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

FORM 10-KSB

ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

Commission file number 333-09349

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

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

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

Securities
registered under Section 12(g) of the Exchange Act: Common Stock, par value $.004 per share(Title of class)

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

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. ý

The
issuer's revenues for the period ended December 31, 2002 were $770,743.

As
of February 28, 2003, 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, 2003, was $2,479,492.

Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the
Act). Yes o No ý

The
aggregate market value of the common stock held by non-affiliates of the registrant (based upon the last reported sale price on the Nasdaq SmallCap Market) on the last
business day of the registrant's most recently completed second fiscal quarter was approximately $8,010,665.

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 2003 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 o No ý

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AVAX Technologies, Inc.        Index to Form 10-KSB

|           |  |                                                                                                                 |  | Page
|---------- |  | --------------------------------------------------------------------------------------------------------------- |  | ----
|PART I    
|Item 1.    |  | Description of Business                                                                                         |  | 1   
|Item 2.    |  | Description of Property                                                                                         |  | 20  
|Item 3.    |  | Legal Proceedings                                                                                               |  | 20  
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                             |  | 20  
|PART II   
|Item 5.    |  | Market for Common Equity And Related Stockholder Matters                                                        |  | 21  
|Item 6.    |  | Management's Discussion and Analysis of Financial Condition and Plan of Operation                               |  | 22  
|Item 7.    |  | Financial Statements                                                                                            |  | 26  
|Item 8.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                            |  | 26  
|PART III  
|Item 9.    |  | Directors, Executive Officers, Promoters And Control Persons; Compliance with Section 16(a) of the Exchange Act |  | 27  
|Item 10.   |  | Executive Compensation                                                                                          |  | 27  
|Item 11.   |  | Security Ownership of Certain Beneficial Owners and Management                                                  |  | 27  
|Item 12.   |  | Certain Relationships and Related Transactions                                                                  |  | 27  
|Item 13.   |  | Exhibits and Reports on Form 8-K                                                                                |  | 27  
|Item 14    |  | Controls and Procedures                                                                                         |  | 27  
|Signatures |  | 28                                                                                                             

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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. In addition, the Company generates revenues by providing contract manufacturing
services to other companies that produce biological products for use in clinical trials. AVAX is based in Overland Park, Kansas, with operations in Philadelphia, Pennsylvania, and Lyon, France.

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. Historically, the Company focused its efforts on the development of an immunotherapy for the treatment of cancer, the AC Vaccine technology. During 2001 the
Company received notification from the U.S. Food and Drug Administration ("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. Based upon the Company
interactions with the FDA, the Company decided to inactivate the Investigational New Drug applications ("IND's") in place during 2001 for M-Vax and O-Vax and to prepare to file
new IND's during 2002. In working with the FDA to resolve the issues identified as part of the clinical hold, the Company's concluded that (1) it would no longer be feasible to continue the
clinical development of the original AC Vaccine format (referred to as the "fresh" vaccine product format), and (2) a revised product format needed to be established, tested and reviewed
by the FDA. Through these research and development activities the Company developed a new product format for the production and distribution of the AC Vaccine, referred to as the "frozen" vaccine
technology. See "Clinical and Product Development Status of the AC Vaccine" below.

During
2002, IND's were filed by the Company and accepted by FDA for the application of the AC Vaccine technology to treat both melanoma and ovarian cancer patients. These IND's are for
the "frozen" vaccine product format for M-Vax and O-Vax. Activation of these two FDA sanctioned trials has not occurred as a result of the Company's inability to support
financially the completion of the trials.

In
August 2000, the Company acquired Genopoietic S.A. and its corporate affiliate ("Genopoietic"), based in Lyon, France, which developed cell and gene-based therapies
in collaboration with Pierre et Marie Curie University ("UPMC") and Centre National de la Recherche Scientifique ("CNRS"). The Company acquired a biological clean room facility in Lyon, France as part
of the Genopoietic acquisition.

The
current operations of the Company include the maintenance of its biological clean-room facilities in Philadelphia, Pennsylvania and Lyon, France (1) to allow the
Company to proceed quickly into clinical trials under the two FDA-approved IND's if funding or a strategic alliance is entered into, and (2) to allow the Company to pursue potential
contract manufacturing relationships in which it would utilize the facility and its personnel. The Company has secured a long-term contract manufacturing agreement through its Lyon, France
facility and is presently pursuing additional contract manufacturing relationships. The Lyon facility is adequate to support both the clinical and commercial production of the Company's AC Vaccine
technology.

The
Company, as a result of its clinical activities in the United States and France, has developed a level of expertise related to the clinical production and regulation of cell and gene
therapies. Cell and

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

Based
upon successful validation of its facilities and acceptance of IND filings in Europe for others that have been assisted by the Company and acceptance of the Company's IND filings
in the United States, the Company has expanded its efforts to attract contract manufacturing relationships in both the United States and France. A contract manufacturing engagement would likely
consist of two components. The first component of the engagement would be a feasibility study. The feasibility study typically would involve the transfer of production techniques from a scientific
laboratory to the
Company's facilities. After transferring the techniques, the Company will develop the required procedures, tests and assays so that the product will then be produced in compliance with cGMP (current
good manufacturing practices) requirements. After validating the procedures, tests and assays, the Company would then produce the necessary components for the manufacturing section to be filed as part
of an IND application.

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

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. The Company is continuing to advance the pre-clinical development of its topoisomerase inhibitor compound.

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. This anti-estrogen technology is being developed in conjunction with the Drug Development Group of the National Cancer Institute.

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.

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.

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TECHNOLOGY AND PRODUCT CANDIDATES AND SERVICES

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 or by
administration of immunocompetent cells. One example of immunotherapy is vaccination. When a person is vaccinated or immunized against a particular disease or infection, that person is injected with
portions of some 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. Vaccines that are being developed to treat cancer are intended to act in the same way.

A
cancer cell, in the simplest 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 normal growth control. It is generally believed that the immune system fails to recognize the cancer cells as foreign, and, therefore, does not respond by attacking and
destroying them. 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 circulating 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. When removal of the tumor is incomplete or delayed until the cancer has spread to distant sites in the body, treatment is difficult with currently available technologies and cure is
uncommon. 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.

The
following is a summary of the technologies and products being developed by the Company.

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 ("autologous") 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 treating 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. Experimental evidence
suggests 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 (natural) tumor cells as
well. 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 foreign.

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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 surgery followed by a year-long regimen of the drug, alpha interferon. This is a biological drug and
currently the only FDA-approved post-surgical treatment for patients with stage 3 melanoma. While alpha interferon has been proven to prolong relapse-free survival,
its impact on overall survival has been questioned. Further, use of alpha interferon can be associated with many severe side effects, often leading to either reduction in dosage or complete
discontinuation before the full course of treatment is completed. Due to limited efficacy and highly toxic side effects, chemotherapy has not been widely used in the treatment of stage 3 patients.

The
Company believes that M-Vax is the first immunotherapy to suggest, from clinical trial results, that its use may result in a significant improvement in the survival rate
for patients with stage 3 melanoma. 214 patients with stage 3 melanoma, who had already had their lymph node tumors excised and processed into vaccines, were treated with M-Vax. These
studies are mature, in that 203 patients have completed the planned 5-year follow-up. The 5-year overall survival of these patients is 46%. 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. DTH, which is
manifest by the development of a hive at the site of injection of the test material, is known to be a measure of the activity of T-lymphocytes, which are white blood cells that are crucial
in tumor rejection. In the stage 3 adjuvant studies, patients who developed positive DTH to their own melanoma cells that were not modified with the hapten had significantly greater chance of
5-year year survival than those who did not (59% vs. 29%). Therefore, 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

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the vaccine, dead tumor cells in the vaccine contribute to the immune response as well as live, but replication-incompetent, tumor cells.

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
previous clinical trials for O-Vax showed the development of a DTH response to unmodified tumor cells in the first eight of nine adjuvant patients treated. Similar
results have also been obtained in comparable numbers of patients with more advanced (chemotherapy-resistant) 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 received chemotherapy drugs that can suppress the immune system.

Clinical and Product Development Status of the AC Vaccine Technology

The clinical results reported above, as well as all published data on the AC Vaccine technology were generated using the initial product format for creation of
the vaccine that the Company calls the "fresh" vaccine. The fresh vaccine technology resulted in each individual vaccine preparation being prepared at the time it was to be administered to the
patient. This was the product format that the Company initially entered into clinical trials with using the AC Vaccine.

Based
upon the Company's assessment that it would no longer be feasible to continue the clinical development of the fresh vaccine product format, a revised product format needed to be
established, tested and reviewed by the FDA. Through these research and development activities the Company developed a new product format for the production and distribution of the AC Vaccine,
referred to as the "frozen" vaccine technology.

The
frozen vaccine product format reduces the cell digestion and haptenization steps into one process resulting in the bulk processing (versus dose by dose processing of the fresh
vaccine) of the vaccines for storage and distribution. This product format has a number of advantages in that the vaccines produced will be more consistent, all release, quality control and quality
assurance testing is done on the full clinical lot (versus dose by dose for the fresh vaccine), and distribution of the vaccine is simplified in that the doses could be shipped at any time (versus
requiring the vaccine to be administered within 18 hours of haptenization).

To
determine the viability of proceeding with the frozen vaccine technology platform the Company needed to first determine if the expected clinical results with the vaccine, after
freezing the finished product, would alter the clinical efficacy of the drug. To evaluate this the Company undertook two research projects. The first research project was to compare the fresh and
frozen product platforms, along with control samples, in a previously developed animal model, which was determined to be predictive of success with the fresh vaccine technology. In a number of
experiments in the animal model, it was determined that the frozen hapten-modified vaccine resulted in significant extension of relapse free survival as compared with control animals. Moreover, the
efficacy of the frozen vaccine was equivalent to that of the fresh vaccine.

The
second research project was to evaluate, from the prior clinical data obtained from Dr. Berd's patients, the ability of live versus dead vaccine cells for generating an immune
response. Trypan blue exclusion is a test in which the dye, trypan blue, is mixed with cells. Cells that are considered to be

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dead will take up the dye and appear blue upon inspection. With the change to a frozen product platform it is thought that the final vaccines would have a higher concentration of dead cells versus
live cells. Data from 284 patients were used to perform this retrospective analysis to determine the composition of live and dead cells in the vaccine and the effectiveness of the vaccine as measured
by DTH testing. Based on an analysis of the 284 patients, it was shown that live and dead cells were equally effective in generating an immune response. In fact, vaccines containing higher numbers of
dead tumor cells or higher proportions of dead tumor cells induced better immune responses.

Upon
making the decision to move forward with the frozen vaccine technology the Company met with the FDA to discuss the steps necessary to complete for the filing of an IND. The FDA
determined that based upon the changes proposed to the production of the vaccine that this vaccine technology is a new technology and will require the Company to complete an initial Phase I safety
trial. The agency also required the Company to complete pre-clinical animal toxicology studies. These studies, as well as the new process and assay validation tests were completed allowing
the Company to move forward with its IND filing.

In
September 2002 the Company filed and the FDA accepted for filing two IND's, one for the treatment of melanoma and the second for the treatment of ovarian cancer. These IND's
were cleared to begin enrolling patients in October 2002. The endpoints for these clinical trials are overall safety and patient immune response using three different dosing levels. A total of
42 patients will be enrolled in each trial. The primary endpoints of the studies will be safety and DTH response to hapten modified tumor cells with a secondary endpoint of DTH response to unmodified
tumor cells. Activation of these two FDA sanctioned trials has not occurred as a result of the Company's inability to support financially the completion of the trials.

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 has no present plans to fund the pre-clinical or initial clinical
development of this technology for one or more of these indications.

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

Both
U.S. and non-U.S. patents for the Rutgers compounds and their anticancer and anti-infective uses have been filed. 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. During 2002, the Company selected a lead compound to proceed into further pre-clinical development. The Company believes this agent has demonstrated superior activity, reduced
serum albumin binding and the ability to overcome some of the more common forms of resistance to chemotherapy (overexpression of MDR1 and BCRP)

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observed with human cancer cells compared with currently marketed topoisomerase targeting compounds. This agent also offers significant potential therapeutic advantages relative to those agents in
current clinical use. As the development progresses, the Company continues to explore strategic opportunities to license its rights to develop further these compounds to another company.

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 crosstalk 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. Additionally, the compound has also shown activity against human pancreatic cancer cells. Pancreatic cancer at this time is an underserved therapeutic target.

The
Company's lead compound, 6-MCDF, 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. 6-MCDF was accepted for a Phase IIa preclinical development program for studies on formulation, range finding toxicology and
additional efficacy testing. Additional studies have been initiated under the Phase IIa preclinical development program which is testing the efficacy of the compound in estrogen negative cell lines, a
target which is currently not treatable with existing clinical compounds.

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
continues to explore strategic opportunities to license its rights to further develop these compounds to another company.

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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. During 2002, the Company received Orphan Drug designation for the product by the U.S. FDA.

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 theycencoded 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 theycgene into the patients own bone marrow cells. The cells are modified using a retroviral vector that contains the correctedycchain of the DNA (which in
these patients has mutated). The retroviral vector transfers theycchain into the cell and incorporates the corrected ycchain into the cells' DNA,
effectively replacing the mutated component of the DNA. Three 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 eleven infants in a clinical trial conducted by Dr. Fischer indicate that ten of the eleven infants participating in the study have developed and sustained
function of their immune system without additional medical treatment. One of the 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 for SCID. In addition, the infants have been
successfully vaccinated with routine childhood vaccinations.

As
a result of negative clinical developments for two patients in Europe, all trials for this treatment have been halted. The Company continues to work with the Principal Investigator
and regulatory authorities in evaluating the impact of these treatments on patients. Due to the delays caused by the negative developments, the regulatory path of this technology is unknown.

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.

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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 initiation of the first clinical
trial, $10,000 upon the first filing of a marketing application with the FDA (or comparable filing with a comparable international agency), and $25,000 upon receipt by AVAX of approval from the FDA
(or comparable international 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 under the TJU License agreement 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. In connection with the termination of various agreements between the Company and the
former owners of Genopoietic, the Company also terminated this Research Funding Agreement.

The 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 2004 with no funding requirement for the year under extension.

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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 May 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.

RESEARCH AND DEVELOPMENT EXPENSE

In 2002, the Company incurred research and development expense of $6,610,167 compared to $8,099,678 in 2001. Research and development expenses have been
$38,111,286 for the period from inception through December 31, 2002.

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.

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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 Practices, which facility will have to be
reviewed by the FDA as part of the final regulatory approval of M-Vax or O-Vax for commercialization.

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 has been used for
contract manufacturing for other companies and research institutions engaged in development of biopharmaceutical and gene therapy products. The Company presently has one long-term contract
manufacturing agreement for the Lyon facility and is pursuing other contract opportunities. In addition, the Lyon facility may be utilized in the future to process the Company's AC Vaccine technology
for clinical and commercial use in Europe.

Marketing M-Vax in Australia

The Company previously had a joint venture arrangement in Australia to manufacture and market M-Vax in Australia. In July 2000, the joint
venture began marketing M-Vax in Australia. In January 2002, AVAX acquired 90% of its joint venture partners' interest that it did not own (bringing its ownership to 95%) for
approximately $970,000 U.S. Dollars, which represented one half of the cash on hand in the joint venture net of liabilities at the date of closing.

During
2002, the joint venture received a negative evaluation of the reimbursement prospects of the vaccine in Australia by an advisory committee of the Medical Services Advisory
Committee. Based upon this report, the Company determined it would not be viable to continue its operations in Australia as there would be required significant investment for both infrastructure and
operations with limited prospects for product sales in Australia without government reimbursements of costs. In December 2002, the joint venture companies were placed into liquidation
proceedings.

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. During 2002, the Company entered into a distribution agreement with Ferrer Internacional, S.A. for the sales and marketing of the vaccine in certain territories in Europe, Latin
America and Asia. The Company and Ferrer are investigating potential market opportunities to begin initiating sales of the product first in some European jurisdictions.

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.

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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.

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 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.

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Contract Manufacturing

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

GOVERNMENT REGULATION

The research, pre-clinical development, clinical trials, product manufacturing and marketing conducted by 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 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

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approval. In some cases, the FDA may approve a product but require additional clinical tests following approval (i.e., Phase 4).

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

If
marketing approval of any Company product is granted, the Company must continue to comply with FDA requirements not only for manufacturing, but also for labeling, advertising, record
keeping, and reporting to the FDA of adverse experiences and other information. In addition, the Company must comply with federal and state health care antikickback laws and other health care fraud
and abuse laws that affect the marketing of pharmaceuticals. Failure to comply with applicable laws and regulations could subject the Company to administrative or judicial enforcement actions,
including product seizures, injunctions, civil penalties, criminal prosecution, refusals to approve new products or withdrawal of existing approvals, as well as increased product liability exposure.

For
clinical investigation and marketing outside the U.S., the Company also is subject to certain foreign regulatory requirements governing human clinical trials and marketing approval
for drugs. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary widely for European countries both within and outside the European Union ("EU").
Normally, foreign marketing authorizations are applied for at a national level, although within the EU certain registration procedures are available to companies wishing to market their products in
more than one EU member state. If any applicable regulatory authority is satisfied that adequate evidence of safety, quality and efficacy has been presented, a marketing authorization will be granted.
The system for obtaining marketing authorizations within the EU registration system is a dual one in which certain products, such as biotechnology and high technology products and those containing new
active substances, will have access to a central regulatory system that 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, 2002, the Company had a of 22 full-time employees, including 15 full-time employees at the Company's subsidiary
in France and seven full-time employees in the U.S. (four in Philadelphia and three in Overland Park, Kansas), compared to a total of 43 total full-time employees as of
December 31, 2001. The Company's other consultants, scientific advisors and directors devote only a portion of their time to the business of the Company.

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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 needs to raise more money immediately, and its failure to do so will jeopardize its continued operations.

AVAX needs to raise more money immediately 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. If it is unable to raise additional capital in 2003 or establish a new revenue source, the Company will likely cease operations. AVAX has not been able
to raise any additional capital since March 2000. Because the Company has not been able to raise additional funds, AVAX has ceased certain of its product development programs and has taken
numerous other steps to reduce its cash expenditures. Each of these steps, while conserving cash, has slowed the prospects of success in various product development efforts.

AVAX
has no way of knowing if it will be able to complete any additional financings. 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. Because of the declining stock price in 2001 and 2002 and the substantial tightening of equity funding markets for biotechnology
companies generally in 2001 and 2002, the Company continues to review each of its development programs and the cash requirements of each. As a result of these reviews, the Company has substantially
reduced and continues to reduce its current and planned future expenditures for various product candidates.

AVAX may not be successful in its efforts to expand its contract manufacturing activities, which would eliminate this prospect for additional revenues for the Company.

AVAX is seeking to expand its contract manufacturing in the United States and France for other companies engaged in pharmaceutical and gene therapy product
development programs. The Company
has one current contract manufacturing engagement at its Lyon, France facility, which provides much needed revenue to fund the costs of maintaining that facility. Additional contract manufacturing
agreements in the U.S. and France would provide the Company with additional revenue to fund its operations and the costs of the facilities while the Company continues to explore other options to
finance its product and technology development programs.

AVAX
may not be successful in its efforts to expand its contract manufacturing activities, in which case the Company would have to rely solely upon future capital raising events to fund
its operations.

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. Although the funding under the research agreements is not a condition precedent to maintaining the technology licenses, the Company
could experience disputes with its licensors if it fails to fulfill its funding obligations under the research funding agreements. If the Company fails or is delayed in meeting its obligations under
one of its license agreements, AVAX could lose the rights to its products and technologies under that agreement. If the Company fails or is delayed in meeting its obligations under one of its research
funding agreements, AVAX could lose the rights to future product enhancements technologies under that agreement.

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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 experienced the difficulties that arise from seeking to obtain regulatory approval of a novel
therapy, such as the AC Vaccine technology. AVAX could experience similar difficulties in the future if it re-initiates its clinical trials for either M-Vax or
O-Vax.

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

AVAX has competed with numerous clinical trials and other treatment regimens for patients for the Company's clinical trials and will compete with those programs
for patients if and when the Company recompenses its clinical trials for M-Vax or O-Vax. Companies with clinical trials, including AVAX, provide 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. The information provided by the Company regarding any future clinical trials may not be sufficient to persuade
physicians to place their patients in the Company's clinical trials. The Company has experienced intense competition for patients for its previous M-Vax clinical trial.

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.

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. In February 2002, the
United States Pharmacopeia 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

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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 has already experienced many of the difficulties associated with development stage biopharmaceutical companies and may continue to experience the same or similar difficulties.

Even if the Company's AC Vaccine technology results in FDA-approved market products, the Company will continue to face numerous risks.

Even if the Company's obtains FDA approval of M-Vax, O-Vax or another marketable product utilizing the AC Vaccine technology, the Company
will still face numerous risks associated with that product, including the following:



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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's management team has been dramatically reduced in order to reduce current cash requirements of the Company.

AVAX has always been 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. In December 2002, the Company terminated two senior executives, at the recommendation of management, in order to
reduce the cash requirements of the Company. It is more difficult for the Company to implement its plans with only one remaining senior executive. In addition, the current financial condition of the
Company makes it more difficult for the Company to retain its current executive and key employees.

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.

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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 SmallCap 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, 2002, the average daily trading volume in AVAX's common stock was 38,000 shares and the average number
of transactions per day was 30. On many days, the common stock trades less than 15,000 shares. This low average volume and low average number of transactions per day may affect the ability of the
Company's stockholders to sell their shares in the public market at prevailing prices. A more active trading market for AVAX common stock may never develop.

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 all 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. In 2002, the Company's common stock was moved to the Nasdaq SmallCap Market because it did not satisfy the $1.00 minimum
share price.

Nasdaq
has recently notified the Company that if it does not satisfy the $1.00 minimum share price for at least 10 consecutive trading days prior to May 12, 2003, Nasdaq will take
steps to delist the common stock from the Nasdaq SmallCap Market. Nasdaq and the SEC are considering proposals to extend the period of time that Nasdaq-listed companies, including AVAX, can maintain
their listings even if the $1.00 minimum per share price is not satisfied, but there can be no assurance that those proposals will be adopted or that they will be adopted prior to the May 12,
2003 deadline given the Company.

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 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, 2002), 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.

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ITEM 2. Description of Property

AVAX leases a pharmaceutical and gene therapy clinical manufacturing facility in Lyon, France. The facility consists of approximately 9,000 square feet of which
approximately 7,000 square feet are utilized for manufacturing development, including 3,000 square feet of clean rooms and 2,000 square feet for office space. Currently, the monthly rental on the
facility is approximately $11,500. The lease is for a
9-year period through 2009 and is extendable for another 9-year period. The lease may be cancelled by the Company after July 2003 and in three year increments
thereafter.

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

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.

The
Company previously leased a laboratory facility in Rennselaer, New York, which the Company closed in 2002 as a cost-savings measure.

ITEM 3. Legal Proceedings

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

(b)  Avax
International Services and its two French subsidiaries have been sued by L'Universite Pierre et Marie Curie ("UPMC") in the Tribunal de Grande
Instance de Paris in France. UPMC is seeking (1) a determination that the French subsidiaries are obligated to develop and maintain certain patents acquired by GPH in the 2000 Genopoietic
transaction, (2) the subsidiaries must pay certain royalties to UPMC under an agreement between UPMC and the Company's French subsidiary, (3) the subsidiaries must pay for certain
laboratory space at UPMC, and (4) Avax International Services having guaranteed the performance of the French subsidiaries' obligations must pay any amounts for which the subsidiaries are
obligated. The Company believes it has satisfied all of its obligations to UPMC pursuant to the UPMC agreements and that the claims in this lawsuit are without merit and is defending this lawsuit
vigorously.

(c)  On
July 8, 2002, PAREXEL International Corp. ("PAREXEL") filed suit in United States District Court for the District of Massachusetts against the
Company alleging breach of contract and ancillary claims. The lawsuit alleges that the Company has failed to pay approximately $1.5 million to PAREXEL under an agreement (since terminated)
under which PAREXEL provided certain clinical trial management services to the Company for its previous M-Vax and O-Vax clinical trials. The Company believes the claim for
$1.5 million made by PAREXEL is without merit and is defending this lawsuit vigorously.

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, 2002.

20

---



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 is listed for
quotation on the Nasdaq SmallCap Market under the symbol "AVXT." The following table sets forth, for the periods indicated, the high and low sales price for the common stock, as reported by 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

LowFiscal year ended December 31, 2002First quarter

$
1.00

$
0.46Second quarter

$
0.69

$
0.32Third quarter

$
0.50

$
0.25Fourth quarter

$
0.29

$
0.08Fiscal year ended December 31, 2001First quarter

$
4.56

$
0.75Second quarter

$
1.50

$
0.61Third quarter

$
2.44

$
0.80Fourth quarter

$
1.34

$
0.55


The
last reported sale price of the common stock on the Nasdaq SmallCap Market on February 28, 2003 was $0.13 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, 2002,
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.

Equity Compensation Plan Information

The following table sets forth as of December 31, 2002 (a) the number of securities to be issued upon exercise of outstanding options, warrants and
rights, (b) the weighted average exercise price of

21

---

outstanding options, warrants and rights and (c) the number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in
column (a)).

|                                                           |  | (a)       |  | (b) |      | (c)
|---------------------------------------------------------- |  | --------- |  | --- | ---- | ---
|
|Equity compensation plans approved by security holders     |  | 2,214,332 |  | $   | 2.18 |    
|Equity compensation plans not approved by security holders |  | 2,593,761 |  | $   | 4.49 |    
|Total                                                      |  | 4,808,093 |  | $   | 3.43 |    

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

ITEM 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 $62,037,906 as of December 31, 2002. The Company expects to continue to incur
operating losses, primarily due to the maintenance of the Company's manufacturing facility in the United States and France, activities related to establishing partnering or business alliance
relationships, reestablishment of its clinical trials for M-Vax and O-Vax, pre-clinical studies and potential IND filings for certain of the Company's small
molecule compounds.

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

PLAN OF OPERATION

The Company is currently engaged in contract manufacturing and the development and commercialization of biotechnology and pharmaceutical products and
technologies. AVAX is seeking to expand its contract manufacturing in the United States and France for other companies engaged in pharmaceutical and gene therapy product development programs. The
Company has one current contract manufacturing engagement at its Lyon, France facility, which provides much needed revenue to fund the costs of maintaining that facility. Additional contract
manufacturing agreements in the U.S. and France would provide the Company with additional revenue to fund its operations and the costs of the facilities while the Company continues to explore other
options to finance its product and technology development programs. The Company believes that it has developed significant expertise in producing certain pharmaceutical and gene therapy products for
clinical and development purposes,

22

---

and that this expertise can be marketed by the Company to other companies and research institutions engaged in clinical trials and product development programs. In addition, the Company has invested
significant amounts to establish and maintain Good Manufacturing Practices at its manufacturing facilities in Philadelphia, Pennsylvania and Lyon, France. The Company believes that services provided
by these facilities can be valuable to other companies that wish to avoid the significant cash outlays associated with buying or building their own GMP facilities.

The
Company's plan of operation is to obtain one or more additional contract manufacturing agreements that can generate sufficient revenue to allow the Company to maintain these two
facilities and to cover certain of its other operating expenses while the Company continues to explore financing
and strategic options to develop the AC Vaccine technology and its other product candidates. AVAX needs to raise more money immediately 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. If it is unable to raise additional capital in 2003 or establish a new revenue source,
the Company will likely cease operations. AVAX has not been able to raise any additional capital since March 2000. Because the Company has not been able to raise additional funds, AVAX has
ceased certain of its product development programs and has taken numerous other steps to reduce its cash expenditures. Each of these steps, while conserving cash, has slowed or reduced the prospects
of success in various product development efforts.

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

AVAX
experienced events during 2001 that significantly affected its operations during the year. 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. From these events a cost minimization and project prioritization plan was put into place and this continued throughout 2002. During 2002,
based upon a negative reaction by authorities in Australia to an application for product reimbursement for M-Vax, the Company determined that it would be unable to support further the
operation in Australia and a decision was made to discontinue and liquidate the joint venture companies. The results of the Australian operation, which was consolidated in the Company's results
beginning in the first quarter of 2002, are treated as a discontinued operation and its results are separated from the Company's results from continuing operations.

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

During
the first three quarters of 2002, the Company's financial results included the activities of its Australian joint venture operation whose results were consolidated into the
financial results. Based upon the decision to discontinue the operations of the Australian joint venture as discussed above, these financial results are reported as loss from discontinued operations
for the years ended December 31, 2002 and 2001.

23

---

Revenues
recognized in 2002 were $770,743 versus revenues of $541,355 in 2001. The increase in revenues was attributable to the Company's French operations and was a function of securing
a long-term contract manufacturing agreement in 2002.

During
2002, the Company's manufacturing, research and development expenses decreased 18% from $8,099,678 to $6,610,167, largely as a result of various cost savings initiatives and
product prioritization efforts. Expenses for the periods are broken out by region as follows:

Year Ended December 31,2001

2002United States

$
6,834,567

$
5,499,663France


1,265,109


1,110,504$
8,099,678

$
6,610,167


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

On
an annual basis, the decrease in expenses at the Company's French subsidiary were a function of streamlining the efforts in France to support the ongoing validation work in the United
States, concentrating its activities on its contract manufacturing engagements, and eliminating the support for the patents previously supported in the region.

For
the year ended December 31, 2001, the Company recorded a non-cash charge of $3,416,091 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).

In
2002, pursuant to SFAS No. 142, the assembled workforce was reclassified as goodwill and no longer amortized, while intangible amortization recognized in 2001 amounted to
$477,248.

Selling,
general and administrative expenses decreased approximately 17%, from $4,303,246 in 2001 to $3,554,469 for the year ended 2002. Expenses for the periods are broken out by region
as follows:

Year Ended December 31,2001

2002United States

$
3,403,821

$
2,924,995France


899,425


629,474$
4,303,246

$
3,554,469


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

In
France, selling, general and administrative expense decreased as a result of a severance payment related to a marketing employee paid in the fourth quarter of 2001 as well as
close-out costs associated with the closure of the Paris office and moving the entire operations to Lyon, France in 2002.

Interest
income decreased from $665,933 earned in 2001 to $111,448 for the year 2002. 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.

24

---

The
Company anticipates that, over the next 12 months, manufacturing, research and development expenses will decrease as compared with 2002 due to sizeable reductions in spending
anticipated in the United States based upon the Company's decision to not implement the U.S. trials for the AC Vaccine technology without first obtaining additional funding or a strategic alliance
relationship. In addition, the Company anticipates that selling, general and administration expenses will decrease due to additional cost minimization strategies implemented during 2002. If the
Company is able to secure funding, a strategic alliance relationship or revenue from additional contact manufacturing relationships the Company would anticipate an increase in manufacturing, research
and development expenses.

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 the attached Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

The Company presently anticipates that its current resources should be sufficient to fund operations through the second or third quarter of 2003 based upon the
Company's current operating plan. That current operating plan includes anticipated expenses relating to (1) continuing patent costs associated with each of the Company's technologies,
(2) continuing pre-clinical development of the topoisomerase compound, (2) continuing maintenance costs associated with the Philadelphia facility for utilization in
production or contract manufacturing, and (3) costs associated with the production requirements pursuant to contract manufacturing agreements in Lyon, France. To the extent the Company does not
achieve one or more of its operating plan objectives in 2003, the anticipated cash needs of the Company are expected to decline. AVAX needs to raise more money immediately or to initiate additional
contract manufacturing relationships on terms favorable to the Company or enter into a strategic alliance relationship in the first or second quarter of 2003 to continue to maintain each of its
manufacturing facilities and continue the operations of the Company. If the Company is unable to raise money, secure additional contract manufacturing relationships or enter into strategic alliances,
the Company will likely cease operations in 2003. The report of independent auditors on the audit of the consolidated financial statements of the Company for 2002 contains a "going concern"
qualification.

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 second 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 or will need to enter into contract manufacturing relationships on terms favorable to the Company. There can be
no assurance, however, that the Company will be able to obtain the additional funds or attract contract manufacturing relationships that it will require on acceptable terms, if at all. If adequate
funds are not available the Company will likely cease operations in 2003.

25

---

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In October 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS No. 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. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001, with earlier application encouraged.
The Company adopted SFAS No. 144 as of January 1, 2002, and reported the discontinuance of Australian operations in accordance with this statement.

In
July 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 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. SFAS
No. 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. SFAS No. 142 provides 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 SFAS No. 142. SFAS No. 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.

The
Company adopted the provisions of SFAS No. 142 effective January 1, 2002. Assembled workforce, which was amortized in prior years, has been reclassified as goodwill and
is no longer amortized.

Statement
141 requires that the Company evaluate its 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. The Company is 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. In addition, to the extent an intangible asset is identified as having an indefinite useful life, the Company is required
to test the intangible asset for impairment in accordance with the provisions of Statement 142.

In
connection with the transitional goodwill impairment evaluation, Statement 142 required the Company to perform an assessment of whether there was an indication that goodwill was
impaired as of the date of adoption. No impairment was required as a result of this assessment.

ITEM 7. Financial Statements

The Company's consolidated financial statements appear following Item 14 of this Report. See Financial Statements.

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

None.

26

---

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, 2002.

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, 2002.

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, 2002.

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, 2002.

ITEM 13. Exhibits and Reports on Form 8-K

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

On
December 23, 2003, the Company filed a Current Report on Form 8-K, reporting that the Company had terminated the employment of both David L. Tousley, the
Company's President and Chief Operating Officer and a member of the Board of Directors and Warren B. Dudley, the Company's Chief Business Officer, in an effort to further conserve the cash resources
of the Company. The
Form 8-K also reported that Richard P. Rainey, Vice-President Finance and Administration will assume the role of Acting President for the Company.

ITEM 14. Controls and Procedures

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

27

---

Consolidated Financial Statements

AVAX Technologies, Inc.(a development stage company)

Years ended December 31, 2002 and 2001
and the period from January 12, 1990
(Incorporation) to December 31, 2002
With Report of Independent Auditors

---

AVAX Technologies, Inc.(a development stage company)

Consolidated Financial Statements

Years ended December 31, 2002 and 2001 and for the period from January 12, 1990
(Incorporation) to December 31, 2002

|Contents                                                                                                                                                                              
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Report of Independent Auditors                                                                                                                                                        
|Consolidated Financial Statements                                                                                                                                                     
|Consolidated Balance Sheet as of December 31, 2002                                                                                                                                    
|Consolidated Statements of Operations for the years ended December 31, 2002 and 2001 and for the period from January 12, 1990 (incorporation) to December 31, 2002                    
|Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 2002 and 2001 and for the period from January 12, 1990 (incorporation) to December 31, 2002
|Consolidated Statements of Cash Flows for the years ended December 31, 2002 and 2001 and for the period from January 12, 1990 (incorporation) to December 31, 2002                    
|Notes to Consolidated Financial Statements                                                                                                                                            

---



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, 2002, and the
related consolidated statements of operations, stockholders' equity (deficit) and cash flows for the years ended December 31, 2002 and 2001, and for the period from January 12, 1990
(incorporation) to December 31, 2002. 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, 2002 and the consolidated results of their operations and their cash flows for the years ended December 31, 2002 and 2001, and for the period from
January 12, 1990 (incorporation) to December 31, 2002 in conformity with accounting principles generally accepted in the United States.

The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1, the Company has incurred
recurring operating losses and has inadequate capital to fund existing operations through 2003. These conditions raise
substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this
uncertainty.

As
discussed in footnote 1 to the consolidated financial statements, in 2002 the Company changed its method of accounting for goodwill and other intangible assets as a result of the
adoption of Statement of Financial Accounting Standard No. 142 "Goodwill and Other Intangible Assets."

Ernst &
Young LLP

Kansas
City, Missouri
February 28, 2003

F-1

---



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

|                                               |                                                  | December 31,
2002                                                                          |                                      
|---------------------------------------------- | ------------------------------------------------ | ------------------------------------------------------------------------------------------ | -------------------------------------
|Assets                                         |                                                  |                                                                                            |                                      
|Current assets:                                |                                                  |                                                                                            |                                      
|                                               | Cash and cash equivalents                        |                                                                                            | $                                    
|                                               | Marketable securities                            |                                                                                            |                                      
|                                               | Accounts receivable                              |                                                                                            |                                      
|                                               | Inventory                                        |                                                                                            |                                      
|                                               | Prepaid expenses and other current assets        |                                                                                            |                                      
|                                               |                                                  |                                                                                            |                                      
|Total current assets                           |                                                  |                                                                                            | 5,159,305                            
|Property, plant and equipment, at cost         |                                                  |                                                                                            | 3,323,231                            
|                                               | Less accumulated depreciation                    |                                                                                            |                                      
|                                               |                                                  |                                                                                            |                                      
|Net property, plant and equipment              |                                                  |                                                                                            | 1,708,831                            
|Research and development tax credit receivable |                                                  |                                                                                            | 498,543                              
|Goodwill                                       |                                                  |                                                                                            | 188,387                              
|                                               |                                                  |                                                                                            |                                      
|Total assets                                   |                                                  | $                                                                                          | 7,555,066                            
|                                               |                                                  |                                                                                            |                                      
|Liabilities and stockholders' equity           |                                                  |                                                                                            |                                      
|Current liabilities:                           |                                                  |                                                                                            |                                      
|                                               | Accounts payable and accrued liabilities         |                                                                                            | $                                    
|                                               | Accrued compensation payable to former officers  |                                                                                            |                                      
|                                               | Deferred revenue                                 |                                                                                            |                                      
|                                               |                                                  |                                                                                            |                                      
|Total current liabilities                      |                                                  |                                                                                            | 3,436,117                            
|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                                                               |                                      
|                                               |                                                  | Issued and outstanding shares16,541,621                                                   |                                      
|                                               | Additional paid-in capital                       |                                                                                            |                                      
|                                               | Subscription receivable                          |                                                                                            |                                      
|                                               | Accumulated other comprehensive income           |                                                                                            |                                      
|                                               | Deficit accumulated during the development stage |                                                                                            |                                      
|                                               |                                                  |                                                                                            |                                      
|Total stockholders' equity                     |                                                  |                                                                                            | 3,871,197                            
|                                               |                                                  |                                                                                            |                                      
|Total liabilities and stockholders' equity     |                                                  | $                                                                                          | 7,555,066                            
|                                               |                                                  |                                                                                            |                                      

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,
2002 |          
|---------------------------------------------------- | ------------------------------------------------------------------ | - | ----------- | --------- | - | ----------------------------------------------------------------- | ---------
|
|
|Revenue:                                             |                                                                    |   |             |           |   |                                                                   |          
|                                                     | Gain from sale of the Product                                      |   | $           |          |   | $                                                                 |         
|                                                     | Product and contract service revenue                               |   |             | 541,355   |   |                                                                   | 770,743  
|                                                     |                                                                    |   |             |           |   |                                                                   |          
|Total revenue                                        |                                                                    |   | 541,355     |           |   | 770,743                                                           |          
|Costs and expenses:                                  |                                                                    |   |             |           |   |                                                                   |          
|                                                     | Manufacturing, research and development                            |   |             | 8,099,678 |   |                                                                   | 6,610,167
|                                                     | Acquired in process research and development                       |   |             |          |   |                                                                   |         
|                                                     | Write down of acquired intellectual property and other intangibles |   |             | 3,416,091 |   |                                                                   |         
|                                                     | Amortization of acquired intangibles                               |   |             | 477,248   |   |                                                                   |         
|                                                     | Selling, general and administrative                                |   |             | 4,303,246 |   |                                                                   | 3,554,469
|                                                     |                                                                    |   |             |           |   |                                                                   |          
|Total operating loss                                 |                                                                    |   | (15,754,908 | )         |   | (9,393,893                                                        | )        
|Other income (expense):                              |                                                                    |   |             |           |   |                                                                   |          
|                                                     | Interest income                                                    |   |             | 665,933   |   |                                                                   | 111,448  
|                                                     | Interest expense                                                   |   |             |          |   |                                                                   |         
|                                                     | Other, net                                                         |   |             |          |   |                                                                   |         
|                                                     |                                                                    |   |             |           |   |                                                                   |          
|Total other income, net                              |                                                                    |   | 665,933     |           |   | 111,448                                                           |          
|                                                     |                                                                    |   |             |           |   |                                                                   |          
|Loss from continuing operations                      |                                                                    |   | (15,088,975 | )         |   | (9,282,445                                                        | )        
|Loss from discontinued operations                    |                                                                    |   | (20,778     | )         |   | (143,119                                                          | )        
|                                                     |                                                                    |   |             |           |   |                                                                   |          
|Net loss                                             |                                                                    |   | (15,109,753 | )         |   | (9,425,564                                                        | )        
|Amount payable for liquidation preference            |                                                                    |   |            |           |   |                                                                  |          
|                                                     |                                                                    |   |             |           |   |                                                                   |          
|Net loss attributable to common stockholders         |                                                                    | $ | (15,109,753 | )         | $ | (9,425,564                                                        | )        
|                                                     |                                                                    |   |             |           |   |                                                                   |          
|Loss per common sharebasic and diluted              |                                                                    |   |             |           |   |                                                                   |          
|                                                     | Loss from continuing operations                                    |   | $           | (0.91     | ) | $                                                                 | (0.56    
|                                                     | Loss from discontinued operations                                  |   |             |          |   |                                                                   | (0.01    
|                                                     |                                                                    |   |             |           |   |                                                                   |          
|                                                     | Net loss                                                           |   | $           | (0.91     | ) | $                                                                 | (0.57    
|                                                     |                                                                    |   |             |           |   |                                                                   |          
|Weighted-average number of common shares outstanding |                                                                    |   | 16,541,621  |           |   | 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

---

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

|                             |                                                                                                   | Series A
Convertible
Preferred Stock |            | Series B
Convertible
Preferred Stock |        | Series C
Convertible
Preferred Stock |         |         |   |       |       |   |   |   |   |   |            |           |   |        |        | Deficit
Accumulated
During the
Development
Stage |            |            |  
|---------------------------- | ------------------------------------------------------------------------------------------------- | ------------------------------------ | ---------- | ------------------------------------ | ------ | ------------------------------------ | ------- | ------- | - | ----- | ----- | - | - | - | - | - | ---------- | --------- | - | ------ | ------ | ------------------------------------------------ | ---------- | ---------- | -
|
|
|
|Balance at December 31, 1995 |                                                                                                   | 1,287,500                            |            | $                                    | 12,875 |                                      |        |         | $ |      |       |  |   | $ |  |   | 2,581,335  |           | $ | 10,325 |        | $                                                | 1,723,657  |            | $
|                             | Repurchase of common stock in March 1996                                                          |                                      |           |                                      |        |                                     |         |        |   |       |      |   |  |   |   |  |            | (77,901   | ) |        | (312   | )                                                |            |           |  
|                             | Payment of subscription receivable                                                                |                                      |           |                                      |        |                                     |         |        |   |       |      |   |  |   |   |  |            |          |   |        |       |                                                  |            |           |  
|                             | Conversion of Series A preferred stock in June 1996                                               |                                      | (1,287,500 | )                                    |        | (12,875                              | )       |        |   |       |      |   |  |   |   |  |            | 321,875   |   |        | 1,288  |                                                  |            | 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 |  
|                             | Issuance of common stock and Series B preferred stock for services in June 1996                   |                                      |           |                                      |        |                                     |         | 1,000   |   |       | 10    |   |  |   |   |  |            | 500       |   |        | 2      |                                                  |            | 99,988     |  
|                             | Exercise of warrants in June and July 1996                                                        |                                      |           |                                      |        |                                     |         |        |   |       |      |   |  |   |   |  |            | 156,250   |   |        | 626    |                                                  |            | 5,624      |  
|                             | Amount payable for liquidation preference                                                         |                                      |           |                                      |        |                                     |         |        |   |       |      |   |  |   |   |  |            |          |   |        |       |                                                  |            | (1,131,744 | )
|                             | Compensation related to stock options granted in May and September 1996                           |                                      |           |                                      |        |                                     |         |        |   |       |      |   |  |   |   |  |            |          |   |        |       |                                                  |            | 1,076,373  |  
|                             | Amortization of deferred compensation                                                             |                                      |           |                                      |        |                                     |         |        |   |       |      |   |  |   |   |  |            |          |   |        |       |                                                  |            |           |  
|                             | Unrealized loss on marketable securities                                                          |                                      |           |                                      |        |                                     |         |        |   |       |      |   |  |   |   |  |            |          |   |        |       |                                                  |            |           |  
|                             | Net loss                                                                                          |                                      |           |                                      |        |                                     |         |        |   |       |      |   |  |   |   |  |            |          |   |        |       |                                                  |            |           |  
|                             |                                                                                                   |                                      |            |                                      |        |                                      |         |         |   |       |       |   |   |   |   |   |            |           |   |        |        |                                                  |            |            |  
|Balance at December 31, 1996 |                                                                                                   |                                     |            |                                      |       |                                      | 259,198 |         |   | 2,592 |       |  |   |   |  |   | 3,111,158  |           |   | 12,445 |        |                                                  | 24,002,882 |            |  
|                             | Payment of subscription receivable                                                                |                                      |           |                                      |        |                                     |         |        |   |       |      |   |  |   |   |  |            |          |   |        |       |                                                  |            |           |  
|                             | Write-off of subscription receivable                                                              |                                      |           |                                      |        |                                     |         |        |   |       |      |   |  |   |   |  |            |          |   |        |       |                                                  |            | (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        | )
|                             | Realization of loss on marketable securities                                                      |                                      |           |                                      |        |                                     |         |        |   |       |      |   |  |   |   |  |            |          |   |        |       |                                                  |            |           |  
|                             | Amortization of deferred compensation                                                             |                                      |           |                                      |        |                                     |         |        |   |       |      |   |  |   |   |  |            |          |   |        |       |                                                  |            |           |  
|                             | Net loss                                                                                          |                                      |           |                                      |        |                                     |         |        |   |       |      |   |  |   |   |  |            |          |   |        |       |                                                  |            |           |  
|                             |                                                                                                   |                                      |            |                                      |        |                                      |         |         |   |       |       |   |   |   |   |   |            |           |   |        |        |                                                  |            |            |  
|Balance at December 31, 1997 |                                                                                                   |                                     |            |                                      |       |                                      | 204,159 |         | $ | 2,041 |       |  |   |   |  |   | 4,582,305  |           |   | 18,329 |        |                                                  | 23,995,640 |            |  
|                             | Conversion of preferred to common stock                                                           |                                      |           |                                      |        |                                     |         | (91,470 | ) |       | (914  | ) |  |   |   |  |            | 2,386,174 |   |        | 9,544  |                                                  |            | (8,630     | )
|                             | Payment of subscription receivable                                                                |                                      |           |                                      |        |                                     |         |        |   |       |      |   |  |   |   |  |            |          |   |        |       |                                                  |            |           |  
|                             | Issue shares based upon reset provisions                                                          |                                      |           |                                      |        |                                     |         |        |   |       |      |   |  |   |   |  |            | 3,029,339 |   |        | 12,117 |                                                  |            | (12,117    | )
|                             | Issue compensatory shares to officer                                                              |                                      |           |                                      |        |                                     |         |        |   |       |      |   |  |   |   |  |            | 9,301     |   |        | 38     |                                                  |            | 24,962     |  
|                             | Amortization of deferred compensation                                                             |                                      |           |                                      |        |                                     |         |        |   |       |      |   |  |   |   |  |            |          |   |        |       |                                                  |            |           |  
|                             | Net loss                                                                                          |                                      |           |                                      |        |                                     |         |        |   |       |      |   |  |   |   |  |            |          |   |        |       |                                                  |            |           |  
|                             |                                                                                                   |                                      |            |                                      |        |                                      |         |         |   |       |       |   |   |   |   |   |            |           |   |        |        |                                                  |            |            |  
|Balance at December 31, 1998 |                                                                                                   |                                     |            |                                      |       |                                      | 112,689 |         |   | 1,127 |       |  |   |   |  |   | 10,007,119 |           |   | 40,028 |        |                                                  | 23,999,855 |            |  

F-5

---

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

|                             |                                                                                                        | Series A
Convertible
Preferred Stock |   | Series B
Convertible
Preferred Stock |   | Series C
Convertible
Preferred Stock |         |         |   |       |      |         |         |   |       |       |            |           |   |        |       | Deficit
Accumulated
During the
Development
Stage |            |            |  
|---------------------------- | ------------------------------------------------------------------------------------------------------ | ------------------------------------ | - | ------------------------------------ | - | ------------------------------------ | ------- | ------- | - | ----- | ---- | ------- | ------- | - | ----- | ----- | ---------- | --------- | - | ------ | ----- | ------------------------------------------------ | ---------- | ---------- | -
|
|
|
|Balance at December 31, 1998 |                                                                                                        |                                     |   | $                                    |  |                                      | 112,689 |         | $ | 1,127 |      |        |         | $ |      |       | 10,007,119 |           | $ | 40,028 |       | $                                                | 23,999,855 |            | $
|                             | 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  |  
|                             | Exercise of Warrants pursuant to cashless exercise provisions                                          |                                      |  |                                      |   |                                     |         |        |   |       |     |         |        |   |       |      |            | 37,500    |   |        | 150   |                                                  |            | 27,000     |  
|                             | Capital contributed through sale of 20% interest in consolidated subsidiaries to unrelated third party |                                      |  |                                      |   |                                     |         |        |   |       |     |         |        |   |       |      |            |          |   |        |      |                                                  |            | 2,099,200  |  
|                             | Amortization of deferred compensation                                                                  |                                      |  |                                      |   |                                     |         |        |   |       |     |         |        |   |       |      |            |          |   |        |      |                                                  |            |           |  
|                             | Net loss                                                                                               |                                      |  |                                      |   |                                     |         |        |   |       |     |         |        |   |       |      |            |          |   |        |      |                                                  |            |           |  
|                             |                                                                                                        |                                      |   |                                      |   |                                      |         |         |   |       |      |         |         |   |       |       |            |           |   |        |       |                                                  |            |            |  
|Balance at December 31, 1999 |                                                                                                        |                                     |   |                                      |  |                                      | 73,884  |         |   | 739   |      | 101,300 |         |   | 1,013 |       | 11,077,790 |           |   | 44,311 |       | $                                                | 35,406,036 |            |  
|                             |                                                                                                        |                                      |   |                                      |   |                                      |         |         |   |       |      |         |         |   |       |       |            |           |   |        |       |                                                  |            |            |  
|                             | 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 |  
|                             | Capital contribution by shareholder                                                                    |                                      |  |                                      |   |                                     |         |        |   |       |     |         |        |   |       |      |            |          |   |        |      |                                                  |            | 93,637     |  
|                             | Exercise of options and warrants                                                                       |                                      |  |                                      |   |                                     |         |        |   |       |     |         |        |   |       |      |            | 29,254    |   |        | 117   |                                                  |            | 271,273    |  
|                             | Shares issued pursuant to acquisition of Subsidiary                                                    |                                      |  |                                      |   |                                     |         |        |   |       |     |         |        |   |       |      |            | 800,000   |   |        | 3,200 |                                                  |            | 7,596,800  |  
|                             | Elimination of contributed capital related to joint venture no longer consolidated (See Note 4)        |                                      |  |                                      |   |                                     |         |        |   |       |     |         |        |   |       |      |            |          |   |        |      |                                                  |            | (2,099,200 | )
|                             | Amortization of deferred compensation                                                                  |                                      |  |                                      |   |                                     |         |        |   |       |     |         |        |   |       |      |            |          |   |        |      |                                                  |            |           |  
|                             | Foreign currency translation adjustment                                                                |                                      |  |                                      |   |                                     |         |        |   |       |     |         |        |   |       |      |            |          |   |        |      |                                                  |            |           |  
|                             | Net loss                                                                                               |                                      |  |                                      |   |                                     |         |        |   |       |     |         |        |   |       |      |            |          |   |        |      |                                                  |            |           |  
|                             |                                                                                                        |                                      |   |                                      |   |                                      |         |         |   |       |      |         |         |   |       |       |            |           |   |        |       |                                                  |            |            |  
|Balance at December 31, 2000 |                                                                                                        |                                     |   |                                      |  |                                      |        |         |   |      |      | 86,750  |         |   | 867   |       | 16,541,621 |           |   | 66,167 |       |                                                  | 65,446,587 |            |  
|                             | Foreign currency translation adjustment                                                                |                                      |  |                                      |   |                                     |         |        |   |       |     |         |        |   |       |      |            |          |   |        |      |                                                  |            |           |  
|                             | Net loss                                                                                               |                                      |  |                                      |   |                                     |         |        |   |       |     |         |        |   |       |      |            |          |   |        |      |                                                  |            |           |  
|                             |                                                                                                        |                                      |   |                                      |   |                                      |         |         |   |       |      |         |         |   |       |       |            |           |   |        |       |                                                  |            |            |  
|Balance at December 31, 2001 |                                                                                                        |                                     |   |                                      |  |                                      |        |         |   |      |      | 86,750  |         |   | 867   |       | 16,541,621 |           |   | 66,167 |       |                                                  | 65,446,587 |            |  
|                             | Foreign currency translation adjustment                                                                |                                      |  |                                      |   |                                     |         |        |   |       |     |         |        |   |       |      |            |          |   |        |      |                                                  |            |           |  
|                             | Net loss                                                                                               |                                      |  |                                      |   |                                     |         |        |   |       |     |         |        |   |       |      |            |          |   |        |      |                                                  |            |           |  
|                             |                                                                                                        |                                      |   |                                      |   |                                      |         |         |   |       |      |         |         |   |       |       |            |           |   |        |       |                                                  |            |            |  
|Balance at December 31, 2002 |                                                                                                        |                                     |   | $                                    |  |                                      |        |         | $ |      |      | 86,750  |         |   | 867   |       | 16,541,621 |           | $ | 66,167 |       | $                                                | 65,446,587 |            | $
|                             |                                                                                                        |                                      |   |                                      |   |                                      |         |         |   |       |      |         |         |   |       |       |            |           |   |        |       |                                                  |            |            |  

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,
2002 |         
|--------------------------------------------------------------------------- | ------------------------------------------------------------------------------------ | ---------------------------------------------- | ----------- | --------- | -------- | ----------------------------------------------------------------- | --------
|
|
|Operating activities                                                        |                                                                                      |                                                |             |           |          |                                                                   |         
|Net loss                                                                    |                                                                                      | $                                              | (15,109,753 | )         | $        | (9,425,564                                                        | )       
|Adjustments to reconcile net loss to net cash used in operating activities: |                                                                                      |                                                |             |           |          |                                                                   |         
|                                                                            | Depreciation and amortization                                                        |                                                |             | 898,188   |          |                                                                   | 546,227 
|                                                                            | Extraordinary gain related to negative goodwill on consolidated subsidiary           |                                                |             |          |          |                                                                   | (186,295
|                                                                            | Cumulative effect of change in accounting                                            |                                                |             |          |          |                                                                   | (902,900
|                                                                            | Amortization of deferred gain on joint venture                                       |                                                |             | (902,900  | )        |                                                                   |        
|                                                                            | Equity in net loss of joint venture                                                  |                                                |             | 923,678   |          |                                                                   | 14,778  
|                                                                            | Minority interest in net loss of consolidated subsidiary                             |                                                |             |          |          |                                                                   | (57,968 
|                                                                            | Acquired in-process research and development charge                                  |                                                |             |          |          |                                                                   |        
|                                                                            | 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 of furniture and equipment                                              |                                                |             |          |          |                                                                   | 206,291 
|                                                                            | Issuance of common stock or warrants for services                                    |                                                |             |          |          |                                                                   |        
|                                                                            | Changes in operating assets and liabilities:                                         |                                                |             |           |          |                                                                   |         
|                                                                            |                                                                                      | Accounts receivable                            |             |           | (158,930 | )                                                                 |         
|                                                                            |                                                                                      | Inventory                                      |             |           | 1,248    |                                                                   |         
|                                                                            |                                                                                      | Prepaid expenses and other current assets      |             |           | 285,633  |                                                                   |         
|                                                                            |                                                                                      | Research and development tax credit receivable |             |           | (100,223 | )                                                                 |         
|                                                                            |                                                                                      | Accounts payable and accrued liabilities       |             |           | (90,134  | )                                                                 |         
|                                                                            |                                                                                      | Deferred revenue                               |             |           | (7,871   | )                                                                 |         
|                                                                            |                                                                                      | Amount payable to Former Officer               |             |           |         |                                                                   |         
|                                                                            |                                                                                      |                                                |             |           |          |                                                                   |         
|Net cash used in operating activities                                       |                                                                                      |                                                | (10,844,973 | )         |          | (8,972,171                                                        | )       
|Investing activities                                                        |                                                                                      |                                                |             |           |          |                                                                   |         
|Purchases of marketable securities                                          |                                                                                      |                                                | (715,893    | )         |          | (694,798                                                          | )       
|Proceeds from sale of marketable securities                                 |                                                                                      |                                                | 19,610,612  |           |          | 691,816                                                           |         
|Proceeds from sale of short-term investments                                |                                                                                      |                                                |            |           |          |                                                                  |         
|Purchases of furniture and equipment                                        |                                                                                      |                                                | (55,829     | )         |          | (221,230                                                          | )       
|Proceeds from sale of furniture and equipment                               |                                                                                      |                                                |            |           |          | 40,919                                                            |         
|Cash acquired in acquisition of control of joint venture                    |                                                                                      |                                                |            |           |          | 991,634                                                           |         
|Organization costs incurred                                                 |                                                                                      |                                                |            |           |          |                                                                  |         
|                                                                            |                                                                                      |                                                |             |           |          |                                                                   |         
|Net cash provided by (used in) investing activities                         |                                                                                      |                                                | 18,838,890  |           |          | 808,341                                                           |         

F-7

---

|                                                                                   |  |   |            |   |   | Period from
January 12, 1990
(Incorporation) to
December 31,
2002 |  
|---------------------------------------------------------------------------------- |  | - | ---------- | - | - | ----------------------------------------------------------------- | -
|
|
|Financing activities                                                               |  |   |            |   |   |                                                                   |  
|Proceeds from issuance of notes payable to related party                           |  | $ |           |   | $ |                                                                  |  
|Principal payments on notes payable to related party                               |  |   |           |   |   |                                                                  |  
|Proceeds from loans payable                                                        |  |   |           |   |   |                                                                  |  
|Principal payments on loans payable                                                |  |   |           |   |   |                                                                  |  
|Payments for fractional shares from reverse splits and preferred stock conversions |  |   |           |   |   |                                                                  |  
|Financing costs incurred                                                           |  |   |           |   |   |                                                                  |  
|Shareholder capital contribution                                                   |  |   |           |   |   |                                                                  |  
|Payments received on subscription receivable                                       |  |   |           |   |   |                                                                  |  
|Proceeds received from exercise of stock warrants                                  |  |   |           |   |   |                                                                  |  
|Elimination of consolidated accounting treatment for joint venture                 |  |   |           |   |   |                                                                  |  
|Capital contribution through sale of interest in consolidated subsidiary           |  |   |           |   |   |                                                                  |  
|Net proceeds received from issuance of preferred and common stock                  |  |   |           |   |   |                                                                  |  
|                                                                                   |  |   |            |   |   |                                                                   |  
|Net cash provided by financing activities                                          |  |   |           |   |   |                                                                  |  
|Effect of exchange rate changes on cash                                            |  |   | (38,894    | ) |   | 354,789                                                           |  
|                                                                                   |  |   |            |   |   |                                                                   |  
|Net increase (decrease) in cash and cash equivalents                               |  |   | 7,955,023  |   |   | (7,809,041                                                        | )
|Cash and cash equivalents at beginning of period                                   |  |   | 3,694,424  |   |   | 11,649,447                                                        |  
|                                                                                   |  |   |            |   |   |                                                                   |  
|Cash and cash equivalents at end of period                                         |  | $ | 11,649,447 |   | $ | 3,840,406                                                         |  
|                                                                                   |  |   |            |   |   |                                                                   |  
|Supplemental disclosure of cash flow information                                   |  |   |            |   |   |                                                                   |  
|Interest paid                                                                      |  | $ |           |   | $ |                                                                  |  
|                                                                                   |  |   |            |   |   |                                                                   |  

See
accompanying notes.

F-8

---



AVAX Technologies, Inc. and Subsidiaries

(a development state company)

Notes to Consolidated Financial Statements        December 31, 2002 and 2001

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

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

The
Company's business is subject to significant risks consistent with biotechnology companies that are developing products for human therapeutic use. These risks include, but are not
limited to, uncertainties regarding research and development, access to capital, obtaining and enforcing patents, receiving regulatory approval (currently the Company's lead product candidate, the AC
Vaccine

F-9

---

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.

Basis of Presentation

The consolidated financial statements have been prepared assuming that the Company will continue as a going concern. For the year ended December 31, 2002,
the Company incurred a net loss of $9,426,000 and a use of cash in operating activities of $8,972,000. The Company's cash requirements were satisfied through increases in accounts payable and accrued
expenses and through the use of available cash. However, the Company has insufficient resources to maintain existing operations throughout 2003. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Additional debt or equity financing will be required to fund ongoing operations in 2003. The Company is currently negotiating to raise additional
capital or secure revenue sources to fund current operations. However, there can be no assurance that the Company will successfully obtain the required capital or revenues or, if obtained, the amounts
will be sufficient to fund ongoing operations in 2003. The inability to secure additional capital could have a material adverse effect on the Company, including the possibility that the Company could
have to cease operations.

Principles of Consolidation

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

In
1999, the Joint Venture Companies were included in the consolidated financial statements of the Company. Due to additional investment by AVT in the Joint Venture Companies in 2000,
whereby AVT acquired a 50% ownership interest, and AVT's substantial and active involvement in the operations of the Joint Venture Companies late in 2000, the Company no longer exercised control over
the Joint Venture Companies. As such, the Joint Venture Companies accounts are not included in the consolidated financial statements of the Company for the year ended December 31, 2001. During
January 2002, the Joint Venture Companies repurchased 90% of AVT's interest in each company in exchange for cash consideration of approximately $1,860,000 AUD (approximately $970,000 US). This
resulted in AVAX Holdings owning a 95% interest in the Joint Venture Companies as of the date of the transaction, giving AVAX Holdings control of the companies and requires that the results of AVAX
Holdings and its majority owned subsidiaries be consolidated into AVAX's consolidated results.

Foreign Currency Translation

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

In
accordance with Statement of Financial Accounting Standards (SFAS) No. 52, "Foreign Currency Translation", the financial statements of these entities have been translated into
United States dollars, the functional currency of the Company and its other wholly-owned subsidiaries and the

F-10

---

reporting currency herein, for purposes of consolidation. In addition, there were no material foreign currency transaction gains or losses in 2002 or 2001.

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 and for sale of the vaccine through the Joint Venture Companies.

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, 2002, all cash and cash equivalents were held at one financial institution.

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.

Recently Issued Accounting Pronouncements

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

F-11

---

The
following pro-forma table reflects the effects of the adoption of SFAS No. 142 on net loss to exclude amortization of goodwill.

|                                                        |                       | December 31, 2001 |             | Period from January 12, 1990
(Incorporation) to
December 31, 2002 |  
|------------------------------------------------------- | --------------------- | ----------------- | ----------- | ----------------------------------------------------------------- | -
|Loss from continuing operations as originally reported  |                       | $                 | (15,088,975 | )                                                                 | $
|                                                        | Goodwill amortization |                   |             | 75,355                                                            |  
|                                                        |                       |                   |             |                                                                   |  
|Loss from continuing operations as adjusted             |                       | $                 | (15,013,620 | )                                                                 | $
|                                                        |                       |                   |             |                                                                   |  
|Net loss as originally reported                         |                       | $                 | (15,109,753 | )                                                                 | $
|                                                        | Goodwill amortization |                   |             | 75,355                                                            |  
|                                                        |                       |                   |             |                                                                   |  
|Net loss as adjusted                                    |                       | $                 | (15,034,398 | )                                                                 | $
|                                                        |                       |                   |             |                                                                   |  
|Net loss as adjusted per common sharebasic and diluted |                       | $                 | (0.91       | )                                                                 |  
|                                                        |                       |                   |             |                                                                   |  

On
January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This standard supercedes both SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and sections of Accounting Principles Board Opinion 30,
providing one accounting model with which to review for asset impairment.

SFAS
No. 144 retains much of the recognition and measurement provision of SFAS No. 121, but removes goodwill and other indefinite lived assets from its scope. It also
alters the criteria of classifying long-lived assets to be disposed of by sale and changes the method of accounting for the disposal of long-lived assets if other than through
a sale. Finally, while this statement retains the basic presentation provisions for discontinued operations, it broadens the definition of a discontinued operation to include a component of an entity.

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 were being amortized using the
straight-line method over the lives of
the related assets through December 31, 2001. In accordance with the provisions of SFAS No. 142, the remaining intangible assets were reclassified to goodwill as further discussed in
Note 5 and are no longer amortized.

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

F-12

---

securities classified as held-to-maturity are included in interest income. The Company's debt securities held at December 31, 2002 all mature in 2003. The following is
a summary of marketable securities:

Description of Securities

Cost

Unrealized
Gain/(Loss)

Estimated
Fair ValueDecember 31, 2002Held-to-maturity debt securities:U.S. Treasury securities

$
347,452



$
347,452


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 by the
Company.

Accrued Compensation Payable to Former Officers

Accrued compensation to former officers includes amounts calculated as due to terminated officers of the Company pursuant to the severance provisions of their
employment contracts. These amounts were paid in January 2003.

Stock-Based Compensation

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

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

F-13

---

two equal installments in December 1996 and 1997, was fixed, and the number of shares of the Stock would vary depending on the quoted market price of the Stock at such time.

The
first installment was paid on January 3, 1997 in the form of a distribution of IPI stock directly by IPI to the Series A convertible preferred stockholders, who were
holders of record on the closing date of the agreement for sale, and the Company's former President and Chief Executive Officer (the Former Officer). The final installment was received on
January 14, 1999.

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



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

F-14

---

Company paid cash of $10,000 and issued an aggregate of 458,243 shares of common stock to TJU and the scientific founder (the Scientist).

Under
the terms of the license agreement the Company is obligated to (i) pay certain milestone payments as follows: $10,000 upon initiation of the first clinical trial that is
approved by the Food and Drug Administration (FDA) or comparable international agency, $10,000 upon the first filing of a New Drug Application (NDA) with the FDA or comparable international agency,
and $25,000 upon receipt by the Company of approval from the FDA or comparable international agency to market products, (ii) enter into a research agreement to fund a study to be performed by
TJU for the development of the technology related to the Invention (the Study) at approximately $220,000 per annum for the first three years, and (iii) following the third year, spend an
aggregate of $500,000 per year (which includes costs incurred pursuant to the research agreement plus other internal and external costs) on the development of the Invention until commercialized in the
United States. If following the third year, the Company files for United States marketing approval through a Company sponsored NDA, the Company may elect to spend less than $500,000 per year on the
development of the Invention during the period of time the NDA is under review by the FDA. During 2000, a payment of $25,000 was made to TJU pursuant to the license agreement. In addition, the Company
is obligated to pay royalties on its worldwide net revenue derived from the Invention and a percentage of all revenues received from sub-licensees of the Invention.

The
research agreement with TJU mentioned above will continue until completion of the Study, although it is terminable, upon notice by either party to the other, at any time. Expenses
incurred related to research funding for TJU were $409,085 and $394,805 for the years ended December 31, 2002 and 2001, 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. The research agreement has been extended until May 2003 with an annual funding
commitment of approximately $270,000. Expenses incurred related to research funding for Rutgers were $303,976 and $334,903 for the years ended December 31, 2002 and 2001, respectively. This
level of funding satisfies the Company's obligation under the agreement.

Under
the terms of the Rutgers license agreement, the Company is obligated to pay certain milestone payments as follows: $15,000 on the earlier of October 31, 1999 or the date of
first filing of

F-15

---

an Investigational New Drug (IND) application with the FDA, or comparable international agency; $25,000 on the earlier of October 31, 2001 or the date of initiation of Phase II trials in the
United States or another major market country; $45,000 on the earlier of October 31, 2005 or the date of first filing of an NDA application with the FDA, or comparable international agency; and
$150,000 on the earlier of October 31, 2008 or the date of receipt by the Company of approval from the FDA, or comparable international agency, to market products. During 2002, the Company paid
$25,000 pursuant to its obligations under this agreement.

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 $110,713 and $143,346 for the years ended December 31, 2002 and 2001, respectively. This level of funding satisfies the
Company's obligation under the agreement. The research agreement has been extended until January 2004 with no additional funding requirement for the year.

4.    Joint Venture Agreement

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

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

F-16

---

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

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

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

The
following pro-forma disclosures are made to reflect the Company's results of operations as if the Australian Joint Venture transaction and the application of SFAS
No. 142 occurred as of January 1, 2001.

Year Ended December 31,
2001

Year Ended December 31,
2002Total revenue

$
554,055

$
780,222Net loss


(14,775,962
)

(10,590,114
)Net loss per common share


(0.89
)

(0.64
)


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

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

On
December 13, 2002 a liquidator was appointed to oversee the dissolution of the joint venture companies. At that time, the combined assets of the joint venture companies,
consisting of cash, was
$39,580. Recorded liabilities at that time were $65,715. Other long term liabilities related to leasehold obligations were not recorded as the obligations will not be required to be met pursuant to
the liquidation proceedings.

F-17

---

The
following is summarized financial information for the discontinued Australian operation for the years ended December 31, 2002 and 2001:

2002

2001Total revenue

$
9,749

$
Costs and expenses:Manufacturing, research and development


327,485


Selling, general and administrative


792,527


Total operating loss


(1,110,263
)

Other income (expense):Interest income


26,272


Minority interest in net loss of consolidated subsidiary


57,968


Amortization of deferred gain on joint venture





902,900Equity in net loss of joint venture





(923,678
)Other, net (loss on asset disposal)


(206,291
)

Total other expense


(122,051
)

(20,778
)Loss from discontinued operations before cumulative effect and extraordinary item


(1,232,314
)

(20,778
)Extraordinary gain related to negative goodwill on consolidated subsidiary


186,295


Cumulative effect of change in accounting for deferred credit related to equity method investment in joint venture


902,900


Loss from discontinued operations

$
(143,119
)
$
(20,778
)


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 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.

F-18

---



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

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

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 through 2001. Pursuant to the adoption of SFAS No. 142, the assembled workforce has been reclassified as goodwill and is no longer amortized.

Acquired
in-process research and development 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.

All
estimates and projections were based upon assumptions the Company believed to be reasonable at the time of acquisition, but which are inherently uncertain and unpredictable. If these
projects are not successfully developed, the business, operating results and financial condition of the Company may be adversely affected. As of the date of the acquisition, the Company concluded that
once completed, the technologies under development can only be economically used for their specific and intended purposes and that such in-process technology has no alternative future use
after taking

F-19

---

into consideration the overall objectives of the project, progress toward the objectives and uniqueness of developments to these objectives. If the projects fail, the economic contribution expected
to be made by the acquired in-process research and development will not materialize.

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

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.

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.

F-20

---

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.

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

F-21

---

are also entitled to receive, in preference to the holders of common stock, an amount per preferred share of $100 plus any declared but unpaid dividends.

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

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

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

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

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

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

During
2000 holders of 14,550 shares the Series C Preferred stock converted these shares into 650,931 fully paid nonassessable shares of common stock. The 86,750 shares of
Series C preferred stock, outstanding at December 31, 2002, 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

F-22

---

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 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.

F-23

---

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.

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

2,407,024Expired

(567,365
)Balance at December 31, 2002

1,839,659


Stock Options2001 Stock Option Plan

In November 2001 the Board of Directors approved the 2001 Stock Option Plan (the 2001 Plan), subject to shareholder approval, authorizing up to 2,500,000
shares of common stock for granting both incentive and nonqualified stock options to employees, directors, consultants and members of the scientific advisory board of the Company. The exercise price
and vesting period of the options are determined by the Board of Directors at the date of grant. Options may be granted up to 10 years after the 2001 Plan's adoption date and generally expire
10 years from the date of grant. During 2001, options to purchase 175,108 shares of common stock were granted under this plan and remained outstanding at December 31, 2001. During 2002,
59,435 options expired and 115,673 options remained outstanding at December 31, 2002.

F-24

---

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.

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.

F-25

---

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

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

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

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

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

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

In
December 2000, options were issued to two 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. These options expired during 2002 unexercised.

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

Warrants

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

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

In
October 1996, the Company issued warrants to purchase 50,000 shares of common stock at $6 per share, 25,000 of which were subsequently canceled in April of 1997 (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).

F-26

---

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

In
April 1997, the Company issued warrants to purchase 50,000 shares of common stock at $8.00 per share. During 2002, these warrants expired.

In
July 1997, warrants were issued to a consultant to purchase 45,000 shares of common stock at $4.50 per share. Such warrants were to vest upon the occurrence of certain
milestones and were exercisable for a period of five years. In December 1997, these warrants were canceled and new warrants to purchase 115,000 shares of common stock at $3.50 per share were
issued to the consultant. Such warrants vest upon the occurrence of certain milestones and are exercisable for a period of five years. During 2000, 64,346 of these warrants vested and the remaining
50,654 expired pursuant to the terms of the agreement.

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

In
May 1998, warrants were issued to a financial consultant to purchase 80,000 shares of common stock at $4.03 per share. The agreement was terminated during 1998 resulting in
only 40,000 shares vesting as of December 31, 1998. During 2000, 6,000 shares were exercised. These warrants 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, 2002 as follows:

Series C convertible preferred stock

2,669,2251992 Stock option plan

2,500,0002001 Stock option plan

2,500,0002000 Directors option plan

480,000Non Plan options

997,302Warrants to purchase common stock

455,096Warrants to purchase Series B convertible preferred stock

654,437Warrants to purchase common stock issued in connection with Series C convertible preferred stock

845,339Warrants to purchase Common Stock pursuant to 2000 fund raising

444,71013,849,110


F-27

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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,
including a risk free interest rate of 3.0%, a volatility factor of the expected market price of the Company's common stock of 1.78 and a weighted-average remaining contractual life of the option or
warrant of eight years. There were no options granted during 2002.

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:

Year Ended December 31,2002

2001Net loss as reported

$
(9,425,564
)
$
(15,109,753
)Stock based compensation expense as reported





Stock based compensation expenses under fair value method


(1,171,614
)

(1,193,404
)Pro forma net loss attributable to common stockholders

$
(10,597,178
)
$
(16,303,157
)Pro forma net loss per share

$
(0.64
)
$
(0.99
)


F-28

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A
summary of applicable stock option and warrant activity and related information for the years ended December 31, 2001 and 2002 is as follows:

|                                 |  | 2001      |   | 2002
|-------------------------------- |  | --------- | - | ----
|
|Outstanding at beginning of year |  | 5,718,709 |   | $   
|Granted                          |  | 1,349,804 |   |     
|Exercised                        |  |          |   |     
|Forfeited                        |  | (646,497  | ) |     
|                                 |  |           |   |     
|Outstanding at end of year       |  | 6,422,017 |   | $   
|                                 |  |           |   |     
|Exercisable at end of year       |  | 4,318,101 |   | $   
|                                 |  |           |   |     

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

7.    Income Taxes

At December 31, 2002, the Company has net operating loss carryforwards of approximately $60,721,000 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,
2002Deferred tax assets:Net operating losses

$
23,317,000Deferred compensation


413,000Depreciation


17,000Other


1,000Total deferred tax assets


23,813,000Valuation allowance


(23,813,000
)Net deferred tax assets

$



F-29

---



The valuation allowance at December 31, 2001 was $20,170,000.

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 31,2001

2002Income taxes (benefit) at statutory rate

$
(5,137,000
)
$
(3,205,000
)State income taxes, net of federal benefit


(665,000
)

(415,000
)Change in the valuation allowance


5,795,000


3,643,000Other


7,000


(23,000
)Income tax provision (benefit)

$


$



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).

F-30

---

The
marketable securities in the amount of $347,452 plus a certificate of deposit in the amount of $37,001 are held by the bank as collateral for the commercial letters of credit noted
above and the use of these funds is restricted.

Rent
expense under these agreements was approximately $363,000 and $294,000 for the years ended December 31, 2002 and 2001, respectively.

Future
minimum lease payments under the non-cancellable operating leases consist of the following at December 31, 2002:

Year ending
December 31,

Operating Lease
Payments

Amounts receivable
pursuant to sub-lease2003

$
489,847

$
172,1012004


328,637


57,7952005


166,250


2006


166,250


2007


152,396





Consulting Agreements

Effective in June 1996, the Company entered into consulting agreements with the Scientist that runs through May 2003. Annual consulting fees payable
pursuant to the agreement with the Scientist are $48,000.

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. In December 1998, the Company entered into a three year
consulting agreement with a second member of its Scientific Advisory Board for additional consulting services. The agreement calls for annual compensation of $20,000 plus options to acquire 21,000
shares of common stock at $2.25 per share. The options vest annually in arrears.

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

F-31

---

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 and 2002 approximately $700,000 which represents what the Company has calculated as the balance due under the agreement plus
additional costs estimated to settle the matter while the vendor has claimed the Company's liability is approximately $1,500,000.

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, 2002 balance of $247,752 (1,800,000 French Francs) is repayable based on an
annual royalty equal to 47% of the revenue related to the project. As such, the total amount of grant proceeds received is recorded as a liability in the accompanying consolidated balance sheet. In
case of failure or partial success, as defined in the agreement, $55,056 (400,000 French Francs) is payable. The due date for the obligation has past but the grantor agency has not demanded repayment
of the obligation.

10.    Property, Plant and Equipment

The following shows the composition of the assets included in property, plant and equipment at December 31, 2002:

|                                             |  | Cost |           | Accumulated
Depreciation |   | Net      
|-------------------------------------------- |  | ---- | --------- | ------------------------ | - | ---------
|Office furniture and equipment               |  | $    | 288,802   |                          | $ | 230,272  
|Manufacturing facility and related equipment |  |      | 3,034,429 |                          |   | 1,384,128
|                                             |  |      |           |                          |   |          
|Total                                        |  | $    | 3,323,231 |                          | $ | 1,614,400
|                                             |  |      |           |                          |   |          

Depreciation
expense was $546,227 and $420,940 for the years ended December 31, 2002 and 2001, respectively.

11.    Employee Benefit Plan

During 1996, the Company established a discretionary 401(k) plan for all employees over the age of 21. Employee contributions are subject to normal 401(k) plan
limitations. The Company was not required to make a contribution in 2002 and made a $42,308 contribution in 2001.

F-32

---

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.    Legal Proceedings

In addition to litigation discussed in Note 8 above, the Company was also involved in the following other legal proceedings at December 31, 2002:



F-33

---





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 31, 2003 |  | 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. RAINEY             |  | Richard P. Rainey
Acting President and Vice PresidentFinance and Administration (Principal Executive, Financial and Accounting Officer) |  | March 31, 2003
|/s/EDSON D. DE CASTRO            |  | Edson D. de Castro
Director                                                                                                              |  | March 31, 2003
|/s/JOHN K. A. PRENDERGAST, PH.D. |  | John K. A. Prendergast, Ph.D.
Director                                                                                                   |  | March 31, 2003
|/s/CARL SPANA, PH.D.             |  | Carl Spana, Ph.D.
Director                                                                                                               |  | March 31, 2003
|/s/ANDREW W. DAHL, SC.D.         |  | Andrew W. Dahl, Sc.D.
Director                                                                                                           |  | March 31, 2003

28

---

CERTIFICATIONS

I,
Richard P. Rainey, certify that:

1.    I
have reviewed this annual report on Form 10-KSB of AVAX Technologies, Inc.;

2.    Based
on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.    Based
on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.    The
registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:



5.    The
registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent function):



6.    The
registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other
factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:
March 31, 2003

|/s/RICHARD P. RAINEYRichard P. Rainey Vice
PresidentFinance and Administration and
Acting President (Principal Executive Officer and
Principal Financial Officer) |  | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | 

29

---



EXHIBIT INDEX

|Exhibits |  | Description                                                                                                                                                                
|-------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1      |  | Certificate of Incorporation, as amended (excluding the Certificates of Designations for the Series B and Series C Convertible Preferred Stock).(5)                        
|3.2      |  | By-Laws.(1)                                                                                                                                                                
|4.1      |  | Reference is made to Exhibits 3.1 and 3.2.                                                                                                                                 
|4.2      |  | Specimen of Common Stock certificate.(1)                                                                                                                                   
|4.7      |  | Investors' Rights Agreement Dated November 20, 1995, by and between the Company and certain investors.(1)                                                                  
|4.8      |  | Form of Placement Warrant Relating to Offering of Series B Placement Warrants.(2)                                                                                          
|4.9      |  | Certificate of Designation of Series C Convertible Preferred Stock.(3)                                                                                                     
|4.10     |  | Series C Convertible Preferred Stock Warrant Purchase Agreement.(3)                                                                                                        
|4.11     |  | Form of Class A and Class B Common Stock Purchase Warrant issued in connection with the Series C Convertible Preferred Stock.(3)                                           
|10.1     |  | Clinical Study and Research Agreement dated November 20, 1995, by and between the Company and Thomas Jefferson University.(4)                                              
|10.2     |  | License Agreement dated November 20, 1995, by and between the Company and Thomas Jefferson University.(4)                                                                  
|10.3     |  | Extension to the Clinical Study and Research Agreement dated November 20, 1995, by and between the Company and Thomas Jefferson University.(3)                             
|10.4     |  | Consulting Agreement dated May 9, 1996, between the Company and Dr. David Berd.(1)                                                                                         
|10.5     |  | Employment Agreement effective as of November 1, 1999, between the Company and Warren B. Dudley.(5)                                                                        
|10.6     |  | Employment Agreement effective as of February 28, 2001, between the Company and David L. Tousley.(5)                                                                       
|10.7     |  | Employment Agreement effective as of March 26, 2001, between the Company and Richard P. Rainey.(5)                                                                         
|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.(6)
|10.11    |  | Sponsored Research Agreement Dated May 12, 1997, by and between the Company and The Texas A&M University System.(6)                                                        
|10.12    |  | Lease Agreement dated October 18, 2001 for Overland Park Facility.(5)                                                                                                      
|10.13    |  | Lease Agreement dated December 1, 1997 for Philadelphia Facility.(7)                                                                                                       
|10.14    |  | Amended and Restated 1992 Stock Option Plan.(8)                                                                                                                            
|         |  |                                                                                                                                                                            

II-1

---

|10.15 |  | 2001 Stock Option Plan.(5)                                                                                                                                                                            
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.16 |  | Securities Purchase Agreement dated March 7, 2000.(9)                                                                                                                                                 
|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.(10)                            
|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.(10)                                       
|10.19 |  | Research Funding Agreement dated as of August 24, 2000, between the Company and Genopoietic, S.A.(10)                                                                                                 
|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).(10)
|10.21 |  | Severance Agreement dated February 25, 2001, between the Company and Dr. Jeffrey M. Jonas.(11)                                                                                                        
|10.22 |  | 2000 Directors' Stock Option Plan.(12)                                                                                                                                                                
|10.23 |  | Termination DeedShareholders Agreement for AVAX Australia and AVAX Manufacturing dated January 21, 2002.(12)                                                                                         
|10.24 |  | Royalty Agreement between AVAX Australia Pty Limited and Eastpac, Inc. dated January 21, 2002.(12)                                                                                                    
|10.25 |  | Severance Agreement dated as of December 14, 2002, between AVAX Technologies, Inc. and David L. Tousley.(13)                                                                                          
|10.26 |  | Severance Agreement dated as of December 14, 2002, between AVAX Technologies, Inc. and Warren Dudley.(13)                                                                                             
|10.27 |  | Amendment dated February 5, 2003, to Employment Agreement between AVAX Technologies, Inc. and Richard P. Rainey.*                                                                                     
|21.1  |  | Subsidiaries of the Company.*                                                                                                                                                                         
|23.1  |  | Consent of Ernst & Young LLP, Independent Auditors.*                                                                                                                                                  
|99.1  |  | Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.*                                           

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