UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C.20549

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### FORM 10-QSB

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|  |                                                                                    
|- | -----------------------------------------------------------------------------------
|x | QUARTERLY
  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2006

|  |                                                                                           
|- | ------------------------------------------------------------------------------------------
|o | TRANSITION
  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________
to ___________

Commission file number      0-29222

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AVAX
TECHNOLOGIES, INC.(Exact name of small business issuer as specified in its
charter)

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

2000 Hamilton Street
Suite 204
Philadelphia, Pennsylvania 19130(Address of
principal executive offices)

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

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

Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act).o
Yesx
No

State the
number of shares outstanding of each of the issuers classes of common equity,
as of the latest practicable date: 62,545,753 as of May 8, 2006.

Transitional
Small Business Disclosure Format: o
Yes     x
No

Page 1





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AVAX
TECHNOLOGIES, INC.

Table of Contents

|                               |            |                                                                                                                                                                                                                     |  |         | 
|------------------------------ | ---------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------- | 
|                               |            |                                                                                                                                                                                                                     |  | Page    | 
|                               |            |                                                                                                                                                                                                                     |  |         | 
|PART I - FINANCIAL INFORMATION |            |                                                                                                                                                                                                                     | 
|                               |            |                                                                                                                                                                                                                     |  |        
|                               | Item 1.    | Financial Statements                                                                                                                                                                                                |  |         | 
|                               |            | Consolidated BALANCE SHEETS  As of
  December 31, 2005 and March 31, 2006 (Unaudited)                                                                                                                              |  | Page 3  | 
|                               |            | Consolidated STATEMENTS OF OPERATIONS AND
  COMPREHENSIVE LOSS (Unaudited)  For the Three Months Ended March 31, 2006
  and 2005 and for the Period from January 12, 1990 (Incorporation)
  through March 31, 2006 |  | Page 4  | 
|                               |            | Consolidated STATEMENTS OF CASH FLOWS (Unaudited)
   For the Three Months Ended March 31, 2006 and 2005 and for the Period from
  January 12, 1990 (Incorporation) through March 31, 2006                          |  | Page 5  | 
|                               |            | Notes to Consolidated Financial
Statements                                                                                                                                                                          |  | Page 7  | 
|                               |            |                                                                                                                                                                                                                     |  |         | 
|                               | Item 2.    | Managements Discussion and Analysis or
  Plan of Operation                                                                                                                                                         |  | Page 12 | 
|                               |            |                                                                                                                                                                                                                     |  |         | 
|                               | Item 3.    | Controls and Procedures                                                                                                                                                                                             |  | Page 19 | 
|                               |            |                                                                                                                                                                                                                     |  |         | 
|PART II - OTHER INFORMATION    |            |                                                                                                                                                                                                                     | 
|                               |            |                                                                                                                                                                                                                     | 
|                               | Item 6.    | Exhibits                                                                                                                                                                                                            |  | Page 20 | 
|                               |            |                                                                                                                                                                                                                     |  |         | 
|                               | Signatures |                                                                                                                                                                                                                     |  | Page 21 | 

Page 2

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PART
I - FINANCIAL INFORMATION

Item
1. Financial Statements.

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

|                                                                                                   |  |                       |             |                  |   |             |  
|-------------------------------------------------------------------------------------------------- |  | --------------------- | ----------- | ---------------- | - | ----------- | -
|                                                                                                   |  | December
  31,
  2005 |             | March 31,
  2006 |  
|                                                                                                   |  |                       |             |                  |   |             |  
|                                                                                                   |  |                       |             |                  |   | (Unaudited) |  
|Assets                                                                                             |  |                       |             |                  |   |             |  
|Current assets:                                                                                    |  |                       |             |                  |   |             |  
|Cash                                                                                               |  | $                     | 5,573,150   |                  | $ | 4,572,637   |  
|Accounts receivable                                                                                |  |                       | 77,574      |                  |   | 182,876     |  
|Inventory                                                                                          |  |                       | 12,715      |                  |   | 13,342      |  
|VAT receivable                                                                                     |  |                       | 81,505      |                  |   | 72,694      |  
|Prepaid expenses and other current assets                                                          |  |                       | 243,532     |                  |   | 207,847     |  
|                                                                                                   |  |                       |             |                  |   |             |  
|Total current assets                                                                               |  |                       | 5,988,476   |                  |   | 5,049,396   |  
|Property and equipment, at cost                                                                    |  |                       | 3,790,137   |                  |   | 3,835,239   |  
|Less accumulated depreciation                                                                      |  |                       | 2,700,046   |                  |   | 2,792,363   |  
|                                                                                                   |  |                       |             |                  |   |             |  
|Net property, plant and equipment                                                                  |  |                       | 1,090,091   |                  |   | 1,042,876   |  
|Research and development tax credit
  receivable                                                   |  |                       | 81,087      |                  |   |            |  
|Goodwill                                                                                           |  |                       | 188,387     |                  |   | 188,387     |  
|                                                                                                   |  |                       |             |                  |   |             |  
|Total assets                                                                                       |  | $                     | 7,348,041   |                  | $ | 6,280,659   |  
|                                                                                                   |  |                       |             |                  |   |             |  
|Liabilities and stockholders equity                                                               |  |                       |             |                  |   |             |  
|Current liabilities:                                                                               |  |                       |             |                  |   |             |  
|Accounts payable and accrued expenses                                                              |  | $                     | 1,283,163   |                  | $ | 1,360,601   |  
|Accrued and withheld payroll taxes and
  liabilities                                               |  |                       | 120,852     |                  |   | 234,904     |  
|Deferred revenue                                                                                   |  |                       | 91,884      |                  |   | 94,204      |  
|ANVAR advances                                                                                     |  |                       | 324,927     |                  |   | 333,131     |  
|                                                                                                   |  |                       |             |                  |   |             |  
|Total current liabilities                                                                          |  |                       | 1,820,826   |                  |   | 2,022,840   |  
|Stockholders equity:                                                                              |  |                       |             |                  |   |             |  
|Preferred stock, $.01 par value:                                                                   |  |                       |             |                  |   |             |  
|Authorized shares  5,000,000, including
  Series B  300,000 shares and Series C  120,000 shares |  |                       |             |                  |   |             |  
|Series B convertible preferred stock:                                                              |  |                       |             |                  |   |             |  
|Issued and outstanding shares  0                                                                  |  |                       |             |                  |   |             |  
|Series C convertible preferred stock:                                                              |  |                       |             |                  |   |             |  
|Issued and outstanding shares 36,750
  (liquidation preference  $3,675,000)                      |  |                       | 367         |                  |   | 367         |  
|Common stock, $.004 par value:                                                                     |  |                       |             |                  |   |             |  
|Authorized shares  150,000,000 at December
  31, 2005 and March 31, 2006                          |  |                       |             |                  |   |             |  
|Issued and outstanding shares  61,414,998
  at December 31, 2005 and March 31, 2006               |  |                       | 245,660     |                  |   | 245,660     |  
|Additional paid-in capital                                                                         |  |                       | 77,311,610  |                  |   | 77,352,283  |  
|Subscription receivable                                                                            |  |                       | (422        | )                |   | (422        | )
|Accumulated other comprehensive income                                                             |  |                       | 455,682     |                  |   | 458,148     |  
|Deficit accumulated during the development
  stage                                                 |  |                       | (72,485,682 | )                |   | (73,798,217 | )
|                                                                                                   |  |                       |             |                  |   |             |  
|Total stockholders equity                                                                         |  |                       | 5,527,215   |                  |   | 4,257,819   |  
|                                                                                                   |  |                       |             |                  |   |             |  
|Total liabilities and stockholders equity                                                         |  | $                     | 7,348,041   |                  | $ | 6,280,659   |  
|                                                                                                   |  |                       |             |                  |   |             |  

See accompanying notes.

Page 3

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

|                                                                     |  |                                |            |      |   |            |   |                                                                          |             |  
|-------------------------------------------------------------------- |  | ------------------------------ | ---------- | ---- | - | ---------- | - | ------------------------------------------------------------------------ | ----------- | -
|                                                                     |  |                                |            |      |   |            |   | Period
  from
  January 12, 1990
  (Incorporation)
  Through
  March 31, |            
|                                                                     |  |                                |            |      |   |            |   |                                                                         
|                                                                     |  | Three
  months ended March 31, |            |     
|                                                                     |  |                                |            |      |   |            |   |                                                                         
|                                                                     |  | 2005                           |            | 2006 |   | 2006       |  
|                                                                     |  |                                |            |      |   |            |   |                                                                          |             |  
|Revenue:                                                             |  |                                |            |      |   |            |   |                                                                          |             |  
|Gain from sale of the Product                                        |  | $                              |           |      | $ |           |   | $                                                                        | 1,951,000   |  
|Product and contract service revenue                                 |  |                                | 726,742    |      |   | 147,363    |   |                                                                          | 5,817,411   |  
|                                                                     |  |                                |            |      |   |            |   |                                                                          |             |  
|Total revenue                                                        |  |                                | 726,742    |      |   | 147,363    |   |                                                                          | 7,768,411   |  
|                                                                     |  |                                |            |      |   |            |   |                                                                          |             |  
|Costs and expenses:                                                  |  |                                |            |      |   |            |   |                                                                          |             |  
|Research and development                                             |  |                                | 782,393    |      |   | 1,087,199  |   |                                                                          | 44,494,699  |  
|Acquired in process research and
  development                       |  |                                |           |      |   |            |   |                                                                          | 4,420,824   |  
|Write down of acquired intellectual
  property and other intangibles |  |                                |           |      |   |            |   |                                                                          | 3,416,091   |  
|Amortization of acquired intangibles                                 |  |                                |           |      |   |            |   |                                                                          | 715,872     |  
|Selling, general and administrative                                  |  |                                | 467,457    |      |   | 421,565    |   |                                                                          | 33,677,466  |  
|                                                                     |  |                                |            |      |   |            |   |                                                                          |             |  
|Total operating loss                                                 |  |                                | (523,108   | )    |   | (1,361,401 | ) |                                                                          | (78,956,541 | )
|Other income (expense):                                              |  |                                |            |      |   |            |   |                                                                          |             |  
|Interest income                                                      |  |                                | 4,430      |      |   | 48,866     |   |                                                                          | 5,831,043   |  
|Interest expense                                                     |  |                                |           |      |   |           |   |                                                                          | (812,067    | )
|Other, net                                                           |  |                                |           |      |   |           |   |                                                                          | 143,193     |  
|                                                                     |  |                                |            |      |   |            |   |                                                                          |             |  
|Total other income (expense)                                         |  |                                | 4,430      |      |   | 48,866     |   |                                                                          | 5,162,169   |  
|                                                                     |  |                                |            |      |   |            |   |                                                                          |             |  
|Loss from continuing operations                                      |  |                                | (518,678   | )    |   | (1,312,535 | ) |                                                                          | (73,794,372 | )
|Loss from discontinued operations                                    |  |                                |           |      |   |           |   |                                                                          | (3,845      | )
|                                                                     |  |                                |            |      |   |            |   |                                                                          |             |  
|Net loss                                                             |  |                                | (518,678   | )    |   | (1,312,535 | ) |                                                                          | (73,798,217 | )
|Amount payable for liquidation preference                            |  |                                |           |      |   |           |   |                                                                          | (1,870,033  | )
|                                                                     |  |                                |            |      |   |            |   |                                                                          |             |  
|Net loss attributable to common
  stockholders                       |  | $                              | (518,678   | )    | $ | (1,312,535 | ) | $                                                                        | (75,668,250 | )
|                                                                     |  |                                |            |      |   |            |   |                                                                          |             |  
|                                                                    
|Loss per common share  basic and diluted                            |  | $                              | (0.01      | )    | $ | (0.02      | ) |                                                                          |             |  
|                                                                     |  |                                |            |      |   |            |   |                                                                          |             |  
|                                                                    
|Weighted average number of common shares
  outstanding               |  |                                | 36,071,568 |      |   | 61,414,998 |   |                                                                          |             |  
|                                                                     |  |                                |            |      |   |            |   |                                                                          |             |  
|                                                                    
|Net loss                                                             |  | $                              | (518,678   | )    | $ | (1,312,535 | ) |                                                                          |             |  
|Foreign currency translation gain (loss)                             |  |                                | 1,599      |      |   | 2,466      |   |                                                                          |             |  
|                                                                     |  |                                |            |      |   |            |   |                                                                          |             |  
|Net comprehensive loss                                               |  | $                              | (517,079   | )    | $ | (1,310,069 | ) |                                                                          |             |  
|                                                                     |  |                                |            |      |   |            |   |                                                                          |             |  

See accompanying notes.

Page 4

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

|                                                                                       |  |                                |          |      |   |            |   |                                                                        |              |  
|-------------------------------------------------------------------------------------- |  | ------------------------------ | -------- | ---- | - | ---------- | - | ---------------------------------------------------------------------- | ------------ | -
|                                                                                       |  |                                |          |      |   |            |   | Period
  from
  January 12, 1990
  (Incorporation)
  Through March 31, |             
|                                                                                       |  |                                |          |      |   |            |   |                                                                       
|                                                                                       |  | Three
  Months Ended March 31, |          |     
|                                                                                       |  |                                |          |      |  
|                                                                                       |  | 2005                           |          | 2006 |   | 2006       |  
|                                                                                       |  |                                |          |      |   |            |  
|Operating activities                                                                   |  |                                |          |      |   |            |   |                                                                        |              |  
|Net loss                                                                               |  | $                              | (518,678 | )    | $ | (1,312,535 | ) | $                                                                      | (73,798,217  | )
|Adjustments to reconcile net loss to net
  cash used in operating activities:          |  |                                |          |      |   |            |   |                                                                        |              |  
|Depreciation and amortization                                                          |  |                                | 77,846   |      |   | 72,733     |   |                                                                        | 4,566,021    |  
|Stock-based compensation expense                                                       |  |                                |         |      |   | 40,673     |   |                                                                        | 40,673       |  
|Amortization of discount on convertible
  notes payable                                |  |                                |         |      |   |           |   |                                                                        | 142,500      |  
|Amortization of deferred gain on joint
  venture                                       |  |                                |         |      |   |           |   |                                                                        | (902,900     | )
|Equity in net loss of joint venture                                                    |  |                                |         |      |   |           |   |                                                                        | (186,295     | )
|Extraordinary gain related to negative
  goodwill on consolidated subsidiary           |  |                                |         |      |   |           |   |                                                                        | (1,805,800   | )
|Cumulative effect of change in accounting                                              |  |                                |         |      |   |           |   |                                                                        | 1,703,763    |  
|Compensatory stock issue                                                               |  |                                |         |      |   |           |   |                                                                        | (80,427      | )
|Minority interest in net loss of
  consolidated subsidiary                             |  |                                |         |      |   |           |   |                                                                        | 4,420,824    |  
|Acquired in-process research and
  development charge                                  |  |                                |         |      |   |           |   |                                                                        | 3,416,091    |  
|Write down of acquired intellectual
  property and other intangibles                   |  |                                |         |      |   |           |   |                                                                        | 25,000       |  
|Gain from sale of the Product                                                          |  |                                |         |      |   |           |   |                                                                        | (1,951,000   | )
|Gain on sale of intellectual property                                                  |  |                                |         |      |   |           |   |                                                                        | (787         | )
|Accretion of interest on common stock
  receivable                                     |  |                                |         |      |   |           |   |                                                                        | (449,000     | )
|Accretion of interest on amount payable to
  preferred stockholders and former officer |  |                                |         |      |   |           |   |                                                                        | 449,000      |  
|Loss (gain) on sale or abandonment of
  furniture and equipment                        |  |                                |         |      |   |           |   |                                                                        | 246,254      |  
|Issuance of common stock or warrants for
  services                                    |  |                                |         |      |   |           |   |                                                                        | 423,289      |  
|Changes in operating assets and
  liabilities:                                         |  |                                |          |      |   |            |   |                                                                        |              |  
|Accounts receivable                                                                    |  |                                | 22,038   |      |   | (100,798   | ) |                                                                        | (65,015      | )
|Inventory                                                                              |  |                                | 1,144    |      |   | (298       | ) |                                                                        | 27,083       |  
|Prepaid expenses and other current assets                                              |  |                                | (13,658  | )    |   | 47,910     |   |                                                                        | (59,788      | )
|Accounts payable and accrued liabilities                                               |  |                                | 63,304   |      |   | 182,813    |   |                                                                        | 511,473      |  
|Deferred revenue                                                                       |  |                                | (61,479  | )    |   |           |   |                                                                        | 98,012       |  
|Research and development tax credit
receivable                                         |  |                                |         |      |   | 81,087     |   |                                                                        | 320,488      |  
|Amount payable to former officer                                                       |  |                                |         |      |   |           |   |                                                                        | 80,522       |  
|                                                                                       |  |                                |          |      |   |            |   |                                                                        |              |  
|Net cash used in operating activities                                                  |  |                                | (429,483 | )    |   | (988,415   | ) |                                                                        | (62,828,236  | )
|Investing activities                                                                   |  |                                |          |      |   |            |   |                                                                        |              |  
|Purchase of marketable securities and short-term
  investments                         |  |                                |         |      |   |           |   |                                                                        | (351,973,210 | )
|Proceeds from sale of marketable securities                                            |  |                                |         |      |   |           |   |                                                                        | 344,856,738  |  
|Proceeds from sale of short-term
  investments                                         |  |                                |         |      |   |           |   |                                                                        | 7,116,472    |  
|Purchases of furniture and equipment                                                   |  |                                | (63,892  | )    |   | (15,393    | ) |                                                                        | (3,577,749   | )
|Proceeds from sale of furniture and
  equipment                                        |  |                                |         |      |   |           |   |                                                                        | 51,119       |  
|Organization costs incurred                                                            |  |                                |         |      |   |           |   |                                                                        | 991,634      |  
|Cash acquired in acquisition of control of
  joint venture                             |  |                                |         |      |   |           |   |                                                                        | (622,755     | )
|                                                                                       |  |                                |          |      |   |            |   |                                                                        |              |  
|Net cash used in investing activities                                                  |  |                                | (63,892  | )    |   | (15,393    | ) |                                                                        | (3,157,751   | )

Page 5

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

|                                                                                     |  |                                |           |                                                                          |   |            |   |  |   |            |  
|------------------------------------------------------------------------------------ |  | ------------------------------ | --------- | ------------------------------------------------------------------------ | - | ---------- | - |  | - | ---------- | -
|                                                                                     |  |                                |           | Period
  from 
  January 12, 1990 
  (Incorporation)
  Through March 31,
|                                                                                     |  |                                |          
|                                                                                     |  | Three
  months ended March 31, |          
|                                                                                     |  |                                |          
|                                                                                     |  | 2005                           |           | 2006                                                                     |   | 2006      
|                                                                                     |  |                                |          
|Financing activities                                                                 |  |                                |           |                                                                          |   |            |   |  |  
|Proceeds from
  issuance of notes payable to related party                           |  | $                              |          |                                                                          | $ |           |   |  | $ | 957,557    |  
|Principal
  payments on notes payable to related party                               |  |                                |          |                                                                          |   |           |   |  |   | (802,000   | )
|Proceeds from
  loans payable and the related issuance of warrants                   |  |                                |          |                                                                          |   |           |   |  |   | 2,314,000  |  
|Principal
  payments on loans payable                                                |  |                                |          |                                                                          |   |           |   |  |   | (1,389,000 | )
|Payments for
  fractional shares from reverse splits and preferred stock conversions |  |                                |          |                                                                          |   |           |   |  |   | (76        | )
|Financing costs
  incurred                                                           |  |                                |          |                                                                          |   |           |   |  |   | (90,000    | )
|Shareholder
  capital contribution                                                   |  |                                |          |                                                                          |   |           |   |  |   | 93,637     |  
|Payments
  received on subscription receivable                                       |  |                                |          |                                                                          |   |           |   |  |   | 4,542      |  
|Proceeds
  received from exercise of stock warrants                                  |  |                                |          |                                                                          |   |           |   |  |   | 76,892     |  
|Elimination of
  consolidated accounting treatment for joint venture                 |  |                                |          |                                                                          |   |           |   |  |   | (2,511,701 | )
|Capital
  contribution through sale of interest in consolidated subsidiary           |  |                                |          |                                                                          |   |           |   |  |   | 2,624,000  |  
|Net proceeds
  received from issuance of preferred and common stock                  |  |                                | 1,684,007 |                                                                          |   |           |   |  |   | 68,852,491 |  
|                                                                                     |  |                                |           |                                                                          |   |            |   |  |   |            |  
|Net cash
  provided by financing activities                                          |  |                                | 1,684,007 |                                                                          |   |           |   |  |   | 70,130,342 |  
|                                                                                     |  |                                |           |                                                                          |   |            |   |  |   |            |  
|Effect of
  exchange rate changes on cash                                            |  |                                | 249       |                                                                          |   | 3,295      |   |  |   | 428,282    |  
|                                                                                     |  |                                |           |                                                                          |   |            |   |  |   |            |  
|                                                                                     |  |                                |           |                                                                          |   |            |   |  |   |            |  
|Net increase
  (decrease) in cash                                                    |  |                                | 1,190,881 |                                                                          |   | (1,000,513 | ) |  |   | 4,572,637  |  
|                                                                                     |  |                                |           |                                                                          |   |            |   |  |   |            |  
|Cash at
  beginning of period                                                        |  |                                | 1,560,761 |                                                                          |   | 5,573,150  |   |  |   |           |  
|                                                                                     |  |                                |           |                                                                          |   |            |   |  |   |            |  
|Cash at end of
  period                                                              |  | $                              | 2,751,642 |                                                                          | $ | 4,572,637  |   |  | $ | 4,572,637  |  
|                                                                                     |  |                                |           |                                                                          |   |            |   |  |   |            |  
|                                                                                     |  |                                |           |                                                                          |   |            |   |  |   |            |  
|Supplemental disclosure of cash
  flow information                                   |  |                                |           |                                                                          |   |            |   |  |   |            |  
|Interest paid                                                                        |  | $                              |          |                                                                          | $ |           |   |  | $ | 197,072    |  
|                                                                                     |  |                                |           |                                                                          |   |            |   |  |   |            |  
|Non-cash
  activity:                                                                 |  |                                |           |                                                                          |   |            |   |  |   |            |  
|Conversion of
  accounts payable into notes payable                                  |  | $                              |          |                                                                          | $ |           |   |  | $ | 25,000     |  
|                                                                                     |  |                                |           |                                                                          |   |            |   |  |   |            |  
|Common stock
  warrants issued in conjunction with convertible notes payable         |  | $                              |          |                                                                          | $ |           |   |  | $ | 142,500    |  
|                                                                                     |  |                                |           |                                                                          |   |            |   |  |   |            |  
|Conversion of
  bridge loans into common stock                                       |  | $                              |          |                                                                          | $ |           |   |  | $ | 950,000    |  
|                                                                                     |  |                                |           |                                                                          |   |            |   |  |   |            |  
|Payment of
  interest on bridge loans with common stock                              |  | $                              |          |                                                                          | $ |           |   |  | $ | 23,275     |  
|                                                                                     |  |                                |           |                                                                          |   |            |   |  |   |            |  

See
accompanying notes.

Page 6

---



AVAX
Technologies, Inc. and Subsidiaries(a
development stage company)Notes to Consolidated Financial
Statements (Unaudited)For the Three Months Ended March 31, 2006 and 2005

1.
Organization and Summary of Significant Accounting Policies

AVAX Technologies, Inc.,
with its subsidiaries (the Company), is a development stage biopharmaceutical
company.

In November 1995, the
Company sold its leading product under development, an over-the-counter nutritional,
dietary, medicinal food supplement or drug and all of the related patents and
other intellectual property. The agreement was for $2.4 million in shares of
common stock of Interneuron Pharmaceuticals, Inc. (IPI), a public company,
the parent of the purchaser of the product (the Stock). Certain common
stockholders of the Company were also common stockholders of IPI. Pursuant to
the terms of the agreement, the purchase price, payable in two equal
installments in December 1996 and 1997, was fixed, and the number of shares of
the Stock would vary depending on the quoted market price of the Stock at such
time. Because the Stock was receivable in two equal annual installments, the
gain from the sale of the product, $1,951,000, was calculated by discounting
the value of the Stock receivable using a discount rate of 15%.

Also in November 1995, the
Company entered into a license agreement with Thomas Jefferson University
(TJU) to develop, commercially manufacture and sell products embodying
immunotherapeutic vaccines for the treatment of malignant melanoma and other
cancers (the Invention) (seeNote 2).

In 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).

In August 2000, the Company completed its acquisition
of GPH, S.A. (Holdings) and Genopoietic S.A. (Genopoietic) each a French
societe anonyme based in Paris, France, with its principal operating facility
in Lyon, France. Genopoietic was organized in 1993 to develop gene therapy
applications and market gene therapy treatments for cancer. The Company has
designated the Lyon, France operations facility as its primary source facility for
the production of vaccines to be used in clinical trials. In addition, the
Company currently performs contract manufacturing and research activities at
its facilities located in Lyon. The Companys March 31, 2006, consolidated
balance sheet includes approximately $89,917 in net assets related to these
subsidiaries.

The Companys business is
subject to significant risks consistent with biotechnology companies that are
developing products for human therapeutic use. These risks include, but are not
limited to, uncertainties regarding research and development, access to
capital, obtaining and enforcing patents, receiving regulatory approval, and
competition with other biotechnology and pharmaceutical companies. The Company
plans to continue to finance its operations with a combination of equity and
debt financing and, in the longer term, revenues from product sales, if any.
However, there can be no assurance that it will successfully develop any
product or, if it does, that the product will generate any or sufficient
revenues.

Basis of Presentation

The financial information as of March 31, 2006, and
for the three-month periods ended March 31, 2006 and 2005, contained herein is
unaudited. The Company believes this information has been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information and Article 10 of Regulation S-X. The Company
also believes this information includes all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows for the periods then ended. The
results of operations for the three-month period ended March 31, 2006, are
not necessarily indicative of the results of operations that may be expected
for the entire year.

The accompanying financial statements and the related
notes should be read in conjunction with the Companys audited financial
statements for the year ended December 31, 2005, included in the Companys
annual report on Form 10-KSB.

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.

Page 7

---



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

Revenue

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

The Company records as
deferred revenue amounts received in advance of the provision of services in
accordance with contracts or grants. Deferred revenue consisted of $94,204
received from a grant for which the services had not been provided as of March
31, 2006.

Accounts
Receivable

Accounts receivable are stated at the amount
management expects to collect from outstanding balances. Management provides
for probable uncollectible accounts through a charge to earnings and a credit
to a valuation allowance based on its assessment of the current status of
individual accounts. Balances that are still outstanding after management has
used reasonable collection efforts are written off through a charge to the valuation
allowance and a credit to accounts receivable. There was no valuation allowance
at March 31, 2006. The Company generally does not charge interest on accounts
receivable.

Concentrations
of Credit Risk

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

Fair
Value of Financial Instruments

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

Inventories

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

Accrued
Expenses

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

Depreciation

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

Goodwill

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

Page 8

---



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

Prior to the adoption of
SFAS No. 142, the Company had recorded cumulative amortization of $113,032. If
SFAS No. 142 had been applied to earlier periods, the adjusted loss from
continuing operations would be $73,681,340 and the adjusted net loss would be
$73,685,185.

Research and Development Costs

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

Stock-Based
Compensation

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

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

Page 9

---



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

The previously-disclosed pro forma impact on its
earnings of adopting the fair-value-based method of accounting for stock-based
compensation under SFAS 123 for the three months ended March 31, 2006 and
2005 are as follows:

|                                                            |  |                                         |            |                                          |   |          |  
|----------------------------------------------------------- |  | --------------------------------------- | ---------- | ---------------------------------------- | - | -------- | -
|                                                            |  | Three
  Months
  Ended March 31,
  2006 |            | Three
  Months 
  Ended March 31,
  2005 |  
|                                                            |  |                                         |            |                                          |  
|                                                            |  |                                         |            |                                          |   |          |  
|Net loss as reported                                        |  | $                                       | (1,312,535 | )                                        | $ | (518,678 | )
|Stock based compensation expense as reported                |  |                                         | 40,673     |                                          |   |         |  
|Stock based compensation expenses under fair value
  method |  |                                         | (40,673    | )                                        |   | (18,070  | )
|                                                            |  |                                         |            |                                          |   |          |  
|Pro forma net loss attributable to common
  stockholders    |  | $                                       | (1,312,535 | )                                        | $ | (536,748 | )
|                                                            |  |                                         |            |                                          |   |          |  
|Pro forma net loss per share  basic and diluted            |  | $                                       | (0.02      | )                                        | $ | (0.01    | )
|                                                            |  |                                         |            |                                          |   |          |  

The Company maintains two employee stock option plans,
a director stock option plan and has issued non-qualified stock options to
employees and directors based upon the consent of the Board of Directors of
the Company. These plans are more fully discussed in the Form 10-KSB filed for
the year ended December 31, 2005. In addition, the Company issues warrants to
consultants at the discretion of the Board of Directors of the Company. The
Company accounts for warrants granted to consultants in accordance with
Emerging Issues Task Force Issue 96-18, Accounting for Equity Instruments That
Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services. The Company determines the value of stock warrants
utilizing the Black-Scholes option-pricing model.

Compensation costs for fixed awards with pro rata
vesting are allocated to periods on the straight-line basis. For the
three-month period January 1, 2005 through March 31, 2005, there were no
options or warrants issued. The estimated weighted average fair value of
options granted was calculated at $0.18 per share based on the following
assumptions:

|                           |  |                                      |  |      |   | 
|-------------------------- |  | ------------------------------------ |  | ---- | - | 
|                           |  | Three Months Ended 
  March 31, 2006 | 
|                           |  |                                      | 
|Expected
  term (in years) |  |                                      |  | 4.50 |   | 
|Volatility                 |  |                                      |  | 79.4 | % | 
|Risk-free
  interest rate  |  |                                      |  | 4.30 | % | 
|Expected
  dividends       |  |                                      |  | 0    |   | 

Compensation expense of $14,925 was charged to
administrative expenses and $25,748 was charged to research and development
expenses related to stock options outstanding and not vested.

A summary of applicable stock option and warrant
activity and related information for the three months ended March 31, 2006, is
as follows:

|                                   |  |  |                        |            |  |                                    |  |  |   |      |  | 
|---------------------------------- |  |  | ---------------------- | ---------- |  | ---------------------------------- |  |  | - | ---- |  | 
|                                   |  |  | Options
  and Warrants |            |  | Weighted-Average 
  Exercise Price | 
|                                   |  |  |                        |            |  |                                    | 
|Outstanding at beginning of period |  |  |                        | 25,849,652 |  |                                    |  |  | $ | 0.53 |  | 
|Granted                            |  |  |                        | 120,000    |  |                                    |  |  |   | 0.29 |  | 
|Exercised                          |  |  |                        |           |  |                                    |  |  |   |     |  | 
|Forfeited                          |  |  |                        |           |  |                                    |  |  |   |     |  | 
|                                   |  |  |                        |            |  |                                    |  |  |   |      |  | 
|Outstanding at end of period       |  |  |                        | 25,969,652 |  |                                    |  |  | $ | 0.53 |  | 
|                                   |  |  |                        |            |  |                                    |  |  |   |      |  | 
|Exercisable at end of period       |  |  |                        | 23,795,761 |  |                                    |  |  | $ | 0.56 |  | 
|                                   |  |  |                        |            |  |                                    |  |  |   |      |  | 

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

Page 10

---



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

The following table shows the options and warrants
outstanding by strike price with the average expected remaining term of the
instruments at March 31, 2006.

|                     |  |                                  |            |                                   |  |                             |      |                                    |  |  |            |  |  |  |      |  | 
|-------------------- |  | -------------------------------- | ---------- | --------------------------------- |  | --------------------------- | ---- | ---------------------------------- |  |  | ---------- |  |  |  | ---- |  | 
|Exercise Price Range |  | Options & Warrants
  Outstanding |            | Weighted-Average
  Remaining Term |  | Vested Options &
  Warrants |      | Weighted-Average 
  Remaining Term | 
|$0.0 - $0.04         |  |                                  | 31,250     |                                   |  |                             | 1.08 |                                    |  |  | 31,250     |  |  |  | 1.08 |  | 
|$0.125 - $0.17       |  |                                  | 8,798,050  |                                   |  |                             | 3.12 |                                    |  |  | 8,075,550  |  |  |  | 2.91 |  | 
|$0.29 - $0.47        |  |                                  | 15,350,240 |                                   |  |                             | 4.05 |                                    |  |  | 13,909,849 |  |  |  | 3.83 |  | 
|$0.89 - $0.91        |  |                                  | 280,000    |                                   |  |                             | 2.49 |                                    |  |  | 269,000    |  |  |  | 2.48 |  | 
|$2.47 - $3.375       |  |                                  | 680,675    |                                   |  |                             | 2.08 |                                    |  |  | 680,675    |  |  |  | 2.08 |  | 
|$4.22 - $5.00        |  |                                  | 654,437    |                                   |  |                             | 0.20 |                                    |  |  | 654,437    |  |  |  | 0.20 |  | 
|$8.24 - $8.813       |  |                                  | 175,000    |                                   |  |                             | 3.39 |                                    |  |  | 175,000    |  |  |  | 3.39 |  | 
|                     |  |                                  |            |                                   |  |                             |      |                                    |  |  |            |  |  |  |      |  | 
|                     |  |                                  | 25,969,652 |                                   |  |                             |      |                                    |  |  | 23,795,761 |  |  |  |      |  | 
|                     |  |                                  |            |                                   |  |                             |      |                                    |  |  |            |  |  |  |      |  | 

2.
License and Research Agreements

In November 1995, the Company entered into an
agreement with TJU for the exclusive worldwide license to develop, manufacture
and sell the Invention (see Note 1).
In consideration for the license agreement, the Company paid cash of $10,000
and issued an aggregate of 458,243 shares of common stock to TJU and the
scientific founder (the Scientist).

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

3. ANVAR
Advances

The Companys French subsidiary received financial
support from a French governmental agency (ANVAR). These advances, which are
subject to conditions specifying that non-compliance with such conditions could
result in the forfeiture of all or a portion of the future amounts to be
received, as well as the repayment of all or a portion of amounts received to
date. If certain products are commercialized, the March 31, 2006, balance of
$333,131 is repayable based on an annual royalty equal to 47% of the revenue
related to the project. As such, the total amount of advances received are
recorded as a liability in the accompanying consolidated balance sheet. In case
of failure or partial success, as defined in the agreement, $75,121 (400,000
French Francs) is payable. The due date for the obligation has past but the
grantor agency has not demanded repayment of the obligation. Due to the
uncertainty regarding the amount that will be required to be returned to ANVAR,
the Company maintains the full amount of the obligation as a current liability.

Page 11

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Item 2. Managements
Discussion and Analysis or Plan of Operation.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS

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

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

| |   |                                                                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our history of operating losses, our continuing cash
  requirements, our need to raise additional capital by June 30, 2006, and the
  uncertainty of our prospects of reaching a meaningful level of revenues.                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                     
| |  | The business uncertainties arising from our decision
  to conduct all AC Vaccine manufacturing activities at our Lyon, France
  facility and the logistical issues and risks relating to shipping biologics
  from the U.S. and other countries to France and the vaccine from France to
  patients in the U.S. and other countries.
| |   |                                                                                                                                                                                                                                                                                                                                     
| |  | Uncertainty about whether our products will successfully
  complete the long, complex and expensive clinical trial and regulatory
  approval process for approval of new drugs in the U.S. and certain European
  countries.                                                                                                        
| |   |                                                                                                                                                                                                                                                                                                                                     
| |  | Uncertainty about whether our AC Vaccine technology
  can be developed to produce safe and effective products and, if so, whether
  our AC Vaccine products will be commercially accepted and profitable.                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                     
| |  | Difficulties arising from our competition with other
  clinical trials and treatment regimens for patients and clinical sites for
  our clinical trials.                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                     
| |  | The expenses, delays, uncertainties and
  complications typically encountered by development stage biopharmaceutical
  businesses, many of which are beyond our control.                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                     
| |  | Our financial and development obligations and our
  responsibility to meet requisite research funding levels under our license
  agreements in order to protect our rights to our products and technologies.                                                                                                                        
| |   |                                                                                                                                                                                                                                                                                                                                     
| |  | Each of the other factors discussed in our Annual
  Report on Form 10-KSB for the year ended December 31, 2005, under Item 1
   Description of Business  Risk Factors.                                                                                                                                                          

Page 12

---



PLAN OF OPERATION

General

Since our inception, we have concentrated our efforts
and resources on the development and commercialization of biotechnology and
pharmaceutical products and technologies. We have been unprofitable since our
founding and have incurred a cumulative net loss of $73,798,217 as of
March 31, 2006. We incurred net losses of $1,312,535 and $518,678 for the
three months ended March 31, 2006 and 2005, respectively. We expect to
continue to incur operating losses, primarily due to the expenses associated
with our product development efforts, the cost of maintaining our manufacturing
facilities in Europe and the U.S. and activities related to the conduct of our
clinical trials for the AC Vaccine in the U.S. and Europe.

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

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

| |   |                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the FDA clinical hold of our AC Vaccine clinical
  trials in 2001 and the resultant substantial expenses and delays in resolving
  the FDA concerns and refiling new INDs for a revised AC Vaccine;                                                                                              
| |   |                                                                                                                                                                                                                                                                                                  
| |  | manufacturing challenges relating to the production
  of a vaccine from the patients own cancer cells, such as the sterility issues
  we previously experienced at our Philadelphia facility;                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                  
| |  | our failure to develop a market for the AC Vaccine
  in Australia notwithstanding substantial expenditures of time and money to do
  so;                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                  
| |  | our inability to agree with the FDA on an acceptable
  potency assay (which is a biological measure of the drugs active
  ingredients) of our product prior to administration of the vaccine, which
  will be required for later stage clinical trials and commercial approval of
  the vaccine;
| |   |                                                                                                                                                                                                                                                                                                  
| |  | our inability to generate any meaningful revenues
  from any other products or services while we work to develop our lead
  products and technologies; and                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                  
| |  | the cutbacks in our development plans and programs
  due to the limited cash resources in recent years, which is not likely to
  change unless we are able to raise substantial additional capital.                                                                                              

Notwithstanding these setbacks, we believe that the
potential efficacy and viability of the AC Vaccine technology is still
substantial and is, in many respects, of greater probability today than it was
three years ago. We base this optimism in our lead products on the following:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | As a result of the FDA clinical hold, we concluded
  that (1) it would no longer be feasible to continue the clinical development
  of the original AC Vaccine using the established manufacturing format
  (referred to as the fresh vaccine product format), and (2) a revised
  product format needed to be established, tested and reviewed by the FDA.
  Through these research and development activities we re-engineered the
  manufacturing steps for the production and distribution of the AC Vaccine,
  referred to as the frozen vaccine technology, which we believe has
  substantial advantages over the former fresh product.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | After years of frustration and lack of acceptance of
  the AC Vaccine technology among the oncology community in Australia, which
  resulted in us abandoning our efforts in Australia, we are experiencing
  meaningful new acceptance of the AC Vaccine technology in Europe,
  particularly in Spain and Belgium, among key members of the oncology
  community.                                                                                                                                                                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | In France, AFSSAPS has published regulations
  specific to the regulation of cell and gene therapies (which includes the AC
  Vaccine technology). Based upon prior clinical results achieved with the
  fresh vaccine, these regulations create a potential new regulatory path for
  the approval of M-Vax in France.                                                                                                                                                                                                                                                                                                                             

Our continued belief in the AC Vaccine technology is,
however, tempered by our continuing need to raise sufficient capital to
implement an aggressive product development effort. As a result, for the past
two years, our primary focus has been on reducing costs, raising additional
capital, taking the least expensive steps possible to maintain positive
momentum in product development, and clinical advancement of the technology.
The infusion of additional capital would not assure success in developing a
marketable product in Europe or the U.S., but it would allow us to accelerate
the plan of operation described below. Our continuing most significant
challenge is the limited capital resources of the Company.

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Research
and Development Expenses

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

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

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

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

Research and development costs incurred through March
31, 2006, were $44,494,699. Research and development costs were $1,087,199 and
$782,393, for the three months ended March 31, 2006 and 2005, respectively. The
majority of these costs relate to clinical research and development of our AC
Vaccine technology. Our management estimates that greater than 90% of the
periodic and cumulative research and development expenses incurred relate to
our one major program, the AC Vaccine. At this time, due to the risks inherent
in the clinical trial process, risks associated with the product and product
characterization and risks associated with regulatory review and approval of
clinical product candidates, we are unable to estimate with any certainty the
costs we will incur in the continued development of our product candidates for
commercialization.

Plan of
Operation

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

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

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

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

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

Also during 2002, based upon a negative reaction by
authorities in Australia to an application for product reimbursement for M-Vax,
we determined that we would be unable to support further the operation in
Australia and a decision was made to discontinue and liquidate the Australian
joint venture companies. We had not received formal rejection of our
reimbursement application, but a panel of oncologists selected by the
regulatory authority in Australia had recommended against governmental
reimbursement for M-Vax in Australia. Subsequent to our liquidation of the
Australian entity, we received formal notification of our rejection of
reimbursement by the appropriate authorities. Our experience in Australia
demonstrated the importance of obtaining support for the technology among the
leading oncologists within a particular country or community, which we were
never able to achieve in Australia during this period. The results of the
Australian operation, which was consolidated in our results beginning in the
first quarter of 2002, are treated as a discontinued operation and its results
are separated from our results from continuing operations.

In November 2003, we completed a bridge financing of
$950,000 (before expenses of approximately $26,250), which provided funding for
U.S. operations (and certain of our European costs) for the balance of 2003 and
the first half of 2004. Seven individual and institutional investors
participated in the financing. On May 21, 2004, we closed a private placement
of our common stock for gross proceeds of $3.05 million. In conjunction with
the closing of the private placement, the $950,000 principal amount of the
bridge notes and accrued interest in the amount of $23,275 were converted into
approximately 7,487,000 shares of common stock in accordance with the terms of
the bridge notes.

On April 5, 2005, we closed a private placement
of 25,343,430 shares of common stock at a purchase price of $0.34 per share
with 12 accredited or institutional investors. We received gross proceeds of
approximately $8,616,000. In connection with the private placement, we also
issued to the investors warrants to purchase 3,801,515 shares of common stock
at a warrant exercise price of $0.41 per share, and warrants to purchase
3,801,515 shares of common stock at a warrant exercise price of $0.48 per
share. In addition, we issued warrants to our advisors relating to this
fundraising to purchase 2,287,293 shares of common stock at a warrant exercise
price of $0.37 per share. These warrants were valued at $435,705 using the
Black-Scholes pricing model. Offering related expenses in connection with this
fundraising amounted to $1,065,945, of which $630,240 was paid in cash and the
balance relates to the warrants issued to the advisors. All warrants issued in
this private placement expire on April 5, 2010. We are using the proceeds of
this private offering for general working capital purposes, including funding
our current plan of operation discussed below.

Current
Plan of Operation. The following is a summary of our plan of
operation based on our current cash resources and assuming no material capital
infusion in the next 12 months.

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In the past three years, we have laid the foundation for
a significantly more aggressive development plan that we have only recently
been able to begin to pursue. The steps that were taken in the last three years
to implement this plan include:

| |   |                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Continuing development work on the AC Vaccine.                                                                                                                                           
| |   |                                                                                                                                                                                          
| |  | Commencing a Phase I-II IND in the U.S. for Stage 3
  and 4 melanoma patients.                                                                                                           
| |   |                                                                                                                                                                                          
| |  | Commencing a Phase I-II IND in the U.S. for
  resectable non-small cell lung cancer patients.                                                                                            
| |   |                                                                                                                                                                                          
| |  | Established and maintained at our Lyon, France
  facility the designation Establissment Pharmaceutique and Establissment
  Gene and Cell Therapy under applicable French regulations.
| |   |                                                                                                                                                                                          
| |  | Commenced the treatment of melanoma patients in
  Europe on a compassionate use basis with our AC Vaccine.                                                                               
| |   |                                                                                                                                                                                          
| |  | Hired Dr. David Berd as our full-time Chief Medical
  Officer to oversee directly the development of the AC Vaccine technology for
  us.                                                 

With this foundation and the net proceeds from our
April 2005 private placement of common stock and warrants, we are pursuing the
following plan of operation:

| |   |                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Continuing through completion the Phase I-II
  clinical trial in melanoma.                                                                                                                                                                 
| |   |                                                                                                                                                                                                                                            
| |  | Continuing through completion the Phase I-II
  clinical trial in non-small cell lung cancer.                                                                                                                                               
| |   |                                                                                                                                                                                                                                            
| |  | Continue advanced discussions with the U. S. FDA
  regarding the design of the pivotal registration trial in the U.S. for the
  treatment of melanoma patients.                                                                            
| |   |                                                                                                                                                                                                                                            
| |  | Begin discussions with the European Medical
  Evaluations Agency (EMEA), the FDA equivalent regulatory body for the
  European Union to discuss the regulatory requirements for the AC Vaccine and
  its continued development in Europe.
| |   |                                                                                                                                                                                                                                            
| |  | Continuing to offer M-Vax on a compassionate use
  basis in Spain and Belgium, and to seek approval of compassionate use in
  other European countries to broaden the acceptance of the therapy within the
  European oncology community.  

We continually evaluate our plan of operation
discussed above to determine the manner in which we can most effectively
utilize our limited cash resources. The timing of completion of any aspect of
our plan of operations is highly dependant upon the availability of cash to
implement that aspect of the plan and other factors beyond our control. We
believe we have the current cash resources to pursue this plan of operation
through June 30, 2006. The full implementation of this plan of operation beyond
that time is dependent upon us obtaining additional funding or commitments for
additional funding by June 30, 2006. We believe we have the facilities, the
facility managers, the technical and scientific staff and consultants in place
to implement this plan.

We are currently engaged in contract manufacturing and
the development and commercialization of biotechnology and pharmaceutical
products and technologies. These activities take advantage of the facilities
and personnel that we are required to maintain to ensure that we process our
products in accordance with cGMP requirements. With our current compassionate
use and clinical activities planned, we anticipate that excess capacity will
continue to exist at our Lyon, France facility for the foreseeable future.

We will continue to pursue additional contract
manufacturing agreements in the U.S. and France, which would provide us with
additional cash inflows to fund our operations and the costs of the facilities.
We believe that we have developed significant expertise in producing certain
biological products for clinical and development purposes, and that this
expertise can be marketed by us to other companies and research institutions
engaged in clinical trials and product development programs. In addition, we
have invested significant amounts to establish and maintain current Good
Manufacturing Practices at our manufacturing facilities in Philadelphia,
Pennsylvania and Lyon, France. We believe that services provided by these
facilities may be valuable to other companies that wish to avoid the
significant cash outlays associated with buying or building their own cGMP
facilities. We currently utilize our Philadelphia facility for logistical
support in our current clinical trials and for storage of samples. We
anticipate re-initiating vaccine processing at this facility in the future in
support of larger planned studies.

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Results
of Operations

Three
Months Ended March 31, 2006, Compared to Three Months Ended March 31, 2005.

Revenues recognized in the first three months of 2006
were $147,363, compared with revenues of $726,742 for the same period in 2005.
Current year revenues declined due to the termination of a contract
manufacturing agreement in May 2005 and were further affected due to lower
revenues realized related to reimbursement for compassionate use of the vaccine
and a smaller amount of revenue associated with contract manufacturing.

For the first three months of 2006, our research and
development expenses increased to $1,087,199 from $782,393 for the same three
months in 2005. Expenses for the periods are broken out by region as follows:

|              |  |                                |         |      |   |           | 
|------------- |  | ------------------------------ | ------- | ---- | - | --------- | 
|              |  | Three Months Ended
  March 31, |        
|              |  |                                |        
|              |  | 2005                           |         | 2006 |  
|              |  |                                |        
|United States |  | $                              | 219,613 |      | $ | 594,065   | 
|France        |  |                                | 562,780 |      |   | 493,134   | 
|              |  |                                |         |      |   |           | 
|              |  | $                              | 782,393 |      | $ | 1,087,199 | 
|              |  |                                |         |      |   |           | 

The increase in expenses in the U.S. relate to the
initiation and launch of clinical studies for the full three-month period for
melanoma and non-small cell lung cancer that were not initiated in the prior
year. Additional costs incurred in the current year include shipping, handling
and clinical site monitoring for the clinical trials that were not initiated or
launched in the prior year. The decrease in expenses in France relate to
elimination of outside costs associated with the development activities for the
initiation of the vaccine clinical programs in the U.S. In addition, costs in
the prior year include development activities associated with the development
and filing of a BLA with the French regulatory authorities, which did not recur
in the current year.

For the first quarter of
2006, our selling, general and administrative expenses decreased to
$421,565 from $467,457 for the same three months in 2005. Expenses for the
periods are broken out by region as follows:

|              |  |                                |         |      |   |         | 
|------------- |  | ------------------------------ | ------- | ---- | - | ------- | 
|              |  | Three Months Ended
  March 31, |        
|              |  |                                |        
|              |  | 2005                           |         | 2006 |  
|              |  |                                |        
|United States |  | $                              | 287,785 |      | $ | 335,717 | 
|France        |  |                                | 179,672 |      |   | 85,848  | 
|              |  |                                |         |      |   |         | 
|              |  | $                              | 467,457 |      | $ | 421,565 | 
|              |  |                                |         |      |   |         | 

In the U.S. increased costs were related to higher
salaries in the current year plus expenses associated with stock option
issuances, which were not recognized in the prior year. Additional cost
increases in the U.S. included patent expenses associated with the execution of
two patents in the current year. In France, administrative expenses decreased
due to lower costs associated with the support for the development activities
in the research and development area and the elimination of administrative
expenses incurred to obtain a manufacturing contract.

We anticipate that over the next 12 months research
and development expenses will increase as compared with 2005 due to planned
increases in the development activities related to the AC Vaccine, assuming we
are able to raise additional capital.

Liquidity
and Capital Resources

We presently anticipate that our current resources
should be sufficient to fund operations through June 30, 2006, depending upon
how aggressively we implement our development plans discussed above. Our
current operating plan includes anticipated expenses relating to (1) continuing
our clinical trials for M-Vax in the U.S., (2) planning and implementing our
pivotal registration trial for melanoma in the U.S., (3) continuing our
clinical trials for non-small cell lung cancer in the U.S., (4) continuing
maintenance costs associated with our Philadelphia facility for future
utilization in production or contract manufacturing, and (5) continuing costs
associated with maintaining a cGMP-compliant facility in Lyon, France. We will
need to raise additional capital, obtain commitments for additional capital, or
initiate additional contract manufacturing relationships on terms favorable to
us by June 30, 2006 to continue our operations beyond the end of 2006. If we
are unable to raise additional capital, secure additional contract
manufacturing relationships or enter into strategic alliances by June 30, 2006,
we will have to consider curtailing our development initiatives.

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

Because our working capital requirements depend upon
numerous factors, including progress of our research and development programs,
pre-clinical and clinical testing, timing and cost of obtaining regulatory
approvals, changes in levels of resources that we devote to the development of
manufacturing and marketing capabilities, competitive and technological
advances, status of competitors, and our ability to establish collaborative
arrangements with other organizations, there can be no assurance that our
current cash resources will be sufficient to fund our full plan of operations
beyond the first half of 2006 and may require us to begin restricting our
activities. Because we have no committed external sources of capital, and
expect no significant product revenues for the foreseeable future, we will
require additional financing to fund future operations or will need to enter
into contract manufacturing relationships on terms favorable to us. There can
be no assurance, however, that we will be able to obtain the additional funds
or attract contract manufacturing relationships on acceptable terms, if at all.
If we are unable to raise additional capital, secure additional contract
manufacturing relationships or enter into strategic alliances by June 30,
2006, we will have to consider curtailing our development initiatives.

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Item 3. Controls and Procedures.

Our principal executive officer and principal
accounting officer, based on his evaluation within 90 days prior to the date of
this report of our disclosure controls and procedures (as defined in Exchange
Act Rule 13a15(e)), has concluded that, as of the end of the period covered by
our 10-QSB for the quarter ended March 31, 2006, our disclosure controls and
procedures are designed to ensure and are effective at ensuring that
information required to be disclosed by us in our periodic filings with the SEC
is recorded, processed, summarized and reported, within the time periods
specified in the SECs rules and forms. Our disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports that we file or
submit to the SEC is accumulated and communicated to our management, including
our principal executive and principal accounting officer, or persons performing
similar functions, as appropriate to allow timely decisions regarding required
disclosure. There were no significant changes in our internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of their evaluation.

There have been no changes in our internal controls
over financial reporting during our first quarter that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.

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PART II - OTHER INFORMATION

Item 6. Exhibits and Reports on
Form 8-K.

|     |                                                                                                                                                             
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1 | Certifications of Principal Executive Officer of the
  Company under Rule 13a-14(a), as adopted pursuant to Section 302 of the
  Sarbanes-Oxley Act of 2002.
|     |                                                                                                                                                             
|31.2 | Certifications of Principal Financial Officer of the
  Company under Rule 13a-14(a), as adopted pursuant to Section 302 of the
  Sarbanes-Oxley Act of 2002.
|     |                                                                                                                                                             
|32.1 | Certifications of Chief Executive Officer and Chief
  Financial Officer pursuant to 18 U.S.C. Section 1350.                                                 

Page 20

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Signatures

In accordance with the requirements 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: May 15, 2006 |                        
|                   | /s/ Richard P. Rainey  
|                   |                        
|                   | Richard P. Rainey      
|                   | President              

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