |  | 230,394             |  
|Expired                                     |  | (75,000             | )
|                                            |  |                     |  
|Balance at December 31, 2007                |  | 155,394             |  
|                                            |  |                     |  

Stock
Options  2001 Stock Option Plan

In November 2001 the Board of Directors approved the 2001 Stock Option
Plan (the 2001 Plan), 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
Board of Directors determines the exercise price and vesting period of the
options 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.
With the adoption of the 2006 Equity Incentive Plan described below, the 2001
Plan was frozen.

F-18

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Table of Contents

The following summarizes
activity in the 2001 Plan:

| |                                |  |  |           |   | 
| | ------------------------------ |  |  | --------- | - | 
| | Granted                        |  |  | 175,108   |   | 
| |                                |  |  |           |   | 
| | Balance at
  December 31, 2001 |  |  | 175,108   |   | 
| | Expired                        |  |  | (59,435   | ) | 
| |                                |  |  |           |   | 
| | Balance at
  December 31, 2002 |  |  | 115,673   |   | 
| | Expired                        |  |  | (90,688   | ) | 
| |                                |  |  |           |   | 
| | Balance at
  December 31, 2003 |  |  | 24,985    |   | 
| | Granted                        |  |  | 1,155,000 |   | 
| | Expired                        |  |  | (379      | ) | 
| |                                |  |  |           |   | 
| | Balance at
  December 31, 2004 |  |  | 1,179,606 |   | 
| | Granted                        |  |  | 873,250   |   | 
| | Balance at
  December 31, 2005 |  |  | 2,052,856 |   | 
| | Granted                        |  |  | 120,000   |   | 
| |                                |  |  |           |   | 
| | Balance at
  December 31, 2006 |  |  | 2,172,856 |   | 
| | Expired                        |  |  | (92,125   | ) | 
| |                                |  |  |           |   | 
| | Balance at
  December 31, 2007 |  |  | 2,080,731 |   | 
| |                                |  |  |           |   | 

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 directors 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 per director were issued as of January 1, 2004,
vesting over a four-year period. The following summarizes activity in the
Director Option Plan:

| |                                                   |  |  |         |  | 
| | ------------------------------------------------- |  |  | ------- |  | 
| | Granted                                           |  |  | 240,000 |  | 
| |                                                   |  |  |         |  | 
| | Balance at
  December 31, 2001, 2002 & 2003       |  |  | 240,000 |  | 
| | Granted                                           |  |  | 160,000 |  | 
| |                                                   |  |  |         |  | 
| | Balance at
  December 31, 2004, 2005, 2006 & 2007 |  |  | 400,000 |  | 
| |                                                   |  |  |         |  | 

Stock Options  2006
Equity Incentive Plan

On June 12, 2006, the Board of
Directors approved the 2006 Equity Incentive Plan (the 2006 Plan),
authorizing up to 10,000,000 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 Board of Directors
determines the exercise price and vesting period of the options at the date of
grant. Options may be granted up to 10 years after the 2006 Plans adoption
date and generally expire 10 years from the date of grant. The 2006 Plan
replaces the 2001 Plan and the Directors Option Plan as of the date of
enactment of the 2006 Plan. The following summarized the activity in the 2006
Plan:

| |                                       |  |  |           |  | 
| | ------------------------------------- |  |  | --------- |  | 
| |                                       |  |  |           |  | 
| | Balance at
  December 31, 2005 & 2006 |  |  |          |  | 
| | Issued                                |  |  | 4,900,000 |  | 
| |                                       |  |  |           |  | 
| | Balance at
  December 31, 2007        |  |  | 4,900,000 |  | 
| |                                       |  |  |           |  | 

F-19

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Table of Contents

Stock Options  Other

The Company, with the
authorization of the board of directors, issues nonqualified stock options to
employees, directors, advisors, consultants and members of the scientific
advisory board of the Company. The Board of Directors determines the exercise
price, expiration date and vesting period of the options at the date of grant.
The following summarizes other stock option grants:

|                               |  |  |           |  
|------------------------------ |  |  | --------- | -
|Granted                        |  |  | 571,373   |  
|                               |  |  |           |  
|Balance at
  December 31, 1996 |  |  | 571,373   |  
|Granted                        |  |  | 580,644   |  
|                               |  |  |           |  
|Balance at
  December 31, 1997 |  |  | 1,152,017 |  
|Granted                        |  |  | 103,404   |  
|                               |  |  |           |  
|Balance at
  December 31, 1998 |  |  | 1,255,421 |  
|Granted                        |  |  | 20,000    |  
|                               |  |  |           |  
|Balance at
  December 31, 1999 |  |  | 1,275,421 |  
|Granted                        |  |  | 27,382    |  
|Exercised                      |  |  | (9,688    | )
|                               |  |  |           |  
|Balance at
  December 31, 2000 |  |  | 1,293,115 |  
|                               |  |  |           |  
|Issued                         |  |  | 135,000   |  
|Expired                        |  |  | (280,000  | )
|                               |  |  |           |  
|Balance at
  December 31, 2001 |  |  | 1,148,115 |  
|Expired                        |  |  | (53,000   | )
|                               |  |  |           |  
|Balance at
  December 31, 2002 |  |  | 1,095,115 |  
|Expired                        |  |  | (501,685  | )
|                               |  |  |           |  
|Balance at
  December 31, 2003 |  |  | 593,430   |  
|Expired                        |  |  | (360,644  | )
|                               |  |  |           |  
|Balance at
  December 31, 2004 |  |  | 232,786   |  
|Granted                        |  |  | 775,000   |  
|Expired                        |  |  | (71,000   | )
|                               |  |  |           |  
|Balance at
  December 31, 2005 |  |  | 936,786   |  
|Expired                        |  |  | (61,786   | )
|                               |  |  |           |  
|Balance at
  December 31, 2006 |  |  | 875,000   |  
|Issued                         |  |  | 6,130,128 |  
|Balance at
  December 31, 2007 |  |  | 7,005,128 |  
|                               |  |  |           |  

Warrants

The Company,
with the authorization of the board of directors issues warrants for the
purchase of common stock in conjunction with equity and debt offerings as well
as to consultants that assist the company in various financial or commercial
transactions. The Board of Directors determines the exercise price, expiration
date and vesting period of the options at the date of grant.

The following summarizes
warrant grants:

|                                            |  |  |             |  
|------------------------------------------- |  |  | ----------- | -
|Granted                                     |  |  | 7,750       |  
|                                            |  |  |             |  
|Balance at
  December 31, 1993, 1994        |  |  | 7,750       |  
|Granted                                     |  |  | 165,612     |  
|                                            |  |  |             |  
|Balance at
  December 31, 1995              |  |  | 173,362     |  
|Granted                                     |  |  | 931,152     |  
|Exercised                                   |  |  | (156,250    | )
|                                            |  |  |             |  
|Balance at
  December 31, 1996              |  |  | 948,264     |  
|Granted                                     |  |  | 418,569     |  
|Exercised                                   |  |  | (88,769     | )
|Expired                                     |  |  | (25,000     | )
|                                            |  |  |             |  
|Balance at
  December 31, 1997              |  |  | 1,253,064   |  
|Granted                                     |  |  | 115,000     |  
|Expired                                     |  |  | (7,750      | )
|                                            |  |  |             |  
|Balance at
  December 31, 1998              |  |  | 1,360,314   |  
|Granted                                     |  |  | 997,801     |  
|Exercised                                   |  |  | (75,000     | )
|                                            |  |  |             |  
|Balance at
  December 31, 1999              |  |  | 2,283,115   |  
|Granted                                     |  |  | 444,710     |  
|Exercised                                   |  |  | (27,588     | )
|Expired                                     |  |  | (250,654    | )
|                                            |  |  |             |  
|Balance at
  December 31, 2000, 2001 & 2002 |  |  | 2,449,583   |  
|Granted                                     |  |  | 7,308,000   |  
|Expired                                     |  |  | (84,000     | )
|                                            |  |  |             |  
|Balance at
  December 31, 2003              |  |  | 9,673,583   |  
|Granted                                     |  |  | 4,371,783   |  
|Exercised                                   |  |  | (338,400    | )
|Expired                                     |  |  | (1,110,185  | )
|                                            |  |  |             |  
|Balance at
  December 31, 2004              |  |  | 12,596,781  |  
|Granted                                     |  |  | 9,723,657   |  
|Expired                                     |  |  | (444,710    | )
|                                            |  |  |             |  
|Balance at
  December 31, 2005              |  |  | 21,875,728  |  
|                                            |  |  |             |  
|Granted                                     |  |  | 270,000     |  
|Expired                                     |  |  | (654,438    | )
|                                            |  |  |             |  
|Balance at
  December 31, 2006              |  |  | 21,491,290  |  
|Granted  2007 Financing Warrants           |  |  | 80,060,000  |  
|Granted  2007 Advisor Warrants             |  |  | 6,270,400   |  
|Expired                                     |  |  | (31,250     | )
|                                            |  |  |             |  
|Balance at
  December 31, 2007              |  |  | 107,790,440 |  
|                                            |  |  |             |  

F-20

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Table of Contents

Authorized but
unissued shares of common stock were reserved for issuance at December 31,
2007 as follows:

|                                                                         |  |  |             | 
|------------------------------------------------------------------------ |  |  | ----------- | 
|Series C
 convertible preferred stock                                    |  |  | 1,030,756   | 
|1992 Stock
 option plan                                                  |  |  | 155,394     | 
|2001 Stock
 option plan                                                  |  |  | 2,080,731   | 
|2000
 Directors option plan                                              |  |  | 400,000     | 
|2006 Equity
 Incentive Plan                                              |  |  | 10,000,000  | 
|Non plan
 options                                                        |  |  | 7,005,128   | 
|Warrants to
 purchase common stock                                       |  |  | 10,107,810  | 
|Warrants to
 purchase common stock pursuant to the 2003 Bridge Financing |  |  | 6,969,600   | 
|2004 Series
 A Warrants                                                  |  |  | 1,525,000   | 
|2004 Series
 B Warrants                                                  |  |  | 1,525,000   | 
|2005 Series
 A Warrants                                                  |  |  | 3,801,515   | 
|2005 Series
 B Warrants                                                  |  |  | 3,801,515   | 
|2007 Series
 A Warrants                                                  |  |  | 80,060,000  | 
|                                                                         |  |  |             | 
|                                                                         |  |  | 128,462,449 | 
|                                                                         |  |  |             | 

A summary of
applicable stock option and warrant activity and related information for the
years ended December 31, 2007 and 2006 is as follows:

|                                  |  |                        |             |                                      |   |                        |  |                                       |            |   |   |      | 
|--------------------------------- |  | ---------------------- | ----------- | ------------------------------------ | - | ---------------------- |  | ------------------------------------- | ---------- | - | - | ---- | 
|                                  |  | 2007                   |             | 2006                                 |  
|                                  |  |                        |             |                                      |  
|                                  |  | Options
 and
 Warrants |             | Weighted-
 Average 
 Exercise
 Price |   | Options
 and
 Warrants |  | Weighted-
 Average 
 Exercise 
 Price |           
|                                  |  |                        |             |                                      |   |                        |  |                                       |           
|Outstanding
 at beginning of year |  |                        | 25,169,540  |                                      | $ | 0.39                   |  |                                       | 25,849,652 |   | $ | 0.53 | 
|Granted                           |  |                        | 97,360,528  |                                      |   | 0.15                   |  |                                       | 390,000    |   |   | 0.32 | 
|Exercised                         |  |                        |            |                                      |   |                       |  |                                       |           |   |   |     | 
|Forfeited                         |  |                        | (198,375    | )                                    |   | 2.71                   |  |                                       | (1,070,112 | ) |   | 3.71 | 
|                                  |  |                        |             |                                      |   |                        |  |                                       |            |   |   |      | 
|Outstanding
 at end of year       |  |                        | 122,331,693 |                                      | $ | 0.19                   |  |                                       | 25,169,540 |   | $ | 0.39 | 
|                                  |  |                        |             |                                      |   |                        |  |                                       |            |   |   |      | 
|Exercisable
 at end of year       |  |                        | 111,945,831 |                                      | $ | 0.20                   |  |                                       | 24,580,321 |   | $ | 0.56 | 
|                                  |  |                        |             |                                      |   |                        |  |                                       |            |   |   |      | 
|                                  |  |                        |             |                                      |   |                        | 

Exercise
prices for options and warrants outstanding range from $0.09 to $8.24. The
option and warrant contracts expire at various times through July 2017. The
weighted-average grant date fair value of options granted during the years 2007
and 2006 were $0.10 and $0.18, respectively.

|   |               
|-- | --------------
|4. | ANVAR Advances

The Companys French subsidiary
receives financial support from a French governmental agency (ANVAR). These
advances, 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. If certain products are commercialized, the December
31, 2007 balance of $400,691 (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 advances received was recorded as a liability in the
accompanying consolidated balance sheet. In case of failure or partial success,
as defined in the agreement, $89,040 (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. Due to the uncertainty regarding the amount that
to will be required to be repaid to ANVAR, the Company maintains the full
amount of the obligation as a current liability.

F-21

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Table of Contents

|   |             
|-- | ------------
|5. | Income Taxes

At December
31, 2007, the Company has net operating loss carry-forwards of approximately
$82,199,000 for income tax purposes. U. S. and state tax losses of
approximately $72,202,000 expire in varying amounts between 2007 and 2027, if
not utilized. Foreign losses of approximately $9,997,000 continue indefinitely
and may be applied against future income.

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,
 2007 |             | December 31,
 2006 |  
|                          |  |                    |             |                    |  
|Deferred tax assets:      |  |                    |             |                    |   |             |  
|Net operating losses      |  | $                  | 31,565,000  |                    | $ | 29,150,000  |  
|Deferred compensation     |  |                    | 413,000     |                    |   | 413,000     |  
|Depreciation              |  |                    | 329,000     |                    |   | 283,000     |  
|Other                     |  |                    | 1,000       |                    |   | 1,000       |  
|                          |  |                    |             |                    |   |             |  
|Total deferred tax assets |  | $                  | 32,308,000  |                    | $ | 29,847,000  |  
|Valuation allowance       |  |                    | (32,308,000 | )                  |   | (29,847,000 | )
|                          |  |                    |             |                    |   |             |  
|Net deferred tax assets   |  | $                  |            |                    | $ |            |  
|                          |  |                    |             |                    |   |             |  

The valuation
allowance at December 31, 2005 was $27,793,000.

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, |           
|                                            |  |                         |           
|                                            |  | 2007                    |            | 2006 |  
|                                            |  |                         |            |      |  
|                                            |  |                         |            |      |   |            |  
|Income taxes
 (benefit) at statutory rate   |  | $                       | (2,179,000 | )    | $ | (1,819,000 | )
|State income
 taxes, net of federal benefit |  |                         | (282,000   | )    |   | (235,000   | )
|Change in
 the valuation allowance          |  |                         | 2,461,000  |      |   | 2,054,000  |  
|Other                                       |  |                         |           |      |   |           |  
|                                            |  |                         |            |      |   |            |  
|Income tax
 provision (benefit)             |  | $                       |           |      | $ |           |  
|                                            |  |                         |            |      |   |            |  

|   |                              
|-- | -----------------------------
|6. | Commitments and Contingencies

Leases

In December
1997, the Company entered into a 10-year lease agreement for manufacturing
facility space in Philadelphia. 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 that expired with the culmination
of the first lease term of ten years on January 31, 2008. The company executed
a first lease amendment in accordance with the existing lease agreement to
extend the term of the lease by a period of five years from February 1, 2008
through January 31, 2013.

In July 2000,
the Company entered into a 9-year lease agreement for manufacturing and
research space in Lyon, France that expires in July 2009.

Rent expense
under these agreements was approximately $405,811 and $343,043 for the years
ended December 31, 2007 and 2006, respectively. Future minimum rental
payments required under non-cancelable operating leases with initial or
recurring terms of more than one year as of December 31, 2007 are $452,567 in
2008, $326,033 in 2009, $199,500 in 2010, 2011 and 2012 and $16,625 in 2013.
With the expiration of the lease in Lyon in July 2009 it is anticipated that
the Company will have need to obtain an extension of the lease or find alternative
facilities within which to conduct its activities.

F-22

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Table of Contents

Other

The Company
was recently sued by the Texas A&M University System in Texas. The lawsuit
alleges that the Company is in breach of its license agreement by failing to
reimburse the University for certain patent expenses incurred by the University
with respect to the patent and patent applications.

The Company is
subject to various legal proceedings and claims that arise in the ordinary
course of its business. Management believes, in consultation with counsel, that
the ultimate liability with respect to these actions will not have a material
adverse effect on the Companys financial position.

|   |                              
|-- | -----------------------------
|7. | Property, Plant and Equipment

The following
shows the composition of the assets included in property, plant and equipment
at December 31, 2007 and 2006:

|                                              |  |      |           |                           |   |           |  |   |         | 
|--------------------------------------------- |  | ---- | --------- | ------------------------- | - | --------- |  | - | ------- | 
|December
31, 2007:                            |  |      |           |                           |   |           |  |   |         | 
|                                             
|                                              |  | Cost |           | Accumulated
 Depreciation |   | Net       | 
|                                              |  |      |           |                           |   |           | 
|                                              |  |      |           |                           |   |           |  |   |        
|Office
 furniture and equipment               |  | $    | 334,067   |                           | $ | 298,768   |  | $ | 35,299  | 
|Manufacturing
 facility and related equipment |  |      | 3,913,639 |                           |   | 3,206,283 |  |   | 707,356 | 
|                                              |  |      |           |                           |   |           |  |   |         | 
|Total                                         |  | $    | 4,247,706 |                           | $ | 3,505,051 |  | $ | 742,655 | 
|                                              |  |      |           |                           |   |           |  |   |         | 
|                                              |  |      |           |                           |   |           |  |   |         | 
|December
31, 2006                             |  |      |           |                           |   |           |  |   |         | 
|                                             
|                                              |  | Cost |           | Accumulated
 Depreciation |   | Net       | 
|                                              |  |      |           |                           |   |           | 
|                                              |  |      |           |                           |   |           |  |   |        
|Office
 furniture and equipment               |  | $    | 312,452   |                           | $ | 287,667   |  | $ | 24,785  | 
|Manufacturing
 facility and related equipment |  |      | 3,655,476 |                           |   | 2,801,020 |  |   | 854,456 | 
|                                              |  |      |           |                           |   |           |  |   |         | 
|Total                                         |  | $    | 3,967,928 |                           | $ | 3,088,687 |  | $ | 879,241 | 
|                                              |  |      |           |                           |   |           |  |   |         | 

Depreciation
expense was $301,005 and $290,434 for the years ended December 31, 2007 and
2006, respectively.

|   |                      
|-- | ---------------------
|8. | Employee Benefit Plan

During 1996,
the Company established a discretionary 401(k) plan for all U.S. 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 2007 or
2006.

|   |                           
|-- | --------------------------
|9. | Related Party Transactions

During 2007
and 2006 the Company paid additional cash compensation of $126,000 per year 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 Compensation Committee of the Board of
Directors.

The Company
receives administrative support services in the form of office space and
administrative services from a partnership in which Richard Rainey, Principal
Accounting Officer, is a partner. The Company is not charged for these services
and does not record any expenses associated with the services due to the
limited value of these services.

|    |                  
|--- | -----------------
|10. | Subsequent Events

On January 23, 2008, the
Company and Mr. Rainey executed a new employment agreement, effective as of
December 1, 2007, which sets forth the terms of Mr. Raineys continued
employment with the Company through May 31, 2008. The new employment agreement
supersedes the previous employment agreement between the company and Mr. Rainey
dated as of April 1, 2004, as amended by a letter agreement dated October 2, 2007,
except as set forth in the new agreement. Upon execution of the new agreement,
Mr. Rainey received a bonus payment of $350,000 for prior services rendered.
The new agreement provides that Mr. Rainey will continue in employment with the
company until May 31, 2008, in the capacity of Principal Accounting Officer,
and receive a base salary of $275,000 per year.

F-23

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