Table of Contents





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

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# FORM 10-QSB

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|                                              |                                                                                          
|--------------------------------------------- | -----------------------------------------------------------------------------------------
|x                                             | QUARTERLY REPORT UNDER
 SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934       
|                                              |                                                                                          
|For the quarterly
 period ended June 30, 2007
|                                              |                                                                                          
|o                                             | TRANSITION REPORT PURSUANT
 TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition
period from _____________ to ___________

Commission file
number      0-29222

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

|                                                               |                                      
|-------------------------------------------------------------- | -------------------------------------
|Delaware                                                       | 13-3575874                           
|(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer
 Identification No.)
|                                                               |                                      
|2000
 Hamilton Street                                         
|Suite
 204                                                    
|Philadelphia,
 Pennsylvania 19130                             
|(Address of principal
 executive offices)                     
|                                                              
|(215)
 241-9760                                               
|(Issuers telephone
 number)                                  

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

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

State the number of shares outstanding of each of the
issuers classes of common equity, as of the latest practicable date:
142,605,753 as of August 13, 2007.

Transitional Small Business Disclosure Format: o
Yesx No

Page 1





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AVAX
TECHNOLOGIES, INC.

Table
of Contents

|                               |            |      |                                                                                                                                                                                                                        |  |        
|------------------------------ | ---------- | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------
|                               |            | Page
|                               |            |     
|                              
|PART I - FINANCIAL INFORMATION |            |     
|                               |            |      |                                                                                                                                                                                                                        |  |        
|                               | Item 1.    |      | Financial
 Statements                                                                                                                                                                                                  |  |        
|                               |            |      | Consolidated
 BALANCE SHEETS  As of December 31, 2006 and June 30, 2007 (Unaudited)                                                                                                                                   |  | Page 3 
|                               |            |      | Consolidated
 STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)  For the Three
 and Six Months Ended June 30, 2007 and 2006 and for the Period from January
 12, 1990 (Incorporation) through June 30, 2007 |  | Page 4 
|                               |            |      | Consolidated
 STATEMENTS OF CASH FLOWS (Unaudited)  For the Six Months Ended June 30,
 2007 and 2006 and for the Period from January 12, 1990 (Incorporation)
 through June 30, 2007                                  |  | Page 5 
|                               |            |      | Notes
 to Consolidated Financial Statements                                                                                                                                                                            |  | Page 7 
|                               |            |      |                                                                                                                                                                                                                        |  |        
|                               | Item 2.    |      | Managements
 Discussion and Analysis or Plan of Operation                                                                                                                                                             |  | Page 13
|                               |            |      |                                                                                                                                                                                                                        |  |        
|                               | Item 3.    |      | Controls
 and Procedures                                                                                                                                                                                               |  | Page 21
|                               |            |      |                                                                                                                                                                                                                        |  |        
|                               |            |      |                                                                                                                                                                                                                        |  |        
|PART
 II - OTHER INFORMATION   |            |     
|                               |            |     
|                               | Item 6.    |      | Exhibits                                                                                                                                                                                                               |  | Page 22
|                               |            |      |                                                                                                                                                                                                                        |  |        
|                               | Signatures |      | Page 22                                                                                                                                                                                                               

Page 2

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Table of Contents

PART I - FINANCIAL INFORMATION

|         |                       
|-------- | ----------------------
|Item
 1. | Financial
 Statements.

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

|                                                                                                   |  |                     |             |                |             |             |  
|-------------------------------------------------------------------------------------------------- |  | ------------------- | ----------- | -------------- | ----------- | ----------- | -
|                                                                                                   |  | December
 31,
 2006 |             | June 30,
 2007 |            
|                                                                                                   |  |                     |             |                |            
|                                                                                                   |  |                     |             |                | (Unaudited) |            
|Assets                                                                                             |  |                     |             |                |             |            
|Current assets:                                                                                    |  |                     |             |                |             |             |  
|Cash                                                                                               |  | $                   | 1,484,570   |                | $           | 8,885,092   |  
|Accounts
 receivable                                                                               |  |                     | 220,161     |                |             | 79,935      |  
|Inventory                                                                                          |  |                     | 10,508      |                |             | 12,005      |  
|VAT receivable                                                                                     |  |                     | 50,937      |                |             | 108,563     |  
|Prepaid expenses
 and other current assets                                                         |  |                     | 210,343     |                |             | 157,707     |  
|                                                                                                   |  |                     |             |                |             |             |  
|Total current assets                                                                               |  |                     | 1,976,519   |                |             | 9,243,302   |  
|Property and equipment, at cost                                                                    |  |                     | 3,967,928   |                |             | 4,030,590   |  
|Less accumulated
 depreciation                                                                     |  |                     | 3,088,687   |                |             | 3,260,304   |  
|                                                                                                   |  |                     |             |                |             |             |  
|Net property, plant and equipment                                                                  |  |                     | 879,241     |                |             | 770,286     |  
|Goodwill                                                                                           |  |                     | 188,387     |                |             | 188,387     |  
|                                                                                                   |  |                     |             |                |             |             |  
|Total assets                                                                                       |  | $                   | 3,044,147   |                | $           | 10,201,975  |  
|                                                                                                   |  |                     |             |                |             |             |  
|                                                                                                   |  |                     |             |                |             |             |  
|Liabilities
 and stockholders equity                                                              |  |                     |             |                |             |             |  
|Current liabilities:                                                                               |  |                     |             |                |             |             |  
|Accounts payable
 and accrued expenses                                                             |  | $                   | 1,460,644   |                | $           | 2,281,867   |  
|Accrued and
 withheld payroll taxes and liabilities                                                |  |                     | 716,918     |                |             | 263,456     |  
|Deferred revenue                                                                                   |  |                     | 160,678     |                |             | 453,372     |  
|ANVAR advances                                                                                     |  |                     | 362,109     |                |             | 370,972     |  
|                                                                                                   |  |                     |             |                |             |             |  
|Total current liabilities                                                                          |  |                     | 2,700,349   |                |             | 3,369,667   |  
|Stockholders equity:                                                                              |  |                     |             |                |             |             |  
|Preferred stock,
 $.01 par value:                                                                  |  |                     |             |                |             |             |  
|Authorized
 shares  5,000,000, including Series C  120,000 shares                                |  |                     |             |                |             |             |  
|Series C
 convertible preferred stock:                                                             |  |                     |             |                |             |             |  
|Issued and
 outstanding shares 36,750 (liquidation preference  $3,675,000)                       |  |                     | 367         |                |             | 367         |  
|Common stock,
 $.004 par value:                                                                    |  |                     |             |                |             |             |  
|Authorized shares
  150,000,000 at December 31, 2006 and 500,000,000 at June 30, 2007             |  |                     |             |                |             |             |  
|Issued and
 outstanding shares  61,414,998 at December 31, 2006 and 141,474,998 at June
 30, 2007 |  |                     | 245,660     |                |             | 565,900     |  
|Additional
 paid-in capital                                                                        |  |                     | 77,460,158  |                |             | 86,522,087  |  
|Subscription
 receivable                                                                           |  |                     | (422        | )              |             | (422        | )
|Accumulated
 other comprehensive income                                                            |  |                     | 479,217     |                |             | 433,054     |  
|Deficit
 accumulated during the development stage                                                  |  |                     | (77,841,182 | )              |             | (80,688,678 | )
|                                                                                                   |  |                     |             |                |             |             |  
|Total stockholders equity                                                                         |  |                     | 343,798     |                |             | 6,832,308   |  
|                                                                                                   |  |                     |             |                |             |             |  
|Total liabilities and stockholders equity                                                         |  | $                   | 3,044,147   |                | $           | 10,201,975  |  
|                                                                                                   |  |                     |             |                |             |             |  

Page 3

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Table of Contents

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

|                                                                    |  |                              |            |                            |   |                                                |   |      |            |      |   |            |   |   |             |  
|------------------------------------------------------------------- |  | ---------------------------- | ---------- | -------------------------- | - | ---------------------------------------------- | - | ---- | ---------- | ---- | - | ---------- | - | - | ----------- | -
|                                                                    |  |                              |            |                            |   | Period From
 January 12, 1990
 (Incorporation) |  
|                                                                    |  | Three
 Months Ended June 30, |            | Six Months
 Ended June 30, |   | To June 30,                                    |  
|                                                                    |  | 2006                         |            | 2007                       |   | 2006                                           |   | 2007 |            | 2007 |  
|                                                                    |  |                              |            |                            |   |                                                |   |      |            |      |  
|Revenue:                                                            |  |                              |            |                            |   |                                                |   |      |            |      |   |            |   |   |             |  
|Gain from sale
 of the Product                                      |  | $                            |           |                            | $ |                                               |   | $    |           |      | $ |           |   | $ | 1,951,000   |  
|Product and
 contract service revenue                               |  |                              | 279,170    |                            |   | 58,769                                         |   |      | 426,533    |      |   | 203,316    |   |   | 6,608,138   |  
|                                                                    |  |                              |            |                            |   |                                                |   |      |            |      |   |            |   |   |             |  
|Total revenue                                                       |  |                              | 279,170    |                            |   | 58,769                                         |   |      | 426,533    |      |   | 203,316    |   |   | 8,559,138   |  
|                                                                    |  |                              |            |                            |   |                                                |   |      |            |      |   |            |   |   |             |  
|Costs and
 expenses:                                                |  |                              |            |                            |   |                                                |   |      |            |      |   |            |   |   |             |  
|Research and
 development                                           |  |                              | 1,070,509  |                            |   | 1,041,708                                      |   |      | 2,157,708  |      |   | 2,051,497  |   |   | 49,703,265  |  
|Acquired in
 process research and development                       |  |                              |           |                            |   |                                               |   |      |           |      |   |           |   |   | 4,420,824   |  
|Write down of
 acquired intellectual property and other intangibles |  |                              |           |                            |   |                                               |   |      |           |      |   |           |   |   | 3,416,091   |  
|                                                                   
|Amortization of
 acquired intangibles                               |  |                              |           |                            |   |                                               |   |      |           |      |   |           |   |   | 715,872     |  
|Selling, general
 and administrative                                |  |                              | 525,964    |                            |   | 623,274                                        |   |      | 947,529    |      |   | 1,094,193  |   |   | 36,339,282  |  
|                                                                    |  |                              |            |                            |   |                                                |   |      |            |      |   |            |   |   |             |  
|Total operating
 loss                                               |  |                              | (1,317,303 | )                          |   | (1,606,213                                     | ) |      | (2,678,704 | )    |   | (2,942,374 | ) |   | (86,036,196 | )
|Other income
 (expense):                                            |  |                              |            |                            |   |                                                |   |      |            |      |   |            |   |   |             |  
|Interest income                                                     |  |                              | 40,613     |                            |   | 84,565                                         |   |      | 89,479     |      |   | 94,878     |   |   | 6,020,237   |  
|Interest expense                                                    |  |                              |           |                            |   |                                               |   |      |           |      |   |           |   |   | (812,067    | )
|Other, net                                                          |  |                              |           |                            |   |                                               |   |      |           |      |   |           |   |   | 143,193     |  
|                                                                    |  |                              |            |                            |   |                                                |   |      |            |      |   |            |   |   |             |  
|Total other
 income (expense)                                       |  |                              | 40,613     |                            |   | 84,565                                         |   |      | 89,479     |      |   | 94,878     |   |   | 5,351,363   |  
|                                                                    |  |                              |            |                            |   |                                                |   |      |            |      |   |            |   |   |             |  
|Loss from
 continuing operations                                    |  |                              | (1,276,690 | )                          |   | (1,521,648                                     | ) |      | (2,589,225 | )    |   | (2,847,496 | ) |   | (80,684,833 | )
|Loss from
 discontinued operations                                  |  |                              |           |                            |   |                                               |   |      |           |      |   |           |   |   | (3,845      | )
|                                                                    |  |                              |            |                            |   |                                                |   |      |            |      |   |            |   |   |             |  
|Net loss                                                            |  |                              | (1,276,690 | )                          |   | (1,521,648                                     | ) |      | (2,589,225 | )    |   | (2,847,496 | ) |   | (80,688,678 | )
|Amount payable
 for liquidation preference                          |  |                              |           |                            |   |                                               |   |      |           |      |   |           |   |   | (1,870,033  | )
|                                                                    |  |                              |            |                            |   |                                                |   |      |            |      |   |            |   |   |             |  
|                                                                   
|Net loss
 attributable to common stockholders                       |  | $                            | (1,276,690 | )                          | $ | (1,521,648                                     | ) | $    | (2,589,225 | )    | $ | (2,847,496 | ) | $ | (82,558,711 | )
|                                                                    |  |                              |            |                            |   |                                                |   |      |            |      |   |            |   |   |             |  
|                                                                    |  |                              |            |                            |   |                                                |   |      |            |      |   |            |   |   |             |  
|Loss per common
 share  basic and diluted                          |  | $                            | (.02       | )                          | $ | (.01                                           | ) | $    | (.04       | )    | $ | (.03       | ) |   |             |  
|                                                                    |  |                              |            |                            |   |                                                |   |      |            |      |   |            |   |   |             |  
|Weighted average
 number of common shares outstanding               |  |                              | 61,414,998 |                            |   | 130,037,855                                    |   |      | 61,414,998 |      |   | 95,915,992 |   |   |             |  
|                                                                    |  |                              |            |                            |   |                                                |   |      |            |      |   |            |   |   |             |  
|                                                                    |  |                              |            |                            |   |                                                |   |      |            |      |   |            |   |   |             |  
|Net loss                                                            |  | $                            | (1,276,690 | )                          | $ | (1,521,648                                     | ) | $    | (2,589,225 | )    | $ | (2,847,496 | ) |   |             |  
|Foreign currency
 translation gain (loss)                           |  |                              | 13,698     |                            |   | (5,963                                         | ) |      | 16,164     |      |   | (40,200    | ) |   |             |  
|                                                                    |  |                              |            |                            |   |                                                |   |      |            |      |   |            |   |   |             |  
|Net
 comprehensive loss                                             |  | $                            | (1,262,992 | )                          | $ | (1,527,611                                     | ) | $    | (2,573,061 | )    | $ | (2,887,696 | ) |   |             |  
|                                                                    |  |                              |            |                            |   |                                                |   |      |            |      |   |            |   |   |             |  

See
accompanying notes.

Page 4

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Table of Contents

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

|                                                                                      |  |                            |            |                                                 |   |            |   |   |              |  
|------------------------------------------------------------------------------------- |  | -------------------------- | ---------- | ----------------------------------------------- | - | ---------- | - | - | ------------ | -
|                                                                                      |  |                            |            | Period
 from
 January 12, 1990
 (Incorporation) |  
|                                                                                      |  | Six Months
 Ended June 30, |            | To June
 30,                                    |  
|                                                                                      |  | 2006                       |            | 2007                                            |   | 2007       |  
|                                                                                      |  |                            |            |                                                 |   |            |  
|Operating activities                                                                  |  |                            |            |                                                 |   |            |   |   |              |  
|Net loss                                                                              |  | $                          | (2,589,225 | )                                               | $ | (2,847,496 | ) | $ | (80,688,678  | )
|Adjustments to
 reconcile net loss to net cash used in operating activities:          |  |                            |            |                                                 |   |            |   |   |              |  
|Depreciation and
 amortization                                                        |  |                            | 147,367    |                                                 |   | 146,731    |   |   | 4,930,453    |  
|Stock based
 compensation expense                                                     |  |                            | 70,546     |                                                 |   | 63,810     |   |   | 212,358      |  
|Amortization of
 discount on convertible notes payable                                |  |                            |           |                                                 |   |           |   |   | 142,500      |  
|Amortization of
 deferred gain on joint venture                                       |  |                            |           |                                                 |   |           |   |   | (1,805,800   | )
|Equity in net
 loss of joint venture                                                  |  |                            |           |                                                 |   |           |   |   | 1,703,763    |  
|Extraordinary
 gain related to negative goodwill on consolidated subsidiary           |  |                            |           |                                                 |   |           |   |   | (902,900     | )
|Cumulative
 effect of change in accounting                                            |  |                            |           |                                                 |   |           |   |   | (186,295     | )
|Compensatory
 stock issue                                                             |  |                            |           |                                                 |   |           |   |   | 25,000       |  
|Minority
 interest in net loss of consolidated subsidiary                             |  |                            |           |                                                 |   |           |   |   | (80,472      | )
|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                        |  |                            |           |                                                 |   |           |   |   | 246,254      |  
|Issuance of
 common stock or warrants for services                                    |  |                            |           |                                                 |   |           |   |   | 423,289      |  
|Changes in
 operating assets and liabilities:                                         |  |                            |            |                                                 |   |            |   |   |              |  
|Accounts
 receivable                                                                  |  |                            | (30,534    | )                                               |   | 142,136    |   |   | 57,939       |  
|Inventory                                                                             |  |                            | (299       | )                                               |   | (1,210     | ) |   | 29,457       |  
|Prepaid expenses
 and other current assets                                            |  |                            | 97,824     |                                                 |   | (820       | ) |   | (34,502      | )
|Accounts payable
 and accrued liabilities                                             |  |                            | 208,167    |                                                 |   | 359,732    |   |   | 1,420,359    |  
|Deferred revenue                                                                      |  |                            | 21,902     |                                                 |   | 287,835    |   |   | 438,142      |  
|Research and
 development tax credit receivable                                       |  |                            | 81,087     |                                                 |   |           |   |   | 320,488      |  
|Amount payable
 to former officer                                                     |  |                            |           |                                                 |   |           |   |   | 80,522       |  
|                                                                                      |  |                            |            |                                                 |   |            |   |   |              |  
|Net cash used in
 operating activities                                                |  |                            | (1,993,165 | )                                               |   | (1,849,282 | ) |   | (67,782,950  | )
|                                                                                      |  |                            |            |                                                 |   |            |   |   |              |  
|Investing activities                                                                  |  |                            |            |                                                 |   |            |   |   |              |  
|Purchase of
 marketable securities and short-term investments                         |  |                            |           |                                                 |   |           |   |   | (351,973,210 | )
|Proceeds from
 sale of marketable securities                                          |  |                            |           |                                                 |   |           |   |   | 344,856,738  |  
|Proceeds from
 sale of short-term investments                                         |  |                            |           |                                                 |   |           |   |   | 7,116,472    |  
|Purchases of
 furniture and equipment                                                 |  |                            | (25,421    | )                                               |   | (29,175    | ) |   | (3,631,838   | )
|Proceeds from
 sale of furniture and equipment                                        |  |                            |           |                                                 |   |           |   |   | 51,119       |  
|Organization
 costs incurred                                                          |  |                            |           |                                                 |   |           |   |   | (622,755     | )
|Cash acquired in
 acquisition of control of joint venture                             |  |                            |           |                                                 |   |           |   |   | 991,634      |  
|                                                                                      |  |                            |            |                                                 |   |            |   |   |              |  
|Net cash used in
 investing activities                                                |  |                            | (25,421    | )                                               |   | (29,175    | ) |   | (3,211,840   | )

See
accompanying notes.

Page 5

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Table of Contents

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

|                                                                                    |  |                            |            |                                                                   |   |           |   |   |            |  
|----------------------------------------------------------------------------------- |  | -------------------------- | ---------- | ----------------------------------------------------------------- | - | --------- | - | - | ---------- | -
|                                                                                    |  | Six Months
 Ended June 30, |            | Period
 from
 January 12, 1990
 (Incorporation)
 Through June 30, |  
|                                                                                    |  | 2006                       |            | 2007                                                              |   | 2007      |  
|                                                                                    |  |                            |            |                                                                   |   |           |  
|Financing activities                                                                |  |                            |            |                                                                   |   |           |   |   |            |  
|Proceeds from
 issuance of notes payable to related party                           |  | $                          |           |                                                                   | $ |          |   | $ | 957,557    |  
|Principal
 payments on notes payable to related party                               |  |                            |           |                                                                   |   |          |   |   | (802,000   | )
|Proceeds from
 loans payable and the related issuance of warrants                   |  |                            |           |                                                                   |   |          |   |   | 2,314,000  |  
|Principal
 payments on loans payable                                                |  |                            |           |                                                                   |   |          |   |   | (1,389,000 | )
|Payments for
 fractional shares from reverse splits and preferred stock conversions |  |                            |           |                                                                   |   |          |   |   | (76        | )
|Financing costs
 incurred                                                           |  |                            |           |                                                                   |   |          |   |   | (90,000    | )
|Payments
 received on subscription receivable                                       |  |                            |           |                                                                   |   |          |   |   | 93,637     |  
|Shareholder
 capital contribution                                                   |  |                            |           |                                                                   |   |          |   |   | 4,542      |  
|Proceeds
 received from exercise of stock warrants                                  |  |                            |           |                                                                   |   |          |   |   | 76,892     |  
|Elimination of
 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                  |  |                            |           |                                                                   |   | 9,318,359 |   |   | 78,170,850 |  
|                                                                                    |  |                            |            |                                                                   |   |           |   |   |            |  
|Net cash
 provided by financing activities                                          |  |                            |           |                                                                   |   | 9,318,359 |   |   | 79,448,701 |  
|                                                                                    |  |                            |            |                                                                   |   |           |   |   |            |  
|                                                                                    |  |                            |            |                                                                   |   |           |   |   |            |  
|Effect of
 exchange rate changes on cash                                            |  |                            | 24,095     |                                                                   |   | (39,380   | ) |   | 431,181    |  
|                                                                                    |  |                            |            |                                                                   |   |           |   |   |            |  
|                                                                                   
|Net increase
 (decrease) in cash and cash equivalents                               |  |                            | (1,994,491 | )                                                                 |   | 7,400,522 |   |   | 8,885,092  |  
|Cash and cash
 equivalents at beginning of period                                   |  |                            | 5,573,150  |                                                                   |   | 1,484,570 |   |   |           |  
|                                                                                    |  |                            |            |                                                                   |   |           |   |   |            |  
|Cash and cash
 equivalents at end of period                                         |  | $                          | 3,578,659  |                                                                   | $ | 8,885,092 |   | $ | 8,885,092  |  
|                                                                                    |  |                            |            |                                                                   |   |           |   |   |            |  
|                                                                                    |  |                            |            |                                                                   |   |           |   |   |            |  
|Supplemental disclosure of cash
 flow information                                   |  |                            |            |                                                                   |   |           |   |   |            |  
|Interest paid                                                                       |  | $                          |           |                                                                   | $ |          |   | $ | 197,072    |  
|                                                                                    |  |                            |            |                                                                   |   |           |   |   |            |  
|Non-cash
 activity:                                                                 |  |                            |            |                                                                   |   |           |   |   |            |  
|Conversion of
 accounts payable into notes payable                                  |  | $                          |           |                                                                   | $ |          |   | $ | 25,000     |  
|                                                                                    |  |                            |            |                                                                   |   |           |   |   |            |  
|Common stock
 warrants issued in conjunction with convertible notes payable         |  | $                          |           |                                                                   | $ |          |   | $ | 142,500    |  
|                                                                                    |  |                            |            |                                                                   |   |           |   |   |            |  
|Conversion of
 bridge loans into common stock                                       |  | $                          |           |                                                                   | $ |          |   | $ | 950,000    |  
|                                                                                    |  |                            |            |                                                                   |   |           |   |   |            |  
|Payment of
 interest on bridge loans with common stock                              |  | $                          |           |                                                                   | $ |          |   | $ | 23,275     |  
|                                                                                    |  |                            |            |                                                                   |   |           |   |   |            |  

See
accompanying notes.

Page 6

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Table of Contents

AVAX
Technologies, Inc. and Subsidiaries(a
development stage company)Notes to Consolidated Financial
Statements (Unaudited)For the Six Months Ended June 30,
2007 and 2006

|   |                                                             
|-- | ------------------------------------------------------------
|1. | Organization and Summary of
 Significant Accounting Policies

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

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

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

Since January 1997, the
Company has also entered into license agreements with other universities to
develop, commercially manufacture and sell products embodying a series of
compounds for the treatment of cancer. The Company has since terminated each of
these license and related research agreements after determining that further
development of these compounds was no longer consistent with the strategic plan
and plan of operation of the Company.

In August 2000, the Company completed its acquisition
of GPH, S.A. (Holdings) and Genopoietic S.A. (Genopoietic) each a French
societe anonyme, with its principal operating facility in Lyon, France. The
Company has designated the Lyon, France operations facility as its primary
source facility for the production of vaccines to be used in clinical trials.
In addition, the Company currently performs contract manufacturing and research
activities at its facility located in Lyon. The Companys June 30, 2007,
consolidated balance sheet includes approximately $314,910 in net assets
related to these subsidiaries.

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

Basis of Presentation

The financial information as of June 30, 2007, and for
the three and six-month periods ended June 30, 2007 and 2006, 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, 2007,
are not necessarily indicative of the results of operations that may be
expected for the entire year.

The accompanying financial statements and the related
notes should be read in conjunction with the Companys audited financial
statements for the year ended December 31, 2006, included in the Companys
annual report on Form 10-KSB.

Principles of Consolidation

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

Page 7

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Table of Contents

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

Revenue

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

The Company records as
deferred revenue amounts received in advance of the provision of services in
accordance with contracts or grants. Deferred revenue consisted of $203,372
received from a grant for which the services had not been provided as of June
30, 2007. In February 2007, the Company entered into a collaborative agreement
with Cancer Treatment Centers of America for work related to clinical trials
and certain production activities out of the Companys facility in
Philadelphia, Pennsylvania. In accordance with the agreement, the Company
received $250,000 as an up-front payment. These amounts are treated as deferred
revenue until such time as the facility launches operations.

Accounts
Receivable

Accounts receivable are stated at the amount
management expects to collect from outstanding balances. Management provides
for probable uncollectible accounts through a charge to earnings and a credit
to a valuation allowance based on its assessment of the current status of
individual accounts. Balances that are still outstanding after management has
used reasonable collection efforts are written off through a charge to the
valuation allowance and a credit to accounts receivable. There was no valuation
allowance at June 30, 2007. The Company generally does not charge interest on
accounts receivable.

Concentrations
of Credit Risk

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

Fair
Value of Financial Instruments

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

Inventories

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

Accrued
Expenses

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

Depreciation

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

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Table of Contents

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

Goodwill

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

Prior to the adoption of
SFAS No. 142, the Company had recorded cumulative amortization of $113,032. If
SFAS No. 142 had been applied to earlier periods, the adjusted loss from
continuing operations would be $80,797,865 and the adjusted net loss would be
$80,801,710.

Research and Development Costs

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

Stock-Based
Compensation

Effective January 1, 2006, the Company has adopted
SFAS 123(R), Share-Based Payment. SFAS 123(R) establishes standards for the
accounting for transactions in which an entity exchanges its equity instruments
for goods or services and requires that the compensation cost relating to
share-based payment transactions be recognized in financial statements,
measured by the fair value of the equity or liability instruments issued,
adjusted for estimated forfeitures. We transitioned to SFAS 123(R) using the modified-prospective
method, under which prior periods have not been revised for comparative
purposes. The valuation provisions of SFAS 123(R) apply to new grants and to
grants that were outstanding as of the effective date and are subsequently
modified. Estimated compensation for grants that were outstanding as of the
effective date will be recognized over the remaining service period using the
compensation cost previously estimated for our SFAS 123 pro forma disclosures.
Recognized stock-based compensation expense for the six months ended June 30,
2007, includes compensation expense for share-based payment awards granted
prior to, but not yet vested as of December 31, 2006, based on the grant date
fair value estimated in accordance with the pro forma provisions of SFAS 123
and compensation expense for the share-based payment awards granted subsequent
to December 31, 2006, based on the grant date fair value estimated in
accordance with the provisions of SFAS 123(R).

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

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

The Company maintains two employee stock option plans,
a director stock option plan and has issued non-qualified stock options to
employees and directors based upon the consent of the Board of Directors of
the Company. These plans are more fully discussed in the Form 10-KSB filed for
the year ended December 31, 2006. In addition, the Company issues warrants to
consultants at the discretion of the Board of Directors of the Company. The Company
accounts for warrants granted to consultants in accordance with Emerging Issues
Task Force Issue 96-18, Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services. The Company determines the value of stock warrants utilizing the
Black-Scholes option-pricing model.

Compensation costs for fixed awards with pro rata
vesting are allocated to periods on the straight-line basis. For the six-month
period January 1, 2007, through June 30, 2007, there were no options or
warrants issued. For the six-months ended June 30, 2006, the estimated weighted
average fair value of options granted was calculated at $0.18 per share based
on the following assumptions:

|                         |  |                                 |   | 
|------------------------ |  | ------------------------------- | - | 
|                         |  | Six Months
 Ended June 30, 2006 |  
|                         |  |                                 |  
|Expected term (in years) |  | 4.50                            |   | 
|Volatility               |  | 79.4                            | % | 
|Risk-free interest rate  |  | 4.30                            | % | 
|Expected dividends       |  | 0                               |   | 

Compensation expense of $35,076 and $29,850 was
charged to administrative expenses for the six months ended June 30, 2007 and
2006, respectively, while $28,734 and $40,696 was charged to research and
development expenses related to stock options outstanding and not vested for
the same periods.

A summary of applicable stock option and warrant
activity and related information for the six months ended June 30, 2007, is as
follows:

|                                   |  |                       |             |                                       |   |       | 
|---------------------------------- |  | --------------------- | ----------- | ------------------------------------- | - | ----- | 
|                                   |  | Options
 and Warrants |             | Weighted-Average  
 
 Exercise
 Price
|                                   |  |                       |             |                                      
|Outstanding at beginning of period |  |                       | 25,169,540  |                                       | $ | 0.39  | 
|Granted                            |  |                       | 86,330,400  |                                       | $ | 0.15  | 
|Exercised                          |  |                       |            |                                       |   |      | 
|Forfeited                          |  |                       | 50,000      |                                       | $ | 8.813 | 
|                                   |  |                       |             |                                       |   |       | 
|Outstanding at end of period       |  |                       | 111,449,940 |                                       | $ | 0.20  | 
|                                   |  |                       |             |                                       |   |       | 
|Exercisable at end of period       |  |                       | 110,159,299 |                                       | $ | 0.20  | 
|                                   |  |                       |             |                                       |   |       | 

The fair value of option grants is estimated at the
date of grant using the Black-Scholes model. The option and warrant contracts
expire at various times through January 2016. The weighted-average grant date
fair value of options granted during the years 2006 were $0.18.

The following table shows the options and warrants
outstanding by strike price with the average expected remaining term of the
instruments at June 30, 2007.

|                      |  |                                  |             |                                   |      |                            |  |                                   |             |  |      |  | 
|--------------------- |  | -------------------------------- | ----------- | --------------------------------- | ---- | -------------------------- |  | --------------------------------- | ----------- |  | ---- |  | 
|Exercise
 Price Range |  | Options & Warrants 
 Outstanding |             | Weighted-Average 
 Remaining Term |      | Vested Options &
 Warrants |  | Weighted-Average 
 Remaining Term |            
|$0.0 - $0.04          |  |                                  | 31,250      |                                   | 0.09 |                            |  |                                   | 31,250      |  | 0.09 |  | 
|$0.125 - $0.17        |  |                                  | 95,128,450  |                                   | 4.52 |                            |  |                                   | 94,764,950  |  | 4.52 |  | 
|$0.29 - $0.47         |  |                                  | 15,620,240  |                                   | 2.84 |                            |  |                                   | 14,693,099  |  | 2.71 |  | 
|$0.89 - $0.91         |  |                                  | 280,000     |                                   | 1.24 |                            |  |                                   | 280,000     |  | 1.24 |  | 
|$2.938                |  |                                  | 265,000     |                                   | 3.21 |                            |  |                                   | 265,000     |  | 3.21 |  | 
|$8.240                |  |                                  | 125,000     |                                   | 4.34 |                            |  |                                   | 125,000     |  | 4.34 |  | 
|                      |  |                                  |             |                                   |      |                            |  |                                   |             |  |      |  | 
|                      |  |                                  | 111,449,940 |                                   |      |                            |  |                                   | 110,159,299 |  |      |  | 
|                      |  |                                  |             |                                   |      |                            |  |                                   |             |  |      |  | 

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

Recently
issued accounting standards

In September 2006, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards No. 157,
Fair Value Measurements (FAS 157). FAS 157 defines fair value, establishes
a framework for measuring fair value in GAAP, and expands disclosures about
fair value measurements. FAS 157 is effective for financial statements issued
for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years. We are evaluating the impact, if any, of adopting
FAS 157 on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial Liabilities 
Including an Amendment of FASB Statement 115 (FAS 159). FAS 159 permits
entities to choose to measure many financial instruments and certain other
items at fair value. Entities that elect the fair value option will report
unrealized gains and losses in earnings at each subsequent reporting date. The
fair value option may be elected on an instrument-by-instrument basis, with few
exceptions. FAS 159 also establishes presentation and disclosure requirements
to facilitate comparisons between companies that choose different measurement
attributes for similar assets and liabilities. FAS 159 is effective for
financial statements issued for fiscal years beginning after November 15,
2007. We are evaluating the impact, if any, of adopting FAS 159 on our
consolidated financial statements.

In June 2007, the FASB ratified Emerging Issues Task
Force (EITF) Issue No. 07-3, Accounting for Nonrefundable Advance Payments
for Goods or Services to Be Used in Future Research and Development Activities
(Issue 07-3), which addresses the accounting for nonrefundable advance
payments. The EITF concluded that nonrefundable advance payments for goods or
services to be received in the future for use in research and development
activities should be deferred and capitalized. The capitalized amounts should
be expensed as the related goods are delivered or the services performed. If an
entitys expectations change such that it does not expect it will need the
goods to be delivered or the services to be rendered, capitalized nonrefundable
advance payments should be charged to expense. Issue 07-3 is effective for new
contracts entered into during fiscal years beginning after December 15, 2007,
including interim periods within those fiscal years. We are evaluating the
impact, if any, of adopting Issue 07-3 on our consolidated financial
statements.

|   |                                
|-- | -------------------------------
|2. | License and Research Agreements

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

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

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

|   |               
|-- | --------------
|3. | ANVAR Advances

The Companys French subsidiary received financial
support from a French governmental agency (ANVAR). These advances, are
subject to conditions specifying that non-compliance with such conditions could
result in the forfeiture of all or a portion of the future amounts to be
received, as well as the repayment of all or a portion of amounts received to
date. If certain products are commercialized, the June 30, 2007, balance of
$370,972 is repayable based on an annual royalty equal to 47% of the revenue
related to the project. As such, the total amount of advances received are
recorded as a liability in the accompanying consolidated balance sheet. In case
of failure or partial success, as defined in the agreement, $75,121 (400,000
French Francs) is payable. The due date for the obligation has past but the
grantor agency has not demanded repayment of the obligation. Due to the
uncertainty regarding the amount that will be required to be returned to ANVAR,
the Company maintains the full amount of the obligation as a current liability.

|   |                                        
|-- | ---------------------------------------
|4. | Private Placement of Equity
 Securities

On April 13, 2007, the Company closed a private
placement of 80,060,000 shares of common stock at a purchase price of $0.125
per share with 25 accredited and institutional investors. The Company received
gross proceeds of approximately $10,007,500, and incurred offering-related
expenses of $689,141 payable to advisors related to the fundraising. In
connection with the private placement, the Company also issued to the investors
warrants to purchase 80,060,000 shares of common stock at a warrant exercise
price of $0.15 per share. All warrants issued in this private placement expire
on April 13, 2012.

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Table of Contents

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

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

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

| |   |                                                                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our history of operating losses, our continuing cash
 requirements, our need to raise additional capital by June 30, 2008, and the
 uncertainty of our prospects of reaching a meaningful level of revenues.                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                 
| |  | The business uncertainties arising from our decision
 to conduct all AC Vaccine manufacturing activities at our Lyon, France
 facility and the logistical issues and risks relating to shipping biologics
 from the U.S. and other countries to France and the vaccine from France to
 patients in the U.S. and other countries.
| |   |                                                                                                                                                                                                                                                                                                                                 
| |  | Uncertainty about whether our products will
 successfully complete the long, complex and expensive clinical trial and
 regulatory approval process for approval of new drugs in the U.S. and certain
 European countries.                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                 
| |  | Uncertainty about whether our AC Vaccine technology
 can be developed to produce safe and effective products and, if so, whether
 our AC Vaccine products will be commercially accepted and profitable.                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                 
| |  | Difficulties arising from our competition with other
 clinical trials and treatment regimens for patients and clinical sites for
 our clinical trials.                                                                                                                                                                          
| |   |                                                                                                                                                                                                                                                                                                                                 
| |  | The expenses, delays, uncertainties and
 complications typically encountered by development stage biopharmaceutical
 businesses, many of which are beyond our control.                                                                                                                                                          
| |   |                                                                                                                                                                                                                                                                                                                                 
| |  | Our financial and development obligations and our
 responsibility to meet requisite research funding levels under our license
 agreements in order to protect our rights to our products and technologies.                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                 
| |  | Each of the other factors discussed in our Annual
 Report on Form 10-KSB for the year ended December 31, 2006, 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 $80,688,678 as of June 30,
2007. We incurred net losses of $2,847,496 and $2,589,225 for the six months
ended June 30, 2007 and 2006, respectively. We expect to continue to incur
operating losses, primarily due to the expenses associated with our product
development efforts, the cost of maintaining our manufacturing facilities in
Europe and the U.S. and activities related to the conduct of our clinical
trials for the AC Vaccine in the U.S. and Europe.

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

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

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

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

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

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

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Table of Contents

Research
and Development Expenses

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

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

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

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

Research and development costs incurred through June
30, 2007, were $49,703,265. Research and development costs were $2,051,497 and
$2,157,708 for the six months ended June 30, 2007 and 2006, respectively. The
majority of these costs relate to clinical research and development of our AC
Vaccine technology. Our management estimates that greater than 90% of the
periodic and cumulative research and development expenses incurred relate to
our one major program, the AC Vaccine. At this time, due to the risks inherent
in the clinical trial process, risks associated with the product and product
characterization and risks associated with regulatory review and approval of
clinical product candidates, we are unable to estimate with any certainty the
costs we will incur in the continued development of our product candidates for
commercialization.

Plan of
Operation

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

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

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

In developing our response to the FDA clinical hold
letters and the Form 483, we identified and began to implement a number of

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

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

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

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

On April 13, 2007, we closed a private placement
of 80,060,000 shares of common stock at a purchase price of $0.125 per share
with 25 accredited or institutional investors. We received gross proceeds of
$10,007,500. In connection with the private placement, we also issued to the
investors warrants to purchase 80,060,000 shares of common stock at a warrant
exercise price of $0.15 per share. In addition, we have agreed to pay $580,350
and to issue warrants to purchase 6,190,400 shares of common stock at a warrant
exercise price of $0.15 per share to certain advisors relating to this private
offering. We will receive net proceeds from this private offering, after
offering related expenses, of approximately $9.0 million. We are using the net
proceeds to continue to implement the plan of operation described below.

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

The key components of our current plan of operation
are:

| |   |                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Enroll patients in our Phase III Registration Study
 in the U.S. for M-Vax for the treatment of Stage 3 and 4 melanoma patients,
 which trial will proceed under the Special Protocol Assessment that we
 received from the U.S. FDA in October 2006.
| |   |                                                                                                                                                                                                                                                      
| |  | Complete our current Phase I-II clinical trial in
 the U.S. for M-Vax for the treatment of Stage 3 and 4 melanoma patients.                                                                                                                          
| |   |                                                                                                                                                                                                                                                      
| |  | Continue our Phase I-II clinical in the U.S. for
 L-Vax, for the treatment of patients with resectable non-small cell lung
 cancer.                                                                                                                  
| |   |                                                                                                                                                                                                                                                      
| |  | Initiate a Phase I-II clinical trial in the U.S. for
 O-Vax, for the treatment of patients with ovarian cancer.                                                                                                                                      
| |   |                                                                                                                                                                                                                                                      
| |  | Continue the treatment of melanoma patients in
 Europe and South America on a compassionate use basis with M-Vax.                                                                                                                                    
| |   |                                                                                                                                                                                                                                                      
| |  | Continue our discussions with the European Medical
 Evaluations Agency, the FDA equivalent regulatory body for the European
 Union, regarding the regulatory requirements for the AC Vaccine and its
 continued development in Europe.               

The primary focus of our plan of operation for the
balance of 2007 and into 2008 will be the development of M-Vax and the clinical
trials in the U.S. relating to that product. In November 2006, with FDA
authorization, we began our Phase III Registration Study of M-Vax. In October
2006, the FDA issued to us a Special Protocol Assessment for the study,
agreeing that the proposed protocol, as designed, will allow us to gain
regulatory approval with the successful conduct of the study. In addition the
Special Protocol Assessment indicates that we may use response rate (using
RECIST criteria) as an acceptable surrogate endpoint as a basis to obtain
accelerated approval. The Special Protocol Assessment is a written agreement
between us and the FDA regarding the trial design, surrogate endpoints to be
used as a basis for filing for accelerated approval of M-Vax and the
statistical analysis plan necessary to support the full regulatory approval of M-Vax.

The Phase III study will enroll up to 387 patients
with stage 4 melanoma, who will be assigned in a double-blind fashion at a 2:1
ratio to M-Vax or a placebo vaccine. The primary endpoints of the study are
best overall anti-tumor response rate and the percentage of patients surviving
2 years. Secondary endpoints of the study will include overall survival time,
response duration, percentage complete and partial responses, progression free
survival and treatment related adverse events.

In June 2005, we launched a Phase I-II clinical study
in the U.S. for the treatment of patients with stage 3 or 4 melanoma. Patients
are treated with M-Vax after being assigned to one of four dosage arms, one of
which is a zero dose. The major endpoints of this current Phase I-II clinical
study are the development of immunity to the patients own melanoma cells and a
formal assessment of the safety of M-Vax. Patients are tested for DTH response
to their own DNP-modified and unmodified melanoma cells prior to treatment and after
the initial seven weekly vaccine injections. DTH results are obtained at
2 1⁄2-months, and the maximum duration of the study for an individual
patient is 9 months. Currently, one arm of the study has been determined to be
positive and, in agreement with the FDA, and we have expanded the enrollment in
this arm to obtain additional clinical data. A second arm of the study has been
closed due to the arm failing to achieve a minimum level of DTH response.

Eight clinical sites in the U.S. are participating in the
current Phase I-II clinical study. Currently, all four arms of the study are
fully enrolled and enrollment has ceased. Preliminary results from the study
have been used as the basis to establish the doses for our Phase III study. We
anticipate that these clinical sites will also participate in the Phase III
clinical study. We likely will limit the number of clinical sites for the Phase
III study to a total of 10 sites in view of our current cash resources.

Our current cash resources will permit us to enroll
patients in the Phase III Registration Study throughout 2007, to fund the costs
associated with the anticipated Phase III clinical sites and to complete the
evaluation of data from the Phase I-II study as they become available. If we
are able to raise additional capital in the remainder of 2007, we might
accelerate the Phase III study by adding more clinical sites.

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We also believe that the funds from our recent private
offering will permit us to continue the Phase I-II clinical study for L-Vax and
to commence a Phase I-II clinical study for O-Vax in the second half of 2007.

Even if the Phase I-II clinical trials for L-Vax or
O-Vax are completed successfully we do not have the current cash resources to
commence a Phase III pivotal trial for either of those products. If we are
prepared to commence a Phase III trial for either product, we may seek to
partner with a larger pharmaceutical company in that Phase III trial and future
commercialization of that product.

We continually evaluate our plan of operation
discussed above to determine the manner in which we can most effectively
utilize our limited cash resources. The timing of completion of any aspect of
our plan of operations is highly dependant upon the availability of cash to
implement that aspect of the plan and other factors beyond our control. We
believe we have the current cash resources to pursue this plan of operation
through the end of 2007 and through the first half of 2008. The full
implementation of this plan of operation beyond that time is dependent upon us
obtaining additional fundraising in the first half of 2008. We believe we have
the facilities, the facility managers, the technical and scientific staff and
consultants in place to implement this plan.

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

We will continue to pursue additional contract
manufacturing agreements in the U.S. and France, which would provide us with
additional revenue to fund our operations and the costs of the facilities. We
believe that we have developed significant expertise in producing certain
biological products for clinical and development purposes, and that this
expertise can be marketed by us to other companies and research institutions
engaged in clinical trials and product development programs. In addition, we
have invested significant amounts to establish and maintain current Good
Manufacturing Practices (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. We currently utilize our Philadelphia facility for logistical
support in our current clinical trials and for storage of samples. We
anticipate re-initiating vaccine processing at this facility in the future in
support of larger planned studies.

Recently
issued accounting standards

In September 2006, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards No. 157,
Fair Value Measurements (FAS 157). FAS 157 defines fair value, establishes
a framework for measuring fair value in GAAP, and expands disclosures about
fair value measurements. FAS 157 is effective for financial statements issued
for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years. We are evaluating the impact, if any, of adopting
FAS 157 on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial Liabilities 
Including an Amendment of FASB Statement 115 (FAS 159). FAS 159 permits
entities to choose to measure many financial instruments and certain other
items at fair value. Entities that elect the fair value option will report
unrealized gains and losses in earnings at each subsequent reporting date. The
fair value option may be elected on an instrument-by-instrument basis, with few
exceptions. FAS 159 also establishes presentation and disclosure requirements to
facilitate comparisons between companies that choose different measurement
attributes for similar assets and liabilities. FAS 159 is effective for
financial statements issued for fiscal years beginning after November 15,
2007. We are evaluating the impact, if any, of adopting FAS 159 on our
consolidated financial statements.

In June 2007, the FASB ratified Emerging Issues Task
Force (EITF) Issue No. 07-3, Accounting for Nonrefundable Advance Payments
for Goods or Services to Be Used in Future Research and Development Activities
(Issue 07-3), which addresses the accounting for nonrefundable advance
payments. The EITF concluded that nonrefundable advance payments for goods or
services to be received in the future for use in research and development activities
should be deferred and capitalized. The capitalized amounts should be expensed
as the related goods are delivered or the services performed. If an entitys
expectations change such that it does not expect it will need the goods to be
delivered or the services to be rendered, capitalized nonrefundable advance
payments should be charged to expense. Issue 07-3 is effective for new
contracts entered into during fiscal years beginning after December 15, 2007,
including interim periods within those fiscal years. We are evaluating the
impact, if any, of adopting Issue 07-3 on our consolidated financial
statements.

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Results
of Operations

Three
and Six Months Ended June 30, 2007, Compared to Three and Six Months Ended June
30, 2006.

Revenues recognized in the three and six months ended
June 30, 2007 were $58,769 and $203,316, respectively, compared with revenues
of $279,170 and $426,533, respectively for the same periods in 2006. Current
year revenues declined due to a decrease in compassionate use sales and a
decline in contract manufacturing revenue.

For the first six months of 2007, our research and
development expenses decreased to $2,051,497 from $2,157,708 for the same six
months in 2006. Expenses for the periods are broken out by region as follows:

|              |  |                               |           |                              |   |           |  |      |           |  |   |           | 
|------------- |  | ----------------------------- | --------- | ---------------------------- | - | --------- |  | ---- | --------- |  | - | --------- | 
|              |  | Three
 Months Ended
 June 30, |           | Six Months
 Ended 
 June 30, |  
|              |  |                               |           |                              |  
|              |  | 2006                          |           | 2007                         |   | 2006      |  | 2007 |          
|              |  |                               |           |                              |   |           |  |      |          
|United States |  | $                             | 535,136   |                              | $ | 584,380   |  | $    | 1,129,201 |  | $ | 1,052,191 | 
|France        |  |                               | 535,373   |                              |   | 457,328   |  |      | 1,028,507 |  |   | 999,306   | 
|              |  |                               |           |                              |   |           |  |      |           |  |   |           | 
|              |  | $                             | 1,070,509 |                              | $ | 1,041,708 |  | $    | 2,157,708 |  | $ | 2,051,497 | 
|              |  |                               |           |                              |   |           |  |      |           |  |   |           | 

The decrease in expenses in the U.S. for the six
months is due to lower clinical study costs and transportation costs for tumors
and vaccines due to the study hitting full accrual during the second quarter.
These lower costs were partially offset in the current quarter by costs
incurred related to site recruitment and the retention of a CRO for the planned
Phase III Registration trial in melanoma. Lower costs were seen in the three
and six-month periods in France due to decreases in production for vaccines for
clinical protocols.

For the first six months of
2007, our selling, general and administrative expenses increased to
$1,094,193 from $947,529 for the same six months in 2006. Expenses for the
periods are broken out by region as follows:

|              |  |                             |         |                           |   |         |  |      |         |  |   |           | 
|------------- |  | --------------------------- | ------- | ------------------------- | - | ------- |  | ---- | ------- |  | - | --------- | 
|              |  | Three
 Months EndedJune 30, |         | Six Months
 EndedJune 30, |  
|              |  |                             |         |                           |  
|              |  | 2006                        |         | 2007                      |   | 2006    |  | 2007 |        
|              |  |                             |         |                           |  
|United States |  | $                           | 399,154 |                           | $ | 489,498 |  | $    | 734,871 |  | $ | 864,775   | 
|France        |  |                             | 126,810 |                           |   | 133,776 |  |      | 212,658 |  |   | 229,418   | 
|              |  |                             |         |                           |   |         |  |      |         |  |   |           | 
|              |  | $                           | 525,964 |                           | $ | 623,274 |  | $    | 947,529 |  | $ | 1,094,193 | 
|              |  |                             |         |                           |   |         |  |      |         |  |   |           | 

In the U.S., selling, general and administrative costs
increased for the three and six-month period due to higher legal and travel
costs associated with SEC filings for the recruitment of a new member to the
Board of Directors plus increased securities involvement related to regulatory
filings and employee agreements. Costs increased slightly in France for the
three and six-month periods due to higher costs associated with additional
personnel costs supporting administrative and market activities and increased
legal and accounting costs related to the appointment of a new General Manager
and statutory filings in France.

We anticipate that over the next 12 months research
and development expenses will increase as compared with 2006 due to planned
increases in the development activities related to the AC Vaccine, assuming we
are able to raise additional capital.

Liquidity
and Capital Resources

We anticipate that our current resources should be
sufficient to fund operations through all of 2007 and the first half of 2008,
depending upon how aggressively we implement our development plans discussed
above. Our current operating plan includes anticipated expenses relating to (1)
initiating our Phase III Registration Study for M-Vax in the U.S., (2)
continuing our phase I/II clinical trials for M-Vax in the U.S., (3) continuing
our clinical trials for non-small cell lung cancer in the U.S., (4) continuing
maintenance costs associated with our Philadelphia facility for future
utilization in production or contract manufacturing, and (5) continuing costs
associated with maintaining a cGMP-compliant facility in Lyon, France. We will
need to raise additional capital or initiate additional contract manufacturing
relationships on terms favorable to us in the first half of 2008 to continue
our operations throughout all of calendar year 2008. If we are unable to raise
additional capital, secure additional contract manufacturing relationships or
enter into strategic alliances by the second quarter of 2008, we will have to
slow our development initiatives.

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

We conduct our fundraising efforts in U.S. dollars,
while a significant portion of our revenues and expenses are generated and
incurred in currencies other than U.S. dollars, mainly Euros. To the extent
that we are unable to match revenues received in foreign currencies with costs
paid in the same currency, exchange rate fluctuations in any such currency
could have an adverse effect on our results of operations and cash flows.

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 beyond the
first half of 2008. Because we have no committed external sources of capital,
and expect no significant product revenues for the foreseeable future, we will
require additional financing to fund future operations or will need to enter
into contract manufacturing relationships on terms favorable to us. There can
be no assurance, however, that we will be able to obtain the additional funds
or attract contract manufacturing relationships on acceptable terms, if at all.
If additional funds are not raised in the first half of 2008, we will have to
curtail our initiatives beyond that point.

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|        |                         
|------- | ------------------------
|Item 3. | Controls and Procedures.

Our principal executive officer and principal
accounting officer, based on his evaluation within 90 days prior to the date of
this report of our disclosure controls and procedures (as defined in Exchange
Act Rule 13a15(e)), has concluded that, as of the end of the period covered by
our 10-QSB for the quarter ended June 30, 2007, our disclosure controls and
procedures are designed to ensure and are effective at ensuring that
information required to be disclosed by us in our periodic filings with the SEC
is recorded, processed, summarized and reported, within the time periods
specified in the SECs rules and forms. Our disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports that we file or
submit to the SEC is accumulated and communicated to our management, including
our principal executive and principal accounting officer, or persons performing
similar functions, as appropriate to allow timely decisions regarding required
disclosure. There were no significant changes in our internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of their evaluation.

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

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Table of Contents

PART
II - OTHER INFORMATION

|        |          
|------- | ---------
|Item 6. | 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.                                                

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 14, 2007 | 
|                      |  |                                      
|                      |  | /s/
 Richard P. Rainey               
|                      |  |                                      
|                      |  | Richard P. Rainey                    
|                      |  | President and Chief Executive Officer

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