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

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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, 2001 | Commission file number:
333-09349
|-------------------------------------------- | ---------------------------------

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

Delaware

13-3575874(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)9200 Indian Creek Parkway
Suite 200
Overland Park, KS(Address of principal executive offices)

66210(Zip code)


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

4520
Main Street, Suite 930
Kansas City, MO 64111
(former name or former address, if changed since last report)

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

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

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

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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, 2001 were $541,355.

As
of February 28, 2002, 19,210,846 shares of the registrant's common stock, par value $.004 per share, were outstanding or are issuable upon conversion of the outstanding shares
of Series C Preferred Stock. The aggregate market value of the voting and common equity held by non-affiliates (assuming 100% conversion of the outstanding shares of preferred
stock) computed by reference to the reported closing price of the common stock on the Nasdaq Stock Market, on February 28, 2002, was $9,797,529.
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 2002 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

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AVAX Technologies, Inc.

Index to Form 10-KSB

|           |  |                                                                                                                 |  | Page
|---------- |  | --------------------------------------------------------------------------------------------------------------- |  | ----
|
|Item 1.    |  | Description of Business                                                                                         |  | 1   
|Item 2.    |  | Description of Property                                                                                         |  | 21  
|Item 3.    |  | Legal Proceedings                                                                                               |  | 21  
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                             |  | 22  
|
|Item 5.    |  | Market for Common Equity And Related Stockholder Matters                                                        |  | 23  
|Item 6.    |  | Management's Discussion and Analysis of Financial Condition and Plan of Operation                               |  | 23  
|Item 7.    |  | Financial Statements                                                                                            |  | 27  
|Item 8.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                            |  | 27  
|
|Item 9.    |  | Directors, Executive Officers, Promoters And Control Persons; Compliance with Section 16(a) of the Exchange Act |  | 28  
|Item 10.   |  | Executive Compensation                                                                                          |  | 28  
|Item 11.   |  | Security Ownership of Certain Beneficial Owners and Management                                                  |  | 28  
|Item 12.   |  | Certain Relationships and Related Transactions                                                                  |  | 28  
|Item 13.   |  | Exhibits and Reports on Form 8-K                                                                                |  | 28  
|Signatures |  | 29                                                                                                             

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

In this Report, in other filings with the SEC and in press releases and other public communications throughout the year, AVAX Technologies, Inc. ("AVAX" or
the "Company") makes, or will make statements that plan for or anticipate the future. These forward-looking statements include statements about the future of biotechnology products and the
biopharmaceutical industry, statements about 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:



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AVAX TECHNOLOGIES, INC.

PART I

ITEM 1.    Description of Business

GENERAL

AVAX is a development stage biotechnology company with international operations, specializing in the development and commercialization of individualized therapies
and other novel products and technologies for the treatment of cancer and other life-threatening diseases. The Company's lead development program is a patented autologous cell technology
(AC Vaccine) that attempts to stimulate a patient's own immune system to recognize, contain and eliminate cancer cells. AVAX is based in Overland Park, Kansas, with operations in Philadelphia,
Pennsylvania, Rennselaer, New York, Lyon, France and Melbourne, Australia.

In
1995, AVAX identified the AC Vaccine research being conducted by Dr. David Berd, an oncologist and professor at Thomas Jefferson University in Philadelphia, and licensed the
rights to Dr. Berd's research. In December 1996, AVAX licensed from Rutgers University and the University of Medicine and Dentistry of New Jersey, certain patent applications relating to
a series of anticancer agents or compounds known as topoisomerase targeting anticancer agents. In February 1997, AVAX licensed from The Texas A&M University System an issued U.S. patent and
certain U.S. and foreign patent applications relating to a series of novel cancer fighting anti-estrogen compounds.

In
August 2000, the Company acquired Genopoietic S.A. and its corporate affiliate ("Genopoietic"), based in Lyon, France, which develops cell and gene-based therapies
in collaboration with Pierre et Marie Curie University ("UPMC") and Centre National de la Recherche Scientifique "CNRS".

In
August 2001, the Company obtained an option to license the rights to a gene therapy treatment for the treatment of the genetic disease SCID (Severe Combined Immunodeficiency
Syndrome), a fatal genetic disease that leaves the afflicted, typically male babies, unable to develop an immune system.

AVAX
is a typical development stage biotech company in that it is not currently generating any material revenue and has not yet made a profit.

The
Company is focusing its efforts on the development of an immunotherapy for the treatment of cancer. 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 that effectively treats cancer could have a large market potential. In many cases,
surgery 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,
chemotherapy and radiotherapy have been the only accepted post-surgical treatments for cancer. Chemotherapy is the prevention or treatment of disease by
administering chemical agents. Radiotherapy is the prevention or treatment of disease by electromagnetic or particulate radiation. Alternatively, immunotherapy, which is a rapidly expanding segment of
cancer therapy, treatment and research, is the treatment of disease or infection by stimulating the body's immune system through a process of immunization. One example of immunotherapy is vaccination.
When a person is vaccinated or 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 recognize and fight the foreign agent. In this way, he or she develops an immune memory to the disease or infection. Immunotherapies that are being developed to treat cancer are intended to act in
the same way.

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A
cancer cell, in the most simple terms, is an abnormal cell that evolves from previously healthy cells. 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 to distant sites in the body, 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 and established new tumors at
distant sites, the cells and the tumors they form are difficult to treat with current technology. Chemotherapy and radiotherapy have traditionally been the accepted methods of treatment in these
cases. Although there have been many advances in the development of more effective and targeted cancer treatments, the Company believes there is still an unmet need for better and more specific cancer
therapies. Through its license and research agreements, AVAX is developing a range of treatments for cancer and other life threatening diseases.

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

TECHNOLOGY AND PRODUCT CANDIDATES AND SERVICES

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, which 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 helps
stimulate 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.

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In this way, through the development of immune memory, the body's immune system would be triggered to attack and eliminate the unmodified cancer cells that it would now see as an intruder.

M-Vax

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

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



Historically,
patients with stage 3 melanoma have been treated with a year-long regimen of alpha interferon post-surgically, which is a biological therapy and
currently the only U.S. Food and Drug Administration ("FDA")-approved post-surgical treatment for patients with stage 3 melanoma. While alpha interferon use prolongs
relapse-free survival, its impact on overall survival is questionable. Further, use of alpha interferon can be associated with many severe side effects, often leading to either reduction
in dosage or complete discontinuation before the full course of treatment is completed. Due
to limited efficacy and highly toxic side effects, chemotherapy has not been widely used in the treatment of stage 3 patients.

The
Company believes that M-Vax is the first immunotherapy to suggest, from clinical trial results, that its use may result in a substantial improvement in the survival rate
for patients with stage 3 melanoma. Published information on the use of M-Vax has reported five-year survival of approximately 50%. In these reports, 214 patients with stage 3
melanoma, who had already had their lymph node tumors excised and processed into vaccines, were treated with M-Vax. These studies are mature with most surviving patients being followed for
at least 5 years. This compares with the historical post-surgical survival rates of approximately 22-32%, 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 a total of over 400 melanoma patients
treated by TJU or the Company in Phase 1-2 clinical trials, no serious side effects have been reported and 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.

Patients
who receive M-Vax may develop an immune response to their own melanoma cells as measured by a delayed-type hypersensitivity (DTH) 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. This activity is manifested by a positive DTH
testthe development of a hive at the site of injection of a test material. In the stage 3 adjuvant studies, patients who developed positive DTH to their own melanoma cells that were not
modified with the hapten had significantly greater chance of 5-year year

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survival (61% vs. 30%). AVAX believes that the DTH test can be used as a surrogate marker of vaccine activity.

AVAX
has explored the dose-response relationship of M-Vax. The intensity of the DTH response is unchanged over a wide range of doses. Moreover, through the
analysis of past clinical experience with the vaccine, dead tumor cells in the vaccine contribute to the immune response as well as live, but replication-incompetent, tumor cells.

As
discussed below, the Company is developing a frozen vaccine product. See "Clinical and Product Development Status of the AC Vaccine Technology" below. The frozen vaccine product being
developed by the Company is considered by the FDA to be a different product from the M-Vax product that was subject to the previously reported clinical trials. Therefore the previous
results of the Company's clinical trials and the clinical trials conducted by Dr. Berd at TJU may not be as useful to the Company as that data would be if the Company were continuing the
M-Vax product in exactly the same form prior to the FDA clinical hold.

O-Vax

O-Vax is designed as an immunotherapy for the treatment of ovarian cancer. Ovarian cancer 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 55 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.

The
Phase 1/2 clinical trials for O-Vax showed a positive immune response to unmodified tumor cells in the first eight of nine adjuvant patients treated, as
measured by a DTH test. 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.

Clinical and Product Development Status of the AC Vaccine Technology

In 1998, the FDA approved a Company sponsored multi-center clinical trial comparing M-Vax to Interferon for the treatment of melanoma. Additionally,
the FDA authorized AVAX to begin Phase 2 clinical trials of O-Vax. In March 2001, the Company received notification from the FDA that both the M-Vax and
O-Vax clinical trials were placed on clinical hold by the FDA. The written notification from the FDA confirming the clinical hold primarily dealt with the sterility of autologous tumors
received by the Company and the assurance that vaccines to be provided to patients would meet FDA sterility guidelines.

In
concert with the clinical hold, the FDA inspected AVAX's manufacturing facility in Philadelphia. This FDA inspection resulted in the issuance of a Form 483 and a formal Warning
Letter. The Company has submitted numerous responses to the FDA relating to the clinical hold, the Form 483 and the Warning Letter, and has met with the FDA on various occasions in 2001 and the
first quarter of 2002.

In
working with the FDA to resolve the issues identified as part of the clinical hold, the Form 483 and the Warning Letter, AVAX has proposed changing the production processes
surrounding the AC Vaccine so that the final product would be produced and frozen for distribution. The proposed changes to the vaccine would require the Company, upon receiving the incoming
tumor, to digest the cells as with the past procedure but in a change from the prior procedure, the Company would then perform the various steps of irradiating and haptenizing the cells prior to
cryo-preserving the cells. This would allow the Company to produce a single lot of vaccine for each patient and would allow all the

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requisite sterility and other release testing of the vaccine prior to shipping the vaccine for administration.

In
evaluating this approach, the FDA indicated that these changes to the product's manufacturing requires that the frozen vaccine product be regarded as a new product, and that AVAX
would be required to file new IND's for the frozen vaccine product in order to initiate clinical trials. Based upon these discussions the Company inactivated the existing clinical programs for
M-Vax and O-Vax.

AVAX
has held pre-IND meetings with the FDA to discuss its clinical programs and the issues relating to the manufacturing requirements of the frozen vaccine. In addition to
providing the Company guidance on the Company's proposed clinical programs, the FDA has allowed the Company to resume bringing tumor samples, for developmental purposes only, back into it's
Philadelphia manufacturing facility. This will allow the Company to validate the new manufacturing processes, in preparing the frozen vaccine. Upon acceptable validation of these processes the Company
anticipates it will be able to file an Investigational New Drug application for M-Vax. Currently the Company anticipates making this filing at the end of the second quarter of 2002.

Other AC Vaccine Product Candidates

The Company believes that the AC Vaccine technology used to develop M-Vax and O-Vax may have applications in the treatment of other
cancers, including renal, breast, kidney, lung and colorectal cancers, as well as acute myelogenous leukemia. AVAX will look to fund the pre-clinical or initial clinical development of
this technology for one or more of these indications, only after it has secured additional funding to enable such development.

SCIDXl Technology

The Company has been granted an option to license the gene therapy technology developed by Professor Alain Fischer, M.D. Ph.D. for treatment of the genetic
disease, X-linked severe combined immunodeficiency (SCID-Xl), also known as the "bubble boy disease." During 2001, the Company also received the designation of
SCID-Xl as an Orphan Medicinal Product by the European Agency for the Evaluation of Medicinal Products (EMEA). This designation gives product exclusivity to the Company in the European
Union for ten years following marketing approval. AVAX has also applied for Orphan Drug designation in the United States.

Severe
Combined Immundeficiency (SCID), a rare genetic disorder, is caused by different genetic defects, but the primary syndrome for all types is reduced or absent immune functions.
SCID-Xl, which accounts for 50-60% of total SCID cases (1 in 150,000 births) is a recessive hereditary disorder characterized by defective T lymphocyte and Natural Killer (NK)
cell differentiation. This defect is caused by mutations of the c encoded receptor subunit of interleukin receptors, which participate in the
delivery of signals to stem cells so their differentiation into immune cells may occur. In SCID-Xl patients, T cells in blood and the lymphoid organs are extremely infrequent or absent,
whereas B cells are usually present, yet functionally impaired. This results in an almost nonexistent immune system in newborns once the protection of their maternal antibodies disappear. Affected
infants develop severe and persistent infections and are highly susceptible to infections that may become deadly. In addition, routine childhood immunizations with live attenuated vaccines can result
in life threatening infections. Due to these factors, without treatment, the life expectancy for these infants is about one year.

The
technology developed by Dr. Fischer is based on the correction of the immune deficiency by introduction of a normal duplicate of the ycgene into the patient. This is accomplished through an
ex vivo (outside the body) transfer of the ycgene into the patients own bone marrow cells. The cells are modified using a retroviral vector that contains the corrected ycchain of the DNA (which in these patients has mutated). The retroviral vector transfers theycchain
into the cell and incorporates the correctedcchain into the cells' DNA, effectively replacing the mutated component of the DNA. Three

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days following this genetic transfer, the newly modified autologous bone marrow cells are re-injected into the patient intravenously. This gene transfer will partly or completely mend the
patient's immune system deficiency.

Data
collected from five infants in a clinical trial conducted by Dr. Fischer indicate that four of the five infants participating in the study have developed and sustained
function of their immune system without additional medical treatment. One of the five infants did receive additional medical treatment after the gene transfer. All of the infants have left their
protective environment and have been home for over two years without any additional treatment. In addition, the infants have been successfully vaccinated with routine childhood vaccinations. No
adverse events have been reported with a follow-up time of 36 months for the first patient.

Recently,
in conjunction with the Company, a clinical trial of the SCID-Xl technology has been initiated in Australia in collaboration with the Children's Hospital at
Westmead. To date one patient has been treated and the treatment has been well tolerated as of this time.

Novel Anti-Estrogens

The Company 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"). U.S. patents for both the Texas A&M
compounds and their anticancer uses have been filed by Texas A&M. During 2001, AVAX announced the issuance of a U.S. patent on the use of its anti-estrogen compound in combination with
Tamoxifen. The Company has made certain foreign patent applications related to this combined use. The Company will evaluate additional U.S. and non-U.S. patent coverage based on the
results of ongoing laboratory research.

Anti-estrogens
have been proven to be clinically useful anticancer therapies. Current treatments designed to regulate estrogen expression, such as Tamoxifen, regulate
expression through the estrogen receptor, which is a nuclear protein that upon binding to the hormone binds to DNA and activates transcription of a series of hormone-responsive genes. Although
Tamoxifen and other selective estrogen receptor modifiers have shown clinical benefit in battling breast cancer, there has also been noted significant side effects to these treatments, primarily
involving estrogenic activity in the uterus, resulting in endometrial hyperplasia and elevated frequency of endometrial cancer.

The
Company's anti-estrogen technology works on the estrogen receptor indirectly through the aryl hydrocarbon receptor. In pre-clinical studies of the Company's
compounds, it has been documented that there is an inhibitory cross talk between the aryl hydrocarbon receptor and the estrogen receptor. Additionally, as documented in a recent publication in Cancer
Research (2001 May 15; 61(10):3902-7) these compounds have been shown to enhance the anticancer activity of Tamoxifen in the breast while blocking the uterine estrogenic effects of
Tamoxifen.

6-MCDF,
the Company's lead compound, was selected by the Drug Development Group ("DDG") of the National Cancer Institute ("NCI") for further development under the
Developmental Therapeutics Program ("DTP") of the NCI/NIH. The Company was recently informed that 6-MCDF was accepted for a Phase IIa pre-clinical development program for
studies on formulation, range finding toxicology and additional efficacy testing. It is anticipated that these studies will be completed in the fall 2002, at which point a decision will be made
regarding performing pre-clinical toxicology studies that would be used to support an IND submission in early 2003.

Under
AVAX's agreements with Texas A&M, the Company intends to continue to expend resources on the research and development of these compounds. As the development progresses, the Company
may explore strategic opportunities to license its rights to further develop these compounds to another company.

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Topoisomerase Targeting Anticancer Agents

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 targeting compounds), that interact with Topoisomerase I and Topoisomerase II enzymes (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.
Interfering with the function of these enzymes effectively transforms them into cellular poisons that cause cell death. In addition, there are defense mechanisms in normal cells that can protect
against the adverse affects of topoisomerase targeting agents. Thus, this class of anticancer compound could achieve selective toxic activity against tumor cells. Inhibitors of these enzymes have been
proven to be clinically useful anticancer therapies.

Both
U.S. and non-U.S. patents for the Rutgers compounds and their anticancer and anti-infective uses have been filed. The Company holds a license to a number of
U.S. patents granting claims to novel compounds that target human topoisomerase I enzymes. These are novel compounds that are not camptothecan based, unlike currently approved topoisomerase I
inhibitors. A number of these compounds exhibit significantly enhanced potency as compared to existing marketed topoisomerase compounds against solid tumors. In addition, the Company believes these
agents have demonstrated superior chemical stability, and the ability to overcome some of the more common forms of resistance to chemotherapy (overexpression of MDR1 and BCRP) observed with human
cancer cells. These agents also offer significant potential therapeutic advantages relative to those agents in current clinical use. The Company has selected a lead compound for further
pre-clinical and clinical development. As the development progresses, the Company may explore strategic opportunities to license its rights to further develop these compounds to another
company and may also explore collaborative development relationships related to the compounds.

TK Suicide Gene Technology

TK suicide gene therapy is a technology based on the thymidine kinase ("TK") gene developed to prevent graft-versus-host disease ("GVHD") following
allogeneic (or foreign donor) bone marrow transplantation and to induce transplantation tolerance after allogeneic organ transplantation. AVAX has completed initial Phase 1 testing of its TK suicide
gene technology in 20 patients with glioblastoma, a malignant brain tumor, and 11 patients with late stage melanoma. Data indicate that there were no serious side effects associated with the therapy.

In
February 2001, AVAX received a contract from the French army to prepare a clinical trial of the Company's TK suicide gene program for the prevention of GVHD following foreign
bone marrow transplantation for patients who have been exposed accidentally to acute irradiation. The contract will allow the Company to apply its gene therapy technology to a new indication in its
GVHD program. With the exception of this contract, AVAX has ceased further development work on this product and is evaluating opportunities regarding further development of the program or divestiture.

Autologous Chondrocytes

Autologous chondrocytes are cultured, patient-specific cartilage cells that are re-injected into a patient and help repair damaged joint cartilage.
The process involves taking grafts of the patient's cartilage and
culturing the cells to grow new cartilage for replacement in the patient. The technology consists of: (1) taking a small biopsy of healthy cartilage of the patient under arthroscopy,
(2) separating out the mature cartilage cells (chondrocytes) and culturing those cells in a central facility, (3) sending back the cultured chondrocytes to the surgeon; and
(4) re-implanting the cells on the defective cartilage by a surgical procedure in order to repair the injury. The Company is currently

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evaluating various business opportunities as they relate to the chondrocytes in select European countries. The Company has ceased development work on this product and will not advance the program
without the assistance of a partner.

The
Company has recently received reimbursement approval from the Australian Department of Health and Aged Care (Prostheses and Rehabilitation Section) for Arthrocell,
Autologous-Cultured Cartilage. Through its Australian subsidiary's the Company is investigating the market opportunities to begin manufacture and distribution of Arthrocell in Australia. At this time
the Company does not have the capability to manufacture Arthrocell in Australia and is evaluating potential ways to acquire such manufacturing capability.

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 renewed this agreement for a three-year period through November 2004.

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 United States. This spending
includes funding provided pursuant to the TJU Research Agreement, internal Company expenditures and external expenditures incurred by the Company. 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.

Genopoietic Research Funding Agreement

In connection with the Company's acquisition of Genopoietic and its corporate affiliates, AVAX entered into the Research Funding Agreement in August 2000
with Genopoietic to provide funding to its wholly-owned subsidiary for direct costs of basic scientific research in areas of mutual interest to the Company and Genopoietic. Subject to the fulfillment
of certain funding conditions, AVAX agreed to provide up to an aggregate of $8,000,000 to Genopoietic for the period ending July 31, 2005. Provision of this funding is contingent upon the
Company's financial health and may be withheld at the discretion of Company management. At the Company's option, the funds may be provided as additional contributions to the capital of Genopoietic, as
payment of indebtedness owed by Genopoietic to third parties or as a long-term loan to Genopoietic.

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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. This research agreement has been extended through
January 2003.

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.

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 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: $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 initially agreed to provide minimum yearly funding of approximately $130,000 for Rutgers' research, including certain overhead
costs. Upon its expiration, the Rutgers Research Agreement was extended for another year, and has been further extended through February 2003.

The
Company is presently obligated to spend an aggregate of not less than $500,000 each year until the first year of commercial marketing of a product derived from the Rutgers compounds,
for the research and development, regulatory approval, manufacture, and marketing and selling of a product derived from the Rutgers compounds. This spending includes funding provided pursuant to the
Rutgers Research Agreement, internal Company expenditures and external expenditures incurred by the Company.

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.

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RESEARCH AND DEVELOPMENT EXPENSE

In 2000, the Company incurred research and development expense of $9,405,318. In 2001, the Company incurred research and development expense, and certain costs
associated with the Company's manufacturing facility in Lyon, France of $8,099,678. Research and development expenses have been $31,501,119 for the period from inception through December 31,
2001.

MANUFACTURING AND MARKETING

AC VaccinesGeneral

The AC Vaccine products being developed by AVAX are individualized therapies which are manufactured by first receiving cells from a patient, treating those cells
and creating a liquid vaccine using the cells as a raw material, then delivering the vaccine to the doctor's office for administration to the patient. 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 the vaccine is "cells in-product out," where the final product looks like a traditional mass-produced drug to the
end-user, but is manufactured individually made.

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

The Company's manufacturing facility in Pennsylvania serves as the central U.S. manufacturing center for the production and distribution of M-Vax and
O-Vax for the Company's previous and planned clinical trials. The Pennsylvania facility was built to comply with current Good Manufacturing Practice standards, however, as part of the
final regulatory approval of M-Vax for commercialization, the manufacturing facility will have to be licensed by the FDA. As discussed above, the Company received a Form FDA 483 in
June 2001 and a Warning Letter from the FDA in November 2001 relating to the
FDA's previous inspection of the Pennsylvania facility. The Company has filed its responses to the Form FDA 483 and the Warning Letter.

Other Cell and Gene Therapies

Pursuant to the Company's acquisition of Genopoietic, AVAX now leases a GMP quality manufacturing facility in Lyon, France. The facility is currently being used
to produce the retroviral vectors used as part of the SCID-Xl technology, vectors related to the Company's TK suicide gene products and autologous chondrocytes for the ongoing
pre-clinical studies of those technologies and other retroviral vectors and monoclonal antibodies as a contract manufacturer for other companies and research institutions. In addition, the
Lyon facility has been involved in assisting in the product development efforts and testing related to the AC Vaccine.

Marketing M-Vax in Australia

On December 1, 1999, the Company, under the subsidiary name, AVAX Holdings Australia Pty Limited ("AVAX Holdings"), entered into a definitive joint venture
agreement with Neptunus International Holdings Limited, a pharmaceutical group in Australia which has been subsequently renamed Australian Vaccine Technologies Ltd. ("AVT"). Under the joint
venture agreement, AVAX Holdings, through its affiliated entities, holds the rights to manufacture and market M-Vax in Australia, and has similar rights in New Zealand.

In
July 2000, AVAX began marketing M-Vax in Australia. AVAX is the first company to commercialize a centrally produced cancer vaccine for melanoma,
custom-made from a patient's own tumor cells. The joint venture has manufactured M-Vax in Australia through a contract manufacturing agreement with Bioenterprises
Pty. Ltd.

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At December 31, 2001, AVAX Holdings held a 50% interest in the Australian joint venture entities. During January 2002, AVAX Holdings, through a wholly-owned subsidiary,
re-purchased 90% of AVT's interest in the joint venture for approximately $1.6 million Australian Dollars (approximately $818,000 U.S. Dollars), which represented one half of the
cash on hand in the joint venture net of liabilities at the date of closing. In addition, AVT will receive a small royalty on product sales made by AVAX Holdings in Australia and New Zealand.

During
2001, AVAX Holdings prepared and submitted a dossier to the Australian Medical Services Advisory Committee ("MSAC") for re-imbursement related to M-Vax.
Based upon the results of the MSAC review a decision will be made regarding M-Vax being approved for reimbursement under the Australian Medicare system. If AVAX Holdings does obtain
reimbursement approval for M-Vax, the Company's believes that the product will experience significant market up take. It is the Company's intention to evaluate other opportunities
regarding existing technologies of AVAX or other new and unique technologies that may be developed and marketed in Australia through AVAX Holdings.

Other Foreign Markets for M-Vax

The commercialization of M-Vax in one or more European countries will be subject to meeting certain requirements determined by each applicable
regulatory agency. In order to expedite the availability of M-Vax to melanoma patients in Europe, the Company is currently exploring a number of strategic options to assist in realizing
these opportunities. AVAX also may pursue a similar regulatory approach for the manufacturing and marketing of its products in certain other 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 reagents, 2,4 dinitrofluorobenzene (DNFB), and the patient's own tumor cells. In addition the vaccine is
administered with a chemical adjuvant, BCG, which assists in stimulating the immune system. Should the supply of DNP or BCG significantly decrease, the Company may encounter problems preparing
M-Vax, O-Vax, or any other AC Vaccine products.

COMPETITION

Cancer Drugs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.

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Other Companies Developing Cancer Vaccines

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

The
principal competitive factors in the area of cancer immunotherapies are (i) the efficacy of the product 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.

Gene Therapies

The field of gene therapy drug development is new and rapidly evolving, and it is expected to continue to undergo significant and rapid technological change. The
Company expects to experience intense competition both from other companies in the gene therapy field and from companies that have other forms of treatment for the diseases currently being targeted.
The Company is aware of several development-stage and established enterprises, including major pharmaceutical and biotechnology firms, that are exploring gene-based drugs or are actively
engaged in gene delivery research and development. These include companies making protein therapies for hemophilia, Gaucher's disease, and anemia such as Amgen Inc., Aventis S.A., Bayer
Corporation, Baxter Healthcare Corporation, Genzyme Corporation, Johnson & Johnson and Wyeth-Ayerst Laboratories. In addition, companies directly engaged in gene therapy product development
include: Cell Genesys, Inc., Chiron Corporation, Targeted Genetics Corporation, Transkaryotic Therapies, Inc. and Urogen Corp. There are also academic institutions, governmental agencies
and other research organizations that are conducting research in areas in which the Company is working.

Autologous Chondrocytes

If the Company begins to commercialize chondrocytes in Europe, it will compete directly with certain European universities and U.S. and European companies that
have developed similar products, including Codon, Verigen, Isotis and Genzyme Biosurgery. Genzyme Biosurgery has been granted a BLA for chondrocytes in the U.S. The Company's autologous chondrocytes
product also competes indirectly with alternative therapies for repairing damaged joint cartilage, including medicinal type treatments that are administered by injection and various surgical
treatments.

GOVERNMENT REGULATION

The research, pre-clinical development, clinical trials, product manufacturing and marketing conducted by or on behalf of the Company are 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, Public Health Service Act, and their state, local and foreign counterparts.

Generally,
the steps required before a pharmaceutical or therapeutic biological agent may be marketed in the U.S. include: (i) pre-clinical laboratory tests,
pre-clinical studies in animals, toxicity studies and formulation studies; (ii) the submission to the FDA of an IND for human clinical testing, that must become effective before
human clinical trials commence; (iii) adequate and well-controlled

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human clinical trials to establish the safety and efficacy of the drug; (iv) the submission of a marketing application to the FDA; and (v) FDA approval of the marketing application
prior to any commercial sale or shipment of the drug.

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

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

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

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

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requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary widely for European countries both within and outside the European Union ("EU"). Normally,
foreign marketing authorizations are applied for at a national level, although within the EU certain registration procedures are available to companies wishing to market their products in more than
one EU member state. If any applicable regulatory authority is satisfied that adequate evidence of safety, quality and efficacy has been presented, a marketing authorization will be granted. The
system for obtaining marketing authorizations within the EU registration system is a dual one in which certain products, such as biotechnology and high technology products and those containing new
active substances, will have access to a central regulatory system that provides registration throughout the entire EU. Other products will be registered by national authorities in individual EU
member states, operating on a principle of mutual recognition.

EMPLOYEES

As of December 31, 2001, the Company had a total of 43 full-time employees, including 20 full-time employees at the Company's
subsidiary in France and four full-time employees at the joint venture operation in Australia, compared to a total of 54 total full-time employees as of December 31,
2000. 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 during calendar year 2002 or early 2003.

AVAX will need to raise more money some time during calendar year 2002 or early 2003 to continue research, product development and clinical development in 2003
and beyond and to pursue the manufacture and marketing of any products that it may develop. AVAX completed a $25.1 million private placement of common stock on March 10, 2000, which
funds, together with other cash resources of the Company, will be sufficient to fund the Company's expected activities through the first quarter of 2003. Although AVAX expects its current cash
resources to be sufficient to fund its operations through the first quarter of calendar year 2003, the period of operations that can be funded by the current cash resources of the Company will be
affected by numerous factors, including the rate of cash expenditures on product development programs and clinical development programs. See "Management's Discussion and Analysis of Financial
Condition and Plan of Operations" in this report and any quarterly reports on Form 10-QSB hereafter filed by the Company for a discussion of the current cash resources of the
Company.

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 cease some or
all of its product development programs. Because of the declining stock price in 2001 and the substantial tightening of equity funding markets for biotechnology companies generally in 2001, the
Company reviewed each of its development programs and the cash requirements of each throughout 2001. As a result of these reviews, the Company substantially reduced its then current and planned future
expenditures for various product candidates. See "Item 6Management's Discussion and Analysis of Financial Condition and Plan of Operation" for a discussion of cash expenditures by the
Company in 2001 and anticipated cash needs of the Company in 2002.

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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 specific immunotherapy products developed for the treatment of cancer that have been approved by the FDA for commercial marketing. 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.

Because
the frozen vaccine product being developed by the Company is considered by the FDA to be a different product from the M-Vax and O-Vax products that were
subject to the Company's clinical trials, the evidence of efficacy and safety of M-Vax and O-Vax previously realized in the clinical studies conducted by Dr. Berd at TJU
and in the Company's clinical trials may not be considered as evidence of the efficacy or safety of the frozen vaccine products now being developed by the Company.

Even if the AC Vaccine is safe and effective, commercial acceptance and profitability is not guaranteed.

Even if M-Vax and O-Vax are safe and effective, that does not guarantee commercial acceptance. Because the AC Vaccine technology is a new
approach to the treatment of cancer, it must be accepted by both patients and physicians before it can be successfully commercialized. The marketplace of ideas, technologies and information is
crowded, and AVAX must develop the means to reach leading specialist physicians in each market with the AC Vaccine story. The availability of governmental and insurance reimbursements of the costs of
the vaccine is critical to ultimate physician and patient acceptance of the AC Vaccine technology.

The U.S. clinical trial and regulatory approval process for the Company's products will be expensive and time consuming, and the outcome 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 Company's business and financial condition will be materially and
adversely affected by any delays in, or termination of, its clinical trials.

During
2001 the Company received notification from the FDA that both the M-Vax and O-Vax clinical trials were placed on clinical hold by the FDA. In addition, the
FDA conducted reviews of AVAX's manufacturing facilities in Philadelphia that resulted in the FDA issuing a Form 483 and later a formal Warning Letter. In working with the FDA to resolve the
issues identified as part of the clinical hold, the Form 483 and the Warning Letter, the Company has experienced the difficulties that arise from seeking to obtain regulatory approval of a
novel therapy, such as the AC Vaccine technology.

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The Company is operating in a regulated industry where the guidance for acceptable manufacturing and testing of the Company's products and processes are evolving.

Regulatory standards require that the Company must produce its products in compliance with Good Manufacturing Practice. These requirements, as dictated by the
United States Federal Food, Drug, and Cosmetic Act, adopt the methods for end product standards and methods of analysis as published in the United States Pharmacopeia ("USP"). In February 2002,
the USP issued a new general information chapter entitled "cell and gene therapy products," which becomes effective April 2002. This relates to the production and testing of cell and gene
therapy products. This is the first known industry general guideline specifically related to cell and gene therapy products. New guidance can be expected as the cell and gene therapy areas of the
pharmaceutical industry expand. The Company will be required to adapt its existing physical facilities, process and procedures to these standards for the production of its products during clinical
testing and for future commercialization. The inability to adapt to these evolving standards will delay the Company's ability to produce product for clinical testing and would delay the Company's
ability to enter into clinical trials.

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.

The Company may have to depend on third parties to develop market and distribute its products.

AVAX currently does not have the resources to develop fully, market or distribute M-Vax, O-Vax or any other products it may develop in the
future. Moreover, it is particularly difficult and expensive to develop and distribute the AC vaccine products, because they are custom made for each individual patient. AVAX will need additional
financing to further develop this technology. If AVAX is unable to obtain the requisite funding, or if the Company determines that internal development of one or more products 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.

The
Company has presently determined that it would not expend any substantial funds on further development of the TK Gene technology and autologous chondrocytes. At present, the further
development of these product candidates will depend solely upon the ability of the Company to identify a third party willing to undertake the development efforts for one or more of these products.

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, which it has done to date. If the Company fails or is delayed in meeting its obligations, AVAX could

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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.

AVAX is dependent on its small management team.

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. The Company also relies on the specialized scientific knowledge
provided by outside scientists, consultants and the Company's Scientific Advisory Board, but without the benefit of the full-time attention of these individuals if they were employees of
the Company.

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.

AVAX competes with other clinical programs and other treatments for patients for its clinical trials.

AVAX competes with numerous clinical trials and other treatment regimens for patients for the Company's clinical trials. Companies with clinical trials, including
AVAX, provides information and other incentives to oncologists and other specialists as an inducement to put their patients in particular clinical trials. A physician is required to place patients in
clinical trials based upon the physician's assessment of the likely benefits of that clinical trial to the patient. There can be no assurance that the information provided by the Company regarding any
future clinical trials will be sufficient to persuade physicians to place their patients in the Company's clinical trials. The Company had experienced intense competition for patients for its previous
M-Vax clinical trial.

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Based
upon the Company interactions with the FDA the Company decided to inactivate the existing INDs in place during 2001 and prepare to file new INDs during 2002. This will require the
Company to recruit new sites to participate in its clinical programs. The Company will be competing for clinical sites and patients with existing ongoing clinical programs at these institutions and
other institutions not participating in the Company's trials.

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. In Australia, the AVAX joint venture has not obtained reimbursement approvals for
M-Vax from the leading governmental authority and
private insurers. The absence of reimbursement for M-Vax in Australia has, in management's opinion, directly affected the rate of commercialization of M-Vax in Australia. A
submission was prepared and remitted to the Medical Services Advisory Committee in Australia during the second half of 2001. The submission is currently being evaluated and may not be commented on
until the second half of 2002. AVAX will face similar reimbursement timelines and obstacles as it attempts to commercialize M-Vax in European countries.

In
addition, third-party payors are increasingly challenging the price and examining the cost effectiveness of medical products and services. Significant uncertainty exists as to the
reimbursement status of newly approved health care products, and the Company's products may not be considered cost effective by a particular governmental authority or insurer. 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.

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

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, 2001, the price of the Company's common stock has ranged from $0.55 to $4.56. 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:



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

The Company's common stock is listed for quotation on the Nasdaq National Market. The average daily trading volume in the Company's common stock varies
significantly, but is usually low. For the 12-month period ended December 31, 2001, the average daily trading volume in AVAX's common stock was 66,150 shares and the average number
of transactions per day was 62. On many days, the common stock trades less than 20,000 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. If the
common stock were not listed on the Nasdaq SmallCap Market, the liquidity of the Company's common stock could be further 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.

The continued listing of the Company's common stock on Nasdaq is in question.

The Company's common stock has traded below $1.00 per share throughout most of the fourth quarter of 2001 and all of the first quarter of 2002. A minimum share
price of $1.00 is a requirement for continued listing of the common stock on the Nasdaq National Market and the Nasdaq SmallCap Market. If the Company's common stock does not trade above $1.00 per
share on a consistent basis, the Nasdaq will delist the Company's common stock.

Nasdaq
has recently announced a pilot program that modifies the minimum bid price grace period for the Nasdaq's SmallCap Market. Under that pilot program, the 90-day $1.00
price grace period on the Nasdaq SmallCap Market is extended to 180 days. Following this grace period, SmallCap companies that demonstrate compliance with the core initial listing standards of
the SmallCap marketthat is, either net income of $750,000, stockholders' equity of $5,000,000 or market capitalization of $50,000,000will be afforded an additional
180-day grace period within which to regain compliance.

In
conjunction with this pilot program, Nasdaq notified the Company that if the Company's common stock does not close at $1.00 per share or more for a minimum of 10 consecutive trading
days before May 15, 2002, Nasdaq will provide written notification that its securities will be delisted. At that time the Company may appeal NASDAQ's determination to a Listing Qualifications
Panel. If, prior to May 15, 2002, it appears the Company will not be able to satisfy the minimum $1.00 bid requirement, the Company will be allowed to transfer the common stock listing to the
Nasdaq SmallCap Market and avail itself of the new 180 calendar day grace period described above.

19

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There
can be no assurance that the Company's common stock will attain the $1.00 minimum bid price level at any time prior to May 15, 2002, in order to retain its listing on the
Nasdaq National Market, or during the grace period now available for continued listing on the Nasdaq SmallCap Market.

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.

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 Series B preferred stock was converted into common stock in 2000.

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 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 C preferred stock will receive $100 per share in
cash or securities (a total of $8,675,000 as of December 31, 2001), 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

20

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

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 $11,900.

The
Company also leases a facility at One University Place, Rennselaer, New York 12144-3456. The facility consists of 1,325 square feet of laboratory facilities located
within the laboratory facility owned and operated by the University of Albany Foundation. Currently the monthly rental for this facility is approximately $1,700.

In
connection with the Company's acquisition of Genopoietic, AVAX now leases a manufacturing facility in Lyon, France. The facility consists of approximately 9,000 square feet of which
approximately 7,000 square feet are utilized for manufacturing development, including 3,000 square feet of clean rooms, while the remaining 2,000 square feet are used for office space. Currently, the
monthly rental on the facility is approximately $11,500. The lease is for a 9-year period and is extendable for another 9-year period. The lease may be cancelled by the Company
after three years.

ITEM 3.    Legal Proceedings

(a)    Kamy
Behzadhi, a former officer of the Company, has brought suit against the Company in Jackson County, Missouri Circuit Court regarding the circumstances surrounding
his resignation from the
Company. Dr. Behzadhi is alleging (1) fraudulent misrepresentation in connection with the severance agreement between the Company and Dr. Behzadhi, (2) defamation by the
Company, and (3) breach of the severance agreement by the Company. Dr. Behzadhi is seeking compensatory and punitive damages. The Company believes the claims are without merit.

(b)    The
Company has various disputes with Professors Jean-Loup Salzmann and David Klatzmann concerning the performance of the various parties under the numerous
agreements relating to the Company's August 2000 acquisition of Genopoietic. Professors Salzmann and Klatzmann are consultants to the Company, and Professor Salzmann is a director of the
Company.

The
Company and Professors Salzmann and Klatzmann have disagreed, among other things, on (1) whether Professors Salzmann and Klatzmann have performed their obligations to the
Company in accordance with their consulting agreements with the Company, (2) whether Professors Salzmann and Klatzmann have breached certain representations and warranties in the
AVAX/Genopoietic agreements, and (3) whether the Company is meeting its research funding obligations under the Research Funding Agreement with Genopoietic.

In
an effort to resolve differences among them, the Company and Professors Salzmann and Klatzmann have discussed a possible unwinding of the Genopoietic transaction, in which certain

21

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technologies might be transferred to Professors Salzmann and Klatzmann and certain technologies and the Lyon facility would be retained by the Company. The Company does not believe that the transfer
of the TK suicide gene and the autologous chondrocytes technologies back to Professors Salzmann and Klatzmann would have a material adverse effect on the Company in light of the Company's current
inability to further develop these products and the Company's assessment of the relative value of those technologies as compared to other technologies and product candidates held by the Company.

As
of the date of this Report, there is no agreement with Professors Salzmann and Klatzmann regarding a partial unwinding of the Genopoietic transaction. Additionally, Professors
Salzmann and Klatzmann have threatened litigation against the Company in the course of their negotiations with the Company, which has included a threatened claim for rescission of the
August 2000 Genopoietic transaction. The Company believes that the claims of Professors Salzmann and Klatzmann are without merit and would vigorously defend any action brought by Professors
Salzmann and Klatzmann seeking rescission of the August 2000 transaction or damages from the Company.

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, 2001.

22

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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. The common stock was listed for
quotation on the Nasdaq SmallCap Market under the symbol "AVXT" from July 10, 1997 to October 8, 2000. Effective October 9, 2000, the Company's common stock began trading on the
Nasdaq National 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 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, 2001 |                |      |   |       
|                                    | First quarter  |      | $ | 4.56  
|                                    | Second quarter |      | $ | 1.50  
|                                    | Third quarter  |      | $ | 2.44  
|                                    | Fourth quarter |      | $ | 1.34  
|Fiscal year ended December 31, 2000 |                |      |   |       
|                                    | First quarter  |      | $ | 16.00 
|                                    | Second quarter |      | $ | 12.125
|                                    | Third quarter  |      | $ | 13.50 
|                                    | Fourth quarter |      | $ | 8.375 

The
last reported sale price of the common stock on the Nasdaq National Market on February 28, 2002 was $0.51 per share. At February 28, 2002, there were 16,541,621 shares
of common stock outstanding, which were held by approximately 9,200 record and beneficial stockholders. The 86,750 shares of Series C preferred stock outstanding at December 31, 2001,
are convertible into 2,669,225 shares of common stock, excluding the effect of any fractional shares.

The
Company has not paid any cash dividends on its common stock since its formation. The payment of dividends, if any, in the future, with respect to the common stock, is 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 on 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 $52,612,342 as of December 31, 2001. The Company expects to incur significant
operating losses over the next several years, primarily due to the continuation of its research and development programs, including initiation of new clinical trials for M-Vax and
O-Vax, clinical development and regulatory submissions related to licensure of the Xl-SCID technology, pre-clinical studies and potential IND filings for certain of
the Company's other products and compounds.

23

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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 (other than limited
M-Vax revenue through the Australian joint venture), 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 intends to continue to be engaged primarily in the development and commercialization of its AC
Vaccine products and other Company products and compounds. The Company anticipates that during the next 12 months it will continue substantial research, development, clinical and regulatory
activities, including (i) initiating clinical trials for M-Vax, the Company's lead AC Vaccine technology for metastatic melanoma, (ii) initiating clinical trials for
O-Vax, its AC Vaccine for ovarian cancer, (iii) preparing a regulatory dossier for the submission to the European Medical Evaluation Agency (EMEA) for the licensure and
commercialization of the SCID-Xl technology in Europe, and (iv) advancing the pre-clinical development of the two small molecule compounds (the topoisomerase and
anti-estrogen compounds) in anticipation of IND filings. SeeItem 1 "Description of BusinessTechnology and Product Candidates and Services," "License
and Research Agreements"and"Manufacturing and Marketing."

Although
the Company completed a $25.1 million private placement of common stock on March 10, 2000, there can be no assurance that the Company will be able to obtain the
additional financing necessary to continue to develop current products and technologies or any future additional products or 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.

AVAX
experienced events during 2001 that significantly impacted its operations during the year. Early in 2001 the Company announced changes to its management team. In addition, in March
of 2001 the Company announced its clinical programs related to the AC Vaccine technology had been placed on clinical hold, based upon discussions with the FDA it was later determined that these
programs should be inactivated and new clinical programs should be initiated for the frozen vaccine product. As a result of these events, AVAX engaged in a detailed review of its technology portfolio,
existing asset bases and available resources. This review resulted in a reprioritization of the Company's technology portfolio, patent positions and resource requirements. From this effort, a cost
minimization strategy was developed and implemented to preserve the company's cash resources.

In
2000 revenues recognized were $0.1 million. Revenues recognized in 2001 were $0.5 million. The increase in revenues of $0.4 million was attributable to the
Company's French operations and was a function of the current years activity including twelve months while the prior years activity only included four.

During
2001, the Company's manufacturing, research and development expenses decreased from $9.4 million to $8.1 million, while selling, general and administrative expenses
increased from $4.0 million to $4.3 million. Manufacturing, research and development expenses decreased in the U.S. by approximately $1.8 million and increased in France by
approximately $0.5 million.

24

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In
the United States research efforts transitioned from clinical development to product development in creating a frozen vaccine technology. The increase in expenses at the Company's
French subsidiary were the function of a full year of activity at the site versus the prior year which only included four months of activity. Activities undertaken in France were primarily directed at
supporting the ongoing clinical trial development activities related to the SCID-Xl technology, limited costs associated with development work on the chondrocyte technology and supporting
product development initiatives for the AC vaccine.

Acquired
in process research and development expenses written off in the prior year was $4.4 million while there was no expense recognized in the current year. This expense was a
result of acquired in-process research and development costs acquired from the Genopoietic acquisition. In 2001 the amortization of acquired in process research and development costs was
$0.5 million versus $0.2 million for the year 2000. The increase was the result of a full year of amortization in 2001 compared with a half-year of amortization in 2000.

For
the year ended December 31, 2001, the Company recorded a non-cash charge of $3.4 million related to the write down of acquired intellectual property and other
intangible assets. This write down relates to the acquired intellectual property and other intangible assets from the Genopoietic acquisition in August 2000 (primarily the autologous
chondrocytes technology and related patents).

Selling,
general and administrative expenses increased approximately $0.3M from $4.0M to $4.3M. In the United States selling, general and administrative expenses decreased approximately
$0.5M while in France the expenses increased approximately $0.8M from the previous year. In the United States first quarter of 2001 selling, general and administrative expenses increased as a result
of marketing initiatives undertaken related to tumor cell banking and with the resignation and pay out of salary to the prior CEO. Through cost minimization programs these costs were decreased
significantly during the remaining three quarters in the.

In
France, selling, general and administrative expense increases were a function of a full year of marketing and administrative efforts versus four months in the prior year and legal
fees associated with business structure changes and employment matters.

Interest
income decreased from $1.5 million earned in 2000 to $0.7 million for the year 2001. The decline is a function of the decrease in the average invested asset base
combined with a significant reduction in the rates on commercial paper in which the Company typically invested.

The
Company anticipates that, over the next 12 months, manufacturing, research and development expenses will decrease as compared with 2001 due to reductions in spending
anticipated in France and lower product development costs in the United States. In addition the Company anticipates that selling, general and administration expenses will decrease due to various cost
minimization strategies implemented by the Company.

Critical Accounting Policies

In December 2001, the SEC requested that all registrants discuss their most "critical accounting policies" in management's discussion and analysis of
financial condition and results of operations. The SEC indicated that a "critical accounting policy" is one which is both important to the portrayal of the company's financial condition and results
and requires management's most difficult, subjective or
complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company's critical accounting policies are fully described in
Note 1 of our attached Consolidated Financial Statements.

25

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LIQUIDITY AND CAPITAL RESOURCES

The Company presently anticipates that its current resources should be sufficient to fund operations through the first quarter of 2003 based upon the Company's
current operating plan. That current operating plan includes anticipated expenses relating to (1) filing IND's for M-Vax and O-Vax in 2002 and related costs for
recommencing clinical trials for those products, (2) continuing development of the topoisomerase compound and anti-estrogen technology, and (3) certain costs associated with
the Xl-SCID technology. To the extent the Company does not achieve one or more of its operating plan objectives in 2002, the anticipated cash needs of the Company are expected to decline.
AVAX will need to raise more money during 2002 or the first quarter of 2003 to continue research and product development through the end of 2002 and into 2003.

Because
the Company's working capital requirements 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 through the first quarter of 2003. Because the Company has no committed external sources of capital,
and expects no significant product revenues for the foreseeable future, it will 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

In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets (FAS 144), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of
Operations
for a disposal of a segment of a business. FAS 144 is effective for fiscal years beginning after December 15, 2001, with earlier application encouraged. The Company expects to adopt
FAS 144 as of January 1, 2002 and it has not determined the effect, if any, the adoption of FAS 144 will have on its financial position and results of operations.

In
July 2001, the FASB issued Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires that the
purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001.
Statement 141 also specifies the criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill, noting that any purchase
price allocable to an assembled workforce may not be accounted for separately. Statement 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but
instead that they be tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 will also require that intangible assets with definite useful lives be
amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.

26

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We
are required to adopt the provisions of Statement 142 effective January 1, 2002. Goodwill and intangible assets acquired in business combinations completed before
July 1, 2001 will continue to be amortized prior to the adoption of Statement 142.

Statement
141 will require, upon adoption of Statement 142, that we evaluate our existing intangible assets and goodwill that were acquired in a prior purchase business combination, and
to make any necessary reclassifications in order to conform with the new criteria in Statement 141 for recognition apart from goodwill. Upon adoption of Statement 142, we will be required to reassess
the useful lives and residual values of all intangible assets acquired in purchase business combinations, and make any necessary amortization period adjustments by the end of the first interim period
after adoption. In addition, to the extent an intangible asset is identified as having an indefinite useful life, we will be required to test the intangible asset for impairment in accordance with the
provisions of Statement 142 within the first interim period. Any impairment loss will be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle
in the first interim period.

In
connection with the transitional goodwill impairment evaluation, Statement 142 will require us to perform an assessment of whether there is an indication that goodwill is impaired as
of the date of adoption. Any transitional impairment loss will be recognized as the cumulative effect of a change in accounting principle in our consolidated statement of operations.

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.

27

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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, 2001.

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, 2001.

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, 2001.

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, 2001.

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

None for the quarter ended December 31, 2001.

28

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Consolidated Financial StatementsAVAX TECHNOLOGIES, INC.(a development stage company)

Years ended December 31, 2001 and 2000
and the period from January 12, 1990
(Incorporation) to December 31, 2001
With Report of Independent Auditors

---

AVAX TECHNOLOGIES, INC.(a development stage company)CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2001 and 2000 and for the period from January 12, 1990
(Incorporation) to December 31, 2001

CONTENTS

|Report of Independent Auditors                                                                                                                                                         |  | F-1
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---
|Consolidated Financial Statements                                                                                                                                                      |  |    
|Consolidated Balance Sheet as of December 31, 2001                                                                                                                                     |  | F-2
|Consolidated Statements of Operations for the years ended December 31, 2001 and 2000 and for the period from January 12, 1990 (incorporation) to December 31, 2001                     |  | F-3
|Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 2001 and 2000 and for the period from January 12, 1990 (incorporation) to December 31, 2001 |  | F-4
|Consolidated Statements of Cash Flows for the years ended December 31, 2001 and 2000 and for the period from January 12, 1990 (incorporation) to December 31, 2001                     |  | F-7
|Notes to Consolidated Financial Statements                                                                                                                                             |  | F-9

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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, 2001, and the
related consolidated statements of operations, stockholders' equity (deficit) and cash flows for the years ended December 31, 2001 and 2000, and for the period from January 12, 1990
(incorporation) to December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements
based on our audits.

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

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of AVAX Technologies, Inc. and
subsidiaries at December 31, 2001 and the consolidated results of their operations and their cash flows for the years ended December 31, 2001 and 2000 and for the period from
January 12, 1990 (incorporation) to December 31, 2001 in conformity with accounting principles generally accepted in the United States.

Ernst &
Young LLP

Kansas
City, Missouri
February 28, 2002

F-1

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AVAX TECHNOLOGIES, INC. AND  SUBSIDIARIES(a development stage company)CONSOLIDATED BALANCE SHEET

|                                                                                                                  |                                           | December 31,
2001                                                                          |                                      
|----------------------------------------------------------------------------------------------------------------- | ----------------------------------------- | ------------------------------------------------------------------------------------------ | -------------------------------------
|Assets                                                                                                            |                                           |                                                                                            |                                      
|Current assets:                                                                                                   |                                           |                                                                                            |                                      
|                                                                                                                  | Cash and cash equivalents                 |                                                                                            | $                                    
|                                                                                                                  | Marketable securities                     |                                                                                            |                                      
|                                                                                                                  | Accounts receivable                       |                                                                                            |                                      
|                                                                                                                  | Inventory                                 |                                                                                            |                                      
|                                                                                                                  | Prepaid expenses and other current assets |                                                                                            |                                      
|                                                                                                                  |                                           |                                                                                            |                                      
|Total current assets                                                                                              |                                           |                                                                                            | 13,173,916                           
|Property, plant and equipment, at cost                                                                            |                                           |                                                                                            | 3,189,033                            
|                                                                                                                  | Less accumulated depreciation             |                                                                                            |                                      
|                                                                                                                  |                                           |                                                                                            |                                      
|Net property, plant and equipment                                                                                 |                                           |                                                                                            | 2,063,696                            
|Equity investment in joint venture                                                                                |                                           |                                                                                            | 26,975                               
|Acquired intellectual property and other intangibles, net of amortization of $715,872 and write off of $3,416,091 |                                           |                                                                                            | 188,387                              
|                                                                                                                  |                                           |                                                                                            |                                      
|Total assets                                                                                                      |                                           | $                                                                                          | 15,452,974                           
|                                                                                                                  |                                           |                                                                                            |                                      
|Liabilities and stockholders' equity                                                                              |                                           |                                                                                            |                                      
|Current liabilities:                                                                                              |                                           |                                                                                            |                                      
|                                                                                                                  | Accounts payable and accrued liabilities  |                                                                                            | $                                    
|                                                                                                                  | Deferred revenue                          |                                                                                            |                                      
|                                                                                                                  |                                           |                                                                                            |                                      
|Total current liabilities                                                                                         |                                           |                                                                                            | 2,263,250                            
|Long-term debt                                                                                                    |                                           |                                                                                            | 247,752                              
|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:
|                                                                                                                  |                                           |                                                                                            |                                      
|                                                                                                                  |                                           |                                                                                            | Series C convertible preferred stock:
|                                                                                                                  |                                           |                                                                                            |                                      
|                                                                                                                  |                                           | Common stock, $.004 par value:                                                             |                                      
|                                                                                                                  |                                           |                                                                                            | Authorized shares50,000,000         
|                                                                                                                  |                                           |                                                                                            |                                      
|                                                                                                                  |                                           | Additional paid-in capital                                                                 |                                      
|                                                                                                                  |                                           | Subscription receivable                                                                    |                                      
|                                                                                                                  |                                           | Accumulated other comprehensive income                                                     |                                      
|                                                                                                                  |                                           | Deficit accumulated during the development stage                                           |                                      
|                                                                                                                  |                                           |                                                                                            |                                      
|Total stockholders' equity                                                                                        |                                           |                                                                                            | 12,941,972                           
|                                                                                                                  |                                           |                                                                                            |                                      
|Total liabilities and stockholders' equity                                                                        |                                           | $                                                                                          | 15,452,974                           
|                                                                                                                  |                                           |                                                                                            |                                      

See
accompanying notes.

F-2

---



AVAX TECHNOLOGIES, INC. AND  SUBSIDIARIES(a development stage company)CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                     |                                                                    |   |             |           |   | Period from
January 12, 1990
(Incorporation) to
December 31,
2001 |          
|---------------------------------------------------- | ------------------------------------------------------------------ | - | ----------- | --------- | - | ----------------------------------------------------------------- | ---------
|
|
|Revenue:                                             |                                                                    |   |             |           |   |                                                                   |          
|                                                     | Gain from sale of the Product                                      |   | $           |          |   | $                                                                 |         
|                                                     | Product and contract service revenue                               |   |             | 112,459   |   |                                                                   | 541,355  
|                                                     |                                                                    |   |             |           |   |                                                                   |          
|Total revenue                                        |                                                                    |   | 112,459     |           |   | 541,355                                                           |          
|Costs and expenses:                                  |                                                                    |   |             |           |   |                                                                   |          
|                                                     | Manufacturing, research and development                            |   |             | 9,405,318 |   |                                                                   | 8,099,678
|                                                     | Acquired in process research and development                       |   |             | 4,420,824 |   |                                                                   |         
|                                                     | Write down of acquired intellectual property and other intangibles |   |             |          |   |                                                                   | 3,416,091
|                                                     | Amortization of acquired intangibles                               |   |             | 238,624   |   |                                                                   | 477,248  
|                                                     | Selling, general and administrative                                |   |             | 4,000,730 |   |                                                                   | 4,303,246
|                                                     |                                                                    |   |             |           |   |                                                                   |          
|Total operating loss                                 |                                                                    |   | (17,953,037 | )         |   | (15,754,908                                                       | )        
|Other income (expense):                              |                                                                    |   |             |           |   |                                                                   |          
|                                                     | Interest income                                                    |   |             | 1,538,695 |   |                                                                   | 665,933  
|                                                     | Interest expense                                                   |   |             |          |   |                                                                   |         
|                                                     | Minority interest in losses of consolidated subsidiaries           |   |             |          |   |                                                                   |         
|                                                     | Amortization of deferred gain on joint venture                     |   |             | 902,900   |   |                                                                   | 902,900  
|                                                     | Equity in net loss of joint venture                                |   |             | (765,307  | ) |                                                                   | (923,678 
|                                                     | Other, net                                                         |   |             |          |   |                                                                   |         
|                                                     |                                                                    |   |             |           |   |                                                                   |          
|Total other income, net                              |                                                                    |   | 1,676,288   |           |   | 645,155                                                           |          
|                                                     |                                                                    |   |             |           |   |                                                                   |          
|Net loss                                             |                                                                    |   | (16,276,749 | )         |   | (15,109,753                                                       | )        
|Amount payable for liquidation preference            |                                                                    |   |            |           |   |                                                                  |          
|                                                     |                                                                    |   |             |           |   |                                                                   |          
|Net loss attributable to common stockholders         |                                                                    | $ | (16,276,749 | )         | $ | (15,109,753                                                       | )        
|                                                     |                                                                    |   |             |           |   |                                                                   |          
|Net loss per common sharebasic and diluted          |                                                                    | $ | (1.06       | )         | $ | (0.91                                                             | )        
|                                                     |                                                                    |   |             |           |   |                                                                   |          
|Weighted average number of common shares outstanding |                                                                    |   | 15,347,464  |           |   | 16,541,621                                                        |          
|                                                     |                                                                    |   |             |           |   |                                                                   |          

See
accompanying notes.

F-3

---



AVAX TECHNOLOGIES, INC. AND  SUBSIDIARIES(a development stage company)CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

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

F-4

---

|                             | Repurchase of common stock in March 1996                                                          |   |           |   |        |         |        |   |       |      |   |  |   |  |            | (77,901   | )      | (312   | )          |           |        | 312   |          |           |        |       |   |  |             |           |            |           |  
|---------------------------- | ------------------------------------------------------------------------------------------------- | - | ---------- | - | ------- | ------- | ------- | - | ----- | ----- | - | - | - | - | ---------- | --------- | ------ | ------ | ---------- | ---------- | ------ | ----- | -------- | ---------- | ------ | ------ | - | - | ----------- | ---------- | ---------- | ---------- | -
|                             | Payment of subscription receivable                                                                |   |           |   |        |         |        |   |       |      |   |  |   |  |            |          |        |       |            |           |        | 2,771 |          |           |        |       |   |  |             |           |            | 2,771      |  
|                             | Conversion of Series A preferred stock in June 1996                                               |   | (1,287,500 | ) | (12,875 | )       |        |   |       |      |   |  |   |  |            | 321,875   |        | 1,288  |            | 11,587     |        |      |          |           |        |       |   |  |             |           |            |           |  
|                             | 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    |            | 22,217,397 |        |      |          |           |        |       |   |  |             |           |            | 22,220,495 |  
|                             | Issuance of common stock and Series B preferred stock for services in June 1996                   |   |           |   |        |         | 1,000   |   |       | 10    |   |  |   |  |            | 500       |        | 2      |            | 99,988     |        |      |          |           |        |       |   |  |             |           |            | 100,000    |  
|                             | Exercise of warrants in June and July 1996                                                        |   |           |   |        |         |        |   |       |      |   |  |   |  |            | 156,250   |        | 626    |            | 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 |                                                                                                   |  |            |  |         | 259,198 |         |   | 2,592 |       |  |   |  |   | 3,111,158  |           | 12,445 |        | 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                                                       |   |           |   |        |         |        |   |       |      |   |  |   |  |            | 49,770    |        | 199    |            | (199       | )      |      |          |           |        |       |   |  |             |           |            |           |  
|                             | Conversion of preferred to common stock                                                           |   |           |   |        |         | (55,039 | ) |       | (551  | ) |  |   |  |            | 1,421,403 |        | 5,685  |            | (5,134     | )      |      |          |           |        |       |   |  |             |           |            |           |  
|                             | Repurchase of fractional shares                                                                   |   |           |   |        |         |        |   |       |      |   |  |   |  |            | (26       | )      |       |            | (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 |                                                                                                   |  |            |  |         | 204,159 |         | $ | 2,041 |       |  |   |  |   | 4,582,305  |           | 18,329 |        | 23,995,640 |            | (432   | )     | (694,324 | )          |       |        |  |   | (7,520,147  | )          | 15,801,107 |           
|                             | Conversion of preferred to common stock                                                           |   |           |   |        |         | (91,470 | ) |       | (914  | ) |  |   |  |            | 2,386,174 |        | 9,544  |            | (8,630     | )      |      |          |           |        |       |   |  |             |           |            |           |  
|                             | Payment of subscription receivable                                                                |   |           |   |        |         |        |   |       |      |   |  |   |  |            |          |        |       |            |           |        | 10    |          |           |        |       |   |  |             |           |            | 10         |  
|                             | Issue shares based upon reset provisions                                                          |   |           |   |        |         |        |   |       |      |   |  |   |  |            | 3,029,339 |        | 12,117 |            | (12,117    | )      |      |          |           |        |       |   |  |             |           |            |           |  
|                             | Issue compensatory shares to officer                                                              |   |           |   |        |         |        |   |       |      |   |  |   |  |            | 9,301     |        | 38     |            | 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 |                                                                                                   |  |            |  |         | 112,689 |         |   | 1,127 |       |  |   |  |   | 10,007,119 |           | 40,028 |        | 23,999,855 |            | (422   | )     | (425,224 | )          |       |        |  |   | (13,358,277 | )          | 10,257,087 |           

F-5

---

|                             | Conversion of preferred to common stock                                                                |   |  |   |   |  |        | (38,805 | ) |     | (388 | )       |        |   |       |      |            | 1,012,286 |   |        | 4,049 |   |            | (3,661     | ) |      |  |   |          |        |   |   |  |   |        |        |   |             |            |   |            |            |  
|---------------------------- | ------------------------------------------------------------------------------------------------------ | - | - | - | - | - | ------ | ------- | - | --- | ---- | ------- | ------- | - | ----- | ----- | ---------- | --------- | - | ------ | ----- | - | ---------- | ---------- | - | ---- | - | - | -------- | ------- | - | - | - | - | ------ | ------- | - | ----------- | ----------- | - | ---------- | ----------- | -
|                             | Issue shares based upon reset provisions                                                               |   |  |   |   |  |        |        |   |     |     |         |        |   |       |      |            | 20,885    |   |        | 84    |   |            | (84        | ) |      |  |   |          |        |   |   |  |   |        |        |   |             |            |   |            |            |  
|                             | Issuance of Series C preferred stock in a private placement in March 1999                              |   |  |   |   |  |        |        |   |     |     |         | 101,300 |   |       | 1,013 |            |          |   |        |      |   |            | 9,283,726  |   |      |  |   |          |        |   |   |  |   |        |        |   |             |            |   |            | 9,284,739   |  
|                             | Exercise of Warrants pursuant to cashless exercise provisions                                          |   |  |   |   |  |        |        |   |     |     |         |        |   |       |      |            | 37,500    |   |        | 150   |   |            | 27,000     |   |      |  |   |          |        |   |   |  |   |        |        |   |             |            |   |            | 27,150      |  
|                             | Capital contributed through sale of 20% interest in consolidated subsidiaries to unrelated third party |   |  |   |   |  |        |        |   |     |     |         |        |   |       |      |            |          |   |        |      |   |            | 2,099,200  |   |      |  |   |          |        |   |   |  |   |        |        |   |             |            |   |            | 2,099,200   |  
|                             | Amortization of deferred compensation                                                                  |   |  |   |   |  |        |        |   |     |     |         |        |   |       |      |            |          |   |        |      |   |            |           |   |      |  |   |          | 269,100 |   |   |  |   |        |        |   |             |            |   |            | 269,100     |  
|                             | Net loss                                                                                               |   |  |   |   |  |        |        |   |     |     |         |        |   |       |      |            |          |   |        |      |   |            |           |   |      |  |   |          |        |   |   |  |   |        |        |   |             | (7,867,563  | ) |            | (7,867,563  | )
|                             |                                                                                                        |   |   |   |   |   |        |         |   |     |      |         |         |   |       |       |            |           |   |        |       |   |            |            |   |      |   |   |          |         |  
|Balance at December 31, 1999 |                                                                                                        |  |   |   |  |   | 73,884 |         |   | 739 |      | 101,300 |         |   | 1,013 |       | 11,077,790 |           |   | 44,311 |       |   | 35,406,036 |            |   | (422 | ) |   | (156,124 | )       |   |  |   |   |       |         |   | (21,225,840 | )           |   | 14,069,713 |            
|                             | Conversion of preferred to common stock                                                                |   |  |   |   |  |        | (73,884 | ) |     | (739 | )       | (14,550 | ) |       | (146  | )          | 2,375,083 |   |        | 9,500 |   |            | (8,615     | ) |      |  |   |          |        |   |   |  |   |        |        |   |             |            |   |            |            |  
|                             | Private placement of common stock, March 2000                                                          |   |  |   |   |  |        |        |   |     |     |         |        |   |       |      |            | 2,259,494 |   |        | 9,039 |   |            | 24,186,656 |   |      |  |   |          |        |   |   |  |   |        |        |   |             |            |   |            | 24,195,695  |  
|                             | Capital contribution by shareholder                                                                    |   |  |   |   |  |        |        |   |     |     |         |        |   |       |      |            |          |   |        |      |   |            | 93,637     |   |      |  |   |          |        |   |   |  |   |        |        |   |             |            |   |            | 93,637      |  
|                             | Exercise of options and warrants                                                                       |   |  |   |   |  |        |        |   |     |     |         |        |   |       |      |            | 29,254    |   |        | 117   |   |            | 271,273    |   |      |  |   |          |        |   |   |  |   |        |        |   |             |            |   |            | 271,390     |  
|                             | Shares issued pursuant to acquisition of Subsidiary                                                    |   |  |   |   |  |        |        |   |     |     |         |        |   |       |      |            | 800,000   |   |        | 3,200 |   |            | 7,596,800  |   |      |  |   |          |        |   |   |  |   |        |        |   |             |            |   |            | 7,600,000   |  
|                             | Elimination of contributed capital related to joint venture no longer consolidated (See Note 4)        |   |  |   |   |  |        |        |   |     |     |         |        |   |       |      |            |          |   |        |      |   |            | (2,099,200 | ) |      |  |   |          |        |   |   |  |   |        |        |   |             |            |   |            | (2,099,200  | )
|                             | Amortization of deferred compensation                                                                  |   |  |   |   |  |        |        |   |     |     |         |        |   |       |      |            |          |   |        |      |   |            |           |   |      |  |   |          | 156,124 |   |   |  |   |        |        |   |             |            |   |            | 156,124     |  
|                             | Foreign currency translation adjustment                                                                |   |  |   |   |  |        |        |   |     |     |         |        |   |       |      |            |          |   |        |      |   |            |           |   |      |  |   |          |        |   |   |  |   |        | 80,009  |   |             |            |   |            | 80,009      |  
|                             | Net loss                                                                                               |   |  |   |   |  |        |        |   |     |     |         |        |   |       |      |            |          |   |        |      |   |            |           |   |      |  |   |          |        |   |   |  |   |        |        |   |             | (16,276,749 | ) |            | (16,276,749 | )
|                             |                                                                                                        |   |   |   |   |   |        |         |   |     |      |         |         |   |       |       |            |           |   |        |       |   |            |            |   |      |   |   |          |         |  
|Balance at December 31, 2000 |                                                                                                        |  |   |   |  |   |       |         |   |    |      | 86,750  |         |   | 867   |       | 16,541,621 |           |   | 66,167 |       |   | 65,446,587 |            |   | (422 | ) |   |         |         |   |  |   |   | 80,009 |         |   | (37,502,589 | )           |   | 28,090,619 |            
|                             | Foreign currency translation adjustment                                                                |   |  |   |   |  |        |        |   |     |     |         |        |   |       |      |            |          |   |        |      |   |            |           |   |      |  |   |          |        |   |   |  |   |        | (38,894 | ) |             |            |   |            | (38,894     | )
|                             | Net loss                                                                                               |   |  |   |   |  |        |        |   |     |     |         |        |   |       |      |            |          |   |        |      |   |            |           |   |      |  |   |          |        |   |   |  |   |        |        |   |             | (15,109,753 | ) |            | (15,109,753 | )
|                             |                                                                                                        |   |   |   |   |   |        |         |   |     |      |         |         |   |       |       |            |           |   |        |       |   |            |            |   |      |   |   |          |         |  
|Balance at December 31, 2001 |                                                                                                        |  |   | $ |  |   |       |         | $ |    |      | 86,750  |         | $ | 867   |       | 16,541,621 |           | $ | 66,167 |       | $ | 65,446,587 |            | $ | (422 | ) | $ |         |         | $ |  |   | $ | 41,115 |         | $ | (52,612,342 | )           | $ | 12,941,972 |            
|                             |                                                                                                        |   |   |   |   |   |        |         |   |     |      |         |         |   |       |       |            |           |   |        |       |   |            |            |   |      |   |   |          |         |  

See accompanying notes.

F-6

---



AVAX TECHNOLOGIES, INC. AND  SUBSIDIARIES(a development stage company)CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                            |                                                                                      |                                           |              |           |          | Period from
January 12, 1990
(Incorporation) to
December 31,
2001 |          
|--------------------------------------------------------------------------- | ------------------------------------------------------------------------------------ | ----------------------------------------- | ------------ | --------- | -------- | ----------------------------------------------------------------- | ---------
|
|
|Operating activities                                                        |                                                                                      |                                           |              |           |          |                                                                   |          
|Net loss                                                                    |                                                                                      | $                                         | (16,276,749  | )         | $        | (15,109,753                                                       | )        
|Adjustments to reconcile net loss to net cash used in operating activities: |                                                                                      |                                           |              |           |          |                                                                   |          
|                                                                            | Depreciation and amortization                                                        |                                           |              | 771,995   |          |                                                                   | 898,188  
|                                                                            | Amortization of deferred gain on joint venture                                       |                                           |              | (902,900  | )        |                                                                   | (902,900 
|                                                                            | Equity in net loss of joint venture                                                  |                                           |              | 765,307   |          |                                                                   | 923,678  
|                                                                            | Minority interest in net loss of consolidated subsidiary                             |                                           |              |          |          |                                                                   |         
|                                                                            | Acquired in-process research and development charge                                  |                                           |              | 4,420,824 |          |                                                                   |         
|                                                                            | Write down of acquired intellectual property and other intangibles                   |                                           |              |          |          |                                                                   | 3,416,091
|                                                                            | Compensatory stock issue                                                             |                                           |              |          |          |                                                                   |         
|                                                                            | Gain on sale of the Product                                                          |                                           |              |          |          |                                                                   |         
|                                                                            | Gain on sale of intellectual property                                                |                                           |              |          |          |                                                                   |         
|                                                                            | Accretion of interest on common stock receivable                                     |                                           |              |          |          |                                                                   |         
|                                                                            | Accretion of interest on amount payable to preferred stockholders and Former Officer |                                           |              |          |          |                                                                   |         
|                                                                            | Loss on sale or abandonment of furniture and equipment                               |                                           |              |          |          |                                                                   |         
|                                                                            | Issuance of common stock or warrants for services                                    |                                           |              | 249,139   |          |                                                                   |         
|                                                                            | Changes in operating assets and liabilities:                                         |                                           |              |           |          |                                                                   |          
|                                                                            |                                                                                      | Accounts receivable                       |              |           | (13,776  | )                                                                 |          
|                                                                            |                                                                                      | Inventory                                 |              |           | (10,722  | )                                                                 |          
|                                                                            |                                                                                      | Prepaid expenses and other current assets |              |           | (171,728 | )                                                                 |          
|                                                                            |                                                                                      | Accounts payable and accrued liabilities  |              |           | 732,930  |                                                                   |          
|                                                                            |                                                                                      | Deferred revenue                          |              |           | 64,614   |                                                                   |          
|                                                                            |                                                                                      | Amount payable to Former Officer          |              |           |         |                                                                   |          
|                                                                            |                                                                                      |                                           |              |           |          |                                                                   |          
|Net cash used in operating activities                                       |                                                                                      |                                           | (10,371,066  | )         |          | (10,844,973                                                       | )        
|Investing activities                                                        |                                                                                      |                                           |              |           |          |                                                                   |          
|Purchases of marketable securities                                          |                                                                                      |                                           | (162,639,464 | )         |          | (715,893                                                          | )        
|Proceeds from sale of marketable securities                                 |                                                                                      |                                           | 152,268,896  |           |          | 19,610,612                                                        |          
|Proceeds from sale of short-term investments                                |                                                                                      |                                           |             |           |          |                                                                  |          
|Purchases of furniture and equipment                                        |                                                                                      |                                           | (243,495     | )         |          | (55,829                                                           | )        
|Proceeds from sale of furniture and equipment                               |                                                                                      |                                           |             |           |          |                                                                  |          
|Other                                                                       |                                                                                      |                                           |             |           |          |                                                                  |          
|Acquisition of GPH, S.A. and Genopoietic, S.A.                              |                                                                                      |                                           | (621,397     | )         |          |                                                                  |          
|                                                                            |                                                                                      |                                           |              |           |          |                                                                   |          
|Net cash provided by (used in) investing activities                         |                                                                                      |                                           | (11,235,460  | )         |          | 18,838,890                                                        |          

F-7

---

|Financing activities                                                               |  |   |            |   |   |            |   |   |            |  
|---------------------------------------------------------------------------------- |  | - | ---------- | - | - | ---------- | - | - | ---------- | -
|Proceeds from issuance of notes payable to related party                           |  | $ |           |   | $ |           |   | $ | 957,557    |  
|Principal payments on notes payable to related party                               |  |   | (5,000     | ) |   |           |   |   | (802,000   | )
|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    | )
|Shareholder capital contribution                                                   |  |   | 93,637     |   |   |           |   |   | 93,637     |  
|Payments received on subscription receivable                                       |  |   |           |   |   |           |   |   | 4,542      |  
|Proceeds received from exercise of stock warrants                                  |  |   | 22,251     |   |   |           |   |   | 28,501     |  
|Elimination of consolidated accounting treatment for joint venture                 |  |   | (2,511,701 | ) |   |           |   |   | (2,511,701 | )
|Capital contribution through sale of interest in consolidated subsidiary           |  |   |           |   |   |           |   |   | 2,624,000  |  
|Net proceeds received from issuance of preferred and common stock                  |  |   | 24,195,695 |   |   |           |   |   | 57,972,641 |  
|                                                                                   |  |   |            |   |   |            |  
|Net cash provided by financing activities                                          |  |   | 21,794,882 |   |   |           |   |   | 58,277,101 |  
|Effect of exchange rate changes on cash                                            |  |   | 80,009     |   |   | (38,894    | ) |   | 41,115     |  
|                                                                                   |  |   |            |   |   |            |  
|Net increase in cash and cash equivalents                                          |  |   | 268,365    |   |   | 7,955,023  |   |   | 11,649,447 |  
|Cash and cash equivalents at beginning of period                                   |  |   | 3,426,059  |   |   | 3,694,424  |   |   |           |  
|                                                                                   |  |   |            |   |   |            |  
|Cash and cash equivalents at end of period                                         |  | $ | 3,694,424  |   | $ | 11,649,447 |   | $ | 3,694,424  |  
|                                                                                   |  |   |            |   |   |            |  
|Supplemental disclosure of cash flow information                                   |  |   |            |   |   |            |   |   |            |  
|Interest paid                                                                      |  | $ |           |   | $ |           |   | $ | 197,072    |  
|                                                                                   |  |   |            |   |   |            |  

See
accompanying notes.

F-8

---



AVAX TECHNOLOGIES, INC. AND SUBSIDIARIES(a development stage company)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     December 31, 2001 and 2000

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) (seeNote 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) (seeNote 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) (seeNote 3).

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

In
November 1999, the Company entered into a definitive joint venture agreement with Australia Vaccine Technologies ("AVT") (formerly Neptunus International Holdings Limited), a
pharmaceutical group in Australia, under the subsidiary name, AVAX Holdings Australia Pty Limited ("AVAX Holdings"). Under the joint venture agreement, AVAX Holdings, through its affiliated entities,
is manufacturing and marketing M-Vax, an immontherapy for the post-surgical treatment of Stage 3 and 4 melanoma, in Australia, and has similar rights in New Zealand.

In
August 2000, the Company completed its acquisition of GPH, S.A. ("Holdings") and Genopoietic S.A. ("Genopoietic") each a French societe anonyme based in Paris, France. Holdings
and Genopoietic were organized in 1993 to develop gene therapy applications and market gene therapy treatments for cancer. The Company currently performs contract manufacturing and research activities
at its facilities located in Lyon, France and through its collaborations with the Pierre and Marie Curie University and the University of Nantes.

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 (currently the Company's lead product candidate, the AC
Vaccine technology, has been placed on clinical hold by the Food and Drug Administration), and competition with other biotechnology and pharmaceutical companies. The Company plans to continue to
finance its operations with a combination of equity and debt financing and, in the longer term, revenues from product sales, if any. However, there can be no assurance that it will successfully
develop any product or, if it does, that the product will generate any or sufficient revenues.

F-9

---

Principles of Consolidation

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

In
1999, AVAX Holdings was included in the consolidated financial statements of the Company. Due to additional investment by AVT in AVAX Holdings in 2000, whereby they acquired a 50%
ownership interest, and their substantial and active involvement in the operations of the joint venture late in 2000, the Company no longer exercised control over AVAX Holdings. As such, AVAX
Holdings' accounts are not included in the consolidated financial statements of the Company for the years ended December 31, 2001 and 2000. The Company accounts for its share of AVAX Holdings'
net loss under the equity method (seeNote 4).

Foreign Currency Translation

Holdings and Genopoietic use the European Euro as their functional currency during 2001 as required by the European Union. The French Franc was the functional
currency prior to January 1, 2001. The effect of the switch of functional currencies was immaterial. In accordance with Statement of Financial Accounting Standards (SFAS) No. 52,
"Foreign Currency Translation", the financial statements of these entities have been translated into United States dollars, the functional currency of the Company and its other wholly-owned
subsidiaries and the reporting currency herein, for purposes of consolidation. In addition, there were no material foreign currency transaction gains or losses in 2001 or 2000. As of
December 31, 2001 the Company's foreign subsidiary had net assets of $286,669.

Use of Estimates

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

Revenue

The Company's revenues are related to the provision of contract and other product services. Contract service revenue is recognized in installments based upon the
contractual agreement entered into with clients. Product revenues represents fees received by the Company related to tumor cell banking.

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, 2001, all cash and cash equivalents were held at one financial institution.

F-10

---

Inventories

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

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.

Acquired Intellectual Property and Other Intangibles

Intellectual property and other intangibles acquired in the acquisition of Holdings and Genopoietic were recorded at fair value and are being amortized using the
straight-line method over the lives of the related assets. Total accumulated amortization was $238,624 and $715,872 as of December 31, 2000 and 2001, respectively (see Note 5).

Research and Development Costs

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

Marketable Securities

Management determines the appropriate classification of debt securities at the time of purchase. Debt securities are classified as
held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at
amortized cost, adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and interest on securities classified as held-to-maturity are
included in interest income. The Company's debt securities held at December 31, 2001 all mature in 2002. The following is a summary of marketable securities:

|Description of Securities         |                          | Cost |   | Unrealized
Gain/(Loss) |  | Estimated
Fair Value
|--------------------------------- | ------------------------ | ---- | - | ---------------------- |  | --------------------
|December 31, 2001                 |                          |      |   |                        |  |                     
|Held-to-maturity debt securities: |                          |      |   |                        |  |                     
|                                  | U.S. Treasury securities |      | $ | 344,470                |  |                    
|                                  |                          |      |   |                        |  |                     

Accrued Expenses

The Company provides a provision for accrued expenses based upon its contractual obligation, as calculated by the Company, for all claims made for payment to the
Company.

F-11

---

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 6for the
pro forma effects of applying SFAS No. 123.

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. 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 anti-dilutive for the periods presented.

|                         |                                            | December 31, |      
|------------------------ | ------------------------------------------ | ------------ | -----
|
|Numerator (basic):       |                                            |              |      
|                         | Loss available to common stockholders      |              | $    
|                         |                                            |              |      
|Denominator (basic):     |                                            |              |      
|                         | Weighted average common shares outstanding |              |      
|                         |                                            |              |      
|Net loss per sharebasic |                                            | $            | (1.06
|                         |                                            |              |      

2. Sale of the Product

In December 1995, the Company entered into an agreement to sell the Product for $2.4 million in shares of common stock of Interneuron
Pharmaceuticals, Inc. (IPI), a public company, the parent of the purchaser of the Product (the Stock). Certain common stockholders of the Company were also common stockholders of IPI. Pursuant
to the terms of the agreement, the purchase price, payable in
two equal installments in December 1996 and 1997, was fixed, and the number of shares of the Stock would vary depending on the quoted market price of the Stock at such time. The first
installment was paid on January 3, 1997 in the form of a distribution of IPI stock directly by IPI to the Series A convertible preferred stockholders, who were holders of record on the
closing date of the agreement for sale, and the Company's former President and Chief Executive Officer (the Former Officer). The final installment was received on January 14, 1999.

F-12

---

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



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

Because
the Stock was receivable in two equal annual installments, the gain from the sale of the Product, $1,951,000, was calculated by discounting the value of the Stock receivable
using a discount rate of 15%. In 1995, the Company also recorded the difference between 95.85% of the discounted net present value of the Stock to be received and the Company's indebtedness,
$1,131,744 at December 31, 1995, as a payable to the preferred stockholders of $738,289 to reduce their liquidation preference. The present value of the amount payable to the preferred
stockholders, including the accretion of interest thereon, was $2,156,106 at December 31, 1996, since all of the Company's indebtedness outstanding as of the date of the sale of the Product was
satisfied through sources other than the Stock to be received. This obligation was settled with the January 1999 receipt of the final installment of IPI stock, as discussed above.

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

3. License and Research Agreements

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

Under
the terms of the license agreement the Company is obligated to (i) pay certain milestone payments as follows: $10,000 upon initiation of the first clinical trial that is
approved by the Food and Drug Administration (FDA) or comparable international agency, $10,000 upon the first filing of a New

F-13

---

Drug Application (NDA) with the FDA or comparable international agency, and $25,000 upon receipt by the Company of approval from the FDA or comparable international agency to market products,
(ii) enter into a research agreement to fund a study to be performed by TJU for the development of the technology related to the Invention (the Study) at approximately $220,000 per annum for
the first three years, and (iii) following the third year, spend an aggregate of $500,000 per year (which includes costs incurred pursuant to the research agreement plus other internal and
external costs) on the development of the Invention until commercialized in the United States. If following the third year, the Company files for United States marketing approval through a Company
sponsored NDA, the Company may elect to spend less than $500,000 per year on the development of the Invention during the period of time the NDA is under review by the FDA. During 2000, a payment of
$25,000 was made to TJU pursuant to the license agreement. In addition, the Company is obligated to pay royalties on its worldwide net revenue derived from the Invention and a percentage of all
revenues received from sub-licensees of the Invention.

The
research agreement with TJU mentioned above will continue until completion of the Study, although it is terminable, upon notice by either party to the other, at any time. Expenses
incurred related to research funding for TJU were $394,805 and $231,904 for the years ended December 31, 2001 and 2000, respectively. This level of funding satisfies the Company's obligation
under the agreement. The research agreement has been extended until November 2004.

In
December 1996, the Company entered into an agreement with Rutgers for the exclusive worldwide license to develop, manufacture and sell products embodying the Compounds. In
consideration for the license agreement, the Company paid cash of $15,000, has agreed to pay $15,000 in each subsequent year as a license maintenance fee and has issued 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 $100,000
per year for three years. In addition, the Company is obligated to spend (which includes costs incurred pursuant to the research agreement plus other internal and external costs) an aggregate of
$200,000 in the first year, $300,000 in the second year and $500,000 each year thereafter until the first year of commercial marketing of a product derived from the Compounds. The license maintenance
fee shall not be payable in years where research funding is equal to or greater than $100,000. Expenses incurred related to research funding for Rutgers were $334,903 and $208,506 for the years ended
December 31, 2001 and 2000, respectively. This level of funding satisfies the Company's obligation under the agreement. The research agreement has been extended until February 2003 with
an annual funding commitment of approximately $270,000.

Under
the terms of the Rutgers license agreement, the Company is obligated to pay certain milestone payments as follows: $15,000 on the earlier of October 31, 2000 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

F-14

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earlier of October 31, 2008 or the date of receipt by the Company of approval from the FDA, or comparable international agency, to market products. During 2000 and 2002, the Company paid
$15,000 and $25,000, respectively, pursuant to its obligations under this agreement.

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 were $143,346 and $27,150 for the years ended
December 31, 2001 and 2000, respectively. This level of funding satisfies the Company's obligation under the agreement. The research agreement has been extended until January 2003 with
an annual funding commitment of $108,750.

4. Joint Venture Agreement

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

During
2000, AVT, through a subsidiary, contributed 6,000,000 Australian Dollars, raising AVT's total ownership percentage in the joint venture to 50%. Due to the ownership percentage
now maintained by AVT and their substantial and active involvement in the management and decision making processes of the joint venture, the Company has determined that it no longer maintains a
controlling interest in the operations of the joint venture. Accordingly, the Company began to account for its investment in the joint venture using the equity method of accounting in late 2000.

At
the time of the change from the consolidation method to the equity method, there existed a difference between the Company's cost of its 50% investment in the joint venture and the net
book

F-15

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value of the underlying assets. This difference, which amounted to approximately $2.7 million, resulted from the Company's contribution of technology and related licensing rights, which had
little recorded value, and AVT's cash investments of 10 million Australian Dollars. The resulting deferred gain is being amortized to income over three years. The amortization of this deferred
gain in 2001 and 2000 amounts to approximately $903,000 each year and is reported separately in the accompanying consolidated statements of operations. The Company's share of the net loss of the joint
venture during 2001 and 2000 was $923,678 and $765,307, respectively. The Company's investment in joint venture amounts to $26,975 at December 31, 2001.

5. Acquisition of G.P.H. and Genopoietic

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

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

Simultaneously
with the closing of the transaction the Company entered into a Research Funding Agreement with Genopoietic whereby the Company has committed to provide funding to
Genopoietic over the next five years in the amount of $8,000,000. Provision of this funding is contingent upon the Company's financial health and may be withheld at the discretion of Company
management.

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

F-16

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

Acquired in-process research and development

$
4,420,824Acquired intellectual property and other intangibles:Acquired existing technology


3,114,671Patents


904,259Assembled workforce


301,420Assets acquired


895,423Liabilities assumed


(1,410,200
)Total purchase price

$
8,226,397


The acquired existing technology and patents are being amortized over their estimated useful lives of ten years and the intangible asset related to assembled
workforce is being amortized over its estimated useful life of four years.

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

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

All
estimates and projections were based upon assumptions the Company believed to be reasonable at the time of acquisition, but which are inherently uncertain and unpredictable. If these
projects are not successfully developed, the business, operating results and financial condition of the Company may be adversely affected. As of the date of the acquisition, the Company concluded that
once completed, the technologies under development can only be economically used for their specific

F-17

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and intended purposes and that such in-process technology has no alternative future use after taking into consideration the overall objectives of the project, progress toward the
objectives and uniqueness of developments to these objectives. If the projects fail, the economic contribution expected to be made by the acquired in-process research and development will
not materialize.

The
following table reflects unaudited consolidated pro forma results of operations of the Company and Holdings on the assumption that the acquisition had taken place at the beginning of
the period presented. Such pro forma amounts are not necessarily indicative of what the actual consolidated results of operations might have been if the acquisition had been effective on that date.
The following pro forma information does not include the one-time charges for purchased in-process research and development relating to the acquisition of Holdings. Included
are amortization charges of acquired intangible assets which are amortized on a straight-line basis over their expected useful lives. Its results were translated using the average exchange
rate for the period.

Year ended
December 31, 2000Revenue

$
711,117Net loss


(12,434,463
)Basic and diluted net loss per share


(.78
)


6. Equity Transactions

Common and Preferred Stock

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

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

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.

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

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

Pursuant
to a private placement in May and June 1996, the Company issued 258,198 shares of Series B convertible preferred stock. The preferred stockholders also received
129,099 shares of common stock. The total consideration was $25,819,800. The per share price allocated to common stock and Series B convertible preferred stock was $1 and $99, respectively. In
connection with the private placement, the Company paid $3,357,000 in commissions and nonaccountable expenses to the Paramount Capital (Paramount), a related party, and issued 500 shares of common
stock and 1,000 shares of Series B convertible preferred stock as consideration for legal services valued at $100,000. In addition, the placement agent received warrants to purchase 25,819.8
shares of Series B convertible preferred stock at an exercise price of $110 per share. Such warrants are exercisable until June 11, 2006, contain certain antidilution provisions and may
be exercised pursuant to a cashless exercise feature. Other share issuance expenses amounted to $142,000. During 2000, 19,127 shares of common stock were issued upon exercise of these warrants.

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

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

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

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

F-19

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

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

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

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

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

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

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

F-20

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

During
2000 holders of 14,550 shares the Series C Preferred stock converted these shares into 650,931 fully paid nonassessable shares of common stock. The 86,750 shares of
Series C preferred stock, outstanding at December 31, 2001, is convertible into 2,669,225 shares of common stock excluding the effect of any fractional shares.

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

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

F-21

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staggered Lock-up, such that every three months after July 10, 1997, 25% of the Conversion Shares were released from Lock-up until April 10, 1998 at which point
all Conversion Shares were no longer subject to any Lock-up.

In
addition, for those shareholders who accepted the Lock-up modifications, the Company agreed to provide additional reset protection, extending the Reset Date to
12 months following the later of Effectiveness and listing, or July 10, 1999. The terms of this modified reset were the same as the original reset provision, except that the Company
would not adjust the conversion price, but would issue additional shares of common stock to effect the principles of the original reset provision. The average closing bid price for the 30 consecutive
trading days preceding July 10, 1998 was $3.1544 and accordingly, the Company issued 3,029,339 shares of common stock to those holders of Series B Preferred Stock who had agreed to the
lockup and had not converted their Preferred Stock to Common Stock.

Stock Options1992 Stock Option Plan

In April 1992, the Board of Directors approved the 1992 Stock Option Plan (the Plan), which, as amended, authorized up to 437,500 shares of common stock
for granting both incentive and nonqualified stock options to employees, directors, consultants and members of the scientific advisory board of the Company. The Plan was amended in June 1999,
to increase the number of shares issuable to 1,500,000. The Plan was further amended in June 2000, to increase the number of shares issuable to 2,500,000. The exercise price and vesting period
of the options are determined by the Board of Directors at the date of grant. Options may be granted up to 10 years after the Plan's adoption date and generally expire 10 years from the
date of grant.

F-22

---

The
following summarizes activity in the Plan:

Number of OptionsBalance at December 31, 1994

276,375Canceled

(246,375
)Balance at December 31, 1995, 1996 and 1997

30,000Granted

600,000Balance at December 31, 1998

630,000Granted

955,397Expired

(240,000
)Balance at December 31, 1999

1,345,397Granted

430,000Expired

(13,430
)Exercised

(7,955
)Balance at December 31, 2000

1,754,012Granted

1,039,696Expired

(386,684
)Balance at December 31, 2001

2,407,024


Stock Options2001 Stock Option Plan

In November 2001 the Board of Directors approved the 2001 Stock Option Plan (the 2001 Plan), subject to shareholder approval, authorizing up to 2,500,000
shares of common stock for granting both incentive and nonqualified stock options to employees, directors, consultants and members of the scientific advisory board of the Company. The exercise price
and vesting period of the options are determined by the Board of Directors at the date of grant. Options may be granted up to 10 years after the 2001 Plan's adoption date and generally expire
10 years from the date of grant. During 2001 option to purchase 175,108 shares of common stock were granted under this plan and remain outstanding at December 31, 2001.

Director Option Plan

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

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

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Stock OptionsOther

Certain officers and employees were also granted stock options in 1996, as authorized by the Board of Directors, apart from the Plan and the 2001 Plan. In
May 1996, the Company's President and Chief Executive Officer (the President) received options to purchase 318,873 shares of common stock at $1.00 per share. Such options vest at a rate of
1/16 per quarter over four years and are exercisable for a period of seven years. Because the fair value of the Company's common stock at the date of grant was determined to be $2 per
share, the Company recorded $318,873 as deferred compensation. Such deferred compensation has been amortized over four years.

In
September 1996, certain officers and an employee also received options to purchase 252,500 shares of common stock at $1.00 per share. Such options vest at a rate of
1/16 per quarter over four years and are exercisable for a period of seven years. Because the fair value of the Company's common stock at the date of grant was determined to be $4 per
share, the Company recorded $757,500 as deferred
compensation. Such deferred compensation has been amortized over four years. During 2000, 9,688 of these options were exercised. During 2001, 125,000 of these options were forfeited.

In
March 1997, one other employee of the Company received options to purchase 52,500 shares of common stock at $6.00 per share, the closing market price on the date of grant. In
July 1997, the Company withdrew such options and replaced them with options to purchase 90,000 shares of common stock at an exercise price of $4.50, the closing market price on the date of
grant. The options vest as follows: 5,000 shares vest on September 1, 1997, 30,000 shares vest at a rate of 1/6 every six months over a three-year period, thereafter,
and the remaining 55,000 shares will vest upon the occurrence of certain milestone events relating to the Company's manufacturing program. Such options are exercisable for a period of seven years.
During 2001, these options were forfeited.

In
July 1997, the President, certain officers and an employee also received options to purchase 280,000 shares of common stock at $4.50 per share. The President's options, which
represent 150,000 of these options, vest at a rate of 1/12 per quarter over a three-year period. The remaining options vest at a rate of 1/16 per quarter over
four years and all are exercisable for a period of seven years. During 2001, 65,000 of these options were forfeited.

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

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

In
December 1997, four directors of the Company each received a grant of 5,161 options to purchase common stock at $3.88 per share. Such options vest at a rate of
1/4 per quarter over one year, commencing on March 1, 1999, and are exercisable for a period of seven years.

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

F-24

---

In
December 1998, four directors each received grants to purchase 8,101 shares of common stock each at $2.47 per share. In March 2000, one director received a grant to
purchase 4,938 shares of common
stock at $3.38 per share. In August 2000, two directors each received grants to purchase 2,222 shares of common stock each at $3.00 per share. All options vested as of
December 31, 2000 based upon the issuance date, and are exercisable for a period of seven years.

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

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

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

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

Warrants

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

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

In
October 1996, the Company issued warrants to purchase 50,000 shares of common stock at $6.00 per share, 25,000 of which were subsequently canceled in April of 1997 (see Note 8). These
warrants expired in October 2001.

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

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

In
April 1997, the Company issued warrants to purchase 50,000 shares of common stock at $8.00 per share (seeNote 8). 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

F-25

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warrants to purchase 115,000 shares of common stock at $3.50 per share were issued to the consultant. Such warrants vest upon the occurrence of certain milestones and are exercisable for a period of
five years. During 2000, 64,346 of these warrants vested and the remaining 50,654 expired pursuant to the terms of the agreement.

In
December 1997, warrants were issued to a consultant to purchase 200,000 shares of common stock at $3.75 per share. Such warrants vest upon the achievement of certain
performance-based milestones and are exercisable for a period of five years. During 2000, these warrants expired.

In
May 1998, warrants were issued to a financial consultant to purchase 80,000 shares of common stock at $4.03 per share. The agreement was terminated during 1998 resulting in
only 40,000 shares vesting as of December 31, 1998. During 2000, 6,000 shares were exercised. These warrants 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 vested over a three-month period and
expire in December 2004.

Authorized
but unissued shares of common stock were reserved for issuance at December 31, 2001 as follows:

|                                                                                                 |  | December 31,
2001
|------------------------------------------------------------------------------------------------ |  | -----------------
|Series C convertible preferred stock                                                             |  | 2,669,225        
|1992 Stock option plan                                                                           |  | 2,500,000        
|2002 Stock option plan                                                                           |  | 2,500,000        
|2000 Directors option plan                                                                       |  | 480,000          
|Non Plan options                                                                                 |  | 1,050,302        
|Warrants to purchase common stock                                                                |  | 505,096          
|Warrants to purchase Series B convertible preferred stock                                        |  | 654,437          
|Warrants to purchase common stock issued in connection with Series C convertible preferred stock |  | 845,339          
|Warrants to purchase Common Stock pursuant to 2000 fund raising                                  |  | 444,710          
|Contingent shares issuable in conjunction with the Genopoietic acquisition                       |  | 2,200,000        
|                                                                                                 |  |                  
|                                                                                                 |  | 13,849,110       
|                                                                                                 |  |                  

F-26

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6. Equity Transactions (Continued)

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 2001 and
2000, respectively, including a risk free interest rate of 3.0% and 6.0%, a volatility factor of the expected market price of the Company's common stock of 1.78 and 0.719 and a weighted-average
remaining contractual life of the option or warrant of eight years and 4 years.

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

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:

|                                                       |  | 2000 |             | 2001 |  
|------------------------------------------------------ |  | ---- | ----------- | ---- | -
|Pro forma net loss attributable to common stockholders |  | $    | (21,099,568 | )    | $
|                                                       |  |      |             |      |  
|Pro forma net loss per share                           |  | $    | (1.37       | )    | $
|                                                       |  |      |             |      |  

A
summary of applicable stock option and warrant activity and related information for the years ended December 31, 2000 and 2001 is as follows:

|                                 |  | 2000      |   | 2001
|-------------------------------- |  | --------- | - | ----
|
|Outstanding at beginning of year |  | 4,913,314 |   | $   
|Granted                          |  | 1,114,710 |   |     
|Exercised                        |  | (45,231   | ) |     
|Forfeited                        |  | (264,084  | ) |     
|                                 |  |           |   |     
|Outstanding at end of year       |  | 5,718,709 |   | $   
|                                 |  |           |   |     
|Exercisable at end of year       |  | 4,208,427 |   | $   
|                                 |  |           |   |     

F-27

---

The
weighted-average fair value of options and warrants granted during 2001 and 2000 was $1.03 and $8.12, respectively. Exercise prices for options and warrants outstanding range from
$.04 to $12.79. The option contracts expire at various times through October of 2011.

7. Income Taxes

At December 31, 2001, the Company has net operating loss carryforwards of approximately $51,403,000 for federal income tax purposes that expire in varying
amounts between 2005 and 2015, 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,
2001Deferred tax assets:Net operating losses

$
19,739,000Deferred compensation


413,000Depreciation


17,000Other


1,000Total deferred tax assets


20,170,000Valuation allowance


(20,170,000
)Net deferred tax assets

$



The
valuation allowance at December 31, 2000 was $14,375,000.

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

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

December 31,2000

2001Income taxes (benefit) at statutory rate

$
(5,534,000
)
$
(5,137,000
)State income taxes, net of federal benefit


(716,000
)

(665,000
)Change in the valuation allowance


6,208,000


5,795,000Other


42,000


7,000Income tax provision (benefit)

$


$



F-28

---

8. Commitments and Contingencies

Leases

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

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

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 $11,900. The first month's rent was
payable upon signing of the lease along with a security deposit equivalent to two months rental. This lease is secured by a one-year irrevocable standby letter of credit whereby the lessor
is the named beneficiary. This $379,530 letter of credit automatically renews each December and will be reduced by the amortized reduction of the landlord investment each year.

In
July 2000, the Company entered into a 9-year lease agreement for manufacturing and research space in Lyon, France. The lease is cancelable by the Company after
three years. The monthly rental is approximately $11,500 (80,000 French Francs).

Rent
expense under these agreements was approximately $294,000 and $327,000 for the years ended December 31, 2001 and 2000, respectively.

Future
minimum lease payments under the non-cancellable operating leases, assuming the termination payment is made in 2002 on the manufacturing facility lease, consisted of
the following at December 31, 2001:

Year ending December 31,

Operating Lease Payments

Amounts receivable pursuant to sub-lease2002

$
773,056

$
168,2482003


345,367


172,1012004


162,387


57,795


F-29

---

Consulting Agreements

Effective in June 1996, the Company entered into consulting agreements with the Scientist that runs through May 2002. 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 6). 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 6). 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
had an expected term of in excess of seven years and requires fixed payments of $120,000 per quarter over the first two years. This agreement was cancelled in September 2000.

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. This agreement was extended in November 2001 at an annual cost of $110,000 through October 2002.

In
January 2000, the Company entered into an Agreement for Services with a contract research organization to assist the Company in the performance of its clinical trials. The
agreement was to extend over the life of the clinical trials which has an expected term of in excess of seven years with payments made upon the achievement of various milestones in the study. At
signing, total expected payments under this agreement was approximately $11,138,000. This agreement was terminated in June of 2001. Expenses incurred related to this agreement were $597,346 and
$1,500,950 for the years ended December 31, 2001 and 2000, respectively. Currently the Company is in dispute with the vendor as the amount and the method of calculation of the liability due
upon the termination of this agreement. The
Company accrued during 2001 approximately $600,000 which represents what the Company has calculated as the balance due under the agreement plus additional costs estimated to settle the matter.

F-30

---

9. Long Term Debt

The Company's French subsidiary receives financial support from a French governmental agency (Anvar). The grants, which are subject to conditions specifying that
non-compliance with such conditions could result in the forfeiture of all or a portion of the future amounts to be received, as well as the repayment of all or a portion of amounts
received to date, are accounted for as long term debt. If certain products are commercialized, the December 31, 2001 balance of $247,752 (1,800,000 French Francs) is repayable based on an
annual royalty equal to 47% of the revenue related to the project. As such, the total amount of grant proceeds received is recorded as a liability in the accompanying consolidated balance sheet. In
case of failure or partial success, as defined in the agreement, $55,056 (400,000 French Francs) is payable on or before December 21, 2002.

10. Property, Plant and Equipment

The following shows the composition of the assets included in property, plant and equipment at December 31, 2001:

|                                             |  | Cost |           | Accumulated Depreciation |   | Net      
|-------------------------------------------- |  | ---- | --------- | ------------------------ | - | ---------
|Office furniture and equipment               |  | $    | 288,802   |                          | $ | 182,035  
|Manufacturing facility and related equipment |  |      | 2,900,231 |                          |   | 943,302  
|                                             |  |      |           |                          |   |          
|Total                                        |  | $    | 3,189,033 |                          | $ | 1,125,337
|                                             |  |      |           |                          |   |          

Depreciation
expense was $420,940 and $377,247 for the years ended December 31, 2001 and 2000, respectively.

11. 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 $25,039 contribution in 2000 and a $42,308 contribution in 2001.

12. Related Party Transactions

During 2001, the Company made payments of $50,000 and $20,000 to two Board Members who provided advisory services to the Company. In addition the two Board
Members received additional options, through the 2001 stock option plan, to purchase 50,000 shares of common stock each at $.89 per share. The options vest over a four year period and expire in 2008.
The compensation was voted upon and approved by the Board of Directors.

13. Subsequent Events

On January 21, 2002 (date of closing), the Company completed an agreement with its joint venture partner AVT purchasing substantially all of their 50%
interest in the Joint Venture Companies (leaving the Company with an equity interest in the Joint Venture Companies of 95%). The agreement required the Company to remit to AVT cash of approximately
$951,337 ($1,858,551 Australian Dollars), which

F-31

---

represented one half of the cash on hand net of current liabilities (accounts payable and accrued expenses) of the Joint venture on the date of closing.

The
Company has various disputes with Professors Jean-Loup Salzmann and David Klatzmann concerning the performance of the various parties under the numerous agreements
relating to the Company's August 2000 acquisition of Genopoietic. Professors Salzmann and Klatzmann are consultants to the Company, and Professor Salzmann is a director of the Company.

F-32

---



SIGNATURES

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

|                                      |  | AVAX TECHNOLOGIES, INC.
|------------------------------------- |  | -----------------------
|DATE:                  MARCH 28, 2002 |  | By:                    

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

|Signature                                                     |  | Name & Title                                                                |  | Date          
|------------------------------------------------------------- |  | --------------------------------------------------------------------------- |  | --------------
|                                                              |  |                                                                             |  |               
|/s/RICHARD P. RAINEYRichard P. Rainey                         |  | Vice President -- Finance and Administration (Principal Accounting Officer) |  | March 28, 2002
|EDSON D. DE CASTROEdson D. de Castro                          |  | Director                                                                    |  | March 28, 2002
|/s/JOHN K. A. PRENDERGAST, PH.D.John K. A. Prendergast, Ph.D. |  | Director                                                                    |  | March 28, 2002
|/s/CARL SPANA, PH.D.Carl Spana, Ph.D.                         |  | Director                                                                    |  | March 28, 2002
|/s/ANDREW W. DAHL, SC.D.Andrew W. Dahl, Sc.D.                 |  | Director                                                                    |  | March 28, 2002

29

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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)                                                                                                                                   
|4.7         |  | Investors' Rights Agreement Dated November 20, 1995, by and between the Company and certain investors.(1)                                                                  
|4.8         |  | Form of Placement Warrant Relating to Offering of Series B Placement Warrants.(2)                                                                                          
|4.9         |  | Certificate of Designation of Series C Convertible Preferred Stock.(3)                                                                                                     
|4.10        |  | Series C Convertible Preferred Stock Warrant Purchase Agreement.(3)                                                                                                        
|4.11        |  | Form of Class A and Class B Common Stock Purchase Warrant issued in connection with the Series C Convertible Preferred Stock.(3)                                           
|10.1        |  | Clinical Study and Research Agreement dated November 20, 1995, by and between the Company and Thomas Jefferson University.(4)                                              
|10.2        |  | License Agreement dated November 20, 1995, by and between the Company and Thomas Jefferson University.(4)                                                                  
|10.3        |  | Extension to the Clinical Study and Research Agreement dated November 20, 1995, by and between the Company and Thomas Jefferson University.(3)                             
|10.4        |  | Consulting Agreement dated May 9, 1996, between the Company and Dr. David Berd.(1)                                                                                         
|10.5        |  | Employment Agreement effective as of November 1, 1999, between the Company and Warren B. Dudley.*                                                                          
|10.6        |  | Employment Agreement effective as of February 28, 2001, between the Company and David L. Tousley.*                                                                         
|10.7        |  | Employment Agreement effective as of March 26, 2001, between the Company and Richard P. Rainey.*                                                                           
|10.8        |  | License Agreement dated December 10, 1996, by and between the Company and Rutgers, The State University of New Jersey and the University of Medicine and Dentistry.(4)     
|10.9        |  | License Agreement dated February 17, 1997, by and between the Company and The Texas A&M University System.(4)                                                              
|10.10       |  | 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.(5)
|10.11       |  | Sponsored Research Agreement Dated May 12, 1997, by and between the Company and The Texas A&M University System.(5)                                                        
|10.12       |  | Lease Agreement dated October 18, 2001 for Overland Park Facility.*                                                                                                        
|10.13       |  | Lease Agreement dated December 1, 1997 for Philadelphia Facility.(6)                                                                                                       
|10.14       |  | Amended and Restated 1992 Stock Option Plan.(7)                                                                                                                            
|10.15       |  | 2001 Stock Option Plan.*                                                                                                                                                   
|10.16       |  | Securities Purchase Agreement dated March 7, 2000.(8)                                                                                                                      

II-1

---

|10.17 |  | Stock Contribution Agreement dated as of July 17, 2000, among the Company, Professor David R. Klatzmann, Professor Jean-Loup Salzmann, GPH, S.A. and Genopoietic, S.A.(9)                            
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.18 |  | [Tax] Agreement dated as of August 24, 2000, among the Company, GPH, S.A., Genopoietic S.A., Professor David R. Klatzmann and Professor Jean-Loup Salzmann.(9)                                       
|10.19 |  | Research Funding Agreement dated as of August 24, 2000, between the Company and Genopoietic, S.A.(9)                                                                                                 
|10.20 |  | Rights Agreement dated as of August 24, 2000, between the Company and Professor David R. Klatzmann (an identical agreement was entered into between the Company and Professor Jean-Loup Salzmann).(9)
|10.21 |  | Severance Agreement dated February 25, 2001, between the Company and Dr. Jeffrey M. Jonas.(10)                                                                                                       
|10.22 |  | 2000 Directors' Stock Option Plan.(11)                                                                                                                                                               
|10.23 |  | Termination Deed -- Shareholders Agreement for AVAX Australia and AVAX Manufacturing dated January 21, 2002.*                                                                                        
|10.24 |  | Royalty Agreement between AVAX Australia Pty Limited and Eastpac, Inc. dated January 21, 2002.*                                                                                                      
|21.1  |  | Subsidiaries of the Company.*                                                                                                                                                                        
|23.1  |  | Consent of Ernst & Young LLP, Independent Auditors.*                                                                                                                                                 

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II-2

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II-3

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