SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

# FORM 10-QSB

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

For the quarterly period ended June 30, 2004

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

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

|Delaware                                                       |  | 13-3575874                           | 
|-------------------------------------------------------------- |  | ------------------------------------ | 
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.) | 
|2000 Hamilton Street                                           | 
|Suite 204                                                      | 
|Philadelphia, Pennsylvania                                     |  | 19130                                | 
|(Address of principal executive offices)                       |  | (Zip Code)                           | 

9200 Indian Creek Parkway, Suite 200; Overland Park, KS 66210
(Former name, former address and former fiscal year, if changed since last report.)

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

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 reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.xYes   oNo

As of August 6, 2004, 36,071,568 shares of the Registrants common
stock, par value $.004 per share, were outstanding.

Documents incorporated by reference:   None.

Transitional Small Business Disclosure Format:oYesxNo

Page 1

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# AVAX TECHNOLOGIES, INC.

# Table of Contents

|                               |         | Page                                                                                       
|------------------------------ | ------- | -------------------------------------------------------------------------------------------
|                               |         |                                                                                            
|PART I  FINANCIAL INFORMATION
|                              
|Item 1.                        |         | Financial Statements                                                                       
|                               |         | Consolidated BALANCE SHEETS  As of December 31, 2003     and June 30, 2004 (Unaudited)    
|                               |         | Consolidated STATEMENTS OF OPERATIONS AND COMPREHENSIVE     INCOME (LOSS) (Unaudited)     
|                               |         | For the Three Months and Six Months Ended June 30, 2004                                    
|                               |         | and 2003 and for the Period from January 12, 1990     (Incorporation) through June 30, 2004
|                               |         | Consolidated STATEMENTS OF CASH FLOWS (Unaudited)                                         
|                               |         | For the Six Months Ended June 30, 2004 and 2003 and                                        
|                               |         | for the Period from January 12, 1990 (Incorporation)     through June 30, 2004             
|                               |         | Notes to Consolidated Financial Statements                                                 
|                              
|Item 2.                        |         | Managements Discussion and Analysis of Financial Condition     and Plan of Operations     
|                              
|Item 3.                        |         | Controls and Procedures                                                                    
|                              
|PART II  OTHER INFORMATION   
|                              
|Item 1.                        |         | Legal Proceedings                                                                          
|                              
|Item 2.                        |         | Changes in Securities and Use of Proceeds                                                  
|                              
|Item 6.                        |         | Exhibits and Reports on Form 8-K                                                           
|                              
|Signatures                     | Page 20 |                                                                                            

Page 2

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# PART I  FINANCIAL INFORMATION

# Item 1.   Financial Statements.

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

|                                                                       | December 31,2003 |  | June 30,2004
|---------------------------------------------------------------------- | ---------------- |  | ------------
|(Unaudited)                                                           
|Assets                                                                 |                  |  |             
|Current assets:                                                        |                  | 
|Cash and cash equivalents                                              |                  |  | $           
|Marketable securities                                                  |                  |  |             
|Accounts receivable                                                    |                  |  |             
|Inventory                                                              |                  |  |             
|Prepaid expenses and other current assets                              |                  |  |             
|                                                                       |                  |  |             
|Total current assets                                                   |                  |  |             
|Property and equipment, at cost                                        |                  |  |             
|Less accumulated depreciation                                          |                  |  |             
|                                                                       |                  |  |             
|Net property and equipment                                             |                  |  |             
|Research and development tax credit receivable                         |                  |  |             
|Goodwill                                                               |                  |  |             
|                                                                       |                  |  |             
|Total assets                                                           |                  |  | $           
|                                                                       |                  |  |             
|Liabilities and stockholders equity                                   |                  | 
|Current liabilities:                                                   |                  | 
|Accounts payable and accrued liabilities                               |                  |  | $           
|Deferred revenue                                                       |                  |  |             
|Loans payable  Convertible notes (Face amount $950,000)               |                  |  |             
|Loans payable  ANVAR grant payable                                    |                  |  |             
|                                                                       |                  |  |             
|Total current liabilities                                              |                  |  |             
|Stockholders equity:                                                  |                  | 
|Preferred stock, $.01 par value:                                       |                  | 
|Authorized shares  5,000,000, including Series B  300,000 shares and |                  | 
|Series C  120,000 shares                                              |                  | 
|Series B convertible preferred stock:                                  |                  | 
|Issued and outstanding shares  0                                      |                  |  |             
|Series C convertible preferred stock:                                  |                  | 
|Issued and outstanding shares  36,750 (liquidation                    |                  | 
|preference  $3,675,000)                                               |                  |  |             
|Common stock, $.004 par value:                                         |                  | 
|Authorized  shares  50,000,000 at December 31, 2003 and               |                  | 
|150,000,000 at June 30, 2004                                           |                  | 
|Issued and outstanding shares  18,080,071 at December 31, 2003       
|and 36,071,568 at June 30, 2004                                        |                  |  |             
|Additional paid-in capital                                             |                  |  |             
|Subscription receivable                                                |                  |  |             
|Accumulated other comprehensive income                                 |                  |  |             
|Deficit accumulated during the development stage                       |                  |  |             
|                                                                       |                  |  |             
|Total stockholders equity                                             |                  |  |             
|                                                                       |                  |  |             
|Total liabilities and stockholders equity                             |                  |  | $           
|                                                                       |                  |  |             

See accompanying notes.

Page 3

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

|                                                     | Three Months Ended June 30, |  | Six Months Ended June 30, |            | Period FromJanuary 12, 1990(Incorporation)
|---------------------------------------------------- | --------------------------- |  | ------------------------- | ---------- | ------------------------------------------
|
|Revenue:                                             |                             |  |                           |            |                                           
|Gain from sale of the Product                        |                             |  | $                         |           |                                           
|Product and contract service revenue                 |                             |  |                           | 383,000    |                                           
|                                                     |                             |  |                           |            |                                           
|Total revenue                                        |                             |  |                           | 383,000    |                                           
|Costs and expenses:                                  |                             | 
|Manufacturing, research and development              |                             |  |                           | (108,639   | )                                         
|Acquired in process research and development         |                             |  |                           |           |                                           
|Write down of acquired intellectual property         |                             | 
|and other intangibles                                |                             |  |                           |           |                                           
|Amortization of acquired intangibles                 |                             |  |                           |           |                                           
|Selling, general and administrative                  |                             |  |                           | 471,951    |                                           
|                                                     |                             |  |                           |            |                                           
|Total operating income (loss)                        |                             |  |                           | 19,688     |                                           
|Other income (expense):                              |                             | 
|Interest income                                      |                             |  |                           | 7,781      |                                           
|Interest expense                                     |                             |  |                           |           |                                           
|Other, net                                           |                             |  |                           |           |                                           
|                                                     |                             |  |                           |            |                                           
|Total other income (loss)                            |                             |  |                           | 7,781      |                                           
|                                                     |                             |  |                           |            |                                           
|Income (loss) from continuing operations             |                             |  |                           | 27,469     |                                           
|Loss from discontinued operations                    |                             |  |                           |           |                                           
|                                                     |                             |  |                           |            |                                           
|Net income (loss)                                    |                             |  |                           | 27,469     |                                           
|Amount payable for liquidation preference            |                             |  |                           |           |                                           
|                                                     |                             |  |                           |            |                                           
|Net income (loss) attributable to common             |                             | 
|stockholders                                         |                             |  | $                         | 27,469     |                                           
|                                                     |                             |  |                           |            |                                           
|Income (loss) per common share  basic and   diluted |                             |  | $                         | .00        |                                           
|                                                     |                             |  |                           |            |                                           
|Weighted average number of common shares             |                             | 
|outstanding                                          |                             |  |                           | 17,310,846 |                                           
|                                                     |                             |  |                           |            |                                           
|Net income (loss)                                    |                             |  | $                         | 27,469     |                                           
|Foreign currency translation gain (loss)             |                             |  |                           | (20,561    | )                                         
|                                                     |                             |  |                           |            |                                           
|Net comprehensive income (loss)                      |                             |  | $                         | 6,908      |                                           
|                                                     |                             |  |                           |            |                                           

See accompanying notes.

Page 4

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

|                                                             | Six Months Ended June 30, |  | Period FromJanuary 12, 1990(Incorporation)
|------------------------------------------------------------ | ------------------------- |  | ------------------------------------------
|
|Operating activities                                         |                           |  |                                           
|Net loss                                                     |                           |  | $                                         
|Adjustments to reconcile net loss to net cash used in        |                           | 
|operating activities:                                        |                           | 
|Depreciation and amortization                                |                           |  |                                           
|Amortization of discount on convertible notes payable        |                           |  |                                           
|Amortization of deferred gain on joint venture               |                           |  |                                           
|Equity in net loss of joint venture                          |                           |  |                                           
|Extraordinary gain related to negative goodwill on           |                           | 
|consolidated subsidiary                                      |                           |  |                                           
|Cumulative effect of change in accounting                    |                           |  |                                           
|Compensatory stock issue                                     |                           |  |                                           
|Minority interest in net loss of consolidated                |                           |  |                                           
|subsidiary                                                   |                           | 
|Acquired in-process research and development charge          |                           |  |                                           
|Write down of acquired intellectual property and other      
|intangibles                                                  |                           |  |                                           
|Gain from sale of the Product                                |                           |  |                                           
|Gain on sale of intellectual property                        |                           |  |                                           
|Accretion of interest on common stock receivable             |                           |  |                                           
|Accretion of interest on amount payable to                  
|preferred stockholders and former officer                    |                           |  |                                           
|Loss (Gain) on sale or abandonment of furniture and          |                           | 
|equipment                                                    |                           |  |                                           
|Issuance of common stock or warrants for services            |                           |  |                                           
|Changes in operating assets and liabilities:                 |                           | 
|Accounts receivable                                          |                           |  |                                           
|Inventory                                                    |                           |  |                                           
|Prepaid expenses and other current assets                    |                           |  |                                           
|Accounts payable and accrued liabilities                     |                           |  |                                           
|Deferred revenue                                             |                           |  |                                           
|Research and development tax credit receivable               |                           |  |                                           
|Amount payable to former officer                             |                           |  |                                           
|                                                             |                           |  |                                           
|Net cash used in operating activities                        |                           |  |                                           
|Investing activities                                         |                           | 
|Purchase of marketable securities and short-term investments |                           | 
|                                                             |                           |  |                                           
|Proceeds from sale of marketable securities                  |                           |  |                                           
|Proceeds from sale of short-term investments                 |                           |  |                                           
|Purchases of furniture and equipment                         |                           |  |                                           
|Proceeds from sale of furniture and equipment                |                           |  |                                           
|Organization costs incurred                                  |                           |  |                                           
|Cash acquired in acquisition of control of joint venture     |                           |  |                                           
|                                                             |                           |  |                                           
|Net cash used in investing activities                        |                           |  |                                           

Page 5

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

|                                                         | Six Months Ended June 30, |  | Period FromJanuary 12, 1990(Incorporation)
|-------------------------------------------------------- | ------------------------- |  | ------------------------------------------
|
|Financing activities                                     |                           |  |                                           
|Proceeds from issuance of notes payable to related party |                           |  | $                                         
|Principal payments on notes payable to related party     |                           |  |                                           
|Proceeds from loans payable and the related issuance of 
|warrants                                                 |                           |  |                                           
|Principal payments on loans payable                      |                           |  |                                           
|Payments for fractional shares from reverse splits and  
|preferred stock conversions                              |                           |  |                                           
|Financing costs incurred                                 |                           |  |                                           
|Payments received on subscription receivable             |                           |  |                                           
|Shareholder capital contribution                         |                           |  |                                           
|Proceeds received from exercise of stock warrants        |                           |  |                                           
|Elimination of the consolidated accounting treatment     |                           | 
|for joint venture                                        |                           |  |                                           
|Capital contribution through sale of interest in        
|consolidated subsidiaries                                |                           |  |                                           
|Net proceeds received from issuance of preferred and     |                           | 
|common stock                                             |                           |  |                                           
|                                                         |                           |  |                                           
|Net cash provided by financing activities                |                           |  |                                           
|                                                         |                           |  |                                           
|Effect of exchange rate changes on cash                  |                           |  |                                           
|                                                         |                           |  |                                           
|Net increase (decrease) in cash and cash equivalents     |                           |  |                                           
|Cash and cash equivalents at beginning of period         |                           |  |                                           
|                                                         |                           |  |                                           
|Cash and cash equivalents at end of period               |                           |  | $                                         
|                                                         |                           |  |                                           
|Supplemental disclosure of cash flow information         |                           | 
|Interest paid                                            |                           |  | $                                         
|                                                         |                           |  |                                           
|Non-cash activity:                                       |                           | 
|Conversion of accounts payable into notes payable        |                           |  | $                                         
|                                                         |                           |  |                                           
|Common stock warrants issued in conjunction with         |                           | 
|convertible notes payable                                |                           |  | $                                         
|                                                         |                           |  |                                           
|Conversion of bridge loans into common stock             |                           |  | $                                         
|                                                         |                           |  |                                           
|Payment of interest on bridge loans with common stock    |                           |  | $                                         
|                                                         |                           |  |                                           

See accompanying notes.

Page 6

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AVAX Technologies, Inc. and Subsidiaries
(a development stage company)
Notes to Consolidated Financial Statements(Unaudited)
For the Six Months ended June 30, 2004 and 2003

# 1.   Organization and Summary of Significant Accounting Policies

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

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

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

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

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

In November 1999, the Company entered into a definitive joint venture
agreement with Australia Vaccine Technologies (AVT) (formerly Neptunus International Holdings Limited), a
pharmaceutical group in Australia, under the subsidiary name, AVAX Holdings Australia Pty Limited (AVAX Holdings).
Under the joint venture agreement, AVAX Holdings, through its affiliated entities AVAX Australia Pty Limited and AVAX Australia
Manufacturing Pty Limited (the Joint Venture Companies), was organized for the purpose of manufacturing and marketing
M-Vax, an immunotherapy for the post-surgical treatment of Stage 3 and 4 melanoma, in Australia and New Zealand. In January 2002,
the Joint Venture Companies repurchased 90% of AVTs interest in the two joint venture companies resulting in AVAX owning a
95% interest in the net equity of both joint venture companies. The Company was seeking but was unable to obtain a timely
governmental reimbursement for the costs of treatment with the AC Vaccine in Australia, and decided to discontinue operations in
Australia in order to focus the cash resources of the Company on its U.S. and European operations. In September 2002, the Company
announced that it would be discontinuing its operations in Australia and in December 2002 the Company completed the liquidation of
its Australian subsidiary.

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

In February 2004, the Company, through its wholly owned subsidiary
Genopoietic, entered into a joint manufacturing alliance agreement with OPISODIA SAS (OPI) for the joint manufacture
of each companys products and for the provision of contract manufacturing services to other companies. Pursuant to the
contract Genopoietic manages the activities of the joint manufacturing alliance. See Note 3.

# Basis of Presentation

The financial information as of June 30, 2004 and for the three- and
six-month periods ended June 30, 2004 and 2003 contained herein is unaudited. The Company believes this information has been
prepared in accordance with accounting principles generally accepted in the United States for interim financial information and
Article 10 of Regulation S-X. The Company also believes this information includes all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the periods
then ended. The results of operations for the three- and six-month periods ended June 30, 2004 and 2003 are not necessarily
indicative of the results of operations that may be expected for the entire year.

The accompanying consolidated financial statements and the related notes
should be read in conjunction with the Companys audited consolidated financial statements for the years ended December 31,
2003 and 2002 included in the Companys annual report on Form 10-KSB.

Page 7

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

The Company expects that it will need to raise capital by the end of 2004 or
within the first two months of 2005 to fund planned operations and product development. Although the Company raised additional
capital from the sale of its common stock in May 2004 (see Note 5), the Companys operations will continue to require
additional funding to continue fully its development plans for its technologies. There can be no assurance that the Company will
be able to raise sufficient capital to fund these activities. The inability to secure additional funding could have a material
adverse effect on the Company, including the possibility that the Company could have to curtail its operations significantly or
cease operations altogether.

The Companys business is subject to significant risks consistent with
biotechnology companies that are developing novel products for human therapeutic use. These risks include, but are not limited to,
uncertainties associated with research and development of novel drug and biotechnology products, ensuring access to capital,
obtaining and enforcing patents, receiving regulatory approval from competent governmental authorities in the markets of interest,
and competing with other biotechnology and pharmaceutical companies. However, there can be no assurance that it will successfully
develop any product or, if it does, that the product will generate any or sufficient revenues.

# Principles of Consolidation

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

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

# Revenue

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

# Conversion of Warrants

In the first quarter of 2004, holders of warrants to purchase 338,400 shares
of common stock, which were issued in connection with the December 2003 bridge financing, elected to exercise these warrants. Upon
exercise of the warrants, the Company issued 338,400 shares of its common stock in exchange for cash in the amount of $48,391.

# 2.   Joint Venture Agreement

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

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

Page 8

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

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

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

AVAX accounted for its investment in the Australian Joint Venture Companies
using the equity method up through the date of the repurchase of AVT shares. At the date of that transaction, the Company had
recorded on its books an investment in joint venture (net of unamortized deferred gain) of approximately $12,282. As a result of
the transaction, AVAXs 95% equity in the Joint Venture Companies had a book value of approximately $1,101,400. Of this
difference, $902,900, which represented the deferred gain as of December 31, 2001, was recognized as a cumulative effect of change
in accounting in the three months ended June 30, 2002. The remaining difference of $186,295 was recognized as an extraordinary
gain related to negative goodwill in the consolidated subsidiary. As discussed further below, these amounts are both included in
the loss from discontinued operations in the 2002 consolidated statement of operations.

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

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

On December 13, 2002 a liquidator was appointed to oversee the dissolution of
the joint venture companies. The combined assets of the joint venture companies included in the June 30, 2004 consolidated balance
sheet consists of cash of $53,649 and recorded liabilities of $88,341. Other long-term liabilities related to leasehold
obligations were not recorded as the obligations will not be required to be met pursuant to the liquidation proceedings.

# 3.   Contractual Joint Manufacturing Alliance

In February 2004 the Company entered into a manufacturing alliance with
OPISODIA, SAS, a French pharmaceutical company (OPI) that will provide approximately $1,500,000 (US) funding per year from OPI for
the combined French facilities of the Company and OPI for 2004 and 2005, which are under the management of Genopoietic, the
Companys French subsidiary. Proceeds received from OPI as a result of the alliance for the six months ended June 30, 2004
were $743,637 and were recorded as revenue to the extent the proceeds received were equal to the amount of expenses allocable to
OPI, $744,576 pursuant to the contract. The remaining $939 net balance due was recorded in deferred revenue in the accompanying
consolidated balance sheet. The allocation of the expenses is based upon the allocation of effort of the employees of the alliance
in the manufacture of each companys products.

Page 9

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

# 4.   Stock Based Compensation

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

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

|                                                  | Three MonthsEnded June 30, |  | Six MonthsEnded June 30,
|------------------------------------------------- | -------------------------- |  | ------------------------
|
|Net income (loss) as reported                     |                            |  | $                       
|Stock based compensation expense as reported      |                            |  |                         
|Stock based compensation expense under fair value |                            | 
|method                                            |                            |  |                         
|                                                  |                            |  |                         
|Pro forma net loss attributable to common         |                            | 
|stockholders                                      |                            |  | $                       
|                                                  |                            |  |                         
|Pro forma net loss per share                      |                            |  | $                       
|                                                  |                            |  |                         

# 5.   Private Placement of Equity Securities

On May 21, 2004, the Company closed the private placement of 10,166,667
shares of the Companys common stock plus warrants to purchase 1,525,000 shares of common stock at $0.35 per share (Series A
warrants) and warrants to purchase 1,525,000 shares of common stock at $0.39 per share (Series B warrants). Gross proceeds from
the offering were $3,050,000. Advisory fees and expenses of $156,677 were incurred resulting in net proceeds of $2,893,323.

# 6.   Conversion of Bridge Notes into Common Stock

On May 21, 2004, in compliance with the Note Purchase Agreements entered into
in December, 2003, the Company converted the principal ($950,000) and interest ($23,275) on the bridge notes into common stock at
an exercise price of $0.13 per share resulting in the issuance of 7,486,430 shares of the Companys common stock.

# 7.   License and Research Agreements

The Company has received correspondence from Rutgers regarding their belief
that the Company is not in compliance with the license agreement and of their position that the Companys rights pursuant to
the license agreement have been canceled. The Company is in arrears on certain payments pursuant to the research agreement while
awaiting certain correspondence and documentation that the Company is entitled to pursuant to the agreement. In addition, certain
patents fees, which have been accrued in the consolidated balance sheet, have been disputed by the Company for which there has
been no resolution. It is the Companys position that it has fully met its obligations under the license and research
agreements and this has been communicated to Rutgers.

The Company has reached a preliminary agreement with Rutgers to terminate all
agreements with Rutgers for a one-time payment by the Company to Rutgers of an immaterial amount.

Page 10

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# Item 2.   Managements Discussion and Analysis of Financial Condition and Plan of Operations.

# CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

In this Report, in other filings with the SEC and in press releases and other
public communications throughout the year, the Company makes, or will make statements that plan for or anticipate the future.
These forward-looking statements include statements about the future of biotechnology products and the biopharmaceutical industry,
statements about AVAXs future business plans and strategies, and other statements that are not historical in nature. These
forward-looking statements are based on the Companys current expectations.

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

| |  |  | AVAXs history of operating losses, its continuing cash
requirements, its continuing need to raise more money, and the uncertainty of the Companys future profitability and ability
to sustain operations.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Because of our limited cash and financial resources, there is
substantial doubt about our ability to continue as a going concern.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------

| |  |  | Uncertainty relating to AVAXs ability to enter into contract
manufacturing agreements that can provide sufficient revenue to cover all or any substantial part of the operating expenses of the
Company.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Uncertainty about whether the Companys products will again
begin or successfully complete the long, complex and expensive clinical trial and regulatory approval process for approval of new
drugs in the U.S. or France.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Uncertainty about whether the Companys AC Vaccine technology
can be developed to produce safe, effective and commercially viable products, and if so, whether the Companys AC Vaccine
products will be commercially accepted and profitable.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | The Companys difficulty or inability to compete with other
clinical trials and treatment regimens for patients and clinical sites for the Companys planned clinical trials.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| |  |  | Because our common stock is a penny stock, you may
have difficulty selling our common stock in the secondary trading market.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------

| |  |  | Each of the other factors discussed in the Companys Annual
Report on Form 10-KSB for the year ended December 31, 2003, under Item 1  Description of Business  Risk
Factors.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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# PLAN OF OPERATION

# General

Since our inception, we have
concentrated our efforts and resources on the development and commercialization of biotechnology and pharmaceutical products and
technologies. We have been unprofitable since our founding and have incurred a cumulative net loss of $67,148,495 as of June 30,
2004, and $1,824,489 for the six months ended June 30, 2004. We expect to continue to incur operating losses, primarily due to the
expenses associated with our product development efforts in Europe, the cost of maintaining our manufacturing facility in the
United States, and activities related to planned reestablishment of our clinical trials for M-Vax and O-Vax, pre-clinical studies.

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

We presently anticipate that
our current cash resources, including the net proceeds of the private placement that we closed in May 2004, will be sufficient to
fund operations only through the end of 2004 and possibly into the first month or two of 2005, depending upon how aggressively we
implement our development plans. We have only a limited ability to generate revenues from operations, and any revenues we generate
are almost certain to be substantially less than our operating expenses. Accordingly, unless we raise additional equity capital by
the end of 2004 or early in 2005, we will likely cease operations.

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

| |  |  | the FDA clinical hold of our AC Vaccine clinical trials in 2001
and the resultant substantial expenses and delays in resolving the FDA concerns and refiling new INDs for a revised AC Vaccine;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | manufacturing challenges relating to the production of a vaccine
from the patients own cancer cells, such as the sterility issues we previously experienced at our Philadelphia facility;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | our failure to develop a market for the AC Vaccine in Australia
notwithstanding substantial expenditures of time and money to do so;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------

| |  |  | our inability to agree with the FDA on an acceptable potency assay
(which is a biological measure of the drugs active ingredients) to our product prior to administration of the vaccine which
will be required for later stage clinical trials and commercial approval of the vaccine;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | our inability to generate any meaningful revenues from any other
products or services while we work to develop our lead products and technologies; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | the cutbacks in our development plans and programs due to the
limited cash resources in recent years, which is not likely to change unless we are able to raise substantial additional capital.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| |  |  | As a result of the FDA clinical hold, we concluded that (1) it
would no longer be feasible to continue the clinical development of the original AC Vaccine using the established manufacturing
format (referred to as the fresh vaccine product format), and (2) a revised product format needed to be established,
tested and reviewed by the FDA. Through these research and development activities we re-engineered the manufacturing steps for the
production and distribution of the AC Vaccine, referred to as the frozen vaccine technology, which we believe has
substantial advantages over the former fresh product.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | After years of frustration and lack of acceptance of the AC
Vaccine technology among the oncology community in Australia, which resulted in us abandoning our efforts in Australia, we are
experiencing meaningful new acceptance of the AC Vaccine technology in Europe, particularly in France and Spain, among keys
members of the oncology community.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | In France, AFSSAPS has published regulations specific to the
regulation of cell and gene therapies (which includes the AC Vaccine technology). Based upon prior clinical results achieved with
the fresh vaccine, these regulations create a potential new regulatory path for the approval of M-Vax in France.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

# Manufacturing, Research and Development Expenses

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

Manufacturing costs are
included in this caption as they relate to the costs of developing, supporting and maintaining facilities and personnel that
produce clinical samples in compliance with current Good Manufacturing Practices (cGMP). Currently, the facilities and personnel
maintained for manufacturing are the minimum required to be in compliance with cGMP. Based upon the current capacity of facilities
and personnel and the Companys current and future planned clinical trials, we presently have excess capacity in our
manufacturing facility in Lyon, France. We use the excess capacity in Lyon to generate cash flow in the form of contract
manufacturing alliances. As the incremental costs incurred to provide these services are not material or quantifiable they are not
broken out from this caption and offset against the revenues generated.

Our research and development
activities are primarily focused on clinical development and trials of our AC Vaccine technology for the treatment of melanoma and
other cancers.

Manufacturing, research and
development costs incurred through June 30, 2004 and for the six months ended June 30, 2004 and 2003 were $41,944,315, $1,624,801
and $677,916, respectively. The majority of these costs relate to clinical research and development of the Companys AC
Vaccine technology. At this time, due to the risks inherent in the clinical trial process, risks associated with the product and
product characterization and risks associated with regulatory review and approval of clinical product candidates, we are unable to
estimate with any certainty the costs we will incur in the continued development of our product candidates for commercialization.

# Plan of Operation

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

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

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

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

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

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

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

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

We are currently engaged in
contract manufacturing and the development and commercialization of biotechnology and pharmaceutical products and technologies.
These activities take advantage of the facilities and personnel that we are required to maintain to ensure that we process our
products in accordance with cGMP requirements. With our current compassionate use and clinical activities planned we anticipate
that this excess capacity will exist into the near and long term. To capitalize on this and to reduce cash required for research,
development and administrative activities, we are seeking to expand our contract manufacturing in the United States and France for
other companies engaged in pharmaceutical and gene therapy product development programs. In 2002, we entered into a contract
manufacturing engagement at our Lyon, France facility, which was completed in November 2003. In February 2004 we entered into a
manufacturing alliance with OPISODIA SAS (OPI) that will provide approximately $1,500,000 (US) funding per year from
OPI for our combined facilities for the next two years, which combined facilities are under the management of Genopoietic, our
French subsidiary. This funding commitment and certain other grant revenue, tax refunds and existing cash resources in France,
should be sufficient to fund the manufacturing operations of our French facilities in 2004 but are not sufficient to fund our
administrative, research and product development programs for France outlined below. The operation of our Lyon facility is,
however, dependent upon the timely payment by OPI of its funding commitments and our ability to collect certain accounts
receivable on our books. OPI has timely made all required payments to us under this manufacturing alliance. We continue to pursue
additional contract manufacturing agreements in the U.S. and France, which would provide us with additional revenue to fund our
operations and the costs of the facilities while we continue to explore other options to finance our product and technology
development programs. We believe that we have developed significant expertise in producing certain biological products for
clinical and development purposes, and that this expertise can be marketed by us to other companies and research institutions
engaged in clinical trials and product development programs. In addition, we have invested significant amounts to establish and
maintain current Good Manufacturing Practices (cGMP) at our manufacturing facilities in Philadelphia, Pennsylvania and Lyon,
France. We believe that services provided by these facilities may be valuable to other companies that wish to avoid the
significant cash outlays associated with buying or building their own cGMP facilities.

Our plan of operation is to
obtain one or more additional contract manufacturing agreements that can generate sufficient revenue to allow us to maintain these
two facilities and to cover certain of our other operating expenses while we continue to explore financing and strategic options
to develop the AC Vaccine technology and our other product candidates. In addition to

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the funds we received in May 2004, we need to raise more money in 2004 or the
first two months of 2005 to continue research, product development and clinical development.

With the net proceeds from
our private placement of common stock and warrants closed on May 21, 2004, we are pursuing the following development plan. We
have, throughout 2003 and particularly in the second half of 2003 and the first quarter of 2004, laid the foundation for a
significantly more aggressive development plan for our key technologies that we have not been able to pursue during the past three
years. The full implementation of this plan is contingent upon additional funds beyond which we received in the May 2004 private
placement. The steps that have already been taken to implement this plan include:

| |  |  | Continuing development work on the AC Vaccine, particularly in France.
| | - |  | ----------------------------------------------------------------------

| |  |  | Pre-Biological License Application (BLA) filing meetings and
follow-up contacts with representatives of AFSSAPS (the French counterpart of the FDA) regarding our planned filing of a BLA in
France for the AC Vaccine.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Two IND filings in France relating to the AC Vaccine for
indications other than melanoma.
| | - |  | -----------------------------------------------------------------------------------------

| |  |  | Alliance with OPI to place management of their French facility
under Genopoietic management control and to obtain funding of the combined facility manufacturing operations from OPI.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Established and maintained at our Lyon, France facility the
designation Establissment Pharmaceutique under applicable French regulations.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Commenced treatment of melanoma patients on a compassionate use
basis with our AC Vaccine.
| | - |  | ------------------------------------------------------------------------------------------

With
this foundation, our plan of operation (assuming appropriate funding levels) includes:

| |  |  | A planned BLA filing in France in the second half of 2004 for the
marketing of M-Vax in France.
| | - |  | -----------------------------------------------------------------------------------------------

| |  |  | Commence a planned bridging study with AC Vaccine for melanoma,
using the DTH endpoint, to augment the BLA filing in the second half of 2004.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Commence clinical trials for the AC Vaccine in France for multiple
indications upon approval of our BLA and INDs upon receipt of authorization from AFSSAPS.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Continuing to offer M-Vax on a compassionate use basis in Spain,
France and Belgium, and to seek approval of compassionate use in other European countries to broaden the acceptance of the therapy
within the European oncology community.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Prepare to approach the FDA with clinical data generated from our
trials in France, and with the planned BLA French submission information, to determine the expected clinical programs which will
need to be completed to be in a position to submit clinical data for approval of the vaccine in the United States. We have held
informal discussions with the FDA and anticipate amending our current INDs for melanoma in the second half of 2004.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We continually evaluate our
plan of operations discussed above to determine the manner in which we can most effectively utilize our limited cash resources.
The timing of completion of any aspect of our plan of operations is highly dependant upon the availability of cash to implement
that aspect of the plan and other factors beyond our control. The full implementation of this plan of operation is dependent upon
us obtaining additional funding before the end of 2004 or early in 2005. We believe we have the facilities, the facility managers
and technical staff, the scientific staff and consultants in place to implement this plan. If we were able to obtain additional
funding, we would undoubtedly make a minimal number of additional key employment offers, to re-establish our executive ranks, and
possibly to add a Medical Director to our staff.

# Results of Operations

Three and Six Months Ended June 30, 2004, Compared to Three and Six Months Ended June 30, 2003.

Revenues recognized in the
first six and three months of 2004 were $855,260 and $507,557, respectively, compared with revenues of $611,615 and $383,000,
respectively, for the same periods in 2003. The increase in revenues in the six- and

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three-month periods is due to a higher monthly revenue stream related to the
manufacturing alliance agreement with OPI plus additional revenue recognized related to sale of the vaccine on a compassionate use
basis through the Companys distribution partner.

For the first six months of
2004, the Companys manufacturing, research and development expenses increased 139% to $1,624,801 from $677,916 for the same
six months in 2003. Expenses for the periods are broken out by region as follows:

|              | Three Months EndedJune 30, |  | Six Months EndedJune 30,
|------------- | -------------------------- |  | ------------------------
|
|United States |                            |  | $                       
|France        |                            |  |                         
|              |                            |  |                         
|              |                            |  | $                       
|              |                            |  |                         

In the United States the cost
increase for the three- and six-month periods was the result of the reversal of accrued charges related to litigation and other
matters which resulted in a reversal of expenses of approximately $720,000. Adjusted for the effect of this item, the actual
operating costs for both the three- and six-month periods decreased. This decrease was the result of the decision to reduce
further staff and facilities and not to continue further contract research agreements with certain universities with which the
Company has contract research agreements. Patent costs decreased over the period due to revisions of the Companys patent
strategy.

In France, the cost increase
relates to the addition of headcount and facilities costs associated with the manufacturing of the vaccine for patient treatments
on a compassionate use basis, activities underway for the preparation of the BLA filing with the French regulators and planned
activities related to the IND submissions to the French authorities.

For the first six months of
2004, the Companys selling, general and administrative expenses decreased approximately 10%, to $925,635 from $1,028,514 for
the same six months in 2003. Expenses for the periods are broken out by region as follows:

|              | Three Months EndedJune 30, |  | Six Months EndedJune 30,
|------------- | -------------------------- |  | ------------------------
|
|United States |                            |  | $                       
|France        |                            |  |                         
|              |                            |  |                         
|              |                            |  | $                       
|              |                            |  |                         

In the United States,
decreases in expenses for the three- and six-month periods were the result of decreased costs of insurance due to a reduction of
certain policy limits, decreases in professional fees associated with legal activities in both France (which related to the United
States entities) and the United States, and the elimination of costs associated with the Companys listing on NASDAQ.

In France, selling, general
and administrative expenses for the three- and six-month periods increased as a result of staff increases due to increased
activities related to the compassionate use sales of the vaccine in France and in increase in professional fees associated with
finalizing and establishing the manufacturing alliance during February, 2004.

Interest expense for the six
and three months ended June 30, 2004 was $130,994 and $45,002, respectively compared to no interest expense being recognized
during the six- and three-month periods ending June 30, 2003. The current year expense includes interest accrued on the face
amount of the loans plus amortization of the discount on the bridge loans issued in December 2003. The loans subsequently matured
and the notes and related accrued interest were converted into common stock.

The Company anticipates that,
over the next 12 months, presuming it receives funding or some other type of capital infusion, manufacturing, research and
development expenses will increase as compared with 2003 due to planned increases in the development activities related to the AC
Vaccine and to increased expenses incurred related to the OPI manufacturing joint venture alliance.

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# Liquidity and Capital Resources

We presently anticipate that
our current resources plus the net proceeds of the private placement that we closed on May 21, 2004 should be sufficient to
fund operations through the end of 2004 and possibly into the first two months of 2005 depending upon how aggressively we
implement our development plans discussed above. That current operating plan includes anticipated expenses relating to (1)
continuing patent costs associated with each of our technologies, (2) continuing maintenance costs associated with the
Philadelphia facility for utilization in production or contract manufacturing, and (3) costs associated with the production
requirements pursuant to contract manufacturing agreements in Lyon, France. We will need to raise additional money or to initiate
additional contract manufacturing relationships on terms favorable to us or enter into a strategic alliance relationship by the
end of 2004 to continue to maintain each of our manufacturing facilities and continue our operations into 2005. If we are unable
to raise additional money, secure additional contract manufacturing relationships or enter into strategic alliances, we will have
to curtail our development initiatives in the second half of 2004. The report of independent auditors on the audit of our
consolidated financial statements for the year ended December 31, 2003 contains an explanatory paragraph about conditions
raising substantial doubt about our ability to continue as a going concern.

Because our working capital
requirements depend upon numerous factors, including progress of our research and development programs, pre-clinical and clinical
testing, timing and cost of obtaining regulatory approvals, changes in levels of resources that we devote to the development of
manufacturing and marketing capabilities, competitive and technological advances, status of competitors, and our ability to
establish collaborative arrangements with other organizations, there can be no assurance that our current cash resources will be
sufficient to fund our operations through the end of 2004. Because we have no committed external sources of capital, and expect no
significant product revenues for the foreseeable future, we will require additional financing to fund future operations or will
need to enter into contract manufacturing relationships on terms favorable to us. There can be no assurance, however, that we will
be able to obtain the additional funds or attract contract manufacturing relationships that we will require on acceptable terms,
if at all. If adequate funds are not available we will likely cease operations at the end of 2004 or in early 2005.

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# Item 3.   Controls and Procedures.

An evaluation was carried out
by the Companys chief executive and financial officer of the effectiveness of the design and operations of the
Companys disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)). Based upon that evaluation as of
the end of the period covered by this report, the chief executive and financial officer concluded that the Companys
disclosure controls and procedures are effective in timely alerting him to material information relating to the Company (including
its consolidated subsidiaries) required to be included in the Companys periodic filings with the SEC. There have been no
changes in the Companys internal controls over financial reporting during the quarter ended June 30, 2004, that have
materially affected, or are reasonably likely to materially affect, the Companys internal controls over financial reporting.

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# PART II  OTHER INFORMATION

# Item 1.   Legal Proceedings.

The Company has settled the
previously disclosed litigation with Absorption Systems by agreeing to pay Absorption Systems $33,900 plus interest, $15,000 of
which has already been paid, and the balance of which is being paid in monthly installments of $5,000.

# Item 2.   Changes in Securities and Use of Proceeds.

On May 21, 2004, we closed
the private placement of 10,166,667 shares of common stock plus warrants to purchase 1,525,000 shares of common stock at $0.35 per
share (Series A warrants) and warrants to purchase 1,525,000 shares of common stock at $0.39 per share (Series B warrants). Gross
proceeds from the offering were $3,050,000. On that same day, in accordance with the terms of the Note Purchase Agreements entered
into in December 2003, we converted the principal ($950,000) and interest ($23,275) on the bridge notes into common stock at an
exercise price of $0.13 per share resulting in the issuance of 7,486,430 shares of our common stock.

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

|(a) |  | Exhibits:
|--- |  | ---------

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

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

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

|(b) |  | Reports on Form 8-K:
|--- |  | --------------------

| | 1. |  | A report on Form 8-K was filed on June 2, 2004, reporting the
completion of a private placement of shares of the Companys common stock.
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------

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Signatures

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

|                        |                            |                         |  |                         | 
|----------------------- | -------------------------- | ----------------------- |  | ----------------------- | 
|                        |                            | AVAX Technologies, Inc.
|Date:   August 16, 2004 |                            | By:                     |  | /s/   Richard P. Rainey | 
|                        |                           
|                        | Richard P. RaineyPresident |                        

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