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

                                   FORM 10-KSB

 ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                        Commission file number 333-09349

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

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

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

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

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

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

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

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

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

The issuer's revenues for the period ended December 31, 1999 were $-0-.

As of February 11, 2000, 16,129,627 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 B or Series C Preferred Stock. The aggregate market
value of the voting and common equity held by non-affiliates (assuming 100%
conversion of the outstanding shares of preferred stock) computed by reference
to the reported closing price of the common stock on the Nasdaq SmallCap Market,
on February 11, 2000, was $117,311,631. Shares of common stock, beneficially
owned by each executive officer and director and each person who beneficially
owns 10% or more of the outstanding shares of common stock, have been excluded,
in that such persons may be deemed to be affiliates of the Company. This
determination of affiliate status is not necessarily conclusive.

Documents incorporated by reference: The information required by Part III of
Form 10-KSB is incorporated herein by reference to the registrant's definitive
Proxy Statement relating to its 2000 Annual Meeting of Stockholders which will
be filed with the Commission within 120 days after the end of the registrant's
fiscal year.

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

                             AVAX Technologies, Inc.

                              Index to Form 10-KSB

                                     PART I                                 Page
                                                                            ----

Item  1.    Description of Business............................................1
Item  2.    Description of Property...........................................15
Item  3.    Legal Proceedings.................................................16
Item  4.    Submission of Matters to a Vote of Security Holders...............17

                                     PART II

Item  5.    Market for Common Equity and Related Stockholder Matters..........18
Item  6.    Management's Discussion and Analysis of Financial Condition and
            Plan of Operation.................................................18
Item  7.    Financial Statements..............................................20
Item  8.    Changes In and Disagreements with Accountants
            on Accounting and Financial Disclosure............................20

                                    PART III

Item  9.    Directors, Executive Officers, Promoters and Control Persons;
            Compliance with Section 16(a) of the Exchange Act.................21
Item 10.    Executive Compensation............................................21
Item 11.    Security Ownership of Certain Beneficial Owners and Management....21
Item 12.    Certain Relationships and Related Transactions....................21
Item 13.    Exhibits and Reports on Form 8-K..................................21

Signatures....................................................................22

<PAGE>

            CAUTIONARY STATEMENT CONCERNING FORWARDLOOKING STATEMENTS

      In this Report, AVAX Technologies, Inc. ("AVAX" or the "Company") makes
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 AVAX's future business plans and
strategies, and other statements that are not historical in nature. These
forward-looking statements are based on the Company's current expectations. Many
of these statements are found in the "Description of Business" section beginning
on page 1.

      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 the Company's forward-looking statements. These
factors might include:

      o     AVAX's history of operating losses, its increasing cash
            requirements, its need to raise more money before the end of the
            third quarter of 2000, and the uncertainty of the Company's future
            profitability.

      o     Uncertainty about whether the Company's AC Vaccine(TM) technology
            can be developed to produce safe, effective and commercially viable
            products.

      o     Uncertainty about whether the Company's products will successfully
            complete the long, complex and expensive clinical trial and
            regulatory approval process for approval of new drugs in the U.S..

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

      o     The Company's need to expand its limited manufacturing facilities or
            depend on third parties to manufacture and distribute its products.

      o     The Company's financial and development obligations and its
            responsibility to meet requisite research funding levels under its
            license and research agreements in order to protect AVAX's rights to
            its products and technologies.

      o     The Company's difficulty or inability to obtain or defend its
            patents, or operate without infringing upon the rights of others.

      o     The Company's difficulty or inability to compete with other
            companies, research institutes, hospitals and universities that are
            developing and producing products and technologies similar to its
            own.
<PAGE>

                             AVAX TECHNOLOGIES, INC.

                                     PART I

ITEM 1.     Description of Business

GENERAL

      AVAX is a development stage biopharmaceutical company engaged in the
development and potential commercialization of products and technologies for the
treatment of cancer and other life-threatening diseases. In 1995, AVAX
identified 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, the Company has licensed other
medical technologies (products and processes) developed elsewhere, just as it
did with Dr. Berd's research. AVAX has recently initiated its own research to
supplement that being done through research agreements with several
universities. AVAX is a typical development stage biotech company in that it is
not currently generating any revenue from its proposed products, and has not yet
made a profit.

      The Company is primarily focusing its efforts on the development of
immunotherapies for the treatment of cancer. The National Cancer Institute
estimates that approximately 8.4 million people living in the U.S. have a
history of cancer. Throughout the past decade, approximately 13 million new
cancer cases were diagnosed. The National Institutes of Health estimates that
the overall annual cost to the health care system of treating those patients was
approximately $107 billion. The incidence of cancer continues to increase. About
1,220,100 new cancer cases are expected to be diagnosed in 2000. Cancer is the
second leading cause of death in the U.S., exceeded only by heart disease, and
the Company is aware of estimates that deaths from cancer will surpass
cardiovascular mortality worldwide early in the 21st Century. Although, many
different types of drugs are used to treat a variety of cancers, no one drug has
been found to be a cure for the disease. Given the need for new effective
treatments for cancer, a drug which may effectively treat cancer could have a
large market potential. Surgery, in many cases is the first treatment performed
on cancer patients, and if a treatment following surgery were to prove broadly
applicable and safe, its market potential could be significant. In addition,
such a treatment would enable the health care system to realize significant
overall cost savings due to a reduction in the number of cases of recurrent
disease requiring hospitalization and ongoing clinical and home care.

      Historically, chemotherapies have been the only accepted post-surgical
treatment for cancer. Chemotherapy is the prevention or treatment of disease by
administering chemicals or drugs. Alternatively, immunotherapy, which is a
rapidly expanding segment of cancer therapy research, is the treatment of
disease or infection by stimulating the body's immune system through a process
of immunization. When a person is immunized for a particular disease or
infection, that person is injected with portions of or all of the disease agent
itself, which stimulates the body's immune system to fight the foreign agent. In
this way, he or she builds up an immunity to the disease or infection.
Immunotherapies that are being developed to treat cancer are intended to act in
the same way.

      A cancer cell, in the most simple terms, is an abnormal cell that the body
itself produces. Cancer is characterized by the uncontrolled growth and spread
of these abnormal cells, that escape from the control of the body's immune
system. Because your body itself produces these abnormal cells, your immune
system does not recognize the cancer cells as foreign, and therefore, scientists
believe, does not respond by attacking and destroying the abnormal cells. Cancer
cells that escape an immune system attack can then spread throughout the body by
a variety of means. Consequently, the cancer cells invade and destroy healthy
tissue, which can ultimately lead to a person's death if untreated.

      Cancers, composed of either solid tumors or blood-borne cancerous cells,
tend to spread over time to other tissues and organs in the body. Cancer may be
diagnosed at any stage of the disease, from very early (best prognosis) to very
late (worst prognosis). When cancer is detected early and has not yet spread to
other organs and tissues, surgical removal of the tumor is often effective.
While this treatment is effective in many types of cancers, in cases in which
removal of the tumor is incomplete or in which the cancer has spread, the
patient's prognosis is poor. Moreover, if the cancer is not discovered until
cancer cells from the primary tumor have already entered the blood or lymphatic
system


                                       1
<PAGE>

and established new tumors at distant sites, the cells and the tumors they form
are difficult to treat with current technology. Chemotherapy and radiation
therapy have traditionally been the accepted methods of treatment in these
cases. Current chemotherapy and radiation therapy are, however, rather crude
treatments because they kill cells indiscriminately, destroying normal as well
as cancerous cells, which leads to toxic side effects and thereby limits the
usefulness of these therapies. Through its agreement with Thomas Jefferson
University and Dr. Berd, AVAX is researching and attempting to develop a safe,
effective immunotherapy for the treatment of cancer.

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

      AVAX's principal executive office is located at 4520 Main Street, Suite
930, Kansas City, Missouri 64111. The telephone number at that address is (816)
960-1333.

      AC Vaccine(TM), M-Vax(TM) and O-Vax(TM) are three of the Company's
trademarks.

TECHNOLOGY AND PRODUCT CANDIDATES

AC Vaccine Technology

      AVAX licensed from Thomas Jefferson University an issued U.S. patent and
certain U.S. and foreign patent applications covering a cancer vaccine
containing a cancer patient's own modified tumor cells and a method for making
and using this type of vaccine (the "TJU License"). The Company's autologous
cell vaccine ("AC Vaccine") is a vaccine made using a patient's own tumor cells,
that is designed to stimulate a patient's immune system to recognize, contain
and eliminate the cancer cells. The method for creating and using the AC Vaccine
(AC Vaccine technology) involves the removal of a patient's own tumor cells, and
then modifying the tumor cells by joining or combining them with a smaller
molecule called a hapten. Once the tumor cells have been modified (haptenized),
the hapten-modified cells are injected into the patient along with an adjuvant,
which is an agent that increases the immune response. This combination is
recognized as foreign by the body's immune system, which elicits an immune
response against the hapten-modified tumor cells. This approach is based on the
premise that if the patient has a strong immune response to the hapten-modified
tumor cells, this may be followed by the development of an immune response to
the unmodified tumor cells. In this way, the body's immune system would be
triggered to attack and eliminate what the body would now see as an intruder.

M-Vax

      The Company's leading AC Vaccine is M-Vax, which is designed as an
immunotherapy for the post-surgical treatment of stage 3 melanoma. Melanoma is a
highly malignant tumor that can spread so rapidly that it can be fatal within
months of diagnosis. The incidence of melanoma is increasing at a faster rate
than most other cancers in the U.S., Australia, northern Europe and Canada.
Although there are several causative factors, rising exposure by the general
population to UV radiation in sunlight appears to be the most significant factor
behind this increase. The National Cancer Institute estimates that approximately
47,700 new cases will be diagnosed in 2000, with the incidence growing at a rate
of approximately 4% annually.

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

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


                                       2
<PAGE>

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

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

      o Stage 4--distant metastasis.

      Historically, patients with stage 3 melanoma have been treated with a year
long regimen of alpha interferon post-surgically, which is a chemotherapy and
currently the only U.S. Food and Drug Administration ("FDA")-approved
post-surgical treatment for patients with stage 3 melanoma. In many cases
however, survival is restricted by the inability of surgery to guarantee removal
of all the tumor cells. It is highly possible for the post-surgery patient to
remain with undetected metastasis. Further, use of alpha interferon is
associated with many severe side effects, often leading to either reduction in
dosage or complete discontinuation before the full course of treatment is
completed. Due to limited efficacy and highly toxic side effects, chemotherapy
and radiation have not been widely used in the treatment of these patients.

      The Company believes that M-Vax is the first immunotherapy to show a
substantial increase in the survival rate for patients with stage 3 melanoma. In
Phase 2 clinical trials, over 350 melanoma patients were treated post-surgically
on an outpatient basis with M-Vax. M-Vax was administered to patients with stage
3 melanoma, who had already had their lymph nodes and lesions removed. In 62
patients with stage 3 melanoma in cases in which there has been sufficient time
for long-term follow-up, the five-year survival rate was 55%. This compares with
the historical post-surgical survival rate of approximately 22%, and the
published post-surgical survival rate for treatment with high dose alpha
interferon of approximately 32% in patients whom the Company believes are
comparable to those treated with M-Vax. In the over 350 patients treated in the
Phase 2 clinical trials, the Company believes 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.

      The FDA approved a Company-sponsored Investigational New Drug Application
("IND") for M-Vax in 1998. The approval of the Company-sponsored IND allows the
Company to proceed with a pivotal registration clinical trial which involves at
least 400 patients at 25 different investigator locations around the country.
The Company also will conduct a second registration trial as required by the
FDA. AVAX intends to use the results of the two multi-center clinical trials,
along with the results of the initial clinical trials conducted at Thomas
Jefferson University, as the basis for filing an application for FDA approval to
market M-Vax in the U.S.

      In November 1999, the Company presented nine-year follow-up data on stage
3 melanoma patients from Company-sponsored Phase 2 studies of M-Vax. The data
was obtained from an ongoing study of a group of 71 patients with advanced skin
cancer who were cancer-free two years following treatment with M-Vax, and then
monitored for up to an additional 7.8 years. The median follow-up time as of
November, 1999 was 5.3 years. Dr. Berd began this study of M-Vax in 1989. At the
time M-Vax was administered, 39 of the 71 patients were deemed to have little
chance of long-term survival because their cancer had spread to more than one
lymph node. Of those 71 patients, 49 survived 5 years or more, of which 44 (or
approximately 89%) were still alive at November 1999. The other 22 patients had
been monitored for less than 5 years as of November 1999. On the basis of
Kaplan-Meier estimates, the projected overall 9-year survival rate for the
entire group is approximately 85%. No serious or long-term toxic effects of
M-Vax were observed in any of these patients.

O-Vax

      The Company is also currently treating post-surgical stage 3 and advanced
patients in Phase 1/2 clinical trials of O-Vax, which is designed as an
immunotherapy for the treatment of ovarian cancer. Ovarian cancer is one of the
most common gynecological cancers, and the National Cancer Institute estimates
that 23,100 new cases will be diagnosed in the U.S. in 2000. It is the fifth
most common cancer among women and the leading cause of death from gynecological
malignancy in the U.S. It is estimated that 1 in 70 women will develop ovarian
cancer in her lifetime. Moreover, although up to 80% of women initially respond
to standard chemotherapy, the majority of these women will subsequently develop
recurrent disease. Currently, there are no therapies available for patients who
initially respond to chemotherapy, but are at high risk of having their cancer
return.


                                       3
<PAGE>

      The Phase 1/2 clinical trials for O-Vax are being conducted at Thomas
Jefferson University under the direction of Dr. Berd, and one of the clinical
trials is being supported by the National Cancer Institute. AVAX's initial Phase
1 clinical trial showed a positive immune response to unmodified tumor cells in
the first eight of nine patients treated, as measured by a delayed type
hypersensitivity test. A delayed type hypersensitivity test measures the
activity of T-lymphocytes, which are cells that are crucial in triggering the
body's immune system. Similar results have also been obtained in comparable
numbers of patients with advanced or stage 4 ovarian cancer. The Company
believes these results in both patient groups are promising, considering that,
unlike the patients treated with M-Vax, the patients administered with O-Vax
initially received chemotherapy.

      The Company used these initial results to support the submission of a
Company-sponsored IND for O-Vax, which the FDA recently approved. The FDA also
authorized AVAX to begin Phase 2 clinical trials of O-Vax. Accordingly, the
Company has initiated recruitment of clinical sites and patients for the first
of three planned multi-center O-Vax studies that are expected to enroll over 400
patients. These trials will be in addition to the ongoing testing at Thomas
Jefferson University and the study that is being sponsored by the National
Cancer Institute.

Other AC Vaccine Product Candidates

      The Company believes that the technology used to develop M-Vax and O-Vax
may have applications in the treatment of other cancers, including breast,
kidney, lung and colorectal cancers, as well as acute myelogenous leukemia. AVAX
is currently funding the preclinical and initial clinical development of this
technology for at least some of these indications, and plans to initiate similar
clinical studies where appropriate. In June 1999, the Company entered into a
collaborative research agreement with the University of Tokyo to evaluate the
application of its AC Vaccine technology to the treatment of breast cancer.

      In addition, AVAX began funding testing at the University of Illinois to
determine whether an animal model can be used to demonstrate the therapeutic
potential of DNP-vaccine, such as the Company's AC Vaccine, in experimental
tumor models, and the value of adjunctive therapies. In October 1999, the
Company extended the term of its Technical Testing Agreement with the University
of Illinois, and agreed to provide the University of Illinois funding in the
amount of $110,000 each year through October 2001.

Topoisomerase Inhibitors

      In December 1996, AVAX licensed from Rutgers University and the University
of Medicine and Dentistry of New Jersey (collectively, "Rutgers"), certain
patent applications relating to a series of anticancer agents or compounds
(topoisomerase inhibitor compounds), that inhibit topoisomerase I and
topoisomerase II activities (the "Rutgers License"). Topoisomerases are key
enzymes needed for remolding DNA, a necessary function for cell division and
malignant tumor growth. These enzymes are over-produced in tumor cells.
Inhibitors of these enzymes have been proven to be clinically-useful anticancer
therapies.

      AVAX has filed both U.S. and non-U.S. patents for the Rutgers compounds
and their anticancer and anti-infective uses. The Company was issued a number of
U.S. patents granting claims to novel compounds that inhibit activity of
topoisomerase I. Although these compounds are in an early stage of pre-clinical
development for solid tumor, antifungal and parasitic indications, the Company
has recently identified a number of promising compounds for further development.
AVAX anticipates that the pre-clinical work may lead to identification of a lead
compound during 2000, and that the Company might file an IND for that compound
with the FDA during 2000.


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<PAGE>

Novel Anti-Estrogens

      The Company also has licensed from The Texas A&M University System ("Texas
A&M") an issued U.S. patent and certain U.S. and foreign patent applications
relating to a series of novel cancer fighting anti-estrogen compounds that may
be especially effective against hormone-dependent tumors (the "Texas A&M
License"). Anti-estrogens have been proven to be clinically-useful anticancer
therapies. U.S. patents for both the Texas A&M compounds and their anticancer
uses have been filed, as well as a non-U.S. application based on more recent
work. The Company expects to pursue additional foreign patent coverage based on
the results of ongoing laboratory research. These compounds are in an early
stage of pre-clinical development for solid tumor indications. AVAX anticipates
that this pre-clinical work may lead to identification of a lead compound during
2000.

      Under AVAX's agreements with Rutgers and Texas A&M, the Company intends to
continue to expend substantial resources on the research and development of
these compounds. In addition, the Company may look into acquiring and
subsequently developing and commercializing other promising immunotherapy,
chemotherapy and auxiliary adjuvant technologies.

LICENSE AND RESEARCH AGREEMENTS

The TJU License and Research Agreement

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

      In addition to the milestone payments the Company has already made to TJU,
AVAX is obligated to make future payments to TJU as follows: $10,000 upon the
first filing of a marketing application with the FDA (or comparable filing with
a comparable international agency), and $25,000 upon receipt by AVAX of approval
from the FDA (or comparable international agency) to market products relating to
the AC Vaccine technology.

      In connection with the TJU License, the Company and TJU also entered into
a Clinical Study and Research Agreement (the "TJU Research Agreement"). Under
the TJU License and the TJU Research Agreement, the Company has agreed to
provide TJU with minimum sponsored research funding relating to the development
of additional immunotherapies based on the AC Vaccine technology. The Company's
current funding obligation through February 2001 is approximately $232,000.

      The Company is presently obligated to spend a minimum of $500,000 per year
on the development of the AC Vaccine technology until commercialized in the U.S.
If AVAX files for FDA approval of a Company-sponsored marketing application for
the right to market an AC Vaccine product, the Company 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.

      The Company is also obligated to pay royalties on its net sales revenue
and a percentage of all revenues received from sublicenses relating to the AC
Vaccine technology.

The Rutgers License and Research Agreement

      AVAX paid $15,000 to Rutgers for the Rutgers License, and issued to
Rutgers warrants to purchase 125,000 shares of its common stock at a price of
$8.24 per share. The warrants are exercisable upon the achievement of certain
development-related milestones. The first 75,000 warrants will expire in 2006
and the final 50,000 warrants will expire in 2011. The warrants provide for
cashless exercise, piggyback registration rights and certain anti-dilution
rights. The


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<PAGE>

Company has also agreed to pay an additional $15,000 license maintenance fee
each year, but only in years in which the Company's research funding is less
than $100,000.

      In addition to the milestone payments the Company has already made to
Rutgers, AVAX is obligated to make future payments to Rutgers as follows:
$25,000 on the earlier of October 31, 2001 or the date of initiation of Phase 2
trials in the U.S. or another major market country, $45,000 on the earlier of
October 31, 2005 or the date of first filing of a marketing application with the
FDA, or comparable international agency and $150,000 on the earlier of October
31, 2008 or the date of receipt by the Company of approval from the FDA or
comparable international agency to market products.

      In connection with the Rutgers License, in May 1997, Rutgers and the
Company entered into a three-year Sponsored Research Agreement (the "Rutgers
Research Agreement"). Under the Rutgers License and the Rutgers Research
Agreement, the Company agreed to provide minimum yearly funding of approximately
$130,000 for Rutgers' research, including certain overhead costs.

      The Company is presently obligated to spend an aggregate of not less than
$500,000 each year (inclusive of the $130,000 annual research amount) until the
first year of commercial marketing of a product derived from the Rutgers
compounds, for the research and development, regulatory approval, manufacture,
and marketing and selling of a product derived from the Rutgers compounds.

      AVAX is also required to pay royalties on the Company's worldwide net
sales revenue derived from the Rutgers compounds and a percentage of all
revenues received from sublicenses of products derived from the compounds.

The Texas A&M License and Research Agreement

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

      In connection with the Texas A&M License, in May 1997, Texas A&M and the
Company entered into a three-year Sponsored Research Agreement (the "Texas A&M
Research Agreement"). Under the Texas A&M License and the Texas A&M Research
Agreement, the Company agreed to provide minimum yearly funding of $108,750 for
Texas A&M's research. Texas A&M waived any up front payment by the Company for
the Texas A&M License in recognition of the Company's three-year research
funding commitment.

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

RESEARCH AND DEVELOPMENT EXPENSE

      In 1998 and 1999, the Company incurred research and development expense of
$4,019,143 and $5,175,695, respectively. Research and development expense for
the period from inception has been $13,996,123.

MANUFACTURING AND MARKETING

AC Vaccines - General

      The majority of products being developed by AVAX are individualized
therapies which will be manufactured by first receiving cells from a patient,
treating those cells and creating a liquid vaccine using the cells as a raw
material, then


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<PAGE>

delivering the vaccine to the doctor's office for administration to the patient.
AVAX believes 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
most of the Company's products under development is "cells in-product out,"
where the final product looks like a traditional mass produced drug to the
end-user, but is individually made.

Manufacturing M-Vax and O-Vax in the U.S.

      In April 1999, the Company's manufacturing facility in Pennsylvania was
completed. The new facility was constructed for the production of AVAX's AC
Vaccines and other biological products, and was built to comply with current
Good Manufacturing Practice standards.

      The Pennsylvania facility serves as the central U.S. manufacturing center
for the production and distribution of M-Vax and O-Vax for the Company's ongoing
and planned clinical trials. As part of the final regulatory approval of M-Vax
for commercialization, the manufacturing facility will have to be licensed by
the FDA. Although the new Pennsylvania facility adequately supports AVAX's
ongoing multi-center clinical trials for both M-Vax and O-Vax, the Company may
have to expand its manufacturing efforts in the future if any of its products
are approved for commercialization in the U.S.

Australian Joint Venture

      On December 1, 1999, the Company entered into a definitive joint venture
agreement with Neptunus International Holdings Limited ("NIHL"), 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, will manufacture and market M-Vax in
Australia, and has similar rights in New Zealand, subject only to licensure of a
manufacturing facility by Australia's Therapeutic Goods Administration. The
Company is in the final stages of choosing a location for a manufacturing
facility in Australia. That facility will be the manufacturing and distribution
center for M-Vax in Australia. The Company expects to begin sales of M-Vax in
Australia by the middle of this year.

      At December 31, 1999, AVAX Holdings held an 80% interest in the Australian
joint venture entities. NIHL has the option, however, to purchase an additional
30% interest in the joint venture entities, thereby reducing AVAX Holdings'
interest to 50%. Also, under the terms of the joint venture agreement, the
Company has been granted options to purchase common stock equal to 5% of NIHL's
fully diluted shares.

Other Foreign Markets

      The Company also announced in 1999 that M-Vax is expected to be made
available for commercial use in The Netherlands, Germany and Japan. The
commercialization of M-Vax in these countries will be subject only to meeting
certain requirements determined by each regulatory agency. In order to expedite
the availability of M-Vax to melanoma patients in these countries, the Company
is currently exploring a number of strategic options to assist in realizing
these opportunities, and hopes to begin marketing M-Vax in The Netherlands and
Germany by the end of 2001. AVAX also may pursue a similar regulatory approach
for the manufacturing and marketing of its products in other European and Asian
countries.

SOURCES AND AVAILABILITY OF RAW MATERIALS

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


                                       7
<PAGE>

COMPETITION

General

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

      The Company's competitors include: (i) large established pharmaceutical
and biotechnology companies with commitments to oncology or antiviral research,
development and marketing, including, Schering Plough Corporation, Chiron
Corporation, Bristol-Myers Squibb and Johnson & Johnson; (ii) smaller
biotechnology companies with similar strategies, including IDEC Pharmaceuticals,
Inc. and Biomira Diagnostics; and (iii) many development stage companies
licensing or developing oncology therapeutics. In addition, many research
institutes, hospitals and universities are working to develop products and
processes in the same field of cancer that may in the future be in direct
competition with the Company's technologies.

Other Companies Developing Cancer Vaccines

      A number of companies or research institutions are developing cancer
vaccines, including Ribi ImmunoChem Research, Inc./Corixa and Progenics, Inc.,
in melanoma; AltaRex, Genentech and Biomira, in ovarian cancer; Intracel in
colorectal cancer; and Antigenics in renal cell and other cancers.

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

      Although there is significant competition, to date, the Company believes
that none of the competing immunotherapies has demonstrated the increase in
survival over the same period of time that the Company's technology has shown in
melanoma. Moreover, AVAX believes that M-Vax will be the world's first
commercially available cancer immunotherapy.

GOVERNMENT REGULATION

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

      Generally, the steps required before a pharmaceutical or therapeutic
biological agent may be marketed in the 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;
and (v) FDA approval of the marketing application prior to any commercial sale
or shipment of the drug.


                                       8
<PAGE>

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

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

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

      The results of the pre-clinical and clinical trials are submitted to the
FDA as part of an application to market the drug. The marketing application also
includes information pertaining to the chemistry, formulation and manufacture of
the drug and each component of the final product. The FDA review of a marketing
application takes from one to two years on average to complete, though reviews
of treatments for cancer and other life-threatening diseases may be accelerated.
The process may take substantially longer, however, if the FDA has questions or
concerns about a product. Following review, the FDA may ultimately decide that
an application does not satisfy regulatory and statutory criteria for approval.
In some cases, the FDA may approve a product but require additional clinical
tests following approval (i.e., Phase 4).

      In addition to obtaining FDA approval for each product, each domestic drug
manufacturing facility must be registered with, and approved by the FDA.
Domestic manufacturing facilities are subject to inspections by the FDA and must
comply with Good Manufacturing Practices. To supply products for use in the
U.S., foreign manufacturing facilities also must comply with 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 Company product is granted, the Company must
continue to comply with FDA requirements not only for manufacturing, but also
for labeling, advertising, record keeping, and reporting to the FDA of adverse
experiences and other information. In addition, the Company must comply with
federal and state health care antikickback laws and other health care fraud and
abuse laws that affect the marketing of pharmaceuticals. Failure to comply with
applicable laws and regulations could subject the Company to administrative or
judicial enforcement actions, including product seizures, injunctions, civil
penalties, criminal prosecution, refusals to approve new products or withdrawal
of existing approvals, as well as increased product liability exposure.

      For clinical investigation and marketing outside the U.S., the Company
also is subject to certain foreign regulatory requirements governing human
clinical trials and marketing approval for drugs. The requirements governing the
conduct of clinical trials, product licensing, pricing and reimbursement vary
widely for European countries both within and outside the European Union ("EU").
Normally, foreign marketing authorizations are applied for at a national level,
although within the EU certain registration procedures are available to
companies wishing to market their products in more than one EU member state. If
any applicable regulatory authority is satisfied that adequate evidence of
safety, quality and efficacy has been presented, a marketing authorization will
be granted. The system for obtaining marketing authorizations within the EU
registration system is a dual one in which certain products, such as
biotechnology and high technology products and those containing new active
substances, will have access to a central regulatory system that


                                       9
<PAGE>

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, 1999, the Company had 21 full-time employees. The
Company's other consultants, scientific advisors and directors devote only a
portion of their time to the business of the Company.

RISK FACTORS

      Investing in the Company's securities involves a high degree of risk.
Before making a decision about investing in the Company's securities, one should
carefully consider the risk factors listed below, as well as the rest of the
information contained in this annual report on Form 10-KSB and the Company's
other reports filed with the Securities and Exchange Commission.

AVAX will need to raise more money before the end of the third quarter of 2000.

      AVAX will need to raise more money before the end of the third quarter of
2000 to continue research and product development beyond 2000, and to pursue the
manufacture and marketing of any products that it may develop. Although AVAX
completed a $10.1 million private placement of Series C preferred stock on March
1, 1999, AVAX anticipates that those funds together with other cash resources of
the Company only will be sufficient to fund the Company's expected activities
through the end of 2000. AVAX has no way of knowing if it will be able to
complete any additional financings in the future. Even if AVAX is able to obtain
future financings, the terms offered to the Company may significantly limit its
financial or operating flexibility, or may not be acceptable. If the Company
fails to raise sufficient funds when needed and on reasonable terms, AVAX may
have to slow down, modify or cease some or all of its product development
programs.

The Company's AC Vaccine technology may not produce safe, effective or
commercially viable products.

      The Company's AC Vaccine technology is a new approach to the treatment of
cancer. It is a patient specific immunotherapy that utilizes the patient's own
tumor cells to stimulate the patient's immune system to recognize, attack and
destroy cancer cells. This core technology applies to all types of cancer, but
treatment of each type of cancer may require slight modifications in the
selection and processing of a patient's cells for production of the appropriate
AC Vaccine. Several companies are developing immunotherapy products, but AVAX is
not aware of any immunotherapy products developed for the treatment of cancer
that have been approved by the FDA for commercial marketing. AVAX has submitted
a company-sponsored IND to the FDA, and begun clinical trials for M-Vax and
O-Vax. In addition, clinical trials for O-Vax are also being conducted under a
physician-sponsored IND. The Company is in various stages of research and
development for several other AC Vaccine products. AVAX cannot be certain that
any of its AC Vaccine products will be safe and effective for patients. If the
AC Vaccine technology fails to generate products that can be successfully
developed and commercialized, the Company's business and financial condition
will be materially and adversely affected.

The U.S. clinical trial and regulatory approval process for the Company's
products will be expensive and time consuming, and the outcome is uncertain.

      Before obtaining regulatory approval for the commercial sale of the
Company's products in the U.S., the Company must demonstrate through clinical
trials that its products are safe and effective. AVAX will continue to incur
substantial expense for, and devote a significant amount of time to pre-clinical
testing and clinical trials of its products. The results from pre-clinical
testing and early clinical trials are not totally predictive of results that may
be obtained in later clinical trials. Data obtained from pre-clinical testing
and clinical trials are susceptible to varying interpretations, which may delay,
limit or prevent regulatory approval. In addition, regulatory delays or
rejections may be encountered as a result of many factors, including changes in
regulatory policy during the period of product development. The


                                       10
<PAGE>

Company's business and financial condition will be materially and adversely
affected by any delays in, or termination of, its clinical trials.

The clinical success of M-Vax and O-Vax is uncertain.

      Although to date the initial clinical trials for M-Vax have supported its
safety and effectiveness, the data that have been obtained are still
insufficient to support an application for regulatory approval in the U.S.
without further clinical trials. In 1999, AVAX began a pivotal registration
clinical trial for M-Vax that is planned to involve at least 400 patients at 25
different locations around the country. Although the Company has recently begun
a Phase 2 clinical trial of O-Vax and is currently conducting Phase 1/2 clinical
trials for O-Vax, to date it has only obtained delayed type hypersensitivity
data on O-Vax and preliminary clinical data in patients with ovarian cancer.
Moreover, the clinical trials for both M-Vax and O-Vax are being conducted with
patients who are in advanced stages of melanoma and ovarian cancer. During the
course of treatment, these patients can die or suffer adverse medical effects
for reasons that may not be related to M-Vax or O-Vax. In addition, as M-Vax and
O-Vax advance through the several stages of clinical trials, it may be difficult
if not impossible to continue to enroll the requisite number of patients
(several hundred patient volunteers for a typical Phase 3 clinical trial) who
meet the requirements of the study and who are willing to participate. AVAX
cannot make assurances that it will be able to complete successfully the
clinical trials or gain regulatory approval for M-Vax, O-Vax or any of its other
potential AC Vaccine products.

AVAX is a development stage biopharmaceutical company, and it may never develop
or successfully market any products.

      Investors must evaluate AVAX in light of the expenses, delays,
uncertainties and complications typically encountered by development stage
biopharmaceutical businesses, many of which are beyond the Company's control.
These include unanticipated problems relating to product development, testing,
regulatory compliance, manufacturing, marketing and competition, and additional
costs and expenses that may exceed current estimates. The Company's products are
at various stages of research and development and may never be successfully
developed or marketed. AVAX cannot make assurances that its products, even if
successfully developed and approved, will generate sufficient or sustainable
revenues to enable it to be profitable.

AVAX may have to expand its manufacturing facilities or depend on third parties
to manufacture its products.

      The Company recently completed construction of a manufacturing facility in
Pennsylvania. The approval of AVAX's company-sponsored IND for M-Vax and O-Vax
allows the Company to produce M-Vax and O-Vax at the new facility for use in its
clinical trials. The new facility was constructed for the production of the AC
Vaccine and other biological products, and was built to comply with current Good
Manufacturing Practice standards. As part of the final regulatory approval of
M-Vax for commercialization in the U.S., the manufacturing facility will have to
be licensed by the FDA. AVAX does not know if the FDA will license the Company's
new facility. Although the new Pennsylvania facility adequately supports AVAX's
ongoing and planned clinical trials, the Company will probably have to expand
its manufacturing efforts in the future if any of its products are approved for
commercialization. AVAX is also in the process of establishing a manufacturing
facility in Australia, subject only to the facility's licensure by Australia's
Therapeutic Goods Administration. The Company will need substantial additional
moneys and qualified personnel if it expands its manufacturing capabilities. If
the Company has to contract with third parties to assist in manufacturing its
products, AVAX cannot guarantee that a third party will be able to manufacture
the Company's products in a timely fashion, or that its customized products will
be available from contract manufacturers at acceptable costs. In addition, AVAX
must rely on third parties for production and supply of certain materials
necessary for its clinical trials and studies for its products.


                                       11
<PAGE>

The Company may have to depend on third parties to market and distribute any of
its products approved for commercialization.

      AVAX currently does not have the resources to market or distribute
directly M-Vax, O-Vax or any other products it may develop in the future.
Moreover, it may be particularly difficult and expensive to distribute the AC
vaccine products, because they are custom made for each individual patient. AVAX
will need additional financing to hire and train an internal sales force to
market and distribute its products. If AVAX is unable to obtain the requisite
funding, or if the Company determines that developing an internal sales force is
not cost effective, the Company may not be able to contract with third parties
for those services on acceptable terms. AVAX may have less control over
marketing and distribution activities performed by third parties than if it were
performing those functions with its own facilities and employees. This lack of
direct control could adversely affect the results of these activities. See "Item
1 Description of Business - Australian Joint Venture," and "Other Foreign
Markets" for a discussion of the Company's agreement with a third party for the
manufacture and marketing of M-Vax in Australia, and the Company's exploration
of similar strategic partnerships for the manufacture and marketing of M-Vax in
The Netherlands, Germany and Japan.

AVAX could lose the rights to its products and technologies.

      AVAX is a party to several license and research agreements that place
substantial responsibility on its licensors for research and clinical
development of the Company's products and technologies. AVAX has financial,
development and other obligations under those agreements. The Company's primary
responsibility under its license and research agreements is to meet requisite
research funding levels. If the Company fails or is delayed in meeting its
obligations, AVAX could lose the rights to its products and technologies, or
lose the right to have others conduct the Company's research and development.

The Company may not be able to obtain or defend its patents, or operate without
infringing upon the rights of others.

      The Company, as well as its current and potential future licensors, may be
unable or have difficulty obtaining and defending its patents and maintaining
its trade secrets. If so, AVAX could be delayed or prevented from manufacturing,
using or selling its products. It is also possible that one of the Company's
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 the Company's ability to make or sell its products. If AVAX is
involved in a patent dispute it may have to pay significant legal costs, license
fees or damages, and may have to stop producing and selling its products and
technologies. See "Item 3 - Legal Proceedings" for a discussion of litigation
filed against the Company alleging that the Company's AC Vaccine technologies
infringed a patent held by another company. Although the Company believes this
claim is without merit and will be rejected, it has expended substantial
management time and legal costs in defending the suit to date.

AVAX is dependent on its small management team.

      In addition to the specialized scientific knowledge provided by outside
scientists, consultants and the Company's Scientific Advisory Board, AVAX is
dependent upon its small management team to obtain funding for the research and
development of the Company's products, to decide which of the Company's 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. The Company cannot guarantee that
AVAX will be able to retain its existing personnel or that it will be able to
attract, retain and motivate any additional qualified employees required for the
expansion of the Company's activities. The Company's failure to do these things
could disrupt or delay its development programs.


                                       12
<PAGE>

AVAX 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 AVAX's specific field of cancer
research. Many of these entities have more experience than AVAX does in
developing and producing cancer treatment products. Most of these entities also
have much greater financial, technical, manufacturing, marketing, distribution
and other resources than AVAX possesses. AVAX believes that numerous
pharmaceutical companies are engaged in research and development efforts for
products that could directly compete with the Company's products under
development. In addition, some of AVAX's competitors have already begun testing
products and technologies similar to its own. These other entities may succeed
in developing products before AVAX or that are better than those that the
Company is developing. AVAX expects competition in its specific area of research
to intensify.

Marketing the Company's products to the public may expose AVAX to product
liability claims.

      Marketing the Company's products to the public may expose AVAX to product
liability claims. If a product liability dispute is decided against the Company,
AVAX might incur significant money damages that could exceed its financial
resources, including the limits of its product liability insurance. Even if AVAX
experiences no significant judgments or settlements against it, the costs of
defending product liability claims could have a major adverse effect on the
management's time and the Company's cash resources. AVAX's primary research and
license agreements require the Company to indemnify the universities, their
trustees, officers, employees and agents (including Dr. Berd) from certain
claims arising out of the clinical study and research programs carried out under
each of the license and research agreements. The Company will also likely be
required to indemnify any future licensors or persons with whom AVAX establishes
a marketing, manufacturing or other collaborative arrangement, against product
liability claims incurred as a result of the products it develops.

AVAX has a history of operating losses and the Company's future profitability is
uncertain.

      AVAX has had substantial operating losses since its business first began.
AVAX lost approximately $7.9 million in calendar year 1999, and, as of December
31, 1999, the Company's accumulated deficit was approximately $21.2 million.
AVAX expects to incur significant increasing losses over the next several years
as it expands its research and development programs. AVAX expects the increased
expenses to come from the Company's efforts to obtain final testing and
regulatory approval of M-Vax and O-Vax, and pre-clinical studies and clinical
testing for its other products under development.

AVAX will face uncertainty over reimbursement and healthcare reform.

      In both the U.S. and other countries, sales of the Company's 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. Third-party payors are increasingly
challenging the price and examining the cost effectiveness of medical products
and services. In addition, significant uncertainty exists as to the
reimbursement status of newly approved health care products. The Company's
products may not be considered cost effective. Adequate third-party
reimbursement may not be available to enable AVAX to maintain price levels
sufficient to realize an appropriate return on its investment in the research
and development of its products. 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 the Company's
products may change before the products are approved for marketing to the
public. Adoption of new legislation and regulations could further limit
reimbursement for AVAX's products. If third-party payors fail to provide
adequate coverage and reimbursement rates for the Company's products, the market
acceptance of the products may be adversely affected. In that case, AVAX's
business and financial condition will suffer.


                                       13
<PAGE>

AVAX expects the price of its common stock to be highly volatile.

      The market price of the Company's common stock, like that of many other
development-stage pharmaceutical or biotechnology companies, has been highly
volatile. For the 12-month period ended December 31, 1999, the price of the
Company's common stock has ranged from $2.375 to $7.000. An even wider range in
the price of the Company's common stock occurred during the two month period
beginning November 15, 1999 through January 15, 2000. During that period, the
price of the Company's common stock ranged from $2.657 to $10.750. AVAX expects
the price of its common stock to remain volatile. In addition to general market
fluctuations, the following are examples of public disclosures by the Company or
others that could have a significant impact on the price of AVAX's common stock:

      o     technological innovations or new products

      o     results of pre-clinical or clinical testing of products

      o     adverse reactions to products

      o     governmental approvals, delays in expected governmental approvals or
            withdrawals of any prior governmental approvals

      o     changes in U.S. or foreign regulatory policy during the period of
            product development

      o     developments in patent or other proprietary rights, including any
            third party challenges of the Company's intellectual property rights

      o     public or regulatory agency concerns regarding the safety or
            effectiveness of the Company's products

The trading volume of the Company's common stock is low and a more active market
may never develop.

      The Company's common stock is listed for quotation on the Nasdaq SmallCap
Market. The average daily trading volume in the Company's common stock varies
significantly, but is usually low. For the 12-month period beginning January 1,
1999 through December 31, 1999, the average daily trading volume in AVAX's
common stock was 65,349 shares and the average number of transactions per day
was 57. The average daily trading volume for the year is affected by a few days
in which the common stock has traded over 500,000 shares. On many days, the
common stock trades less than 10,000 shares. This low average volume and low
average number of transactions per day may affect the ability of the Company's
stockholders to sell their shares in the public market at prevailing prices.
AVAX cannot guarantee that there will be a more active trading market for its
common stock in the future. In addition, the Company cannot assure investors
that it will be able to continue to adhere to the strict listing criteria for
the Nasdaq SmallCap Market. If the common stock were no longer listed on Nasdaq,
the liquidity of the Company's common stock could be materially impaired, not
only in the number of shares that could be bought and sold at a given price, but
also through delays in the timing of transactions and reduction in media
coverage of the Company.

Certain provisions of AVAX's Certificate of Incorporation, have antitakeover
effects.

      AVAX's Certificate of Incorporation, as amended, authorizes the Company to
issue up to 5,000,000 shares of "blank check" preferred stock, 2,080,000 shares
of which remain undesignated. Unlike common stock, the designation, and the
rights and preferences of blank check preferred stock are not set out in a
company's Certificate of Incorporation. The specific designation, rights and
preferences of blank check preferred stock are determined by the Company's board
of directors at the time they decide to issue a series of preferred stock.
Accordingly, the Company's board of directors is empowered, without stockholder
approval, to issue a new series of preferred stock with dividend, liquidation,
conversion, voting or other rights that could have a negative effect on the
voting power or other rights of common stockholders. The Company's board of
directors could issue a new series of preferred stock as a means of
discouraging, delaying or preventing a change in control of the Company.


                                       14
<PAGE>

      The Company's board of directors used the blank check preferred stock
powers granted to it when AVAX issued its Series B preferred stock in May and
June 1996, and its Series C preferred stock in March 1999.

The rights of the Company's preferred stockholders are superior to the rights of
the Company's common stockholders.

      The holders of the Company's Series B preferred stock and its Series C
preferred stock have certain rights that are superior to the rights of holders
of the Company's common stock, including a liquidation preference over the
common stock. In the case of (1) a liquidation, (2) if AVAX ceases to exist by
virtue of a merger in which AVAX is not the surviving corporation, or (3) if one
person or entity acquires more than 50% of the voting power of the Company,
holders of the Company's Series B preferred stock will receive $135 per share in
cash or securities, and holders of the Company's Series C preferred stock will
receive $100 per share in cash or securities, before any distributions are made
to the holders of the Company's 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 the Company's 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.

Certain sections of Delaware's General Corporation Law, by which AVAX is
governed, have antitakeover effects.

      The Company was organized under the laws of the State of Delaware, and
therefore is subject to the General Corporation Law of the State of Delaware.
Section 203 of that law, subject to certain exceptions, prohibits a Delaware
corporation like AVAX from engaging in any business combination with any
interested stockholder for a period of three years following the date that the
stockholder became an interested stockholder. In general, Section 203 defines an
interested stockholder as any entity or person beneficially owning 15% or more
of the outstanding voting stock of a corporation and any entity or person
affiliated with or controlling or controlled by that entity or person.
Accordingly, Section 203 could discourage third parties from making tender
offers for the Company's shares and, as a consequence, Section 203 could prevent
fluctuations in the market price of the Company's shares that could result from
actual or rumored takeover attempts. Section 203 could also be used by the
Company to attempt to prevent changes in AVAX's management.

AVAX has never paid a cash dividend and does not expect to pay a cash dividend
in the near future.

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

ITEM 2.     Description of Property

      The Company's executive offices are located at 4520 Main, Suite 930,
Kansas City, Missouri 64111. The Company currently leases approximately 7,700
square feet of office space for a monthly lease cost of approximately $13,200.

      In addition, the Company leases a facility at 2000 Hamilton Street,
Philadelphia, Pennsylvania 19103, for its clinical manufacturing facility. The
facility consists of approximately 11,900 square feet of which approximately
9,300 square feet are utilized for manufacturing development while the remaining
2,600 square feet are used for office space. The Company has options for
additional space. Currently, the monthly rental on the facility is approximately
$10,400.


                                       15
<PAGE>

      The Company also is in the final stages of choosing a location for a clean
room facility in Australia. That facility will be the manufacturing and
distribution center for M-Vax in Australia.

      The Company is also seeking to lease suitable research laboratory
facilities to support its own research program.

ITEM 3.     Legal Proceedings

      A. The Company's application for a federal trademark registration for the
marks AVAX, NVAX and MVAX has been opposed by a third party. Although this
opposition proceeding may have an impact on the right of the Company to obtain a
federal trademark registration in the United States Patent & Trademark Office
for those names, the proceeding will not decide the Company's right to use those
marks. Although the Company believes there is a sound basis for denial of the
opposition and allowance of its application to register the marks, there can be
no assurance that the Company will prevail in this proceeding. The Company does
not believe that an adverse outcome in this proceeding will materially affect
its business. To date, no litigation has been threatened in connection with this
matter.

      B. On September 17, 1999, a complaint was filed in the U.S. District Court
for the District of Maryland styled Intracel Corporation vs. AVAX Technologies,
Inc. Intracel alleges that it is the owner of U.S. Patent No. 5,484,596 entitled
"Active Specific Immunotherapy." Intracel alleges that the Company's autologous
cell vaccine technologies infringe this patent and requests monetary damages and
an injunction against AVAX. Management of the Company believes that the Intracel
claims are meritless and will be rejected. The Company intends to aggressively
protect its rights including its right to continue to develop the AC vaccine
technology free of any encumbrance by Intracel. On December 14, 1999, the
Company moved to dismiss Intracel's claim for lack of jurisdiction. Intracel's
response to the motion to dismiss, which is due February 16, 2000, is pending.

      C. On December 6, 1999, the Company received a letter from Paramount
Capital, Incorporated ("Paramount"), claiming that Paramount and certain of its
affiliates are entitled to the issuance of approximately 431,000 shares of the
Company's common stock without further payment or services by Paramount. In
1996, Paramount acted as placement agent for two private placements of
securities of the Company. As partial compensation to Paramount, the Company
issued to Paramount warrants to purchase 25,820 shares of Series B Preferred
Stock. Paramount assigned the placement warrants to certain Paramount employees
and to certain third party brokers that assisted Paramount in the private
placement.

      In an effort to achieve listing of the Company's common stock on The
Nasdaq National Market, the Company requested that each holder of Series B
preferred stock agree in 1997 to an amendment of their subscription agreements
to lock-up their shares of Series B preferred stock. Under the terms of the
amended subscription agreements, in consideration for their agreement to the
lock-up, the holders of the locked-up shares of Series B Preferred Stock had the
right, as of July 10, 1998 (12 months after the Nasdaq listing), to receive
additional shares of common stock in certain circumstances.

      Those holders of the Series B preferred stock who agreed to amend of their
subscription agreements became entitled to receive approximately 16.7 additional
shares of common stock for each share of Series B Preferred Stock that they
owned as of July 10, 1998. As a result of the contractual reset, the Company
issued an aggregate of approximately 3,027,000 shares of common stock in July
1998. Paramount is claiming that, when the reset shares were issued by the
Company in 1998 to those certain Series B Preferred stockholders, Paramount and
its affiliates were entitled to receive the 431,000 additional shares.

      In 1996 when the warrants were issued, Michael S. Weiss, Esq., currently a
Director of the Company, was Senior Managing Director and General Counsel of
Paramount. In addition, Dr. Lindsay A. Rosenwald a greater than 5% stockholder
of the Company, was at that time and currently still is, the Chairman and sole
shareholder of Paramount. Paramount has advised the Company that if Paramount
prevails in its claim for the approximately 431,000 shares, approximately 29,000
shares will be owed to Mr. Weiss and approximately 205,000 shares will be owed
to Dr. Rosenwald.


                                       16
<PAGE>

      By letter dated January 21, 2000, the Company informed Paramount that,
based upon a review of all relevant documents and applicable case law, it saw
nothing to support Paramount's claim for any reset shares. No litigation has
been filed in this matter.

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

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

      No matters were submitted to a vote of security holders during the quarter
ended December 31, 1999.


                                       17
<PAGE>

                             AVAX TECHNOLOGIES, INC.

                                     PART II

ITEM 5.     Market For Common Equity And Related Stockholder Matters

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

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

--------------------------------------------------------------------------------
Fiscal year ended December 31, 1999
   First quarter                                   5 1/8           2 3/8
   Second quarter                                    7             3 9/16
   Third quarter                                   4 1/2          2 15/16
   Fourth quarter                                  6 3/4          2 21/32

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

      The last reported sale price of the common stock on the Nasdaq SmallCap
Market on January 31, 2000 was $8.25 per share. At January 31, 2000, there were
11,214,745 shares of common stock outstanding, which were held by approximately
2,200 stockholders of record. The 73,884 shares of Series B and 101,300 shares
of Series C preferred stock, outstanding at December 31, 1999, are convertible
into 1,927,394 and 3,116,915 shares of common stock, respectively, excluding the
effect of any fractional shares.

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

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

GENERAL

      Since its inception, the Company has concentrated its efforts and
resources in the development and commercialization of biotechnology and
pharmaceutical products and technologies. The Company has been unprofitable
since its founding and has incurred a cumulative net loss of approximately
$21,225,840 as of December 31, 1999. The Company expects to incur increasing
operating losses over the next several years, primarily due to the expansion of
its


                                       18
<PAGE>

research and development programs, including clinical trials for M-Vax, O-Vax,
and other pre-clinical studies and clinical trials for other products that may
arise from the AC Vaccine technology and from the compounds licensed from
Rutgers and Texas A&M and other products that it may acquire or develop.

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

PLAN OF OPERATION

      The Company is currently engaged in the development and commercialization
of biotechnology and pharmaceutical products and technologies. In November 1995,
the Company acquired the rights to the AC Vaccine technology pursuant to the TJU
License. The Company initially intends to be engaged primarily in the
development and commercialization of the AC Vaccine technology, as well as the
potential anti-cancer and anti-infective technology licensed pursuant to the
Rutgers License and the potential anti-cancer technology licensed pursuant to
the Texas A&M License. The Company anticipates that during the next 12 months it
will continue substantial research and development of the AC Vaccine technology,
including, without limitation, pivotal registration clinical trials on M-Vax,
the Company's lead AC Vaccine technology for metastatic melanoma. The Company
also anticipates that it will expend substantial resources on the research and
development of that same technology for the treatment of other cancers, which
may include ovarian, breast, prostate, lung, renal cell and colorectal cancer
and acute myelogenous leukemia (AML). For example, the Company has announced
that the FDA has accepted its Corporate IND to begin Phase 2 testing of O-Vax,
its AC Vaccine for ovarian cancer. The Company has initiated recruitment of
clinical sites and patients for the first of three planned multi-center O-Vax
studies that are expected to enroll over 400 patients. It is expected that
during the next 12 months, in order to support these clinical trial efforts, the
Company will be required to expend substantial resources. See Item 1
"Description of Business - Technology and Product Candidates," "License and
Research Agreements" and "Manufacturing and Marketing."

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

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

      During the last 12 months, the Company's research and development expenses
increased from $4.0 million to $5.2 million, while general and administrative
expenses increased from $2.5 million to $3.4 million. The increases in the
research and development expenses relate primarily to an increase in headcount
and the inception of operations at the


                                       19
<PAGE>

Company's Philadelphia facility, the progress made in advancing M-Vax into a
pivotal registration trial, and also expanding the clinical testing and
evaluation of O-Vax. The Company has noted increased costs related to patent and
regulatory expenses in its efforts to expand the use of the AC Vaccine
technology in Europe, Australia and Japan. General and administrative expenses
increased due to increased headcount to support the Company's international
initiatives, as well as increased costs related to market research and business
development efforts focused on Europe, Japan and Australia. The Company
anticipates that, over the next 12 months, research and development expenses
will continue to increase substantially, particularly as additional clinical
trials are initiated related to the AC Vaccine and additional development
expenses are incurred related to the Rutgers and Texas A&M Compounds.

LIQUIDITY AND CAPITAL RESOURCES

      The Company currently anticipates that its current resources should be
sufficient to fund operations until approximately the fourth quarter of 2000
based upon the Company's current operating plan. AVAX will need to raise more
money before the end of the third quarter of 2000 to continue research and
product development beyond 2000, and to pursue the manufacture and marketing of
any products that it may develop.

      Because the Company's working capital requirements will depend upon
numerous factors, including, without limitation, progress of the Company's
research and development programs, pre-clinical and clinical testing, timing and
cost of obtaining regulatory approvals, changes in levels of resources that the
Company devotes to the development of manufacturing and marketing capabilities,
competitive and technological advances, status of competitors, and the ability
of the Company to establish collaborative arrangements with other organizations,
there can be no assurance that the current cash resources of the Company will be
sufficient to fund its operations until the fourth quarter of 2000. Because the
Company has no committed external sources of capital, and expects no product
revenues for the foreseeable future, it will likely require additional financing
to fund future operations. There can be no assurance, however, that the Company
will be able to obtain the additional funds it will require on acceptable terms,
if at all. If adequate funds are not available the Company may be required to
delay, reduce the scope of, or eliminate, one or more of its research or
development programs; to obtain funds through arrangements with collaborative
partners or others that may require the Company to relinquish rights to certain
technologies, product candidates or products that the Company would otherwise
seek to develop or commercialize itself; or to license the rights to such
products on terms that are less favorable to the Company that might otherwise be
available.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

      None noted.

ITEM 7.     Financial Statements

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

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

      None.


                                       20
<PAGE>

                             AVAX TECHNOLOGIES, INC.

                                    PART III

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

      Incorporated by reference to the Company's Proxy Statement for its Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission
within 120 days after the close of the year ended December 31, 1999.

ITEM 10.    Executive Compensation

      Incorporated by reference to the Company's Proxy Statement for its Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission
within 120 days after the close of the year ended December 31, 1999.

ITEM 11.    Security Ownership of Certain Beneficial Owners and Management

      Incorporated by reference to the Company's Proxy Statement for its Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission
within 120 days after the close of the year ended December 31, 1999.

ITEM 12.    Certain Relationships and Related Transactions

      Incorporated by reference to the Company's Proxy Statement for its Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission
within 120 days after the close of the year ended December 31, 1999.

ITEM 13.    Exhibits and Reports on Form 8-K

(a)   Exhibits

      Exhibits are listed on the Index to Exhibits at the end of this Report.

(b)   Reports On Form 8-K

      Two reports on Form 8-K were filed by the Company during the quarter ended
December 31, 1999.

      The first report was filed on October 1, 1999, and related to a press
release issued by the Company on September 13, 1999 in which the Company
announced that M-Vax is expected to be made available for commercial use in The
Netherlands, Germany, and Japan. The commercialization of M-Vax in these
countries will be subject only to meeting certain requirements determined by
each local regulatory agency.

      The second report was filed on December 16, 1999, announcing the
presentation by the Company's Executive Vice President at the 26th Annual
Scientific Meeting of the Clinical Oncological Society of Australia in
Melbourne, of nine-year follow-up data of stage III melanoma patients from
Company-sponsored Phase 2 studies of M-Vax. The report also announced the
Company's execution of a definitive joint venture agreement with Neptunus
International Holdings Limited in Australia, under which the Company, through
its affiliated entities, will manufacture and market M-Vax in Australia, and has
similar rights in New Zealand.


                                       21
<PAGE>

                        Consolidated Financial Statements

                             AVAX Technologies, Inc.
                          (a development stage company)

                     Years ended December 31, 1999 and 1998
                      and the period from January 12, 1990
                      (Incorporation) to December 31, 1999
                       With Report of Independent Auditors
<PAGE>

                             AVAX Technologies, Inc.
                          (a development stage company)

                        Consolidated Financial Statements

Years ended December 31, 1999 and 1998 and for the period from January 12, 1990
                      (Incorporation) to December 31, 1999

                                    Contents

Report of Independent Auditors.................................................1

Consolidated Financial Statements

Consolidated Balance Sheet as of December 31, 1999.............................2

Consolidated Statements of Operations for the years ended December 31,
  1999 and 1998 and for the period from January 12, 1990 (incorporation)
  to December 31, 1999.........................................................3

Consolidated Statements of Stockholders' Equity (Deficit) for the years
  ended December 31, 1999 and 1998 and for the period from January 12, 1990
  (incorporation) to December 31, 1999.........................................4

Consolidated Statements of Cash Flows for the years ended December 31, 1999
  and 1998 and for the period from January 12, 1990 (incorporation) to
  December 31, 1999............................................................7

Notes to Consolidated Financial Statements.....................................9
<PAGE>

                    Report of Independent Auditors

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

We have audited the accompanying consolidated balance sheet of AVAX
Technologies, Inc. (a development stage company) and subsidiaries as of December
31, 1999, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for the years ended December 31, 1999 and 1998,
and for the period from January 12, 1990 (incorporation) to December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of AVAX Technologies,
Inc. and subsidiaries at December 31, 1999 and the consolidated results of their
operations and their cash flows for the years ended December 31, 1999 and 1998
and for the period from January 12, 1990 (incorporation) to December 31, 1999 in
conformity with accounting principles generally accepted in the United States.

                                                               Ernst & Young LLP

Kansas City, Missouri
January 14, 2000


                                      -1-
<PAGE>

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

                                                                    December 31,
                                                                       1999
                                                                   ------------
Assets
Current assets:
  Cash and cash equivalents                                        $  3,426,059
  Marketable securities                                               8,868,621
  Prepaid expenses and other current assets                             336,821
                                                                   ------------
Total current assets                                                 12,631,501
Property, plant and equipment, at cost                                2,458,678
  Less accumulated depreciation                                         116,862
                                                                   ------------
Net property, plant and equipment                                     2,341,816
                                                                   ------------
Total assets                                                       $ 14,973,317
                                                                   ============

Liabilities and stockholders' equity
Current liabilities:
  Accounts payable and accrued liabilities                         $    401,263
Total current liabilities                                               401,263

Minority interest in consolidated subsidiaries                          502,341
Commitments and contingencies

Stockholders' equity:
  Preferred stock, $.01 par value:
    Authorized shares - 5,000,000, including Series B -
      300,000 shares and Series C - 120,000 shares
    Series B convertible preferred stock:
      Issued and outstanding shares - 73,884
        (liquidation preference - $9,974,340)                               739
    Series C convertible preferred stock:
      Issued and outstanding shares - 101,300
      (liquidation preference - $10,130,000)                              1,013
  Common stock, $.004 par value:
    Authorized shares - 30,000,000
    Issued and outstanding shares - 11,077,790                           44,311
  Additional paid-in capital                                         35,406,036
  Subscription receivable                                                  (422)
  Deferred compensation                                                (156,124)
  Deficit accumulated during the development stage                  (21,225,840)
                                                                   ------------
Total stockholders' equity                                           14,069,713
                                                                   ------------
Total liabilities and stockholders' equity                         $ 14,973,317
                                                                   ============

See accompanying notes.


                                      -2-
<PAGE>

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

                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                          Period from
                                                                        January 12, 1990
                                                                         (Incorporation)
                                                Year ended                     to
                                               December 31,                December 31,
                                          1998              1999              1999
                                       -------------------------------------------------
<S>                                    <C>               <C>              <C>
Gain from sale of the Product          $        --       $        --      $  1,951,000

Costs and expenses:
   Research and development              4,019,143         5,175,695        13,996,123
   Marketing and selling                        --                --           543,646
   General and administrative            2,516,215         3,376,278        11,454,637
                                       -------------------------------------------------
Total operating loss                    (6,535,358)       (8,551,973)      (24,043,406)

Other income (expense):
   Interest income                         697,228           661,951         3,295,632
   Interest expense                             --                --          (646,293)
   Minority interest in losses of
     consolidated subsidiaries                  --            22,459            22,459
   Other, net                                   --                --           145,768
                                       -------------------------------------------------
Total other income, net                    697,228           684,410         2,817,566
                                       -------------------------------------------------
Net loss                                (5,838,130)       (7,867,563)      (21,225,840)

Amount payable for liquidation
   preference                                   --                --        (1,870,033)
                                       -------------------------------------------------
Net loss attributable to common
   stockholders                        $(5,838,130)      $(7,867,563)     $(23,095,873)
                                       =================================================

Net loss per common share - basic      $      (.87)      $      (.74)
                                       =============================
Weighted average number of common
   shares outstanding                    6,731,210        10,642,366
                                       =============================
</TABLE>

See accompanying notes.


                                      -3-
<PAGE>

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

<TABLE>
<CAPTION>

                                             Series A                Series B               Series C
                                            Convertible            Convertible            Convertible
                                          Preferred Stock        Preferred Stock        Preferred Stock            Common Stock
                                     -----------------------------------------------------------------------------------------------
                                        Shares       Amount     Shares      Amount    Shares        Amount       Shares     Amount
                                     -----------------------------------------------------------------------------------------------
<S>                                   <C>            <C>        <C>          <C>         <C>       <C>        <C>           <C>
Issuance of common stock for
  services in January 1990                   --      $   --     $    --      $  --       --        $    --      582,500     $ 2,330
Net loss                                     --          --          --         --       --             --           --          --
                                     -----------------------------------------------------------------------------------------------
Balance at December 31, 1990                 --          --          --         --       --             --      582,500       2,330
  Issuance of common stock for
    services in August 1991                  --          --          --         --       --             --      230,000         920
  Net loss                                   --          --          --         --       --             --           --          --
                                     -----------------------------------------------------------------------------------------------
Balance at December 31, 1991                 --          --          --         --       --             --      812,500       3,250
  Conversion of note payable to
    related party to common stock
    in June 1992                             --          --          --         --       --             --       22,913          92
  Issuance of common stock for
    services in May and June 1992            --          --          --         --       --             --      264,185       1,056
  Issuance of Series A convertible
    preferred stock, net of
    issuance cost in June, July
    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

<CAPTION>
                                                                                                   Deficit
                                                                                   Unrealized    Accumulated         Total
                                          Additional                                 Loss on      During the      Stockholders'
                                           Paid-In     Subscription    Deferred     Marketable    Development        Equity
                                           Capital      Receivable   Compensation   Securities       Stage          (Deficit)
                                     ------------------------------------------------------------------------------------------
<S>                                       <C>             <C>           <C>           <C>          <C>              <C>
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
</TABLE>


                                      -4-
<PAGE>

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

<TABLE>
<CAPTION>

                                            Series A                  Series B             Series C
                                           Convertible               Convertible          Convertible
                                         Preferred Stock           Preferred Stock      Preferred Stock           Common Stock
                                     -----------------------------------------------------------------------------------------------
                                       Shares        Amount       Shares      Amount    Shares    Amount      Shares       Amount
                                     -----------------------------------------------------------------------------------------------
<S>                                  <C>            <C>           <C>         <C>         <C>     <C>        <C>         <C>
Balance at December 31, 1995          1,287,500     $ 12,875           --     $   --      --      $   --     2,581,335   $   10,325
  Repurchase of common stock
    in March 1996                            --           --           --         --      --          --       (77,901)        (312)
  Payment of subscription
    receivable                               --           --           --         --      --          --            --           --
  Conversion of Series A
    preferred stock in June 1996     (1,287,500)     (12,875)          --         --      --          --       321,875        1,288
  Issuance of common stock and
    Series B preferred stock in a
    private placement in May and
    June 1996                                --           --      258,198      2,582      --          --       129,099          516
  Issuance of common stock
    and Series B preferred
    stock for services in
    June 1996                                --           --        1,000         10      --          --           500            2
  Exercise of warrants in June and
    July 1996                                --           --           --         --      --          --       156,250          626
  Amount payable for liquidation             --           --           --         --      --          --            --           --
    preference
  Compensation related to stock
    options granted in May and
    September 1996                           --           --           --         --      --          --            --           --
  Amortization of deferred
    compensation                             --           --           --         --      --          --            --           --
  Unrealized loss on marketable
    securities                               --           --           --         --      --          --            --           --
  Net loss                                   --           --           --         --      --          --            --           --
                                     -----------------------------------------------------------------------------------------------
Balance at December  31, 1996                --           --      259,198      2,592      --          --     3,111,158       12,445
  Payment of subscription
    receivable                               --           --           --         --      --          --            --           --
  Write-off of subscription
    receivable                               --           --           --         --      --          --            --           --
  Exercise of warrants in
    April and June 1997                      --           --           --         --      --          --        49,770          199
  Conversion of preferred to
    common stock                             --           --      (55,039)      (551)     --          --     1,421,403        5,685
  Repurchase of fractional shares            --           --           --         --      --          --           (26)          --
  Realization of loss on marketable
    securities                               --           --           --         --      --          --            --           --
  Amortization of deferred
    compensation                             --           --           --         --      --          --            --           --
  Net loss                                   --           --           --         --      --          --            --           --
                                     -----------------------------------------------------------------------------------------------
Balance at December  31, 1997                --           --      204,159     $2,041      --          --     4,582,305       18,329
  Conversion of preferred to
    common stock                             --           --      (91,470)      (914)     --          --     2,386,174        9,544
  Payment of subscription
    receivable                               --           --           --         --      --          --            --           --
  Issue shares based upon reset
    provisions                               --           --           --         --                  --     3,029,339       12,117
  Issue compensatory shares to
    officer                                  --           --           --         --      --          --         9,301           38
  Amortization of deferred
    compensation                             --           --           --         --      --          --            --           --
  Net loss                                   --           --           --         --      --          --            --           --
                                     -----------------------------------------------------------------------------------------------
Balance at December 31, 1998                 --           --      112,689      1,127      --          --    10,007,119       40,028
                                     -----------------------------------------------------------------------------------------------

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


                                      -5-
<PAGE>

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

<TABLE>
<CAPTION>

                                       Series A              Series B                 Series C
                                      Convertible           Convertible              Convertible
                                    Preferred Stock       Preferred Stock          Preferred Stock          Common Stock
                                  --------------------------------------------------------------------------------------------
                                    Shares    Amount     Shares      Amount      Shares       Amount     Shares       Amount
                                  --------------------------------------------------------------------------------------------
<S>                                   <C>     <C>        <C>         <C>         <C>          <C>       <C>           <C>
Balance at December  31, 1998         --      $   --     112,689     $ 1,127          --      $   --    10,007,119    $40,028
  Conversion of preferred to
    common stock                      --          --     (38,805)       (388)         --          --     1,012,286      4,049
  Issue shares based upon reset
    provisions                        --          --          --          --          --          --        20,885         84
  Issuance of Series C preferred
    stock in a private placement
    in March 1999                     --          --          --          --     101,300       1,013            --         --
  Exercise of Warrants pursuant to
    cashless exercise provisions      --          --          --          --          --          --        37,500        150
  Capital contribution through
    sale of 20% interest in
    consolidated subsidiaries to
    unrelated third party             --          --          --          --          --          --            --         --
  Amortization of deferred
    compensation                      --          --          --          --          --          --            --         --
  Net loss                            --          --          --          --          --          --            --         --
                                  --------------------------------------------------------------------------------------------
Balance at December 31, 1999          --      $   --      73,884     $   739     101,300      $1,013    11,077,790    $44,311
                                  ============================================================================================

<CAPTION>
                                                                                               Deficit
                                                                              Unrealized     Accumulated           Total
                                   Additional                                   Loss on       During the        Stockholders'
                                    Paid-In       Subscription   Deferred      Marketable     Development          Equity
                                    Capital        Receivable  Compensation    Securities        Stage            (Deficit)
                                  --------------------------------------------------------------------------------------------
<S>                               <C>                <C>         <C>             <C>         <C>                <C>
Balance at December  31, 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 contribution through
    sale of 20% interest in
    consolidated subsidiaries to
    unrelated third party            2,099,200          --              --           --                --          2,099,200
  Amortization of deferred
    compensation                            --          --         269,100           --                --            269,100
  Net loss                                  --          --              --           --        (7,867,563)        (7,867,563)
                                  --------------------------------------------------------------------------------------------
Balance at December 31, 1999      $ 35,406,039       $(422)      $(156,124)      $   --      $(21,225,840)      $ 14,069,713
                                  ============================================================================================
</TABLE>

See accompanying notes.


                                      -6-
<PAGE>

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

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                                            Period from
                                                                                                         January 12, 1990
                                                                                                          (Incorporation)
                                                                         Year ended December 31           to December 31,
                                                                         1998               1999               1999
                                                                     ---------------------------------------------------
<S>                                                                  <C>                <C>                <C>
Operating activities
Net loss                                                             $  (5,838,130)     $  (7,867,563)     $ (21,225,840)
Adjustments to reconcile net loss to net cash used in
  operating activities:
    Depreciation and amortization                                          289,610            350,485          1,152,416
    Minority interest in net loss                                               --            (22,459)           (22,459)
    Compensatory stock issue                                                25,000                 --             25,000
    Gain on sale of the Product                                                 --                 --         (1,951,000)
    Gain on sale of intellectual property                                       --                 --               (787)
    Accretion of interest on common stock receivable                            --                 --           (449,000)
    Accretion of interest on amount payable to preferred
      stockholders and Former Officer                                           --                 --            449,000
    Loss on sale or abandonment of furniture and equipment                      --                 --             37,387
    Issuance of common stock or warrants for services                           --             27,150            174,150
    Changes in operating assets and liabilities:
      Prepaid expenses and other current assets                            (75,772)          (106,120)          (336,821)
      Accounts payable and accrued liabilities                             532,920           (485,383)           401,263
      Amount payable to Former Officer                                          --                 --             80,522
                                                                     ---------------------------------------------------
Net cash used in operating activities                                   (5,066,372)        (8,103,890)       (21,666,169)

Investing activities
Purchases of  marketable securities                                    (81,958,707)       (87,395,943)      (185,573,150)
Proceeds from sale of marketable securities                             81,683,057         87,905,000        169,588,057
Proceeds from sale of short-term investments                                    --                 --          7,116,472
Purchases of furniture and equipment                                    (1,133,932)        (1,232,787)        (2,524,612)
Proceeds from sale of furniture and equipment                                   --                 --              4,600
Organization costs incurred                                                     --                 --             (1,358)
                                                                     ---------------------------------------------------
Net cash used in investing activities                                   (1,409,582)          (723,730)       (11,389,991)
</TABLE>


                                      -7-
<PAGE>

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

                Consolidated Statements of Cash Flows (continued)

<TABLE>
<CAPTION>
                                                                                           Period from January
                                                                                                12, 1990
                                                                                             (Incorporation)
                                                                Year ended December 31        to December 31,
                                                                1998              1999             1999
                                                            --------------------------------------------------
<S>                                                         <C>               <C>              <C>
Financing activities
Proceeds from issuance of notes payable
  to related party                                          $         --      $         --     $    957,557
Principal payments on notes payable to related party                  --                --         (797,000)
Proceeds from loans payable                                           --                --        1,389,000
Principal payments on loans payable                                   --                --       (1,389,000)
Payments for fractional shares from reverse splits and
  preferred stock conversions                                         --                --              (76)
Financing costs incurred                                              --                --          (90,000)
Payments received on subscription receivable                          10                --            4,542
Proceeds received from exercise of stock warrants                     --                --            6,250
Capital contribution through sale of interest in
  consolidated subsidiaries                                           --         2,624,000        2,624,000
Net proceeds received from issuance of preferred and
  common stock                                                        --         9,284,739       33,776,946
                                                            -----------------------------------------------
Net cash provided by financing activities                             10        11,908,739       36,482,219
                                                            -----------------------------------------------

Net increase (decrease) in cash and cash equivalents          (6,475,944)        3,081,119        3,426,060
Cash and cash equivalents at beginning
  of period                                                    6,820,884           344,940               --
                                                            -----------------------------------------------
Cash and cash equivalents at end of period                  $    344,940      $  3,426,059     $  3,426,060
                                                            ===============================================

Supplemental disclosure of cash flow information
Interest paid                                               $         --      $         --     $    197,072
                                                            ===============================================
</TABLE>

See accompanying notes.


                                      -8-
<PAGE>

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

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998

1. Description of Business and Significant Accounting Policies

Description of Business

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

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

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

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

In February 1998, the Company entered into a license agreement with Texas A&M to
develop, commercially manufacture and sell products embodying a series of
compounds for the treatment of cancer (the Texas A&M Compounds) (see Note 3).

In November 1999, the Company, through its subsidiary AVAX Australia Holdings
Pty Limited, entered into a joint venture with Neptunus International Holdings
Limited (NIHL), in connection with its subsidiaries Eastpac Inc. and Jetona Pty
Ltd, of New South Wales, Australia, for the development and commercialization of
the Company's AC Vaccine(TM) Technology in Australia and New Zealand. Due to the
Company's 80% controlling interest in the two related joint venture entities,
the financial position and results of operations of the joint venture are
consolidated in the Company's financial statements (see Note 4)

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.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of AVAX
Technologies, Inc., its wholly owned subsidiaries and its 80% owned and
controlled subsidiaries AVAX Australia Pty., LTD and AVAX Australia
Manufacturing Pty., LTD, which are described in Note 4. None of the subsidiaries
have begun planned principle operations as of December 31, 1999. All significant
intercompany balances and transactions have been eliminated. The minority
interest in consolidated subsidiary represents the 20% owned by NIHL in the net
equity of the consolidated joint venture entities (See Note 4).


                                      -9-
<PAGE>

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

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

Foreign Currency Translation

AVAX Australia Pty., LTD and AVAX Australia Manufacturing Pty., LTD, both
utilize the Australian dollar as their functional currency. In accordance with
Statement of Financial Accounting Standards (SFAS) No. 52, "Foreign Currency
Translation", the financial statements of these two 80%-owned subsidiaries 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 at rates prevailing during the period
since formation (November 25, 1999) for expenses incurred and at December 31,
1999 rates for all assets and liabilities. The resulting translation adjustment
was immaterial. In addition, there were no material foreign currency translation
gains or losses in 1999 or 1998.

Use of Estimates

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

Cash Equivalents

For purposes of reporting cash flows, the Company considers all highly liquid
financial instruments with a maturity of three months or less when purchased to
be cash equivalents. At December 31, 1999, all cash and cash equivalents were
held at one financial institution.

Marketable Securities

Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
Debt securities are classified as held-to-maturity when the Company has the
positive intent and ability to hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost, adjusted for amortization of premiums
and accretion of discounts to maturity. Such amortization and interest on
securities classified as held-to-maturity are included in interest income. The
Company's debt securities all mature in 2000. The following is a summary of
marketable securities:

<TABLE>
<CAPTION>
                                                                                Unrealized     Estimated
                     Description of Securities                    Cost          Gain/(Loss)    Fair Value
      ---------------------------------------------------------------------------------------------------
<S>                                                            <C>              <C>            <C>
      December 31, 1998
      Held-to-maturity debt securities:
        Commercial paper                                       $8,845,322       $      --      $8,845,322
        U.S. Treasury securities                                  532,356              --         532,356
                                                               ------------------------------------------
                                                               $9,377,678       $      --      $9,377,678
                                                               ==========================================
      December 31, 1999
      Held-to-maturity debt securities:
        Commercial paper                                       $8,390,417       $      --      $8,390,417
        U.S. Treasury securities                                  478,204              --         478,204
                                                               ------------------------------------------
                                                               $8,868,621       $      --      $8,868,621
                                                               ==========================================
</TABLE>


                                      -10-
<PAGE>

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

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

Depreciation

Depreciation is computed using the straight-line method over the estimated
useful lives of the furniture and equipment, which range from three to ten
years. Depreciation for the Company's manufacturing facility and related
equipment are computed using the straight-line method over estimated useful
lives of 5 to 10 years. Leasehold improvements related to the building are being
amortized using the straight-line method over the actual life of the lease.

Research and Development Costs

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

Deferred Compensation

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

Share Information

On May 15, 1996 (see Note 5), prior to the first closing of a private placement,
the Company effected a 1-for-2 reverse stock split of the Company's common
stock. Pursuant to an amendment to the Company's Certificate of Incorporation
dated May 7, 1997, a second 1-for-2 reverse split of the Company's common stock
was effected as of the close of business on May 13, 1997. All outstanding share
and per share amounts included in the accompanying financial statements have
been adjusted to reflect both 1-for-2 reverse stock splits.

Earnings Per Share

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

<TABLE>
<CAPTION>
                                                                December 31,
                                                           1998             1999
                                                        ----------------------------
<S>                                                     <C>              <C>
      Numerator (basic):
      Loss available to common stockholders             $(5,838,130)     $(7,867,563)
                                                        ============================

      Denominator (basic):
        Weighted average common shares outstanding        6,731,210       10,642,366
                                                        ============================

      Net loss per share - basic                        $      (.87)     $      (.74)
                                                        ============================
</TABLE>


                                      -11-
<PAGE>

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

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

Stock-Based Compensation

In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 prescribes accounting and reporting standards for
all stock-based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights. SFAS No. 123
requires compensation expense to be recorded (i) using the new fair value method
or (ii) using existing accounting rules prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," (APB 25) and
related interpretations, with pro forma disclosure of what net income and
earnings per share would have been had the Company adopted the new fair value
method. The Company has elected to continue to account for its stock-based
compensation plans in accordance with the provisions of APB 25. See Note 5 for
the pro forma effects of applying SFAS No. 123.

2. Sale of the Product

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

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

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

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

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

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


                                      -12-
<PAGE>

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

2. Sale of the Product (continued)

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

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

3. License and Research Agreements

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

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 on the development of the Invention until commercialized in the United
States. If following the third year, the Company files for United States
marketing approval through a Company sponsored NDA, the Company may elect to
spend less than $500,000 per year on the development of the Invention during the
period of time the NDA is under review by the FDA. The Company has satisfied all
of its obligations under this 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 sublicensees of the Invention.

The research agreement with TJU mentioned above will continue until completion
of the Study, although it is terminable, upon notice by either party to the
other, at any time. Expenses incurred related to research funding for TJU were
$279,690 and $230,602 for the years ended December 31, 1999 and 1998,
respectively. This level of funding satisfies the Company's obligation under the
agreement.

In December 1996, the Company entered into an agreement with Rutgers for the
exclusive worldwide license to develop, manufacture and sell products embodying
the Compounds. In consideration for the license agreement, the Company paid cash
of $15,000, has agreed to pay $15,000 in each subsequent year as a license
maintenance fee and has committed to the issuance of warrants to Rutgers to
purchase 125,000 shares of common stock at a price of $8.24 per share based on
the achievement of certain development milestones. The first 75,000 warrants
will expire in 2006, and the final 50,000 warrants will expire in 2011. These
warrants, once issued, shall provide for cashless exercise, piggyback
registration rights and certain antidilution rights. The Company has agreed to
fund research in the amount of one hundred thousand dollars


                                      -13-
<PAGE>

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

3. License and Research Agreements (continued)

($100,000) per year for three years. In addition, the Company is obligated to
spend an aggregate of $200,000 in the first year, $300,000 in the second year
and $500,000 each year thereafter until the first year of commercial marketing
of a product derived from the Compounds. The license maintenance fee shall not
be payable in years where research funding is equal to or greater than $100,000.
Expenses incurred related to research funding for Rutgers were $133,750 and
$97,500 for the years ended December 31, 1999 and 1998, respectively. This level
of funding satisfies the Company's obligation under the agreement.

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

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

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

In addition, the Company is obligated to pay royalties on its worldwide net
revenue derived from the Compounds and a percentage of all revenues received
from sublicensees of products derived from the Compounds. Such royalty payments
shall be no less than $50,000 in the first year of commercial marketing,
$100,000 in the second year and $200,000 in the third year and all following
years. Expenses incurred related to research funding for Texas A&M was $108,750
for each of the years ended December 31, 1999 and 1998. This level of funding
satisfies the Company's obligation under the agreement.

4. Joint Venture Agreement

In November 1999, the Company's subsidiary AVAX Australia Holdings, Pty. Limited
entered into a joint venture agreement with NIHL (and its subsidiaries) related
to commercialization and sale of the AC Vaccine Technology in Australia and New
Zealand. Pursuant to the joint venture agreement, the Company created two
operating companies, AVAX Australia Pty Limited and AVAX Australia Manufacturing
Pty Limited.


                                      -14-
<PAGE>

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

4. Joint Venture Agreement (continued)

During 1999, NIHL, through a subsidiary contributed $4,000,000 Australian
Dollars for a 20% equity interest in the voting stock of both operating
companies. NIHL will have the option to make two additional equity investments
of $3,000,000 each on March 31, 2000 and June 30, 2000. Upon making each equity
investment, NIHL will receive an additional 15% interest in the voting stock of
each operating Company which would bring their total ownership interest in the
voting common stock to 50%. If NIHL executes both option purchases, the Company
will have the right to purchase additional non-voting common stock in each
operating Company, bringing it's cumulative equity interest in the entities
financial results above 50%. Based on these and other factors as described in
the joint venture agreement, management believes the Company has a controlling
interest in these operating entities.

5. Equity Transactions

Common and Preferred Stock

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

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

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

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

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

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

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


                                      -15-
<PAGE>

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

5. Equity Transactions (continued)

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

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

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

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

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

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. The Series C Preferred Stock, the Class A
Warrants and the Class B Warrants were sold as a unit in the Series C Offering.
The Class A Warrants and Class B Warrants are exercisable until March 1, 2004.

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

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


                                      -16-
<PAGE>

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

5. Equity Transactions (continued)

In connection with the private placement, the Company paid $845,261 in finders
fees and non-accountable expenses. Of this amount $709,100 was paid to
Paramount, a related party, in the form of a finders fee. In addition, Paramount
was issued an option to acquire 187,015 shares of Common Stock at an exercise
price of $3.58, exercisable until March 1, 2004. Upon exercise of the option
granted to it in connection with the Series C Offering, Paramount would be
issued warrants to purchase 37,402 shares of Common Stock of which 18,701 will
be exercisable at $4.00 and the remaining 18,701 will be exercisable at $4.50,
all for an aggregate exercise price of $828,472. The warrants are exercisable
until March 1, 2004.

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

The 73,884 shares of Series B and 101,300 shares of Series C preferred stock,
outstanding at December 31, 1999, are convertible into 1,927,394 and 3,116,915
shares of common stock, respectively, excluding the effect of any fractional
shares.

Conversion Reset

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

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

Staggered Lock-up

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

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


                                      -17-
<PAGE>

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

5. Equity Transactions (continued)

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

Stock Options - Stock Option Plan

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

The following summarizes activity in the Plan:

                                                                      Options
                                                                    ----------

            Balance at December 31, 1994                               276,375
              Canceled                                                (246,375)
                                                                    ----------
            Balance at December 31, 1995, 1996 and 1997                 30,000
              Granted                                                  600,000
                                                                    ----------
            Balance at December 31, 1998                               630,000
              Granted                                                  955,397
              Expired                                                 (240,000)
                                                                    ----------
            Balance at December 31, 1999                             1,345,397
                                                                    ==========

Stock Options - Other

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

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


                                      -18-
<PAGE>

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

5. Equity Transactions (continued)

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

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

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

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

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

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

In December 1998, four directors each received grants to purchase 8,101 shares
of common stock each at $2.47 per share. In March 1999, one director received a
grant to purchase 4,938 shares of common stock at $3.38 per share. In August
1999, two directors each received grants to purchase 2,222 shares of common
stock each at $3.00 per share. All options vested as of December 31, 1999 based
upon the issuance date, and are exercisable for a period of seven years.

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

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

Warrants

In May 1993, the Company has issued warrants to purchase 7,750 shares of the
Company's common stock at a price of $11.00 per share. These warrants expired in
May of 1998 unexercised.


                                      -19-
<PAGE>

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

5. Equity Transactions (continued)

In January and February of 1996, the Company issued warrants to purchase 97,500
shares of the Company's common stock at a price of $.04 per share, of which
66,250 warrants were exercised in 1996. The remaining warrants are exercisable
at any time and expire in 2007.

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

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

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

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

In July 1997, warrants were issued to a consultant to purchase 45,000 shares of
common stock at $4.50 per share. Such warrants were to vest upon the occurrence
of certain milestones and were exercisable for a period of five years. In
December 1997, these warrants were canceled and new warrants to purchase 115,000
shares of common stock at $3.50 per share were issued to the consultant. Such
warrants vest upon the occurrence of certain milestones and are exercisable for
a period of five years. During 1999, 64,346 of these warrants became
exercisable.

In December 1997, warrants were issued to a consultant to purchase 200,000
shares of common stock at $3.75 per share. Such warrants vest upon the
achievement of certain performance-based milestones and are exercisable for a
period of five years. During 1999, 64,346 of these warrants became vested.

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

In October 1998, warrants were issued to a financial consultant to purchase
75,000 shares of common stock at $1.625 per share. These options became fully
vested in 1999 and the consultant exercised the option, utilizing the cashless
exercise provisions of the warrant, resulting in the issuance of 37,500 shares
of common stock.

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


                                      -20-
<PAGE>

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

5. Equity Transactions (continued)

Authorized but unissued shares of common stock were reserved for issuance at
December 31, 1999 as follows:

                                                                    December 31,
                                                                       1999
                                                                    ----------

            Series B convertible preferred stock                     1,927,394
            Series C convertible preferred stock                     3,116,915
            Stock option plan                                        1,500,000
            Non Plan options                                         1,284,802
            Warrants to purchase common stock                          761,750
            Warrants to purchase Series B convertible preferred
              stock                                                    673,564
            Warrants to purchase Series C convertible preferred
              stock                                                    847,801
                                                                    ----------
                                                                    10,112,226
                                                                    ==========

SFAS No. 123 Disclosures

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

The fair value for these options and warrants was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1999, including a risk free interest rate of 5.5%, a volatility
factor of the expected market price of the Company's common stock of 1.015 and a
weighted-average remaining contractual life of the option or warrant of 48
months.

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

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

<TABLE>
<CAPTION>
                                                                 1998              1999
                                                              -----------------------------
<S>                                                           <C>              <C>
            Pro forma net loss attributable to common
              stockholders                                    $(6,246,238)     $(10,535,114)

            Pro forma net loss per share                             (.93)             (.99)
</TABLE>


                                      -21-
<PAGE>

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

5. Equity Transactions (continued)

A summary of applicable stock option and warrant activity and related
information for the years ended December 31, 1998 and 1999 is as follows:

<TABLE>
<CAPTION>
                                                    1998                       1999
                                          -----------------------    -------------------------
                                                         Weighted                     Weighted
                                                          Average                      Average
                                          Options and    Exercise    Options and      Exercise
                                            Warrants       Price       Warrants        Price
                                          -----------------------    -------------------------
<S>                                         <C>            <C>         <C>            <C>
      Outstanding at beginning of year      2,435,080      $ 3.70      3,213,330      $ 3.27
      Granted                                 786,000        2.00      2,014,984        3.73
      Exercised                                    --          --         75,000        1.63
      Forfeited                                 7,750       11.00        240,000        1.81
                                            ---------                  ---------
      Outstanding at end of year            3,213,330        3.27      4,913,314        3.58
                                            =========                  =========
      Exercisable at end of year            1,603,222      $ 3.64      3,106,972      $ 3.71
                                            =========                  =========
</TABLE>

The weighted-average fair value of options and warrants granted during 1999 and
1998 was $2.42 and $1.20, respectively. Exercise prices for options and warrants
outstanding range from $.04 to $8.24. The option contracts expire at various
times through October of 2011.

6. Income Taxes

At December 31, 1999, the Company has net operating loss carryforwards of
approximately $20,390,000 for federal income tax purposes that expire in varying
amounts between 2005 and 2014, if not utilized.

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

                                                              December 31,
                                                                 1999
                                                              -----------
      Deferred tax assets:
         Net operating losses                                 $ 7,830,000
         Deferred compensation                                    353,000
         Other                                                      2,000
                                                              -----------
      Total deferred tax assets                                 8,185,000
      Deferred tax liabilities:
         Depreciation expense                                     (18,000)
                                                              -----------
                                                                8,167,000
      Valuation allowance                                      (8,167,000)
                                                              -----------
      Net deferred tax assets                                 $        --
                                                              ===========

The valuation allowance at December 31, 1998 was $5,119,000.


                                      -22-
<PAGE>

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

6. Income Taxes (continued)

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

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

                                              December 31,
                                         1998              1999
                                      -----------------------------

      Income taxes (benefit) at
        statutory rate                $(1,985,000)      $(2,675,000)
      State income taxes, net of
        federal benefit                  (270,000)         (363,000)
      Change in the valuation
        allowance                       2,236,000         3,048,000
      Other                                19,000           (10,000)
                                      -----------------------------
      Provision for income taxes
        (benefit)                     $        --       $        --
                                      =============================

7. Commitments

Leases

In May of 1999, the Company entered into a five-year lease agreement for its
current office space which amended the Company's previous lease agreement. The
Company provided the landlord with an irrevocable letter of credit in the amount
of $7,595 as security related to the lease. Monthly lease payments escalate each
year of the lease beginning at approximately $13,170 per month and increasing to
$14,450 per month throughout the lease.

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

Rent expense under these agreements was approximately $252,000 and $176,000 for
the years ended December 31, 1999 and 1998, respectively.


                                      -23-
<PAGE>

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

7. Commitments (continued)

Future minimum lease payments under the noncancellable operating leases,
assuming the termination payment is made in 2002 on the manufacturing facility
lease, consisted of the following at December 31, 1999:

                      Year ending
                      December 31,
                      ------------

                          2000                  $300,200
                          2001                  $321,666
                          2002                  $550,985
                          2003                  $179,678
                          2004                  $ 60,631

Consulting Agreements

Effective in June 1996, the Company entered into consulting agreements with the
Scientist and a Director of the Company. These agreements are for an initial
term of three years through June 1999. The agreement with the Scientist was
extended through May 2002. The agreement with the Director, who was paid
approximately $10,400 during 1999, expired in 1999 and was not renewed. Annual
consulting fees payable pursuant to the agreement with the Scientist are
$48,000.

In April, May and July 1997, the Company entered into agreements with four
members of the Scientific Advisory Board. These agreements are for initial terms
of two years and require compensation of $2,000 per person per meeting of the
Scientific Advisory Board. In July 1997, the Company entered into a consulting
agreement with a member of its Scientific Advisory Board. The agreement calls
for annual compensation of $20,000 plus options to acquire 30,000 shares of
common stock at $4.50 per share (see Note 5). In December 1998, the Company
entered into a three year consulting agreement with a second member of its
Scientific Advisory Board for additional consulting services. The agreement
calls for annual compensation of $20,000 plus options to acquire 21,000 shares
of common stock at $2.25 per share (see Note 5). The options vest annually in
arrears.

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

In September 1998, the Company entered into an agreement with a financial
advisor, pursuant to which the advisor would, at the Company's request, perform
certain financial advisory services for the Company. The agreement had an
initial term of one year. In connection with this agreement, the advisor was
granted warrants to purchase 75,000 shares of common stock at $1.625 per share.
This agreement was terminated during 1999 resulting in the Company accruing
$50,000 as of December 31, 1999.

In November 1999, the Company extended a Technical Testing Agreement with a
Consultant. The agreement, which is for a period of two years, calls for annual
payments of $110,000 annually in advance.


                                      -24-

<PAGE>

                    AVAX Technologies, Inc. and Subsidiaries
                          (development stage company)

8. Property, Plant and Equipment

The Company completed construction of its GMP (Good Manufacturing Practices)
compliant clinical manufacturing facility during 1999. Costs incurred related to
the planning and construction of the facility have been capitalized and are
included in property, plant and equipment.

The following shows the composition of the assets included in property, plant
and equipment at December 31, 1999:

<TABLE>
<CAPTION>
                                                           Accumulated
                                                  Cost     Depreciation     Net
                                               ----------  ------------  ----------
<S>                                            <C>          <C>          <C>
Office furniture and equipment                 $  228,045   $   70,573   $  157,472

Manufacturing facility and related equipment    2,230,633       46,289    2,184,344
                                               ----------   ----------   ----------
Total                                          $2,458,678   $  116,862   $2,341,816
                                               ==========   ==========   ==========
</TABLE>

Depreciation expense was $81,385 and $20,510 for the years ended December 31,
1999 and 1998, respectively.

9. Employee Benefit Plan

During 1996, the Company established a 401(k) plan for all employees over the
age of 21. Employee contributions are subject to normal 401(k) plan limitations.
The Company made a $4,000 contribution in 1998 and a $12,250 contribution in
1999.


                                     -25-
<PAGE>

                                   SIGNATURES

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

                                          AVAX TECHNOLOGIES, INC.

Date: February 15, 2000                   By: /s/ Jeffrey M. Jonas, M.D.
                                              --------------------------

                                          Jeffrey M. Jonas, M.D.
                                          Chief Executive Officer, President and
                                          Director

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

<TABLE>
<CAPTION>
      Signature                                     Name & Title                               Date
      ---------                                     ------------                               ----

<S>                                        <C>                                           <C>
/s/ Jeffrey M. Jonas, M.D.                 Jeffrey M. Jonas, M.D.                        February 15, 2000
--------------------------                 Chief Executive Officer, President
                                           and Director

/s/ David L. Tousley                       David L. Tousley                              February 15, 2000
--------------------                       Chief Financial Officer and Secretary
                                           (Principal Financial Officer)

/s/ Edson D. de Castro                     Edson D. de Castro                            February 15, 2000
----------------------                     Director

/s/ John K. A. Prendergast, Ph.D.          John K. A. Prendergast, Ph.D.                 February 15, 2000
---------------------------------          Director

/s/ Carl Spana, Ph.D.                      Carl Spana, Ph.D.                             February 15, 2000
---------------------                      Director

/s/ James Currie                           James Currie                                  February 15, 2000
----------------                           Director

/s/ Michael S. Weiss                       Michael S. Weiss                              February 15, 2000
--------------------                       Director

/s/ Andrew W. Dahl, Sc.D.                  Andrew W. Dahl, Sc.D.                         February 15, 2000
-------------------------                  Director

/s/ Gary S. Lazar, M.D., F.A.C.P.          Gary S. Lazar, M.D., F.A.C.P.                 February 15, 2000
---------------------------------          Director
</TABLE>


                                      -26-
<PAGE>

                                  EXHIBIT INDEX

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

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

    3.2     By-Laws.(1)

    4.1     Reference is made to Exhibits 3.1 and 3.2.

    4.2     Specimen of Common Stock certificate.(1)

    4.3     Specimen of Series B Convertible Preferred Stock certificate.(1)

    4.4     Certificate of Designations of Series B Convertible Preferred
            Stock.(3)

    4.5     Amended Certificate of Designations of Series B Convertible
            Preferred Stock.(3)

    4.6     Form of Subscription Agreement, by and between the Company and
            certain purchasers of Series B Preferred Stock and Common Stock.(5)

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

    4.8     Form of Placement Warrant Relating to Offering of Series B Placement
            Warrants.(6)

    4.9     Certificate of Designations of Series C Convertible Preferred
            Stock.(2)

    4.10    Series C Convertible Preferred Stock Warrant Purchase Agreement.(2)

    4.11    Form of Class A and Class B Common Stock Purchase Warrant issued in
            connection with the Series C Convertible Preferred Stock.(2)

    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.(7)

    10.3    Extension to the Clinical Study and Research Agreement dated
            November 20, 1995, by and between the Company and Thomas Jefferson
            University.(2)

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

    10.5    Letter of Employment dated September 13, 1996, between the Company
            and David L. Tousley.(4)

    10.6    Letter of Employment dated September 13, 1996, between the Company
            and Ernest W. Yankee, Ph.D.(4)

    10.7    License Agreement dated December 10, 1996, by and between the
            Company and Rutgers, The State University of New Jersey and the
            University of Medicine and Dentistry.(7)

    10.8    License Agreement dated February 17, 1997, by and between the
            Company and The Texas A&M University System.(7)


                                       i
<PAGE>

    10.9    Sponsored Research Agreement dated May 2, 1997, by and between the
            Company and Rutgers, The State University of New Jersey and the
            University of Medicine and Dentistry.(8)

    10.10   Sponsored Research Agreement Dated May 12, 1997, by and between the
            Company and The Texas A&M University System.(8)

    10.11   Lease Agreement dated December 1, 1997 for Kansas City Facility, as
            amended.(9)

    10.12   Lease Agreement dated December 1, 1997 for Philadelphia Facility.(9)

    10.13   The Company's Amended and Restated 1992 Stock Option Plan.(10)

    10.14   Employment Agreement dated October 15, 1999, between the Company and
            Dr. Jeffrey M. Jonas.*

    10.15   Shareholders Agreement dated November 25, 1999, among AVAX Australia
            Holdings Pty Limited, Eastpac Inc., Jetona Pty Ltd and Neptunus
            International Holdings Limited.(11)

    11.1    Statement Concerning Computation of Per Share Earnings.*

    21.1    Subsidiaries of the Company.*

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

    27.1    Financial Data Schedule.*

----------

*     Filed herewith.

(1)   Incorporated by reference and previously filed as an exhibit to the
      registration statement on Form S-3 filed with the Securities and Exchange
      Commission (File No. 333-09349) on August 1, 1996.

(2)   Incorporated by reference and previously filed as an exhibit to the Annual
      Report on Form 10-KSB for the year ended December 31, 1998, filed with the
      Securities and Exchange Commission on March 31, 1999.

(3)   Incorporated by reference and previously filed as part of the amended
      Certificate of Incorporation, filed as an exhibit to Amendment No. 6 to
      the registration statement on Form S-3 filed with the Securities and
      Exchange Commission on May 7, 1997.

(4)   Incorporated by reference and previously filed as an exhibit to Amendment
      No. 6 to the registration statement on Form S-3 filed with the Securities
      and Exchange Commission on May 7, 1997.

(5)   Incorporated by reference and previously filed as an exhibit to Amendment
      No. 1 to the registration statement on Form S-3 filed with the Securities
      and Exchange Commission on September 23, 1996.

(6)   Incorporated by reference and previously filed as an exhibit to Post
      Effective Amendment No. 6 to the registration statement on Form S-3 filed
      with the Securities and Exchange Commission on August 17, 1998.

(7)   Incorporated by reference and previously filed as an exhibit to Amendment
      No. 9 to the registration statement on Form S-3 filed with the Securities
      and Exchange Commission on July 3, 1997.

(8)   Incorporated by reference and previously filed as an exhibit to Post
      Effective Amendment No. 1 to the registration statement on Form S-3 filed
      with the Securities and Exchange Commission on August 14, 1997.

(9)   Incorporated by reference and previously filed as an exhibit to Post
      Effective Amendment No. 3 to the registration statement on Form S-3 filed
      with the Securities and Exchange Commission on March 16, 1998.

(10)  Incorporated by reference and previously filed as an exhibit to the
      Quarterly Report on Form 10-QSB for the quarter ended June 30, 1998, filed
      with the Securities and Exchange Commission on August 14, 1998.

(11)  Incorporated by reference and previously filed as an exhibit to the
      Current Report on Form 8-K, filed with the Securities and Exchange
      Commission on December 16, 1999.


                                       ii