# **SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

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# **FORM 10-QSB**

 

| **ý**                                                                                                                                                                                                                                                                | **QUARTERLY  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**        |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                      |                                                                                               |
| **For the quarterly period ended September 30, 2003**                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                      |                                                                                               |
|                                                                                                                                                                                                                                                                      | **or**                                                                                             |
|                                                                                                                                                                                                                                                                      |                                                                                               |
| **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**                                                                                                                                                                                              |

 

**AVAXTECHNOLOGIES, INC.**

(Exact name of small business issuer asspecified in its charter)

 

| **Delaware**                                                                       |   | **13-3575874**                       |
|------------------------------------------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction of  incorporation or organization)                    |   | (I.R.S. Employer Identification No.) |
|                                                                               |   |                                 |
| **9200 Indian Creek Parkway, Suite 200Overland Park, KS**                          |   | **66210**                            |
| **(Address  of principal executive offices)**                                      |   | **(Zip  Code)**                      |
|                                                                               |
| **Registrant’s telephone number, including area  code: **(913) 693-8491  |
|                                                                               |
| **Securities registered under Section 12(b) of  the Exchange Act: **None |
|                                                                               |
| **Securities registered under Section 12(g) of  the Exchange Act:**           |
| **Common Stock, par value  $.004 per share**                                       |

 

Indicate by check mark whether the Registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Actof 1934 during the preceding 12 months (or for such shorter period that theRegistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. **ý**Yes        oNo

 

As of November 11, 2003, 18,080,071 shares of the Registrant’scommon stock, par value $.004 per share, were outstanding.

 

Documents incorporated by reference: None.

 

Transitional Small BusinessDisclosure Format: oYes        **ý** No

 

 

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**AVAXTECHNOLOGIES, INC.**

 

### **Table of Contents**

 
| PART I - FINANCIAL  INFORMATION                                                                                                                                                                                                 |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                            |   |
| Item 1.  Financial Statements                                                                                                                                                                                              | 3      |
| Consolidated BALANCE SHEETS — As of December 31, 2002 and  September 30, 2003 (Unaudited)                                                                                                                        | 3      |
| Consolidated STATEMENTS OF OPERATIONS (Unaudited)  — For the Three and Nine Months Ended September 30, 2002 and 2003; and  for the Period from January 12, 1990 (Incorporation) through  September 30, 2003 | 4      |
| Consolidated STATEMENTS OF CASH FLOWS  (Unaudited) — For the Nine Months Ended September 30, 2002 and 2003 and  for the Period from January 12, 1990 (Incorporation) through  September 30, 2003            | 5      |
| Notes to Consolidated Financial Statements                                                                                                                                                                                      | 6      |
|                                                                                                                                                                                                                            |   |
| Item 2.   Management’s Discussion and Analysis of Financial Condition and Plan  of Operations                                                                                                                         | 11     |
|                                                                                                                                                                                                                            |   |
| Item 3.  Controls and  Procedures                                                                                                                                                                                          | 14     |
|                                                                                                                                                                                                                            |   |
| PART II - OTHER INFORMATION                                                                                                                                                                                                     | 15     |
|                                                                                                                                                                                                                            |   |
| Item 1.  Legal Proceedings                                                                                                                                                                                                 | 15     |
| Item 6.   Exhibits and Reports on Form 8-K                                                                                                                                                                                 | 15     |
|                                                                                                                                                                                                                            |   |
| Signatures                                                                                                                                                                                                                      | 16     |

 

2

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**PART I - FINANCIAL INFORMATION**

**Item 1. Financial Statements**

 

AVAX Technologies, Inc.

***(a development stage company)***

Consolidated Balance Sheets

 
|                                                                                                                                                                                                                                                         |   | **December 31,  2002** |       | **September 30,  2003** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|------------|------------------------------|------------|
|                                                                                                                                                                                                                                                         |   |                        |       | **(Unaudited)**              |       |
| **Assets**                                                                                                                                                                                                                                                   |   |                        |       |                         |       |
| Current assets:                                                                                                                                                                                                                                              |   |                        | ** ** |                         | ** ** |
| Cash and cash equivalents                                                                                                                                                                                                                                    |   | $                           | 3,840,406  |                         | $          | 752,004 |   |
| Marketable securities                                                                                                                                                                                                                                        |   | 347,452                     |       | 262,488                      |       |
| Accounts receivable                                                                                                                                                                                                                                          |   | 243,451                     |       | 241,013                      |       |
| Inventory                                                                                                                                                                                                                                                    |   | 53,329                      |       | 45,350                       |       |
| Prepaid expenses and other current assets                                                                                                                                                                                                                    |   | 674,667                     |       | 286,084                      |       |
| Total current assets                                                                                                                                                                                                                                         |   | 5,159,305                   |       | 1,586,939                    |       |
| Property and equipment at cost                                                                                                                                                                                                                               |   | 3,323,231                   |       | 3,405,362                    |       |
| Less accumulated depreciation                                                                                                                                                                                                                                |   | 1,614,400                   |       | 1,985,355                    |       |
| Net property and equipment                                                                                                                                                                                                                                   |   | 1,708,831                   |       | 1,420,007                    |       |
| Research and development tax credit  receivable                                                                                                                                                                                                              |   | 498,543                     |       | 319,486                      |       |
| Goodwill                                                                                                                                                                                                                                                     |   | 188,387                     |       | 188,387                      |       |
| Total assets                                                                                                                                                                                                                                                 |   | $                           | 7,555,066  |                         | $          | 3,514,819 |   |
|                                                                                                                                                                                                                                                         |   |                        | ** ** |                         | ** ** |
| **Liabilities and stockholders’ equity**                                                                                                                                                                                                                |   |                        | ** ** |                         | ** ** |
| Current liabilities:                                                                                                                                                                                                                                         |   |                        | ** ** |                         | ** ** |
| Accounts payable and accrued liabilities                                                                                                                                                                                                                     |   | $                           | 2,833,852  |                         | $          | 1,161,944 |   |
| Accrued compensation payable to former  officers                                                                                                                                                                                                             |   | 538,299                     |       | —                       |       |
| Deferred revenue                                                                                                                                                                                                                                             |   | 63,966                      |       | —                       |       |
| Total current liabilities                                                                                                                                                                                                                                    |   | 3,436,117                   |       | 1,161,944                    |       |
| Long-term debt                                                                                                                                                                                                                                               |   | 247,752                     |       | 319,713                      |       |
| Commitments and contingencies                                                                                                                                                                                                                                |   |                        |       |                         |       |
| Stockholders’ equity:                                                                                                                                                                                                                                   |   |                        | ** ** |                         | ** ** |
| Preferred stock, $.01 par value:                                                                                                                                                                                                                             |   |                        | ** ** |                         | ** ** |
| Authorized shares – 5,000,000, including  Series B – 300,000 shares and Series C – 120,000 shares                                                                                                                                             |   |                        | ** ** |                         | ** ** |
| Series B convertible preferred stock:                                                                                                                                                                                                                        |   |                        | ** ** |                         | ** ** |
| Issued and outstanding shares – 0                                                                                                                                                                                                                       |   | —                      |       | —                       |       |
| Series C convertible preferred stock:                                                                                                                                                                                                                        |   |                        |       |                         |       |
| Issued and outstanding shares – 36,750 and  86,750 at September 30, 2003 and December 31, 2002, respectively  (liquidation preference – $3,675,000 and $8,675,000 at September 30,  2003 and December 31, 2002, respectively.) |   | 867                         |       | 367                          |       |
| Common stock, $.004 par value:                                                                                                                                                                                                                               |   |                        |       |                         |       |
| Authorized shares – 50,000,000                                                                                                                                                                                                                          |   |                        |       |                         |       |
| Issued and outstanding shares – 18,080,071  and 16,541,621 at September 30, 2003 and December 31, 2002,  respectively.                                                                                                                        |   | 66,167                      |       | 72,320                       |       |
| Additional paid-in capital                                                                                                                                                                                                                                   |   | 65,446,587                  |       | 65,440,934                   |       |
| Subscription receivable                                                                                                                                                                                                                                      |   | (422                        | )          | (422                         | )          |
| Accumulated other comprehensive income                                                                                                                                                                                                                       |   | 395,904                     |       | 415,931                      |       |
| Deficit accumulated during the development  stage                                                                                                                                                                                                            |   | (62,037,906                 | )          | (63,895,968                  | )          |
| Total stockholders’ equity                                                                                                                                                                                                                              |   | 3,871,197                   |       | 2,033,162                    |       |
| Total liabilities and stockholders’ equity                                                                                                                                                                                                              |   | $                           | 7,555,066  |                         | $          | 3,514,819 |   |

 

*Seeaccompanying notes.*

 

3

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AVAX Technologies, Inc.

***(a development stagecompany)***

Consolidated Statementsof Operations

*(Unaudited)*

 
|                                                                |   | **Three  Months Ended  September 30,** |       | **Nine  Months Ended  September 30,** |       | **Period  From  January 12, 1990  (Incorporation)  through  September 30,** |       |
|---------------------------------------------------------------------|--------|---------------------------------------------|------------|--------------------------------------------|------------|---------------------------------------------------------------------------------------|------------|
|                                                                |   | **2002**                                    |       | **2003**                                   |       | **2002**                                                                              |       | **2003** |   | **2003** |   |
| Revenue:                                                            |   |                                        |       |                                       |       |                                                                                  |       |   |   |   |   |
| Gain from sale of the Product                                       |   | $                                           | —     |                                       | $          | —                                                                                |       | $ | — |   | $ | — |   | $ | 1,951,000 |   |
| Product and contract service revenue                                |   | 247,232                                     |       | 369,690                                    |       | 543,390                                                                               |       | 981,305 |   | 2,405,862 |   |
| Total revenue                                                       |   | 247,232                                     |       | 369,690                                    |       | 543,390                                                                               |       | 981,305 |   | 4,356,862 |   |
|                                                                |   |                                        |       |                                       |       |                                                                                  |       |   |   |   |   |
| Costs and expenses:                                                 |   |                                        |       |                                       |       |                                                                                  |       |   |   |   |   |
| Manufacturing, research and development                             |   | 1,720,682                                   |       | 761,556                                    |       | 5,284,621                                                                             |       | 1,439,472 |   | 39,550,758 |   |
| 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                                |   | 18,839                                      |       | —                                     |       | 56,516                                                                                |       | — |   | 715,872 |   |
| Selling, general and administrative                                 |   | 569,300                                     |       | 390,296                                    |       | 2,179,588                                                                             |       | 1,418,810 |   | 25,275,538 |   |
|                                                                |   | (2,061,589                                  | )          | (782,162                                   | )          | (6,977,335                                                                            | )          | (1,876,977 | ) | (69,022,221 | ) |
| Other income (expense):                                             |   |                                        |       |                                       |       |                                                                                  |       |   |   |   |   |
| Interest income                                                     |   | 22,692                                      |       | 1,121                                      |       | 102,507                                                                               |       | 13,315 |   | 5,625,023 |   |
| Interest expense                                                    |   | —                                      |       | —                                     |       | —                                                                                |       | — |   | (646,293 | ) |
| Other, net                                                          |   | —                                      |       | —                                     |       | —                                                                                |       | 5,600 |   | 151,368 |   |
| Total other income                                                  |   | 22,692                                      |       | 1,121                                      |       | 102,057                                                                               |       | 18,915 |   | 5,130,098 |   |
| Loss from continuing operations                                     |   | (2,038,897                                  | )          | (781,041                                   | )          | (6,874,828                                                                            | )          | (1,858,062 | ) | (63,892,123 | ) |
| Gain (loss) from discontinued operations                            |   | (561,043                                    | )          | —                                     |       | 161,650                                                                               |       | — |   | (3,845 | ) |
| Net loss                                                            |   | (2,599,940                                  | )          | (781,041                                   | )          | (6,713,178                                                                            | )          | (1,858,062 | ) | (63,895,968 | ) |
| Amount payable for liquidation preference                           |   | —                                      |       | —                                     |       | —                                                                                |       | — |   | (1,870,033 | ) |
| Net loss attributable to common stockholders                        |   | $                                           | (2,599,940 | )                                          | $          | (781,041                                                                              | )          | $ | (6,713,178 | ) | $ | (1,858,062 | ) | $ | (65,766,001 | ) |
| Loss per common share—basic and diluted                        |   |                                        |       |                                       |       |                                                                                  |       |   |   |   |   |
| Loss from continuing operations                                     |   | $                                           | (.13)      |                                       | $          | (.04)                                                                                 |       | $ | (.42) |   | $ | (.11) |   |   |   |
| Income from discontinued operations                                 |   | (.03)                                       |       | —                                     |       | $                                                                                     | .01        |   | $ | — |   |   |   |
| Net Loss                                                            |   | $                                           | (.16)      |                                       | $          | (.04)                                                                                 |       | $ | (.41) |   | $ | (.11) |   |   |   |
| Weighted average number of common shares  outstanding:              |   |                                        | ** ** |                                       | ** ** |                                                                                  | ** ** |   | ** ** |   | ** ** |
| Basic and Fully Diluted                                             |   | 16,541,621                                  |       | 18,080,071                                 |       | 16,541,621                                                                            |       | 17,310,846 | ** ** |   | ** ** |

 

*See accompanyingnotes.*

4

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AVAX Technologies, Inc.

***(a development stage company)***

Consolidated Statements of Cash Flows

*(Unaudited)*

 
|                                                                                  |   | **Nine  Months Ended September 30,** |       | **Period  from  January 12, 1990  (Incorporation) through  September 30,** |     |
|---------------------------------------------------------------------------------------|--------|-------------------------------------------|------------|--------------------------------------------------------------------------------------|----------|
|                                                                                  |   | **2002**                                  |       | **2003**                                                                             |     | **2003** |   |
| **Operating activities**                                                              |   |                                      | * *   |                                                                                 | * * |   | * * |
| Net  loss                                                                             |   | $                                         | (6,713,178 | )                                                                                    | $        | (1,858,062 | ) | $ | (63,895,968 | ) |
| Adjustments  to reconcile net loss to net cash used in operating activities:          |   |                                      |       |                                                                                 |     |   |   |
| Depreciation  and amortization                                                        |   | 463,781                                   |       | 370,955                                                                              |     | 3,739,781 |   |
| Amortization  of deferred gain on joint venture                                       |   | —                                    |       | —                                                                               |     | (1,805,800 | ) |
| Equity  in net loss of joint venture                                                  |   | 14,778                                    |       | —                                                                               |     | 1,703,763 |   |
| Extraordinary  gain related to negative goodwill on consolidated subsidiary           |   | (186,295                                  | )          | —                                                                               |     | (186,295 | ) |
| Cumulative  effect of change in accounting                                            |   | (902,900                                  | )          | —                                                                               |     | (902,900 | ) |
| Compensatory  stock issue                                                             |   | —                                    |       | —                                                                               |     | 25,000 |   |
| Minority interest in net loss of consolidated subsidiary                              |   | (48,040                                   | )          | —                                                                               |     | (80,427 | ) |
| Acquired  in-process research and development charge                                  |   | —                                    |       | —                                                                               |     | 4,420,824 |   |
| Write  down of acquired intellectual property and other intangibles                   |   | —                                    |       | —                                                                               |     | 3,416,091 |   |
| 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                        |   | —                                    |       | (5,600                                                                               | )        | 238,078 |   |
| Issuance  of common stock or warrants for services                                    |   | —                                    |       | —                                                                               |     | 423,289 |   |
| Changes  in operating assets and liabilities:                                         |   |                                      |       |                                                                                 |     |   |   |
| Accounts  receivable                                                                  |   | (58,414                                   | )          | 2,438                                                                                |     | (112,648 | ) |
| Inventory                                                                             |   | 7,544                                     |       | 7,979                                                                                |     | 3,814 |   |
| Prepaid  expenses and other current assets                                            |   | 200,446                                   |       | 388,583                                                                              |     | (52,522 | ) |
| Accounts  payable and accrued liabilities                                             |   | 176,367                                   |       | (2,210,207                                                                           | )        | (43,067 | ) |
| Deferred  revenue                                                                     |   | (56,743                                   | )          | (63,966                                                                              | )        | — |   |
| Research  and development tax credit receivable                                       |   | (38,913                                   | )          | 179,057                                                                              |     | (62,950 | ) |
| Amount  payable to former officer                                                     |   | —                                    |       | —                                                                               |     | 80,522 |   |
| Net  cash used in operating activities                                                |   | (7,141,567                                | )          | (3,188,823                                                                           | )        | (55,043,202 | ) |
|                                                                                  |   |                                      |       |                                                                                 |     |   |   |
| **Investing activities**                                                              |   |                                      |       |                                                                                 |     |   |   |
| Purchase  of marketable securities and short-term investments                         |   | (694,798                                  | )          | (873,509                                                                             | )        | (350,496,814 | ) |
| Proceeds  from sale of marketable securities                                          |   | 691,816                                   |       | 958,473                                                                              |     | 343,117,854 |   |
| Proceeds  from sale of short-term investments                                         |   | —                                    |       | —                                                                               |     | 7,116,472 |   |
| Purchases  of furniture and equipment                                                 |   | (153,267                                  | )          | (82,131                                                                              | )        | (3,127,297 | ) |
| Proceeds  from sale of furniture and equipment                                        |   | —                                    |       | 5,600                                                                                |     | 51,119 |   |
| Organization  costs incurred                                                          |   | —                                    |       | —                                                                               |     | (622,755 | ) |
| Cash  acquired in acquisition of control of joint venture                             |   | 991,634                                   |       | —                                                                               |     | 991,634 |   |
|                                                                                  |   |                                      |       |                                                                                 |     |   |   |
| Net  cash provided by (used in) investing activities                                  |   | 835,385                                   |       | 8,433                                                                                |     | (2,969,787 | ) |
|                                                                                  |   |                                      |       |                                                                                 |     |   |   |
| **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                                                          |   | —                                    |       | —                                                                               |     | 1,389,000 |   |
| Principal  payments on loans payable                                                  |   | —                                    |       | —                                                                               |     | (1,389,000 | ) |
| Payments  for fractional shares from reverse splits and preferred stock conversions   |   | —                                    |       | —                                                                               |     | (76 | ) |
| Financing  costs incurred                                                             |   | —                                    |       | —                                                                               |     | (90,000 | ) |
| Payments  received on subscription receivable                                         |   | —                                    |       | —                                                                               |     | 4,542 |   |
| Shareholder  capital contribution                                                     |   | —                                    |       | —                                                                               |     | 93,637 |   |
| Proceeds  received from exercise of stock warrants                                    |   | —                                    |       | —                                                                               |     | 28,501 |   |
| Changes  to the consolidated accounting treatment for joint venture                   |   | —                                    |       | —                                                                               |     | (2,511,701 | ) |
| Capital  contribution through sale of interest in consolidated subsidiaries           |   | —                                    |       | —                                                                               |     | 2,624,000 |   |
| Net  proceeds received from issuance of preferred and common stock                    |   | —                                    |       | —                                                                               |     | 57,972,641 |   |
| Net  cash provided by financing activities                                            |   | —                                    |       | —                                                                               |     | 58,277,101 |   |
|                                                                                  |   |                                      |       |                                                                                 |     |   |   |
| Effect  of exchange rate changes on cash                                              |   | 214,751                                   |       | 91,988                                                                               |     | 487,892 |   |
|                                                                                  |   |                                      |       |                                                                                 |     |   |   |
| Net  increase (decrease) in cash and cash equivalents                                 |   | (6,091,431                                | )          | (3,088,402                                                                           | )        | 752,004 |   |
|                                                                                  |   |                                      |       |                                                                                 |     |   |   |
| Cash  and cash equivalents at beginning of period                                     |   | 11,649,447                                |       | 3,840,406                                                                            |     | — |   |
|                                                                                  |   |                                      |       |                                                                                 |     |   |   |
| Cash  and cash equivalents at end of period                                           |   | $                                         | 5,558,016  |                                                                                 | $        | 752,004 |   | $ | 752,004 |   |
|                                                                                  |   |                                      |       |                                                                                 |     |   |   |
| **Supplemental disclosure of cash  flow information**                                 |   |                                      |       |                                                                                 |     |   |   |
| Interest  paid                                                                        |   | $                                         | —     |                                                                                 | $        | — |   | $ | 197,072 |   |

 

*See accompanyingnotes.*

5

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**AVAXTechnologies, Inc.**

***(a development stagecompany)***

Notes to ConsolidatedFinancial Statements*(Unaudited)*

For the Nine Months endedSeptember 30, 2002 and 2003

 

# **1.**                                      Organizationand Summary of Significant Accounting Policies

 

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

 

In November 1995, the Company sold its leading product underdevelopment, an over-the-counter nutritional, dietary, medicinal and/orelixorative food supplement or drug and all of the related patents and otherintellectual property (the Product).

 

Also in November 1995, the Company entered into a licenseagreement with Thomas Jefferson University (TJU) to develop, commerciallymanufacture and sell products embodying immunotherapeutic vaccines for thetreatment of malignant melanoma and other cancers (the Invention).

 

In December 1996, the Company entered into a license agreementwith Rutgers University (Rutgers) to develop, commercially manufacture and sellproducts embodying a series of compounds for the treatment of cancer andinfectious diseases (the Compounds).

 

In February 1997, the Company entered into a license agreementwith Texas A&M to develop, commercially manufacture and sell productsembodying a series of compounds for the treatment of cancer (the Texas A&MCompounds).

 

**InNovember 1999, the Company entered into a definitive joint ventureagreement with Australia Vaccine Technologies (“AVT”) (formerly NeptunusInternational Holdings Limited), a pharmaceutical group in Australia, under thesubsidiary name, AVAX Holdings Australia Pty Limited (“AVAX Holdings”).  Under the joint venture agreement, AVAXHoldings, through its affiliated entities AVAX Australia Pty Limited and AVAXAustralia Manufacturing Pty Limited (the “Joint Venture Companies”), wasorganized for the purpose of manufacturing and marketing M-Vax, animmunotherapy for the post-surgical treatment of Stage 3 and 4 melanoma, inAustralia and New Zealand.  InJanuary 2002, the Joint Venture Companies repurchased 90% of AVT’sinterest in the two Joint Venture Companies resulting in AVAX owning a 95%interest in the net equity of both Joint Venture Companies.  The Company was seeking but was unable toobtain a timely governmental reimbursement for the costs of treatment with theAC Vaccine in Australia, and determined to discontinue operations in Australiain order to focus the cash resources of the Company on its U.S. and Europeanoperations.  In September 2002, theCompany announced that it would be discontinuing its operations in Australiaand in December 2002 the Company completed the liquidation of itsAustralian subsidiary.**

** **

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

 

The Company needs to raise capitalimmediately to fund planned operations and product development.  However, there can be no assurance that theCompany will be able to raise sufficient capital to fund these activities.  The inability to secure such funding couldhave a material adverse effect on the Company, including the possibility thatthe Company could have to curtail its operations significantly or ceaseoperations altogether.

 

The Company’s business is subject to significant risks consistent withbiotechnology companies that are developing novel products for humantherapeutic use.  These risks include,but are not limited to, uncertainties associated with research and developmentof novel drug and biotechnology products, ensuring access to capital, obtainingand enforcing patents, receiving regulatory approval from competentgovernmental authorities in the markets of interest, and competing with otherbiotechnology and pharmaceutical companies. However, there can be no assurance that it will successfully develop anyproduct or, if it does, that the product will generate any or sufficientrevenues.

 

6

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**Basis of Presentation**

 

The financial information as of September 30, 2003 and for thethree- and nine-month periods ended September 30, 2002 and 2003 containedherein is unaudited.  The Companybelieves this information has been prepared in accordance with accountingprinciples generally accepted in the United States for interim financialinformation and Article 10 of Regulation S-X.  The Company also believes this information includes alladjustments (consisting only of normal recurring adjustments) necessary topresent fairly the financial position, results of operations and cash flows forthe periods then ended.  The results ofoperations for the three- and nine-month periods ended September 30, 2002and 2003 are not necessarily indicative of the results of operations that maybe expected for the entire year.

 

The accompanying financial statements and the related notes should beread in conjunction with the Company’s audited financial statements for theyears ended December 31, 2002 and 2001 included in the Company’s annualreport on Form 10-KSB.

 

**Principles ofConsolidation**

 

The accompanying consolidated financial statements include the accountsof AVAX Technologies, Inc., and its subsidiaries.  All significant intercompany balances and transactions have beeneliminated.

 

In 1999, the JointVenture Companies were included in the consolidated financial statements of theCompany.  Due to additional investmentby AVT in the Joint Venture Companies in 2000, whereby AVT acquired a 50%ownership interest, and AVT’s substantial and active involvement in theoperations of the Joint Venture Companies late in 2000, the Company no longerexercised control over the Joint Venture Companies.  As such, the Joint Venture Companies accounts were not includedin the consolidated financial statements of the Company for the years endedDecember 31, 2001 and 2000.  DuringJanuary 2002, the Joint Venture Companies repurchased 90% of AVT’sinterest in each company in exchange for cash consideration of approximately$1,860,000 AUD (approximately $970,000 US). This resulted in AVAX Holdings owning a 95% interest in the JointVenture Companies as of the date of the transaction, giving AVAX Holdingscontrol of the companies and requires that the results of AVAX Holdings and itsmajority owned subsidiaries be consolidated into AVAX’s consolidated results.

 

**Revenue**

 

The Company’s revenues are related to the provision of contract andother product services.  Contractservice revenue is recognized in installments based upon the contractualagreement entered into with clients. Product revenues represents fees received by the Company related to tumorcell banking and for sale of the vaccine through the Joint Venture Companies.

 

**Comprehensive Income**

 

Comprehensive income/(loss) is comprised of the Company’s net loss andchanges in the foreign currency translation adjustment.  Translation adjustments for the three andnine months ended September 30, 2003 were $8,346 and $20,027,respectively, compared with ($38,522) and $214,751 for the three and ninemonths ended September 30, 2002, respectively.  As such, comprehensive loss for the three- and nine-month periodsended September 30, 2003 was $(772,695) and $(1,838,035), respectively,compared with ($2,638,392) and ($6,498,427) for the three- and nine-monthperiods ended September 30, 2002, respectively.

 

**Accrued Expenses**

 

During the second quarter ended June 30, 2003 certain estimatedaccruals recorded in prior periods were decreased by $770,082 ($.04 for thenine month period on a fully diluted basis) as a result of the settlement oflitigation and other claims and lengthy periods of inactivity related to otherdisputed charges, for which accruals had been recorded.  The total impact of the adjustment to theseaccruals was a decrease in research and development expenses for the nine-monthperiod of $719,253 and a decrease in administrative expenses of $50,829 for thenine-month period ended September 30, 2003.

 

7

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**Preferred Stock Conversion**

 

Holders of 50,000 shares of Series C Preferred Stock elected to convertthose shares to common stock during the second quarter of 2003.  This resulted in the cancellation of 50,000shares of the Series C Preferred and the issuance of 1,538,450 shares of commonstock.

 

**2.****                                      JointVenture Agreement**

 

**InNovember 1999, the Company’s subsidiary AVAX Australia Holdings, Pty Limitedentered into a joint venture agreement with AVT related to commercializationand sale of the AC Vaccine Technology in Australia and New Zealand.  Pursuant to the joint venture agreement, theCompany created two operating companies, AVAX Australia Pty Limited and AVAXAustralia Manufacturing Pty Limited, and AVT contributed $4 million AustralianDollars giving them a 20% equity interest in the joint venture.**

** **

During 2000, AVT, through a subsidiary,contributed an additional $6 million Australian Dollars, raising AVT’s totalownership percentage in the joint venture to 50%.  Due to the ownership percentage maintained by AVT and theirsubstantial and active involvement in the management and decision makingprocesses of the joint venture, the Company determined that it no longermaintained a controlling interest in the operations of the joint venture.  Accordingly, the Company began to accountfor its investment in the joint venture using the equity method of accountingin late 2000.

 

At the time of the change from theconsolidation method to the equity method, there existed a difference betweenthe Company’s cost of its 50% investment in the joint venture and the net bookvalue of the underlying assets.  Thisdifference, which amounted to approximately $2.7 million, resulted from theCompany’s contribution of technology and related licensing rights, which hadlittle recorded value, and AVT’s cash investments of $10 million AustralianDollars.  The resulting deferred gainwas being amortized to income over three years.

 

During January 2002, Joint VentureCompanies repurchased 90% of AVT’s outstanding shares for cash consideration ofapproximately $1.8 million Australian Dollars. After closing the transaction AVAX Holdings owns a 95% equity interestin the Joint Venture Companies.

 

AVAX accounted for its investment in theAustralian Joint Venture Companies using the equity method up through the dateof the repurchase of AVT shares.  At thedate of that transaction, the Company had recorded on its books an investmentin joint venture (net of unamortized deferred gain) of approximately$12,282.  As a result of thetransaction, AVAX’s 95% equity in the Joint Venture Companies had a book valueof approximately $1,101,400.  Of thisdifference, $902,900, which represented the deferred gain as ofDecember 31, 2002, was recognized as a cumulative effect of change inaccounting in the three months ended March 31, 2002.  The remaining difference of $186,295 wasrecognized as an extraordinary gain related to negative goodwill in theconsolidated subsidiary.  As discussedfurther below, these amounts are both included in the loss from discontinuedoperations on the 2002 consolidated statement of operations.

 

**InSeptember 2002 the Company made the decision to discontinue the operationsof the Joint Venture Companies.  Withthe adoption of Statement of Financial Accounting Standards (SFAS) No. 144 theAustralian operations are required to be accounted for and presented in theaccompanying financial statements as a discontinued operation.**

 

**TheCompany liquidated, through sale, all of the long-lived assets of the jointventure companies prior to December 31, 2002.  Proceeds received on the sale of the assets of the Company at thetime were $40,919 while the cost basis of the assets was $247,210, resulting ina net loss on the disposition of the assets of $206,291, which is included inthe loss from discontinued operations.**

 

**OnDecember 13, 2002 a liquidator was appointed to oversee the dissolution ofthe Joint Venture Companies.  The combinedassets of the Joint Venture Companies included in the September 30, 2003consolidated balance sheet consists of cash of $47,221 and recorded liabilitiesof $77,757.  Other long-term liabilitiesrelated to leasehold obligations were not recorded as the obligations will notbe required to be met pursuant to the liquidation proceedings.**

 

8

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**Thefollowing is summarized financial information for the discontinued Australianoperation for the three and nine months ended September 30, 2002:**

 
|                                                                                                                     |   | **Three Months Ended  September 30, 2002** |         | **Nine Months Ended  September 30, 2002** |       |
|--------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------|--------------|------------------------------------------------|------------|
|                                                                                                                     |   |                                            | ** **   |                                           | ** ** |
| **Total revenue**                                                                                                        |   | **$**                                           | **(266**     | **)**                                          | **$**      | **9,487** | ** ** |
| **Costs and expenses:**                                                                                                  |   |                                            | ** **   |                                           | ** ** |
| **Manufacturing, research and  development**                                                                             |   | **149,777**                                     | ** **   | **313,656**                                    | ** ** |
| **Selling, general and  administrative**                                                                                 |   | **463,451**                                     | ** **   | **682,202**                                    | ** ** |
| **Total operating loss**                                                                                                 |   | **(613,494**                                    | **)**        | **(986,371**                                   | **)**      |
| **Other income (expense):**                                                                                              |   |                                            | ** **   |                                           | ** ** |
| **Interest income**                                                                                                      |   | **22,923**                                      | ** **   | **25,564**                                     | ** ** |
| **Minority interest in net loss of  consolidated subsidiary**                                                            |   | **29,528**                                      | ** **   | **48,040**                                     | ** ** |
| **Equity in net loss of joint  venture**                                                                                 |   | **—**                                      | ** **   | **(14,778**                                    | **)**      |
| **Total other expense**                                                                                                  |   | **52,451**                                      | ** **   | **58,826**                                     | ** ** |
| **Loss from discontinued operations  before cumulative effect  and  extraordinary item**                            |   | **(561,043**                                    | **)**        | **(927,545**                                   | **)**      |
| **Extraordinary gain related to  negative goodwill on consolidated subsidiary**                                          |   | **—**                                      | ** **   | **186,295**                                    | ** ** |
| **Cumulative effect of change in  accounting for deferred credit related to equity method investment in joint  venture** |   | **—**                                      | ** **   | **902,900**                                    | ** ** |
| **Gain (Loss) from discontinued  operations**                                                                            |   | **$**                                           | **(561,043** | **)**                                          | **$**      | **161,650** | ** ** |

 

### **3.**                                      StockBased Compensation

 

SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended bySFAS No. 148, “Accounting for Stock Based Compensation – Transition andDisclosure” prescribes accounting and reporting standards for all stock-basedcompensation plans, including employee stock options, restricted stock,employee stock purchase plans and stock appreciation rights.  SFAS No. 123 requires compensation expenseto be recorded (i) using the new fair value method or (ii) using existingaccounting rules prescribed by Accounting Principles Board Opinion No. 25,“Accounting for Stock Issued to Employees,” (APB 25) and relatedinterpretations, with pro forma disclosure of what net income and earnings pershare would have been had the Company adopted the new fair value method.

 

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

 
|                                                       |   | **Three  Months Ended Sept. 30,** |       | **Nine  Months Ended Sept. 30,** |   |
|------------------------------------------------------------|--------|-----------------------------------|------------|----------------------------------|--------|
|                                                       |   | **2002**                          |       | **2003**                         |   | **2002** |   | **2003** |   |
|                                                       |   |                              |       |                             |   |   |   |   |   |
| Net income (loss) as reported                              |   | $                                 | (2,599,940 | )                                | $      | (781,041 | ) | $ | (6,713,178 | ) | $ | (1,858,062 | ) |
| Stock based compensation expense as  reported              |   | —                            |       | —                           |   | — |   | — |   |
| Stock based compensation expenses under  fair value method |   | (292,904                          | )          | (212,073                         | )      | (878,712 | ) | (636,219 | ) |
| Pro forma net loss attributable to common  stockholders    |   | $                                 | (2,895,844 | )                                | $      | (993,114 | ) | $ | (7,591,890 | ) | $ | (2,494,281 | ) |
|                                                       |   |                              |       |                             |   |   |   |   |   |
| Pro forma net loss per share                               |   | $                                 | (0.17      | )                                | $      | (0.05 | ) | $ | (0.46 | ) | $ | (0.14 | ) |

 

9

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**4.****                                      LegalProceedings**

 

During June 2003 the Company reached an agreement with a vendorrelated to a dispute that was being litigated. The Company had previously accrued and reported as expense in 2001 anamount of approximately $684,312.  Thismatter was resolved and the litigation dismissed with the payment of $250,000.  This resulted in the Company reversing theexcess accrued expenses of approximately $434,312 in the second quarter.

 

### **5.**                                      RecentlyIssued Accounting Pronouncements

 

In July 2001, the FASB issued SFAS No. 141, Business Combinations,and SFAS No. 142, Goodwill and Other Intangible Assets.  SFAS No. 141 requires that the purchasemethod of accounting be used for all business combinations initiated afterJune 30, 2001 as well as all purchase method business combinationscompleted after June 30, 2001. SFAS No. 141 also specifies the criteria intangible assets acquired in apurchase method business combination must meet to be recognized and reportedapart from goodwill, noting that any purchase price allocable to an assembledworkforce may not be accounted for separately. SFAS No. 142 provides that goodwill and intangible assets withindefinite useful lives no longer be amortized, but instead that they be testedfor impairment at least annually in accordance with the provisions of SFAS No.142.  SFAS No. 142 will also requirethat intangible assets with definite useful lives be amortized over theirrespective estimated useful lives to their estimated residual values, andreviewed for impairment in accordance with SFAS No. 121, Accounting for theImpairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.

 

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

 

SFAS No. 141 requires that the Company evaluate its existing intangibleassets and goodwill that were acquired in a prior purchase businesscombination, and to make any necessary reclassifications in order to conformwith the new criteria in SFAS No. 141 for recognition apart from goodwill.  The Company is required to reassess theuseful lives and residual values of all intangible assets acquired in purchasebusiness combinations, and make any necessary amortization period adjustments.  In addition, to the extent an intangibleasset is identified as having an indefinite useful life, the Company isrequired to test the intangible asset for impairment in accordance with theprovisions of SFAS No. 142.

 

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

 

InDecember 2002, the Financial Accounting Standards Board, or FASB, issuedStatement of Financial Accounting Standards, or SFAS, No. 148, *Accounting for Stock-Based Compensation —Transition and Disclosure.*SFAS No. 148 is an amendment toSFAS No. 123 providing alternative methods of transition for a voluntarychange to the fair value based method of accounting for stock-based employeecompensation and also provides additional disclosures about the method ofaccounting for stock-based employee compensation.  Amendments are effective for our consolidated financialstatements beginning January 1, 2003. We have currently chosen not to adopt the voluntary change to the fairvalue based method of accounting for stock-based employee compensation.  Therefore, the new Statement will not haveany effect on the Company's consolidated financial position or results ofoperations.

 

In May 2003, the FASB issued SFAS No. 150, *Accounting for Certain Financial Instruments withCharacteristics of Both Liabilities and Equity*.  SFAS No. 150 requires that certainfinancial instruments, which under previous guidance were accounted for asequity, must now be accounted for as liabilities. The financial instrumentsaffected include mandatorily redeemable stock, certain financial instrumentsthat require or may require the issuer to buy back some of its shares inexchange for cash or other assets and certain obligations that can be settledwith shares of stock.  SFAS No. 150is effective for all financial instruments entered into or modified afterMay 31, 2003 and otherwise is effective at the beginning of the firstinterim period after June 15, 2003. The adoption of SFAS No. 150 did not have a material impact on ourconsolidated financial statements.

 

**6.****                                      Licenseand Research Agreements**

 

In June 2003 the Company received notification from RutgersUniversity that the Company was in default of its obligations under theexclusive license agreement.  Pursuantto the license agreement the Company has 60 days to cure any non-compliance.  Failure to cure any defaults would result inthe termination of the Company’s exclusive license agreement.

 

The Company has responded to the University and believes that it hascomplied with all of its obligations under the license agreement.

 

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**Item 2.****                     Management’sDiscussion and Analysis of Financial Condition and Plan of Operations**

 

**CAUTIONARY STATEMENTREGARDING FORWARD-LOOKING STATEMENTS**

 

In this Report, in other filings with the SEC and in press releases andother public communications throughout the year, the Company makes, or willmake statements that plan for or anticipate the future.  These forward-looking statements includestatements about the future of biotechnology products and the biopharmaceuticalindustry, statements about AVAX’s future business plans and strategies, andother statements that are not historical in nature.  These forward-looking statements are based on the Company’scurrent expectations.

 

Forward-looking statements may be identified by words or phrases suchas “believe,” “expect,” “anticipate,” “should,” “planned,” “may,” “estimated”and “potential.”  The Private SecuritiesLitigation Reform Act of 1995 provides a “safe harbor” for forward-lookingstatements.  In order to comply with theterms of the safe harbor, and because forward-looking statements involve futurerisks and uncertainties, listed below are a variety of factors that could causeactual results and experience to differ materially from the anticipated resultsor other expectations expressed in the Company’s forward-lookingstatements.  These factors mightinclude:

 

•                  AVAX’shistory of operating losses, its continuing cash requirements, its immediateneed to raise more money, and the uncertainty of the Company’s futureprofitability and ability to sustain operations.

 

•                  Uncertaintyrelating to AVAX’s ability to enter into contract manufacturing agreements thatcan provide sufficient revenue to cover all or any substantial part of theoperating expenses of the Company.

 

•                  Uncertaintyabout whether the Company’s products will again begin or successfully completethe long, complex and expensive clinical trial and regulatory approval processfor approval of new drugs in the U.S.

 

•                  Uncertaintyabout whether the Company’s AC Vaccine technology can be developed to producesafe, effective and commercially viable products, and if so, whether theCompany’s AC Vaccine products will be commercially accepted and profitable.

 

•                  The Company’s difficulty or inabilityto compete with other clinical trials and treatment regimens for patients andclinical sites for the Company’s planned clinical trials.

 

•                  Theexpenses, delays, uncertainties and complications typically encountered bydevelopment stage biopharmaceutical businesses, many of which are beyond theCompany’s control.

 

•                  TheCompany’s financial and development obligations and its responsibility to meetrequisite research funding levels under its license and research agreements inorder to protect AVAX’s rights to its products and technologies.

 

•                  Eachof the other factors discussed in the Company’s Annual Report on Form 10-KSBunder Item 1 – “Description of Business – Risk Factors.”

 

**PLAN OF OPERATION**

 

The Company is currently engaged in contractmanufacturing and the development and commercialization of biotechnology andpharmaceutical products and technologies. AVAX is seeking to expand its contract manufacturing in the UnitedStates and France for other companies engaged in pharmaceutical and genetherapy product development programs. The Company has one current contract manufacturing engagement at itsLyon, France facility, which provides revenue to fund the costs of maintainingthat facility.  This contract isscheduled to end in November, 2003. Additional contract manufacturing agreements in the United States andFrance would provide the Company with additional revenue to fund its operationsand the costs of the facilities while the Company continues to explore otheroptions to finance its product and technology development programs.  The Company believes that it has developedsignificant expertise in producing certain pharmaceutical and gene therapyproducts for clinical and development purposes, and that this expertise can bemarketed by the Company to other companies and research institutions engaged inclinical trials and product development programs.  In addition, the Company has invested significant amounts toestablish and maintain Good Manufacturing Practices at its manufacturingfacilities in Philadelphia, Pennsylvania and Lyon, France.  The Company believes that services providedby these facilities can be valuable to other companies that wish to avoid thesignificant cash outlays associated with buying or building their own GMPfacilities.

 

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The Company’s plan of operation is to obtain additional contractmanufacturing agreements that can generate sufficient revenue to allow theCompany to maintain these two facilities and to cover certain of its otheroperating expenses while the Company continues to explore financing andstrategic options to develop the AC Vaccine technology and its other productcandidates.  AVAX needs to raise moremoney immediately to continue research, product development and clinicaldevelopment in 2003 and beyond and to pursue the manufacture and marketing ofany products that it may develop.  If itis unable to raise additional capital or to establish new contracts as a sourceof revenue, the Company will likely cease operations.  AVAX has not been able to raise any additional capital sinceMarch 2000.  Because the Companyhas not been able to raise additional funds, AVAX has ceased most of itsproduct development programs and has taken numerous other steps to reduce itscash expenditures.  Each of these steps,while conserving cash, has slowed or reduced the prospects of success invarious product development efforts.

 

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

 

AVAX experienced events during 2001 that have had significant effectson its operations.  During 2001 theCompany received notification from the FDA that both the M-Vax and O-Vaxclinical trials were placed on clinical hold by the FDA.  In addition, the FDA conducted reviews ofAVAX’s manufacturing facilities in Philadelphia that resulted in the FDAissuing a Form 483 and later a formal Warning Letter.  From these events a cost minimization and project prioritizationplan was put into place and this continued through the present.  During 2002, based upon a negative reactionby authorities in Australia to an application for product reimbursement forM-Vax, the Company determined that it would be unable to support further theoperation in Australia and a decision was made to discontinue and liquidate thejoint venture companies.  The results ofthe Australian operation, which was consolidated in the Company’s resultsbeginning in the first quarter of 2002, are treated as a discontinued operationand its results are separated from the Company’s results from continuingoperations.

 

In 2002 the Company achieved a number of milestones related to itsdevelopment plans which resulted in the filing of and acceptance by the FDA oftwo IND’s for a revised product format for the AC Vaccine for melanoma andovarian cancer.  The Company’sfacilities were validated and cleared to begin processing clinical samples foradministration to patients in clinical trials. Due to a lack of funding, the Company decided not to initiate theclinical trials and instituted further cost minimization steps that resulted inadditional management changes.  TheCompany also continues to pursue contract manufacturing relationships in Franceand the United States, as noted above.

 

During 2003 the Company began exploring development opportunities forits core technology the AC Vaccine technology in France.  Specifically, in addition to preparing IND’sto be filed in various solid tumor cancer indications, the Company isevaluating opportunities under the recently published French laws for theregulation of cell and gene therapy products. The Company plans to meet with the French Authorities (AFSSAPS) inNovember, 2003 to discuss the new regulations and their impact on the clinicaldevelopment requirements for M-Vax, the AC Vaccine technology product candidatefor melanoma.   In addition, the Companyis pursuing commercial opportunities to sell the AC Vaccine technology inEuropean jurisdictions on a compassionate use basis.

 

**Results of Operations**

 

Net loss for the period decreased 72% to $1,858,062 during the ninemonths ended September 30, 2003 from $6,713,178 for the same period in2002.  In addition to the restriction ofoperations and significant reductions in head count for the periods, thecurrent year results were positively affected by decreases in accrued expensesof approximately $770,000, $450,000 of which relates to the settlement of alawsuit during the period.

 

Revenues recognized in the three and nine months endedSeptember 30, 2003 were $369,690 and $981,305, respectively, compared with$247,232 and $543,390 for the same periods in 2002.  The increase in revenues was attributable to the Company’s Frenchoperations and was a function of securing a contract manufacturing agreementfor the Lyon facility in the second quarter of 2002.  The increase in revenues in 2003 was due to the expandedactivities under the contract realized in the second and third quarter of 2003.

 

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Manufacturing,research and development expenses decreased from $5,284,621 for the nine monthsending September 30, 2002 to $1,439,472 for the same period in 2003.  During the second quarter of 2003 expenseswere decreased by approximately $720,000 as the result of reversal of accrualsrecorded in prior years as a result of the settlement of litigation and otherclaims and lengthy periods of inactivity related to other disputed charges, forwhich accruals had been recorded. Expenses for the periods are broken out by region as follows:

 
|          |   | **Three Months Ended  September 30,** |      | **Nine Months Ended  September 30,** |   |
|---------------|--------|--------------------------------------------|-----------|-------------------------------------------|--------|
|          |   | **2002**                                   |      | **2003**                                  |   | **2002** |   | **2003** |   |
| United States |   | $                                          | 1,608,250 |                                      | $      | 441,652 |   | $ | 4,524,322 |   | $ | 694,992 |   |
| France        |   | 112,432                                    |      | 319,904                                   |   | 760,299 |   | 744,480 |   |
|          |   | $                                          | 1,720,682 |                                      | $      | 761,556 |   | $ | 5,284,621 |   | $ | 1,439,472 |   |

 

In the United States, forthe three and nine month periods, cost decreases were also the result of thedecision made in 2002 not to re-initiate the clinical trials because of theCompany’s lack of financial resources to complete the trials.  With this decision, the Company reducedexisting staff at the facility in Philadelphia to the minimum level necessaryto maintain the validations of the Philadelphia facility previouslycompleted.  In addition, the Companyclosed its research operations in New York and certain clinical and regulatorypositions were not staffed in 2003.

 

In France, the cost increases for the three-month period relates toincreased operational expenses as a result of the contract manufacturingagreement.  The prior years thirdquarter only included minimal services under the contract and thus the expenseswere much lower.  Costs for the ninemonth period in France were comparable as the prior years expenses includedresearch and development initiatives related to re-launching of the AC Vaccinetechnology primarily incurred during the first and second quarter of the prioryear.

 

Selling, general and administrative expenses decreased from $2,179,588for the nine months ended September 30, 2002 to $1,418,810 for the sameperiod in 2003.  Expenses for theperiods are broken out by region as follows:

 
|          |   | **Three Months Ended September 30,** |    | **Nine Months Ended September 30,** |    |
|---------------|--------|-------------------------------------------|---------|------------------------------------------|---------|
|          |   | **2002**                                  |    | **2003**                                 |    | **2002** |   | **2003** |   |
| United States |   | $                                         | 474,743 |                                     | $       | 337,353 |   | $ | 1,721,385 |   | $ | 1,216,142 |   |
| France        |   | 94,557                                    |    | 52,943                                   |    | 458,203 |   | 202,668 |   |
|          |   | $                                         | 569,300 |                                     | 390,296 |   | $ | 2,179,588 |   | 1,418,810 |   |
|               |        |                                           |         |                                          |         |  |  |  |  |  |  |  |  |

 

In the United States, cost savings realized for thethree- and nine-month periods were based upon headcount reductions andrestrictions of activities.

 

In France, selling, general and administrative expense decreased forthe three and nine month periods as a result of reductions in staff and theclosing of the Company’s offices in Paris in 2002.  In addition, allocations of the general managers expenses wereweighted more to research and development expenses as his efforts were requiredto assist in the increased activities related to the contract manufacturingagreement.

 

Results for the nine months ended September 30, 2002 included again from discontinued operations of $161,650. This reflects the activities of the Company’s Australian joint ventureactivities.  Operating loss for theAustralian joint venture for the first nine months of 2002 was $927,545.  This loss was offset by an extraordinarygain related to negative goodwill of the consolidated subsidiary of $186,295and a gain of $902,900 from the cumulative effect of a change in accounting forthe deferred credit related to the equity method investment in joint venture,both of which were realized in the first three months of 2002.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

AVAX immediately needs (1) to raise capital, or (2) to enter into additionalcontract manufacturing relationships on terms that generate cash flow for theCompany, or (3) enter into a strategic alliance relationship in the fourthquarter of 2003 to continue to maintain each of its manufacturing facilitiesand continue the operations of the Company. If the Company is unable to raise capital, secure additional contractmanufacturing relationships or enter into strategic alliances, the Company willlikely cease operations in 2003.  TheCompany presently anticipates that its current resources should be sufficientto fund operations into the fourth quarter of 2003 based upon the Company’scurrent operating plan.  That currentoperating plan includes anticipated expenses relating to (1) continuing patentcosts associated with each of the Company’s technologies, (2) continuingpre-clinical development of the topoisomerase compound, (3) continuingmaintenance costs associated with the Philadelphia facility for

 

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utilization in production or contract manufacturing, and (4) costsassociated with the production requirements pursuant to contract manufacturingagreements in Lyon, France.

 

Because the Company’sworking capital requirements depend upon numerous factors, including, withoutlimitation, progress of the Company’s research and development programs,pre-clinical and clinical testing, timing and cost of obtaining regulatoryapprovals, changes in levels of resources that the Company devotes to thedevelopment of manufacturing and marketing capabilities, competitive andtechnological advances, status of competitors, and the ability of the Companyto establish collaborative arrangements with other organizations, there can beno assurance that the current cash resources of the Company will be sufficientto fund its operations through the fourth quarter of 2003.  Because the Company has no committedexternal sources of capital, and expects no significant product revenues forthe foreseeable future, it will require additional financing to fund futureoperations or will need to enter into contract manufacturing relationships onterms favorable to the Company.  Therecan be no assurance, however, that the Company will be able to obtain theadditional funds or attract contract manufacturing relationships that it willrequire on acceptable terms, if at all. If adequate funds are not available, the Company will likely ceaseoperations in 2003.

 

**Trading in the Company’s Common Stock**

 

**EffectiveAugust 21, 2003 the Company’s common stock was de-listed from the NasdaqSmallCap Market and began trading on the Over-the-Counter market.  It is possible now that the common stock isnot listed on the Nasdaq SmallCap Market, the liquidity of the Company’s commonstock could be further materially impaired, not only in the number of sharesthat could be bought and sold at a given price, but also through delays in thetiming of transactions and reduction in media coverage of the Company.**

 

**Item3.****                     Controlsand Procedures**

 

The Company’s chief executive officer and chief financial officercarried out an evaluation of the effectiveness of the design and operations ofthe Company’s disclosure controls and procedures (as defined in Exchange ActRule 13a-15(e)).  Based upon that evaluationas of the end of the period covered by this report, the CEO and the CFOconcluded that the Company’s disclosure controls and procedures are effectivein timely alerting them to material information relating to the Company(including our consolidated subsidiaries) required to be included in theCompany’s periodic filings with the SEC. There have not been any significant changes in the Company’s internalcontrols or in other factors that could significantly affect these controlssubsequent to the date of evaluation.

 

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**PART II - OTHER INFORMATION**

 

**Item 1.****                     LegalProceedings:**

 

(a)                                  InJune 2003 the Company settled the previously disclosed litigation withPAREXEL International Corp. (“Parexel”). The claims of Parexel against the Company and its subsidiary arose froma termination of a contract with Parexel relating to the Company’s AC Vaccineclinical trials.  In settlement of thelitigation and all related claims, the Company paid Parexel $250,000, Parexeland the Company entered into mutual releases of all such claims, and thelitigation was dismissed.

 

(b)                                 The Company has recently settled thepreviously-reported litigation against the Company by a former officer.

 

**Item6.****                     Exhibitsand Reports on Form 8-K.**

 

**(a)****           Exhibits:**

 

31.1         Certifications of Principal Executive Officerof the Company under Rule 13a-14(a), as adopted pursuant to Section 302 ofthe Sarbanes-Oxley Act of 2002.

 

31.2         Certifications of Principal Financial Officerof the Company under Rule 13a-14(a), as adopted pursuant to Section 302 ofthe Sarbanes-Oxley Act of 2002.

 

32.1         Certifications of Chief Executive Officer andChief Financial Officer pursuant to 18 U.S.C. Section 1350.

 

**(b)****           Reportson Form 8-K:**

 

None

 

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Signatures

 

In accordance with therequirements of the Exchange Act, the Registrant caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.

 
|                                                | AVAX Technologies, Inc.                                 |                                                |
|-----------------------------------------------------|---------------------------------------------------------|-----------------------------------------------------|
|                                                | (Registrant)                                            |                                                |
|                                                |                                                    |
|                                                |                                                    |
| Date:    November 14, 2003 |                                                    |
|                                                | By:                                                     |      /s/ Richard P. Rainey |   |
|                                                | Richard P. Rainey                                       |
|                                                | President (Principal Executive and Accounting  Officer) |
|                                                     |                                                         |                                                     |  |  |

 

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