Table of Contents





UNITED STATESSECURITIES AND EXCHANGE COMMISSION
WASHINGTON, 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 September 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 November 8, 2007.

Transitional Small Business Disclosure Format: o
Yesx No





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AVAX TECHNOLOGIES, INC.

Table of Contents



PagePART I  FINANCIAL INFORMATIONItem 1.
        Financial StatementsConsolidated BALANCE SHEETS      As of December 31, 2006 and September 30, 2007 (Unaudited)
        Page 3Consolidated STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)      For the Three and Nine Months Ended September 30, 2007 and 2006 and for the     Period from January 12, 1990 (Incorporation) through September 30, 2007
        Page 4Consolidated STATEMENTS OF CASH FLOWS (Unaudited)      For the Nine Months Ended September 30, 2007 and 2006 and for the     Period from January 12, 1990 (Incorporation) through September 30, 2007
        Page 5Notes to Consolidated Financial Statements
        Page 7Item 2.
        Managements Discussion and Analysis or Plan of Operation
        Page 13Item 3.
        Controls and Procedures
        Page 20PART II  OTHER INFORMATIONItem 6.
        Exhibits
        Page 21Signatures
        
        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
        
        September 30,2007(Unaudited)AssetsCurrent assets:Cash
        
        $
        1,484,570
        
        $
        7,683,572Accounts receivable
        
        
        220,161
        
        
        70,341Inventory
        
        
        10,508
        
        
        14,498VAT receivable
        
        
        50,937
        
        
        91,569Prepaid expenses and other current assets
        
        
        210,343
        
        
        125,101Total current assets
        
        
        1,976,519
        
        
        7,985,081Property, plant and equipment, at cost
        
        
        3,967,928
        
        
        4,202,363Less accumulated depreciation
        
        
        3,088,687
        
        
        3,392,627Net property, plant and equipment
        
        
        879,241
        
        
        809,736Goodwill
        
        
        188,387
        
        
        188,387Total assets
        
        $
        3,044,147
        
        $
        8,983,204Liabilities and stockholders equityCurrent liabilities:Accounts payable and accrued expenses
        
        $
        1,460,644
        
        $
        2,776,628Accrued and withheld payroll taxes and liabilities
        
        
        716,918
        
        
        303,884Deferred revenue
        
        
        160,678
        
        
        463,902ANVAR advances
        
        
        362,109
        
        
        390,181Total current liabilities
        
        
        2,700,349
        
        
        3,934,595Stockholders equity:Preferred stock, $.01 par value:Authorized shares  5,000,000, consisting of Series C  120,000 sharesSeries C convertible preferred stock:Issued and outstanding shares  36,700 at December 31, 2006 and 33,500 at September 30, 2007 (liquidation preference  $3,670,000 and $3,500,000)
        
        
        367
        
        
        335Common stock, $.004 par value:Authorized shares  150,000,000 at December 31, 2006, and 500,000,000 at September 30, 2007Issued and outstanding shares  61,414,998 at December 31, 2006 and141,574,997 at September 30, 2007
        
        
        245,660
        
        
        566,300Additional paid-in capital
        
        
        77,460,158
        
        
        86,602,421Subscription receivable
        
        
        (422
        )
        
        (422
        )Accumulated other comprehensive income
        
        
        479,217
        
        
        434,884Deficit accumulated during the development stage
        
        
        (77,841,182
        )
        
        (82,554,909
        )Total stockholders equity
        
        
        343,798
        
        
        5,048,609Total liabilities and stockholders equity
        
        $
        3,044,147
        
        $
        8,983,204






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)



Three Months Ended September 30,
        
        Nine Months Ended September 30,
        
        Period From
January12, 1990
(Incorporation)
To September30,
20072006
        
        2007
        
        2006
        
        2007Revenue:Gain from sale of the Product
        
        $
        
        
        $
        
        
        $
        
        
        $
        
        
        $
        1,951,000Product and contract service revenue
        
        
        96,178
        
        
        95,877
        
        
        522,711
        
        
        299,193
        
        
        6,704,015Total revenue
        
        
        96,178
        
        
        95,877
        
        
        522,711
        
        
        299,193
        
        
        8,655,015Costs and expenses:Research and development
        
        
        1,004,341
        
        
        1,350,907
        
        
        3,162,049
        
        
        3,402,404
        
        
        51,054,172Acquired in process research and development
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        4,420,824Write down of acquired intellectual property and other intangibles
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        3,416,091Amortization of acquired intangibles
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        715,872Selling, general and administrative
        
        
        495,368
        
        
        719,286
        
        
        1,442,897
        
        
        1,813,479
        
        
        37,058,568Total operating loss
        
        
        (1,403,531
        )
        
        (1,974,316
        )
        
        (4,082,235
        )
        
        (4,916,690
        )
        
        (88,010,512
        )Other income (expense):Interest income
        
        
        32,325
        
        
        108,085
        
        
        121,804
        
        
        202,963
        
        
        6,128,322Interest expense
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        (812,067
        )Other, net
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        143,193Total other income (expense)
        
        
        32,325
        
        
        108,085
        
        
        121,804
        
        
        202,963
        
        
        5,459,448Loss from continuing operations
        
        
        (1,371,206
        )
        
        (1,866,231
        )
        
        (3,960,431
        )
        
        (4,713,727
        )
        
        (82,551,064
        )Loss from discontinued operations
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        (3,845
        )Net loss
        
        
        (1,371,206
        )
        
        (1,866,231
        )
        
        (3,960,431
        )
        
        (4,713,727
        )
        
        (82,554,909
        )Amount payable for liquidation preference
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        (1,870,033
        )Net loss attributable to common stockholders
        
        $
        (1,371,206
        )
        $
        (1,866,231
        )
        $
        (3,960,431
        )
        $
        (4,713,727
        )
        $
        (84,424,942
        )Loss per common share  basic and diluted
        
        $
        (.02
        )
        $
        (.01
        )
        $
        (.06
        )
        $
        (.04
        )Weighted average number of common shares outstanding
        
        
        61,414,998
        
        
        141,496,737
        
        
        61,414,998
        
        
        111,276,536Net loss
        
        $
        (1,371,206
        )
        $
        (1,866,231
        )
        $
        (3,960,431
        )
        $
        (4,713,727
        )Foreign currency translation gain (loss)
        
        
        (4,561
        )
        
        (5,963
        )
        
        11,603
        
        
        (44,333
        )Net comprehensive loss
        
        $
        (1,375,767
        )
        $
        (1,872,194
        )
        $
        (3,948,828
        )
        $
        (4,758,060
        )




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)



Nine Months Ended September 30,
        
        Period from
January 12, 1990 (Incorporation)
To September 30,
20072006
        
        2007Operating activitiesNet loss
        
        $
        (3,960,431
        )
        $
        (4,713,727
        )
        $
        (82,554,909
        )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
        
        
        221,852
        
        
        222,593
        
        
        5,006,315Stock based compensation expense
        
        
        105,818
        
        
        144,511
        
        
        293,059Amortization of discount on convertible notes payable
        
        
        
        
        
        
        
        
        142,500Amortization of deferred gain on joint venture
        
        
        
        
        
        
        
        
        (1,805,800
        )Equity in net loss of joint venture
        
        
        
        
        
        
        
        
        1,703,763Extraordinary gain related to negative goodwill on consolidated subsidiary
        
        
        
        
        
        
        
        
        (902,900
        )Cumulative effect of change in accounting
        
        
        
        
        
        
        
        
        (186,295
        )Compensatory stock issue
        
        
        
        
        
        
        
        
        25,000Minority interest in net loss of consolidated subsidiary
        
        
        
        
        
        
        
        
        (80,427
        )Acquired in-process research and development charge
        
        
        
        
        
        
        
        
        4,420,824Write down of acquired intellectual property and other intangibles
        
        
        
        
        
        
        
        
        3,416,091Gain 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
        
        
        
        
        
        
        
        
        449,000Loss (Gain) on sale or abandonment of furniture and equipment
        
        
        
        
        
        
        
        
        246,254Issuance of common stock or warrants for services
        
        
        
        
        
        
        
        
        423,289Changes in operating assets and liabilities:Accounts receivable
        
        
        (27,386
        )
        
        154,881
        
        
        70,684Inventory
        
        
        (422
        )
        
        (2,947
        )
        
        27,720Prepaid expenses and other current assets
        
        
        123,716
        
        
        56,094
        
        
        22,412Accounts payable and accrued liabilities
        
        
        293,017
        
        
        881,576
        
        
        1,942,203Deferred revenue
        
        
        52,294
        
        
        287,835
        
        
        438,142Research and development tax credit receivable
        
        
        81,087
        
        
        
        
        
        320,488Amount payable to former officer
        
        
        
        
        
        
        
        
        80,522Net cash used in operating activities
        
        
        (3,110,455
        )
        
        (2,969,184
        )
        
        (68,902,852
        )Investing activitiesPurchase of marketable securities and short-term investments
        
        
        
        
        
        
        
        
        (351,973,210
        )Proceeds from sale of marketable securities
        
        
        
        
        
        
        
        
        344,856,738Proceeds from sale of short-term investments
        
        
        
        
        
        
        
        
        7,116,472Purchases of furniture and equipment
        
        
        (37,436
        )
        
        (123,706
        )
        
        (3,726,369
        )Proceeds from sale of furniture and equipment
        
        
        
        
        
        
        
        
        51,119Organization costs incurred
        
        
        
        
        
        
        
        
        (622,755
        )Cash acquired in acquisition of control of joint venture
        
        
        
        
        
        
        
        
        991,634Net cash used in investing activities
        
        
        (37,436
        )
        
        (123,706
        )
        
        (3,306,371
        )






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)



Nine Months Ended September 30,
        
        Period from
January 12, 1990
(Incorporation)
To September 30,
20072006
        
        2007Financing activitiesProceeds from issuance of notes payable to related party
        
        $
        
        
        $
        
        
        $
        957,557Principal payments on notes payable to related party
        
        
        
        
        
        
        
        
        (802,000
        )Proceeds from loans payable and the related issuance of warrants
        
        
        
        
        
        
        
        
        2,314,000Principal 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
        
        
        
        
        
        
        
        
        93,637Shareholder capital contribution
        
        
        
        
        
        
        
        
        4,542Proceeds received from exercise of stock warrants
        
        
        
        
        
        
        
        
        76,892Elimination of the consolidated accounting treatment for joint venture
        
        
        
        
        
        
        
        
        (2,511,701
        )Capital contribution through sale of interest in consolidated subsidiaries
        
        
        
        
        
        
        
        
        2,624,000Net proceeds received from issuance of preferred and common stock
        
        
        
        
        
        9,318,360
        
        
        78,170,851Net cash provided by financing activities
        
        
        
        
        
        9,318,360
        
        
        79,448,702Effect of exchange rate changes on cash
        
        
        19,271
        
        
        (26,468
        )
        
        444,093Net increase/(decrease) in cash and cash equivalents
        
        
        (3,128,620
        )
        
        6,199,002
        
        
        7,683,572Cash and cash equivalents at beginning of period
        
        
        5,573,150
        
        
        1,484,570
        
        
        Cash and cash equivalents at end of period
        
        $
        2,444,530
        
        $
        7,683,572
        
        $
        7,683,572Supplemental disclosure of cash flow informationInterest paid
        
        $
        
        
        $
        
        
        $
        197,072Non-cash activity:Conversion of accounts payable into notes payable
        
        $
        
        
        $
        
        
        $
        25,000Common stock warrants issued in conjunction with convertible notes payable
        
        $
        
        
        $
        
        
        $
        142,500Conversion of bridge loans into common stock
        
        $
        
        
        $
        
        
        $
        950,000Payment 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 Nine Months Ended September 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)(see Note 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 September 30, 2007, consolidated balance sheet includes approximately $89,510 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 September 30, 2007, and for the three and nine-month periods ended September 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 nine-month periods ended September 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. 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 $213,902 received from a grant for which the services had not been provided as of September 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 related to re-commissioning its Philadelphia facility. 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 September 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 by 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.



Page 8

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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 $82,664,096 and the adjusted net loss would be $82,667,941.



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 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. The Company 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 nine months ended September 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(R) 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 nine-month period January 1, 2007 through September 30, 2007 there were 3,820,000 options granted to purchase common stock. The aggregate expense of these options is $382,000 that will be recognized over the expected live of the options which is estimated at 4 years. For the nine-months ended September 30, 2007 and 2006, the estimated weighted average fair value of options granted was calculated at $0.10 and $0.18 per share, respectively, based on the following assumptions:



Three & Nine MonthsEnded September 30, 2006
        
        Three & Nine Months Ended September 30, 2007Expected term (in years)
        
        4.50
        
        4.00Volatility
        
        79.4
        %
        75.4
        %Risk-free interest rate
        
        4.30
        %
        3.52
        %Expected dividends
        
        0
        
        0




Compensation expense of $76,227 and $44,774 was charged to administrative expenses for the nine months ended September 30, 2007 and 2006, respectively, while $68,284 and $61,044 was charged to research and development expenses related to stock options outstanding and not vested for the same periods.



Options and Warrants Outstanding



In addition to options and warrants granted for compensatory purposes, the Company also issues warrants from time to time in conjunction with financing transactions(see Note 4). A summary of applicable stock option and warrant activity and related information for the nine months ended September 30, 2007, is as follows:



Options and Warrants
        
        Weighted-AverageExercise PriceOutstanding at beginning of period
        
        25,169,540
        
        $
        0.39Granted
        
        90,155,400
        
        $
        0.15Exercised
        
        
        
        
        Forfeited
        
        50,000
        
        $
        8.813Outstanding at end of period
        
        115,274,940
        
        $
        0.20Exercisable at end of period
        
        110,983,503
        
        $
        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 July 2017. The weighted-average exercise price of options granted during the the first nine months of 2007 was $0.19.



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AVAX Technologies, Inc. and Subsidiaries

(a development stage company)



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



Exercise Price Range
        
        Options & WarrantsOutstanding
        
        Weighted-AverageRemaining Term
        
        Vested Options &Warrants
        
        Weighted-AverageRemaining Term$0.0  $0.04
        
        31,250
        
        0.09
        
        31,250
        
        0.09$0.125  $0.19
        
        98,953,450
        
        4.41
        
        95,470,575
        
        4.30$0.29  $0.47
        
        15,620,240
        
        2.59
        
        14,811,678
        
        2.47$0.89  $0.91
        
        280,000
        
        0.99
        
        280,000
        
        0.99$2.938
        
        265,000
        
        2.96
        
        265,000
        
        2.96$8.240
        
        125,000
        
        4.09
        
        125,000
        
        4.09115,274,940
        
        
        
        110,983,503




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. The Company is evaluating the impact, if any, of adopting FAS 157 on its 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. The Company is evaluating the impact, if any, of adopting FAS 159 on its
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. The Company is evaluating the impact, if any, of adopting Issue 07-3 on its 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).



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AVAX Technologies, Inc. and Subsidiaries

(a development stage company)



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 U.S. 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.



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 September 30, 2007, balance of $390,181 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, $86,707 (400,000 French Francs) is payable. The due date for the obligation has passed 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 $689,140 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.



5.
        Conversion of Series C Preferred




During the quarter ended September 30, 2007, 3,250 shares of Series C convertible preferred stock were converted into 99,999 shares of common stock in accordance with the conversion provisions of the Series C shares.



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




CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS



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



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




        Our history of operating losses, our continuing cash requirements, our need to raise additional capital by June 30, 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 1A  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 $82,554,909 as of September 30, 2007. We incurred net losses of $4,713,727 and $3,960,431 for the nine months ended September 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 periodic cutbacks in our development plans and programs due to the limited cash resources from time to time in recent years.




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.



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.



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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 September 30, 2007, were $51,054,172. Research and development costs were  $3,402,404  and $3,162,049, for the nine months ended September 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 product development initiatives related to the AC Vaccine technology. As a result, we determined certain product improvements to the vaccine could be instituted that would address certain concerns of the FDA and make the vaccine more viable from a regulatory and commercial perspective. Throughout the remainder of 2001 and into 2002, we continued to evaluate (1) the prospect of freezing the haptenized cells for distribution to the end user, (2) steps that could be taken to help ensure that final released vaccines prepared by us are sterile and (3) tests to determine the minimal number of cells necessary for the vaccine to be effective. Based upon the results of these efforts, we re-engineered the manufacturing steps to create and release the vaccine technology to take
advantage of these potential product improvements.



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Based upon the changes to the product, the FDA recommended that we consider preparing and filing new INDs for the frozen vaccine. At the recommendation of the FDA, we decided to place our original INDs for M-Vax and O-Vax on inactive status, given the FDAs view that the revisions to the manufacturing process, necessary to address the 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 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 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 received net proceeds from this private offering, after offering related expenses, of approximately $9.0 million. We are using the net proceeds of this private placement to continue to implement the plan of operation described below.



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



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 trial 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 2008 and 2009 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 pivotal registration trial for 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.



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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, three arms of the study have been completed, and, in agreement with the FDA, and we have expanded the enrollment in one of the positive arms to obtain additional clinical data. While the results of the
study remain blinded in accordance with FDA regulations, we anticipate completing the study and unblinding the results in the fourth quarter of 2007.



Eight clinical sites in the U.S. are participating in the current Phase I-II clinical study of M-Vax, and we are targeting 45 U.S. and European centers to participate in the Phase III pivotal registration trial.



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 through the second quarter of 2008, to complete the evaluation of data from the Phase I-II M-Vax study as they become available.



We also believe that our available funds will permit us to continue the Phase I-II clinical study for L-Vax through the first half of 2008 and to commence a Phase I-II clinical study for O-Vax in the first half of 2008. Even if those trials are successful, our current cash resources are not sufficient to fund additional clinical trials for those products without the infusion of additional capital into the company.



We continually evaluate our plan of operation discussed above to determine the manner in which we can most effectively utilize our limited cash resources. The timing of completion of any aspect of our plan of operations is highly dependant upon the availability of cash to implement that aspect of the plan and other factors beyond our control. We believe we have the current cash resources to pursue this plan of operation through June 30, 2008. The full implementation of this plan of operation beyond that time is dependent upon us obtaining additional funding or commitments for additional funding by June 30, 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 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.



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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.



Results of Operations



Three and Nine Months Ended September 30, 2007, Compared to Three and Nine Months Ended September 30, 2006.



Revenues recognized in the three and nine months ended September 30, 2007, were $95,877 and $299,193, respectively, compared with revenues of $96,178 and $522,711, 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 nine months of 2007, our research and development expenses increased to $3,402,404 from $3,162,049 for the same nine months in 2006. Expenses for the periods are broken out by region as follows:



Three Months EndedSeptember 30,
        
        Nine Months EndedSeptember 30,2006
        
        2007
        
        2006
        
        2007United States
        
        $
        537,276
        
        $
        902,386
        
        $
        1,666,477
        
        $
        1,954,577France
        
        
        467,065
        
        
        448,521
        
        
        1,495,572
        
        
        1,447,827$
        1,004,341
        
        $
        1,350,907
        
        $
        3,162,049
        
        $
        3,402,404






The increase in the three and nine month costs in the U.S. relate to site initiation costs associated with the Phase III study that includes the hiring of a contract research organization for site recruitment and accrual. In addition, in the current year we added one additional research nurse for the assistance of site management for our ongoing Phase I-II studies and the oversight of our Phase III study. In Europe, there was a slight cost decrease noted during the three and nine month periods. The decrease in France was due to decline in manufacturing costs with the stopping of accrual for the Phase I-II melanoma study in the third quarter, as the bulk of the study arms had reached full enrollment. This decrease was partially offset by increased costs seen in bringing certain product release tests in-house that required the purchase and validation of equipment and procedures and a 12% increase in the Euro exchange rate.



For the first nine months of 2007, our selling, general and administrative expenses increased to $1,813,479 from $1,442,897 for the same nine months in 2006. Expenses for the periods are broken out by region as follows:



Three Months EndedSeptember 30,
        
        Nine Months EndedSeptember 30,2006
        
        2007
        
        2006
        
        2007United States
        
        $
        392,997
        
        $
        587,116
        
        $
        1,127,868
        
        $
        1,451,891France
        
        
        102,371
        
        
        132,170
        
        
        315,029
        
        
        361,588$
        495,368
        
        $
        719,286
        
        $
        1,442,897
        
        $
        1,813,479






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In the U.S., selling, general and administrative costs increased for the three and nine-month period due to a $90,000 expenditure related to the recruitment of an additional member of the board of directors, and increased board costs related to meetings during the period that did not occur in the prior year. In addition, there were increased costs related to salary adjustments granted to senior management and the addition of an office manager in the current year. Finally, increased costs were incurred related to patents and trademarks counsel during the current year.



In France, cost increases for the three and nine-month period related to exchange rate differences of 12% in the current year plus increased costs associated with additional personnel costs supporting administrative and marketing activities. There were also increased legal costs associated with the appointment of a new general manager in the current year and the associated statutory filings required in France.



We anticipate that over the next 12 months, research and development expenses will increase as compared with 2007 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 cash resources will permit us to enroll patients in the Phase III registration trial for M-Vax throughout 2007 and the first half of 2008, to fund the costs associated with the addition of anticipated Phase III clinical sites through the second quarter of 2008 and to complete the evaluation of data from the Phase I-II study of M-Vax as they become available.



We also believe that our available funds will permit us to continue the Phase I-II clinical study for L-Vax through the first half of 2008 and to commence a Phase I-II clinical study for O-Vax in the first half of 2008. Even if those trials are successful, our current cash resources are not sufficient to fund additional clinical trials for those products without the infusion of additional capital into the company.



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 capital raising 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 September 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 our third quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.





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PART II  OTHER INFORMATION



Item 6.
        Exhibits.




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.






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Signatures



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





AVAX Technologies, Inc.Date:     November 14, 2007
        /s/   Richard P. RaineyRichard P. RaineyPresident and Chief Executive Officer








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