# ** **

# **SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

 

----

 

# **FORM 10-QSB**

# ** **

**ý****                                ****QUARTERLY REPORT UNDER SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**Forthe quarterly period ended June 30, 2003**

 

**or**

 

**o****                                ****TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

**Forthe transition period from                  to                  **

 

**Commissionfile number   0-29222**

 

**AVAXTECHNOLOGIES, INC.**

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

 

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

 

Indicate by check mark whether the Registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theRegistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. ýYes     o No

 

As of August 6, 2003, 18,080,071 shares of the Registrant’s commonstock, par value $.004 per share, were outstanding.

 

Documents incorporated by reference: **None.**

 

Transitional Small Business Disclosure Format: oYes     ý No

 

 

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**AVAXTECHNOLOGIES, INC.**

 

### **Table of Contents**

### ** **

| PART I - FINANCIAL INFORMATION |                                                                                                                                                                                                                | Page   |
|--------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                           |                                                                                                                                                                                                                |   |
| Item 1.                        | Financial Statements                                                                                                                                                                                                | 3      |
|                           | Consolidated BALANCE SHEETS — As of December 31, 2002 and  June 30, 2003 (Unaudited)                                                                                                                 | 3      |
|                           | Consolidated STATEMENTS OF OPERATIONS (Unaudited)  — For the Three and Six Months Ended June 30, 2002 and 2003; and for the  Period from January 12, 1990 (Incorporation) through June 30, 2003 | 4      |
|                           | Consolidated STATEMENTS OF CASH FLOWS (Unaudited)  — For the Six Months Ended June 30, 2002 and 2003 and for the Period  from January 12, 1990 (Incorporation) through June 30, 2003            | 5      |
|                           | Notes to Consolidated Financial Statements                                                                                                                                                                          | 7      |
|                           |                                                                                                                                                                                                                |   |
| Item 2.                        | Management’s Discussion and Analysis of Financial Condition  and Plan of Operations                                                                                                                            | 12     |
|                           |                                                                                                                                                                                                                |   |
| Item 3.                        | Controls and Procedures                                                                                                                                                                                             | 15     |
|                           |                                                                                                                                                                                                                |   |
| PART II - OTHER INFORMATION    |                                                                                                                                                                                                                | 16     |
|                           |                                                                                                                                                                                                                |   |
| Item 1.                        | Legal Proceedings                                                                                                                                                                                                   | 16     |
| Item 6.                        | Exhibits and Reports on Form 8-K                                                                                                                                                                                    | 16     |
|                           |                                                                                                                                                                                                                |   |
| Signatures                     |                                                                                                                                                                                                                | 17     |
|                                |                                                                                                                                                                                                                     |        |  |  |

 

2

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**PART I - FINANCIAL INFORMATION**

**Item 1. Financial Statements**

 

AVAX Technologies, Inc.

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

Consolidated Balance Sheets

 
|                                                                                                                                                                                                                                               |   | **December 31,  2002** |       | **June 30,  2003** |       |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|------------|-------------------------|------------|
|                                                                                                                                                                                                                                               |   |                        |       | **(Unaudited)**         | * *   |
| **Assets**                                                                                                                                                                                                                                         |   |                        |       |                    |       |
| Current assets:                                                                                                                                                                                                                                    |   |                        | ** ** |                    | ** ** |
| Cash and cash equivalents                                                                                                                                                                                                                          |   | $                           | 3,840,406  |                    | $          | 939,272 |   |
| Marketable securities                                                                                                                                                                                                                              |   | 347,452                     |       | 348,152                 |       |
| Accounts receivable                                                                                                                                                                                                                                |   | 243,451                     |       | 292,015                 |       |
| Inventory                                                                                                                                                                                                                                          |   | 53,329                      |       | 52,626                  |       |
| Prepaid expenses and other current assets                                                                                                                                                                                                          |   | 674,667                     |       | 511,688                 |       |
| Total current assets                                                                                                                                                                                                                               |   | 5,159,305                   |       | 2,143,753               |       |
| Property and equipment at cost                                                                                                                                                                                                                     |   | 3,323,231                   |       | 3,393,792               |       |
| Less accumulated depreciation                                                                                                                                                                                                                      |   | 1,614,400                   |       | 1,874,159               |       |
| Net property and equipment                                                                                                                                                                                                                         |   | 1,708,831                   |       | 1,519,633               |       |
| Research and development tax credit receivable                                                                                                                                                                                                     |   | 498,543                     |       | 315,427                 |       |
| Goodwill                                                                                                                                                                                                                                           |   | 188,387                     |       | 188,387                 |       |
| Total assets                                                                                                                                                                                                                                       |   | $                           | 7,555,066  |                    | $          | 4,167,200 |   |
|                                                                                                                                                                                                                                               |   |                        | ** ** |                    | ** ** |
| **Liabilities and  stockholders’ equity**                                                                                                                                                                                                     |   |                        | ** ** |                    | ** ** |
| Current liabilities:                                                                                                                                                                                                                               |   |                        | ** ** |                    | ** ** |
| Accounts payable and accrued liabilities                                                                                                                                                                                                           |   | $                           | 2,833,852  |                    | $          | 1,045,691 |   |
| Accrued compensation payable to former officers                                                                                                                                                                                                    |   | 538,299                     |       | —                  |       |
| Deferred revenue                                                                                                                                                                                                                                   |   | 63,966                      |       | —                  |       |
| Total current liabilities                                                                                                                                                                                                                          |   | 3,436,117                   |       | 1,045,691               |       |
| Long-term debt                                                                                                                                                                                                                                     |   | 247,752                     |       | 315,652                 |       |
| Commitments and contingencies                                                                                                                                                                                                                      |   |                        | ** ** |                    | ** ** |
| Stockholders’ equity:                                                                                                                                                                                                                         |   |                        | ** ** |                    | ** ** |
| Preferred stock, $.01 par value:                                                                                                                                                                                                                   |   |                        | ** ** |                    | ** ** |
| Authorized shares – 5,000,000, including  Series B – 300,000 shares and Series C – 120,000 shares                                                                                                                                   |   |                        | ** ** |                    | ** ** |
| Series B convertible preferred stock:                                                                                                                                                                                                              |   |                        |       |                    |       |
| Issued and outstanding shares – 0                                                                                                                                                                                                             |   | —                      |       | —                  |       |
| Series C convertible preferred stock:                                                                                                                                                                                                         |   |                        |       |                    |       |
| Issued and outstanding shares – 36,750 and  86,750 at June 30, 2003 and December 31, 2002, respectively  (liquidation preference – $3,675,000 and $8,675,000 at June 30, 2003 and  December 31, 2002, respectively.) |   | 867                         |       | 367                     |       |
| Common stock, $.004 par value:                                                                                                                                                                                                                     |   |                        |       |                    |       |
| Authorized shares – 50,000,000                                                                                                                                                                                                           |   |                        |       |                    |       |
| Issued and outstanding shares – 18,080,071  and 16,541,621 at June 30, 2003 and December 31, 2002,  respectively.                                                                                                                   |   | 66,167                      |       | 72,320                  |       |
| Additional paid-in capital                                                                                                                                                                                                                         |   | 65,446,587                  |       | 65,440,934              |       |
| Subscription receivable                                                                                                                                                                                                                            |   | (422                        | )          | (422                    | )          |
| Accumulated other comprehensive income                                                                                                                                                                                                             |   | 395,904                     |       | 407,585                 |       |
| Deficit accumulated during the development  stage                                                                                                                                                                                                  |   | (62,037,906                 | )          | (63,114,927             | )          |
| Total stockholders’ equity                                                                                                                                                                                                                    |   | 3,871,197                   |       | 2,805,857               |       |
| Total liabilities and stockholders’ equity                                                                                                                                                                                                    |   | $                           | 7,555,066  |                    | $          | 4,167,200 |   |

 

*Seeaccompanying notes.*

 

3

----

 

AVAX Technologies, Inc.

***(a development stagecompany)***

Consolidated Statementsof Operations

*(Unaudited)*

 
|                                                                |   |                                  |       |                                |   |                  |   |       |       | **Period  From  January 12, 1990   (Incorporation) ** |       |
|---------------------------------------------------------------------|--------|---------------------------------------|------------|-------------------------------------|--------|-----------------------|--------|------------|------------|-----------------------------------------------------------------|------------|
|                                                                |   | **Three  Months Ended June 30,** |       | **Six Months  Ended June 30,** |   | **to  June 30,** |   |
|                                                                |   | **2002**                              |       | **2003**                            |   | **2002**              |   | **2003**   |       | **2003**                                                        |       |
| Revenue:                                                            |   |                                  |       |                                |   |                  |   |       |       |                                                            |       |
| Gain from sale of the Product                                       |   | $                                     | —     |                                | $      | —                |   | $          | —     |                                                            | $          | — |   | $ | 1,951,000 |   |
| Product and contract service revenue                                |   | 230,825                               |       | 383,000                             |   | 296,158               |   | 611,615    |       | 2,036,172                                                       |       |
| Total revenue                                                       |   | 230,825                               |       | 383,000                             |   | 296,158               |   | 611,615    |       | 3,987,172                                                       |       |
|                                                                |   |                                  |       |                                |   |                  |   |       |       |                                                            |       |
| Costs and expenses:                                                 |   |                                  |       |                                |   |                  |   |       |       |                                                            |       |
| Manufacturing, research and development                             |   | 1,863,863                             |       | (108,639                            | )      | 3,563,939             |   | 677,916    |       | 38,789,202                                                      |       |
| Acquired in process research and  development                       |   | —                                |       | —                              |   | —                |   | —     |       | 4,420,824                                                       |       |
| Write down of acquired intellectual  property and other intangibles |   | —                                |       | —                              |   | —                |   | —     |       | 3,416,091                                                       |       |
| Amortization of acquired intangibles                                |   | 18,838                                |       | —                              |   | 37,677                |   | —     |       | 715,872                                                         |       |
| Selling, general and administrative                                 |   | 793,376                               |       | 471,951                             |   | 1,610,288             |   | 1,028,514  |       | 24,885,242                                                      |       |
| Total operating income (loss)                                       |   | (2,445,252                            | )          | 19,688                              |   | (4,915,746            | )      | (1,094,815 | )          | (68,240,059                                                     | )          |
| Other income (expense):                                             |   |                                  |       |                                |   |                  |   |       |       |                                                            |       |
| Interest income                                                     |   | 33,951                                |       | 7,781                               |   | 79,815                |   | 12,194     |       | 5,623,902                                                       |       |
| Interest expense                                                    |   | —                                |       | —                              |   | —                |   | —     |       | (646,293                                                        | )          |
| Other, net                                                          |   | —                                |       | —                              |   | —                |   | 5,600      |       | 151,368                                                         |       |
| Total other income                                                  |   | 33,951                                |       | 7,781                               |   | 79,815                |   | 17,794     |       | 5,128,977                                                       |       |
| Income (loss) from continuing operations                            |   | (2,411,301                            | )          | 27,469                              |   | (4,835,931            | )      | (1,077,021 | )          | (63,111,082                                                     | )          |
| Gain (loss) from discontinued operations                            |   | (203,082                              | )          | —                              |   | 722,693               |   | —     |       | (3,845                                                          | )          |
| Net loss                                                            |   | (2,614,383                            | )          | 27,469                              |   | (4,113,238            | )      | (1,077,021 | )          | (63,114,927                                                     | )          |
| Amount payable for liquidation preference                           |   | —                                |       | —                              |   | —                |   | —     |       | (1,870,033                                                      | )          |
| Net income (loss) attributable to common stockholders               |   | $                                     | (2,614,383 | )                                   | $      | 27,469                |   | $          | (4,113,238 | )                                                               | $          | (1,077,021 | ) | $ | (64,984,960 | ) |
| Net income (loss) per common share:                                 |   |                                  |       |                                |   |                  |   |       |       |                                                            |       |   |   |   | ** ** |
| Basic                                                               |   | $                                     | (.16       | )                                   | $      | .00                   |   | $          | (.25       | )                                                               | $          | (.06 |   |   |   |
| Fully diluted                                                       |   | $                                     | (.16       | )                                   | $      | .00                   |   | $          | (.25       | )                                                               | $          | (.06 | ) |   | ** ** |
| Weighted average number of common shares  outstanding:              |   |                                  |       |                                |   |                  |   |       |       |                                                            | ** ** |
| Basic                                                               |   | 16,541,621                            |       | 17,310,846                          |   | 16,541,621            |   | 16,926,234 |       |                                                            |       |
| Fully diluted                                                       |   | 16,541,621                            |       | 19,210,846                          |   | 16,541,621            |   | 16,926,234 | ** ** |                                                            | ** ** |

 

*See accompanyingnotes.*

 

4

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AVAX Technologies, Inc.

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

Consolidated Statements of Cash Flows

*(Unaudited)*

 
|                                                                                  |   |                                |       |                  |     | **Period  from   January 12, 1990  (Incorporation)** |     |
|---------------------------------------------------------------------------------------|--------|-------------------------------------|------------|-----------------------|----------|-----------------------------------------------------------|----------|
|                                                                                  |   | **Six Months  Ended June 30,** |       | **To  June 30,** |     |
|                                                                                  |   | **2002**                            |       | **2003**              |     | **2003**                                                  |     |
| **Operating activities**                                                              |   |                                | * *   |                  | * * |                                                      | * * |
| Net loss                                                                              |   | $                                   | (4,113,238 | )                     | $        | (1,077,021                                                | )        | $ | (63,114,927 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities:          |   |                                |       |                  |     |                                                      |     |
| Depreciation and amortization                                                         |   | 327,020                             |       | 259,759               |     | 3,628,585                                                 |     |
| Amortization of deferred gain on joint  venture                                       |   | —                              |       | —                |     | (1,805,800                                                | )        |
| Equity in net loss of joint venture                                                   |   | 14,778                              |       | —                |     | 1,703,763                                                 |     |
| Extraordinary gain related to negative  goodwill on consolidated subsidiary           |   | (186,295                            | )          | —                |     | (186,295                                                  | )        |
| Cumulative effect of change in accounting                                             |   | (902,900                            | )          | —                |     | (902,900                                                  | )        |
| Compensatory stock issue                                                              |   | —                              |       | —                |     | 25,000                                                    |     |
| Minority interest in net loss of consolidated subsidiary                              |   | (18,512                             | )          | —                |     | (40,971                                                   | )        |
| Acquired in-process research and development  charge                                  |   | —                              |       | —                |     | 4,420,824                                                 |     |
| Write down of acquired intellectual  property and other intangibles                   |   | —                              |       | —                |     | 3,416,091                                                 |     |
| Gain from sale of the Product                                                         |   | —                              |       | —                |     | (1,951,000                                                | )        |
| Gain on sale of intellectual property                                                 |   | —                              |       | —                |     | (787                                                      | )        |
| Accretion of interest on common stock  receivable                                     |   | —                              |       | —                |     | (449,000                                                  | )        |
| Accretion of interest on amount payable to  preferred stockholders and former officer |   | —                              |       | —                |     | 449,000                                                   |     |
| Loss (Gain) on sale or abandonment of  furniture and equipment                        |   | —                              |       | (5,600                | )        | 238,078                                                   |     |
| Issuance of common stock or warrants for  services                                    |   | —                              |       | —                |     | 423,289                                                   |     |
| Changes in operating assets and  liabilities:                                         |   |                                |       |                  |     |                                                      |     |
| Accounts receivable                                                                   |   | 1,792                               |       | (48,564               | )        | (163,650                                                  | )        |
| Inventory                                                                             |   | 4,204                               |       | 703                   |     | (3,462                                                    | )        |
| Prepaid expenses and other current assets                                             |   | (15,887                             | )          | 162,979               |     | (184,376                                                  | )        |
| Accounts payable and accrued liabilities                                              |   | (195,022                            | )          | (2,326,460            | )        | (159,320                                                  | )        |
| Deferred revenue                                                                      |   | (56,743                             | )          | (63,966               | )        | —                                                    |     |
| Research and development tax credit  receivable                                       |   | (38,102                             | )          | 183,116               |     | (58,891                                                   | )        |
| Amount payable to former officer                                                      |   | —                              |       | —                |     | 80,522                                                    |     |
| Net cash used in operating activities                                                 |   | (5,178,905                          | )          | (2,915,054            | )        | (54,769,433                                               | )        |
|                                                                                  |   |                                |       |                  |     |                                                      |     |
| **Investing activities**                                                              |   |                                |       |                  |     |                                                      |     |
| Purchase of marketable securities and  short-term investments                         |   | (347,346                            | )          | (348,152              | )        | (349,971,457                                              | )        |
| Proceeds from sale of marketable securities                                           |   | 344,470                             |       | 347,452               |     | 342,506,833                                               |     |
| Proceeds from sale of short-term  investments                                         |   | —                              |       | —                |     | 7,116,472                                                 |     |
| Purchases of furniture and equipment                                                  |   | (154,901                            | )          | (70,561               | )        | (3,115,727                                                | )        |
| Proceeds from sale of furniture and  equipment                                        |   | —                              |       | 5,600                 |     | 51,119                                                    |     |
| Organization costs incurred                                                           |   | —                              |       | —                |     | (622,755                                                  | )        |
| Cash acquired in acquisition of control of  joint venture                             |   | 991,634                             |       | —                |     | 991,634                                                   |     |
|                                                                                  |   |                                |       |                  |     | —                                                    |     |
| Net cash provided by (used in) investing  activities                                  |   | 833,857                             |       | (65,661               | )        | (3,043,881                                                | )        |
|                                                                                       |        |                                     |            |                       |          |                                                           |          |  |  |  |

 

5

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AVAX Technologies, Inc.

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

ConsolidatedStatements of Cash Flows (continued)

*(Unaudited)*

 
|                                                                                |   |                                |      |                  |     | **Period  from  January 12, 1990   (Incorporation) ** |     |
|-------------------------------------------------------------------------------------|--------|-------------------------------------|-----------|-----------------------|----------|-----------------------------------------------------------------|----------|
|                                                                                |   | **Six Months  Ended June 30,** |      | **to  June 30,** |     |
|                                                                                |   | **2002**                            |      | **2003**              |     | **2003**                                                        |     |
| **Financing activities**                                                            |   |                                | * *  |                  | * * |                                                            | * * |
| Proceeds from issuance of notes payable to  related party                           |   | $                                   | —    |                  | $        | —                                                          |     | $ | 957,557 |   |
| Principal payments on notes payable to  related party                               |   | —                              |      | —                |     | (802,000                                                        | )        |
| Proceeds from loans payable                                                         |   | —                              |      | —                |     | 1,389,000                                                       |     |
| Principal payments on loans payable                                                 |   | —                              |      | —                |     | (1,389,000                                                      | )        |
| Payments for fractional shares from reverse  splits and preferred stock conversions |   | —                              |      | —                |     | (76                                                             | )        |
| Financing costs incurred                                                            |   | —                              |      | —                |     | (90,000                                                         | )        |
| Payments received on subscription  receivable                                       |   | —                              |      | —                |     | 4,542                                                           |     |
| Shareholder capital contribution                                                    |   | —                              |      | —                |     | 93,637                                                          |     |
| Proceeds received from exercise of stock  warrants                                  |   | —                              |      | —                |     | 28,501                                                          |     |
| Changes to the consolidated accounting  treatment for joint venture                 |   | —                              |      | —                |     | (2,511,701                                                      | )        |
| Capital contribution through sale of  interest in consolidated subsidiaries         |   | —                              |      | —                |     | 2,624,000                                                       |     |
| Net proceeds received from issuance of  preferred and common stock                  |   | —                              |      | —                |     | 57,972,641                                                      |     |
| Net cash provided by financing activities                                           |   | —                              |      | —                |     | 58,276,101                                                      |     |
|                                                                                |   |                                |      |                  |     |                                                            |     |
| Effect of exchange rate changes on cash                                             |   | 253,203                             |      | 80,581                |     | 476,485                                                         |     |
|                                                                                |   |                                |      |                  |     |                                                            |     |
|                                                                                |   |                                |      |                  |     |                                                            |     |
| Net increase (decrease) in cash and cash  equivalents                               |   | (4,091,845                          | )         | (2,901,134            | )        | 939,272                                                         |     |
|                                                                                |   |                                |      |                  |     |                                                            |     |
| Cash and cash equivalents at beginning of  period                                   |   | 11,649,447                          |      | 3,840,406             |     | —                                                          |     |
|                                                                                |   |                                |      |                  |     |                                                            |     |
| Cash and cash equivalents at end of period                                          |   | $                                   | 7,557,602 |                  | $        | 939,272                                                         |     | $ | 939,272 |   |
|                                                                                |   |                                |      |                  |     |                                                            |     |
| **Supplemental disclosure of cash flow  information**                               |   |                                |      |                  |     |                                                            |     |
| Interest paid                                                                       |   | $                                   | —    |                  | $        | —                                                          |     | $ | 197,072 |   |

 

*See accompanyingnotes.*

 

6

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**AVAXTechnologies, Inc.**

***(a development stagecompany)***

Notes to ConsolidatedFinancial Statements *(Unaudited)*

For the Six Months endedJune 30, 2002 and 2003

 

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

# ** **

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

 

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

 

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

 

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

 

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

 

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

** **

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

 

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

 

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

 

7

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**Basis of Presentation**

** **

The financial information as of June 30, 2003 and for the six andthree month periods ended June 30, 2002 and 2003 contained herein isunaudited.  The Company believes thisinformation has been prepared in accordance with accounting principlesgenerally accepted in the United States for interim financial information andArticle 10 of Regulation S-X.  TheCompany also believes this information includes all adjustments (consistingonly of normal recurring adjustments) necessary to present fairly the financialposition, results of operations and cash flows for the periods then ended.  The results of operations for the three- andsix-month periods ended June 30, 2002 and 2003 are not necessarilyindicative of the results of operations that may be expected for the entireyear.

 

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

 

**Principles ofConsolidation**

 

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

 

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

 

**Revenue**

** **

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

 

**Comprehensive Income**

 

Comprehensive income (loss) is comprised of the Company’s net loss andchanges in the foreign currency translation adjustment.  Translation adjustments for the six andthree months ended June 30, 2003 were $11,681 and ($20,561), respectively,compared with $253,203 and $12,186 for the six months ended June 30, 2002,respectively.  As such, comprehensiveincome (loss) for the six and three month periods ended June 30, 2003 was($1,065,340) and $6,908, respectively, compared with ($3,860,035) and($2,602,197) for the six and three month periods ended June 30, 2002,respectively.

 

**Accrued Expenses**

 

During the three month period ended June 30, 2003 certainestimated accruals recorded  in priorperiods were decreased by $770,082 ($.05, $.04 per share for the six and threemonth periods on a fully diluted basis) as a result of the settlement oflitigation and other claims and lengthy periods of inactivity related to otherdisputed charges, for which accruals had been recorded.  The total impact of the adjustment to theseaccruals was a decrease in research and development expenses for the three andsix month period of $719,253 and a decrease in administrative expenses of$50,829 for the three and six month periods ending June 30, 2003.

 

**Preferred Stock Conversion**

 

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

 

8

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**2.             Joint Venture Agreement**

 

**InNovember 1999, the Company’s subsidiary AVAX Australia Holdings, PtyLimited entered into a joint venture agreement with AVT related tocommercialization and sale of the AC Vaccine Technology in Australia and NewZealand.  Pursuant to the joint ventureagreement, the Company created two operating companies, AVAX Australia PtyLimited and AVAX Australia Manufacturing Pty Limited, and AVT contributed $4million Australian Dollars giving them a 20% equity interest in the jointventure.**

** **

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

 

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

 

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

 

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

 

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

** **

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

** **

**OnDecember 13, 2002 a liquidator was appointed to oversee the dissolution ofthe Joint Venture Companies.  Thecombined assets of the Joint Venture Companies included in the June 30,2003 consolidated balance sheet consists of cash of $47,221 and recordedliabilities of $77,757.  Other long-termliabilities related to leasehold obligations were not recorded as the obligationswill not be required to be met pursuant to the liquidation proceedings.**

** **

**9**

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** **

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

** **
|                                                                                                                   |   | **Three Months Ended**June 30, 2002 |         | **Six Months Ended  June 30, 2002** |       |
|------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|--------------|------------------------------------------|------------|
|                                                                                                                   |   |                                     | ** **   |                                     | ** ** |
| **Total revenue**                                                                                                      |   | **$**                                    | **9,753**    | ** **                               | **$**      | **9,753** | ** ** |
| **Costs and expenses:**                                                                                                |   |                                     | ** **   |                                     | ** ** |
| **Manufacturing, research and  development**                                                                           |   | **120,091**                              | ** **   | **163,879**                              | ** ** |
| **Selling, general and  administrative**                                                                               |   | **93,254**                               | ** **   | **218,751**                              | ** ** |
| **Total operating loss**                                                                                               |   | **(203,592**                             | **)**        | **(372,877**                             | **)**      |
| **Other income (expense):**                                                                                            |   |                                     | ** **   |                                     | ** ** |
| **Interest income**                                                                                                    |   | **(10,179**                              | **)**        | **2,641**                                | ** ** |
| **Minority interest in net loss of  consolidated subsidiary**                                                          |   | **10,689**                               | ** **   | **18,512**                               | ** ** |
| **Equity in net loss of joint  venture**                                                                               |   | **—**                               | ** **   | **(14,778**                              | **)**      |
| **Other, net (loss on asset  disposal)**                                                                               |   | **—**                               | ** **   | **—**                               | ** ** |
| **Total other expense**                                                                                                |   | **510**                                  | ** **   | **6,375**                                | ** ** |
| **Loss from discontinued operations  before cumulative effect and extraordinary item**                                 |   | **(203,082**                             | **)**        | **(366,502**                             | **)**      |
| **Extraordinary gain related to negative goodwill**on consolidated  subsidiary                                         |   | **—**                               | ** **   | **186,295**                              | ** ** |
| **Cumulative effect of change in accounting for  deferred**credit related to equity method investment in joint venture |   | **—**                               | ** **   | **902,900**                              | ** ** |
| **Gain (Loss) from discontinued operations**                                                                           |   | **$**                                    | **(203,082** | **)**                                    | **$**      | **722,693** | ** ** |

 

### **3.             StockBased Compensation**

### ** **

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

 

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

 
|                                                       |   | **Three  Months Ended June 30,** |       | **Six Months  Ended June 30,** |   |
|------------------------------------------------------------|--------|---------------------------------------|------------|-------------------------------------|--------|
|                                                       |   | **2002**                              |       | **2003**                            |   | **2002** |   | **2003** |   |
|                                                       |   |                                  |       |                                |   |   |   |   |   |
| Net income (loss) as reported                              |   | $                                     | (2,614,383 | )                                   | $      | 27,469 |   | $ | (4,113,238 | ) | $ | (1,077,021 | ) |
| Stock based compensation expense as  reported              |   | —                                |       | —                              |   | — |   | — |   |
| Stock based compensation expenses under  fair value method |   | (292,904                              | )          | (212,073                            | )      | (585,808 | ) | (424,146 | ) |
| Pro forma net loss attributable to common  stockholders    |   | $                                     | (2,907,287 | )                                   | $      | (184,604 | ) | $ | (4,699,046 | ) | $ | (1,501,167 | ) |
|                                                       |   |                                  |       |                                |   |   |   |   |   |
| Pro forma net loss per share                               |   | $                                     | (0.17      | )                                   | $      | (0.01 | ) | $ | (0.28 | ) | $ | (0.09 | ) |

 

10

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**4.             LegalProceedings**

 

During June 2003 the Company came to an agreement with a vendorrelated to a dispute which was being litigated.  The Company had previously accrued and reported as expense in2001 an amount of approximately $684,312. This matter was resolved and the litigation dismissed with the paymentof $250,000.  This resulted in theCompany reversing the excess accrued expenses of approximately $434,312 in thecurrent period.

 

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

### ** **

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

 

The Company adopted Statement of Financial Accounting Standards (SFAS)No. 142, “Goodwill and Other Intangible Assets” on January 1, 2002.  This new accounting standard requires that goodwilland indefinite lived assets no longer be amortized but instead be tested atleast annually for impairment and expensed against earnings when the impliedfair value of a reporting unit, including goodwill, is less than its carryingamount.

 

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

 

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

 

**6.             Licenseand Research Agreements**

 

In June 2003 the Company received notification from RutgersUniversity that the Company was in default of its obligations under theexclusive license agreement.  Pursuantto the license agreement the Company has sixty days to cure anynon-compliance.  Failure to cure anydefaults would result in the termination of the Company’s exclusive licenseagreement.

 

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

 

11

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

 

**Cautionary Statement Regarding Forward-Looking Statements**

 

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

 

Forward-looking statements may be identified by words or phrases suchas “believe,” “expect,” “anticipate,” “should,” “planned,” “may,” “estimated”and “potential.”  The Private SecuritiesLitigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements.  In order to comply with the terms of thesafe harbor, and because forward-looking statements involve future risks anduncertainties, listed below are a variety of factors that could cause actualresults and experience to differ materially from the anticipated results orother expectations expressed in the Company’s forward-looking statements.  These factors might include:

 

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

 

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

 

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

 

•                  Uncertainty about whether theCompany’s AC Vaccine technology can be developed to produce safe, effective andcommercially viable products, and if so, whether the Company’s AC Vaccineproducts will be commercially accepted and profitable.

 

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

 

•                  The expenses, delays, uncertaintiesand complications typically encountered by development stage biopharmaceuticalbusinesses, many of which are beyond the Company’s control.

 

•                  The Company’s financial anddevelopment obligations and its responsibility to meet requisite researchfunding levels under its license and research agreements in order to protectAVAX’s rights to its products and technologies.

 

•                  Each of theother factors discussed in the Company’s Annual Report on Form 10-KSB underItem 1 – “Description of Business – Risk Factors.”

 

**Plan of Operation**

 

The Company is currently engaged in contractmanufacturing and the development and commercialization of biotechnology andpharmaceutical products and technologies. AVAX is seeking to expand its contract manufacturing in the UnitedStates and France for other companies engaged in pharmaceutical and gene therapyproduct development programs.  TheCompany has one current contract manufacturing engagement at its Lyon, Francefacility, which provides revenue to fund the costs of maintaining thatfacility.  It is anticipated that thiscontract is scheduled to end on August 31, 2003.  Additional contract manufacturing agreements in the United Statesand France would provide the Company with additional revenue to fund itsoperations and the costs of the facilities while the Company continues toexplore other options to finance its product and technology developmentprograms.  The Company believes that ithas developed significant expertise in producing certain pharmaceutical andgene therapy products for clinical and development purposes, and that thisexpertise can be marketed by the Company to other companies and researchinstitutions engaged in clinical trials and product development programs.  In addition, the Company has investedsignificant amounts to establish and maintain Good Manufacturing Practices atits manufacturing facilities in Philadelphia, Pennsylvania and Lyon,France.  The Company believes thatservices provided by these facilities can be valuable to other companies thatwish to avoid the significant cash outlays associated with buying or building theirown GMP facilities.

 

12

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The Company’s plan of operation is to obtain additional contractmanufacturing agreements that can generate sufficient revenue to allow theCompany to maintain these two facilities and to cover certain of its other operatingexpenses while the Company continues to explore financing and strategic optionsto develop the AC Vaccine technology and its other product candidates.  AVAX needs to raise more money immediatelyto continue research, product development and clinical development in 2003 andbeyond and to pursue the manufacture and marketing of any products that it maydevelop.  If it is unable to raiseadditional capital or to establish new contracts as a source of revenue, theCompany will likely cease operations.  AVAXhas not been able to raise any additional capital since March 2000.  Because the Company has not been able toraise additional funds, AVAX has ceased most of its product developmentprograms and has taken numerous other steps to reduce its cash expenditures.  Each of these steps, while conserving cash,has slowed or reduced the prospects of success in various product developmentefforts.

 

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

 

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

 

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

 

**Results of Operations**

 

Net loss for the period decreased 74% to $1,077,021 during the sixmonths ended June 30, 2003 from $4,113,238 for the same period in2002.  In addition to the restriction ofoperations and significant reductions in head count for the periods, thecurrent year results were positively affected by decreases in accrued expensesof approximately $770,000, $450,000 of which relates to the settlement of alawsuit during the period.

 

Revenues recognized in the three and six months ended June 30,2003 were $383,000 and $611,615, respectively, compared with $230,825 and$296,158 for the same periods in 2002. The increase in revenues was attributable to the Company’s Frenchoperations and was a function of securing a contract manufacturing agreementfor the Lyon facility in the second quarter of 2002.  The increase in revenues in 2003 was due to the expandedactivities under the contract realized in the second quarter of 2003.

 

13

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Manufacturing,research and development expenses decreased from $3,563,939 for the six monthsending June 30, 2002 to $677,916 for the same period in 2003.  During the second quarter of 2003 expenseswere decreased by approximately $720,000 as the result of reversal of accrualsrecorded in prior years as a result of the settlement of litigation and otherclaims and lengthy periods of inactivity related to other disputed charges, forwhich accruals had been recorded. Expenses for the periods are broken out by region as follows:

 
|          |   | **Six Months Ended June 30,** |      | **Three Months Ended June 30,** |   |
|---------------|--------|------------------------------------|-----------|--------------------------------------|--------|
|          |   | **2002**                           |      | **2003**                             |   | **2002** |   | **2003** |   |
| United States |   | $                                  | 2,916,072 |                                 | $      | 253,340 |   | $ | 1,574,372 |   | $ | (369,454 | ) |
| France        |   | 647,867                            |      | 424,576                              |   | 289,491 |   | 260,815 |   |
|          |   | $                                  | 3,563,939 |                                 | $      | 677,916 |   | $ | 1,863,863 |   | $ | (108,639 | ) |

 

In the United States, for the three and six monthperiods, cost decreases were also the result of the decision made in 2002 notto re-initiate the clinical trials because of the Company’s lack of financialresources to complete the trials.  Withthis decision, the Company reduced existing staff at the facility inPhiladelphia to the minimum level necessary to maintain the validations of thePhiladelphia facility previously completed. In addition, the Company closed its research operations in New York andcertain clinical and regulatory positions were not staffed in 2003.

 

In France, the cost decrease for the three and six month period relatesto the decisions made in 2002 to focus the development initiatives in Europe toexclude certain gene therapy products and the chondrocyte technology previouslybeing pursued by the Company.  Thisallowed for the reduction in research funding for staff and facilities andelimination of patent costs paid in the first quarter of the prior year.

 

Selling, general and administrative expenses decreased from $1,610,288for the six months ended June 30, 2002 to $1,028,514 for the same periodin 2003.  Expenses for the periods arebroken out by region as follows:

 
|          |   | **Six Months Ended June 30,** |      | **Three Months Ended June 30,** |   |
|---------------|--------|------------------------------------|-----------|--------------------------------------|--------|
|          |   | **2002**                           |      | **2003**                             |   | **2002** |   | **2003** |   |
| United States |   | $                                  | 1,246,642 |                                 | $      | 878,789 |   | $ | 618,164 |   | $ | 382,418 |   |
| France        |   | 363,646                            |      | 149,725                              |   | 175,212 |   | 89,533 |   |
|          |   | $                                  | 1,610,288 |                                 | $      | 1,028,514 |   | $ | 793,376 |   | $ | 471,951 |   |

 

In the United States, cost savings realized for the three and six monthperiods were based upon headcount reductions and restrictions of activities.

 

In France, selling, general and administrative expense decreased forthe three and six month periods as a result of reductions in staff and theclosing of the Company’s offices in Paris in 2002.

 

Results for the six months ended June 30, 2002 included a gainfrom discontinued operations of $722,693. This reflects the activities of the Company’s Australian joint ventureactivities.  Operating loss for theAustralian joint venture for the first six months of 2002 was $372,877.  This loss was offset by an extraordinarygain related to negative goodwill of the consolidated subsidiary of $186,295and a gain of $902,900 from the cumulative effect of a change in accounting forthe deferred credit related to the equity method investment in joint venture,both of which were realized in the first three months of 2002.

 

14

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**Liquidity and Capital Resources**

 

AVAX immediately needs (1) to raise capital, or (2) to enter intoadditional contract manufacturing relationships on terms that generate cashflow for the Company, or (3) enter into a strategic alliance relationship inthe third quarter of 2003 to continue to maintain each of its manufacturingfacilities and continue the operations of the Company.  If the Company is unable to raise capital,secure additional contract manufacturing relationships or enter into strategicalliances, the Company will likely cease operations in 2003.  The Company presently anticipates that itscurrent resources should be sufficient to fund operations into the thirdquarter of 2003 based upon the Company’s current operating plan.  That current operating plan includesanticipated expenses relating to (1) continuing patent costs associated witheach of the Company’s technologies, (2) continuing pre-clinical development ofthe topoisomerase compound, (3) continuing maintenance costs associated withthe Philadelphia facility for utilization in production or contractmanufacturing, and (4) costs associated with the production requirementspursuant to contract manufacturing agreements in Lyon, France.

 

Because the Company’s working capital requirementsdepend upon numerous factors, including, without limitation, progress of theCompany’s research and development programs, pre-clinical and clinical testing,timing and cost of obtaining regulatory approvals, changes in levels ofresources that the Company devotes to the development of manufacturing andmarketing capabilities, competitive and technological advances, status ofcompetitors, and the ability of the Company to establish collaborativearrangements with other organizations, there can be no assurance that thecurrent cash resources of the Company will be sufficient to fund its operationsthrough the third quarter of 2003. Because the Company has no committed external sources of capital, andexpects no significant product revenues for the foreseeable future, it willrequire additional financing to fund future operations or will need to enterinto contract manufacturing relationships on terms favorable to theCompany.  There can be no assurance,however, that the Company will be able to obtain the additional funds orattract contract manufacturing relationships that it will require on acceptableterms, if at all.  If adequate funds arenot available, the Company will likely cease operations in 2003.

 

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

 

Currently the Company’s common stock is listed andtraded on the Nasdaq SmallCap Market. As a requirement for continued listing on Nasdaq SmallCap Market theCompany is required to maintain certain continuing listing criteria, whichinclude a requirement that the minimum bid price for the Company’s common stocknot fall below $1.00 for 30 consecutive trading days.  The Company has been notified by Nasdaq thatit has failed to meet this requirement.

 

**EffectiveJuly 24, 2003 the Company’s common stock was still traded on the Nasdaqsmall cap market under an exception to the minimum bid price requirement.  The exception is set to expire as ofAugust 15, 2003 at which time the Company’s common stock is expected to bedelisted from the Nasdaq SmallCap Market unless then Company can meet certainrequirements.  The Company does notanticipate that it will be able to meet the specified requirements by theAugust 15, 2003 deadline.**

** **

**If thecommon stock is not listed on the Nasdaq SmallCap Market, the liquidity of theCompany’s common stock could be further materially impaired, not only in thenumber of shares that could be bought and sold at a given price, but alsothrough delays in the timing of transactions and reduction in media coverage ofthe Company.**

** **

**Item 3.    Controlsand Procedures**

 

The Company’s chief executive officer and chief financial officer,based on his evaluation within 90 days prior to the date of this report of theCompany’s disclosure controls and procedures, has concluded that the Company’sdisclosure controls and procedures are adequate and effective for purposes ofSEC Rule 13a-14(c) in timely alerting him to material information relating tothe Company required to be included in the Company’s filings with the SEC underthe Securities Exchange Act of 1934.

 

There were no significant changes in the Company’s internal controls orin other factors that could significantly affect internal controls subsequentto the date of their evaluation.

 

15

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**PART II - OTHER INFORMATION**

 

**Item1.    Legal Proceedings:**

 

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

 

**Item 6.    Exhibitsand Reports on Form 8-K.**

 

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

 

31.1                           Certifications of PrincipalExecutive Officer of the Company under Rule 13a-14(a), as adopted pursuant tosection 302 of the Sarbanes-Oxley Act of 2002.

 

31.2                           Certifications of PrincipalFinancial Officer of the Company under Rule 13a-14(a), as adopted pursuant toSection 302 of the Sarbanes-Oxley Act of 2002.

 

32.1                           Certifications of ChiefExecutive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section1350.

 

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

 

None

 

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Signatures

 

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

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

 

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