# **SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

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# **FORM 10-QSB**

 

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

** **

**For thequarterly period ended March 31, 2003**

 

**or**

 

**o****                                ****TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For thetransition period from               to               **

** **

**Commissionfile number****       0-29222**

** **

**AVAX TECHNOLOGIES, INC.**

(Exact name of smallbusiness issuer as specified 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 telephonenumber, including area code:  **(913) 693-8491**

 

Securities registeredunder Section 12(b) of the Exchange Act:  **None**

 

Securities registeredunder Section 12(g) of the Exchange Act:

 

### **Common Stock, parvalue $.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. ý Yes         o No

 

As of May 9, 2003, 16,541,621 shares of the Registrant’s common stock,par value $.004 per share, were outstanding.

 

Documents incorporated by reference: **None**.

 

Transitional Small Business Disclosure Format: o Yes       ý No

 

 

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**AVAX TECHNOLOGIES, INC.**

** **

### **Table of Contents**

 
|                            | **Page**                                                                                                                                                                                              |
|---------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| PART I - FINANCIAL  INFORMATION | 3                                                                                                                                                                                                     |
|                            |                                                                                                                                                                                                  |
| Item 1.                         | Financial  Statements                                                                                                                                                                                 | 3 |
|                            | Consolidated BALANCE SHEETS  — As of December 31,  2002 and March 31, 2003 (Unaudited)                                                                                                           | 3 |
|                            | Consolidated  STATEMENTS OF OPERATIONS  (Unaudited) — For the Three Months Ended March 31,  2002 and 2003; and for the Period from January 12, 1990  (Incorporation) through March 31, 2003 | 4 |
|                            | Consolidated  STATEMENTS OF CASH FLOWS  (Unaudited) — For the Three Months Ended March 31,  2002 and 2003 and for the Period from January 12, 1990  (Incorporation) through March 31, 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 6.                         | Exhibits and  Reports on Form 8-K                                                                                                                                                                     | 16 |
|                            |                                                                                                                                                                                                  |
| Signatures                      | 17                                                                                                                                                                                                    |
|                            |                                                                                                                                                                                                  |
| Certifications                  | 18                                                                                                                                                                                                    |

 

2

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**PARTI - FINANCIAL INFORMATION**

 

**Item 1.****                       FinancialStatements**

 

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

 
|                                                                                                                           |   | **December 31,  2002** |       | **March 31,  2003** |       |
|--------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|------------|---------------------|------------|
|                                                                                                                           |   |                   |       | **(Unaudited)**     |       |
| **Assets**                                                                                                                     |   |                   |       |                | * *   |
| Current assets:                                                                                                                |   |                   |       |                |       |
| Cash and cash  equivalents                                                                                                     |   | $                      | 3,840,406  |                | $          | 1,561,869 |   |
| Marketable  securities                                                                                                         |   | 347,452                |       | 348,152             |       |
| Accounts  receivable                                                                                                           |   | 243,451                |       | 178,435             |       |
| Inventory                                                                                                                      |   | 53,329                 |       | 59,026              |       |
| Prepaid expenses  and other current assets                                                                                     |   | 674,667                |       | 619,521             |       |
| Total current  assets                                                                                                          |   | 5,159,305              |       | 2,767,003           |       |
| Property and  equipment at cost                                                                                                |   | 3,323,231              |       | 3,351,696           |       |
| Less accumulated  depreciation                                                                                                 |   | 1,614,400              |       | 1,739,722           |       |
| Net property and  equipment                                                                                                    |   | 1,708,831              |       | 1,611,974           |       |
| Research and  development tax credit receivable                                                                                |   | 498,543                |       | 518,312             |       |
| Goodwill                                                                                                                       |   | 188,387                |       | 188,387             |       |
| Total assets                                                                                                                   |   | $                      | 7,555,066  |                | $          | 5,085,676 |   |
|                                                                                                                           |   |                   | ** ** |                | ** ** |
| **Liabilities and stockholders’  equity**                                                                                 |   |                   |       |                |       |
| Current  liabilities:                                                                                                          |   |                   |       |                |       |
| Accounts payable  and accrued liabilities                                                                                      |   | $                      | 2,833,852  |                | $          | 2,038,975 |   |
| Accrued  compensation payable to former officers                                                                               |   | 538,299                |       | —              |       |
| Deferred revenue                                                                                                               |   | 63,966                 |       | —              |       |
| Total current  liabilities                                                                                                     |   | 3,436,117              |       | 2,038,975           |       |
| Long-term debt                                                                                                                 |   | 247,752                |       | 247,752             |       |
| 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 – 86,750 (liquidation preference – $8,675,000) |   | 867                    |       | 867                 |       |
| Common stock,  $.004 par value:                                                                                                |   |                   |       |                |       |
| Authorized  shares – 50,000,000  Issued and outstanding shares – 16,541,621                                          |   | 66,167                 |       | 66,167              |       |
| Additional  paid-in capital                                                                                                    |   | 65,446,587             |       | 65,446,587          |       |
| Subscription  receivable                                                                                                       |   | (422                   | )          | (422                | )          |
| Accumulated  other comprehensive income                                                                                        |   | 395,904                |       | 428,146             |       |
| Deficit  accumulated during the development stage                                                                              |   | (62,037,906            | )          | (63,142,396         | )          |
| Total  stockholders’ equity                                                                                               |   | 3,871,197              |       | 2,798,949           |       |
| Total  liabilities and stockholders’ equity                                                                               |   | $                      | 7,555,066  |                | $          | 5,085,676 |   |

 

*Seeaccompanying notes.*

 

3

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AVAX Technologies, Inc.***(a development stagecompany)***ConsolidatedStatements of Operations*(Unaudited)*

 
|                                                                |   | **Three months ended  March 31,** |       | **Period  from  January 12, 1990  (Incorporation)  Through  March 31,  2003** |       |
|---------------------------------------------------------------------|--------|-----------------------------------|------------|-------------------------------------------------------------------------------|------------|
|                                                                |   | **2002**                          |       | **2003**                                                                      |       |   |
| Revenue:                                                            |   |                              |       |                                                                          |       |   |   |
| Gain from sale  of the Product                                      |   | $                                 | —     |                                                                          | $          | — |   | $ | 1,951,000 |   |
| Product and  contract service revenue                               |   | 65,333                            |       | 228,615                                                                       |       | 1,653,172 |   |
| Total revenue                                                       |   | 65,333                            |       | 228,615                                                                       |       | 3,604,172 |   |
|                                                                |   |                              |       |                                                                          |       |   |   |
| Costs and  expenses:                                                |   |                              |       |                                                                          |       |   |   |
| Manufacturing,  research and development                            |   | 1,700,076                         |       | 786,555                                                                       |       | 38,897,841 |   |
| Acquired in  process research and development                       |   | —                            |       | —                                                                        |       | 4,420,824 |   |
| Write down of  acquired intellectual property and other intangibles |   | —                            |       | —                                                                        |       | 3,416,091 |   |
| Amortization of  acquired intangibles                               |   | —                            |       | —                                                                        |       | 715,872 |   |
| Selling, general  and administrative                                |   | 816,912                           |       | 556,563                                                                       |       | 24,413,291 |   |
| Total operating  loss                                               |   | (2,470,494                        | )          | (1,114,503                                                                    | )          | (68,259,747 | ) |
| Other income  (expense):                                            |   |                              |       |                                                                          |       |   |   |
| Interest income                                                     |   | 45,864                            |       | 4,413                                                                         |       | 5,616,121 |   |
| Interest expense                                                    |   | —                            |       | —                                                                        |       | (646,293 | ) |
| Other, net                                                          |   | —                            |       | 5,600                                                                         |       | 151,368 |   |
| Total other  income                                                 |   | 45,864                            |       | 10,013                                                                        |       | 5,121,196 |   |
| Loss from  continuing operations                                    |   | (2,424,630                        | )          | (1,104,490                                                                    | )          | (63,138,551 | ) |
| Gain (loss) from  discontinued operations                           |   | 925,775                           |       | —                                                                        |       | (3,845 | ) |
| Net loss                                                            |   | (1,498,855                        | )          | (1,104,490                                                                    | )          | (63,142,396 | ) |
| Amount payable  for liquidation preference                          |   | —                            |       | —                                                                        |       | (1,870,033 | ) |
|                                                                |   |                              |       |                                                                          |       |   |   |
| Net loss  attributable to common stockholders                       |   | $                                 | (1,498,855 | )                                                                             | $          | (1,104,490 | ) | $ | (65,012,429 | ) |
| Loss per common  share – basic and diluted                     |   |                              | ** ** |                                                                          | ** ** |   | ** ** |
| Loss from  continuing operations                                    |   | $                                 | (0.15      | )                                                                             | $          | (0.07 | ) |   | ** ** |
| Income from  discontinued operations                                |   | 0.06                              |       | —                                                                        | ** ** |   | ** ** |
| Net loss                                                            |   | $                                 | (0.09      | )                                                                             | $          | (0.07 | ) |   | ** ** |
|                                                                |   |                              |       |                                                                          |       |   |   |
| Weighted average  number of common shares outstanding               |   | 16,541,621                        |       | 16,541,621                                                                    | ** ** |   | ** ** |

 

*See accompanying notes.*

 

4

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AVAX Technologies, Inc.***(a development stage company)***ConsolidatedStatements of Cash Flows*(Unaudited)*

 
|                                                                                  |   | **Three months ended March 31,** |       | **Period  from  January 12, 1990  (Incorporation)  To March 31,  2003** |     |
|---------------------------------------------------------------------------------------|--------|----------------------------------|------------|-------------------------------------------------------------------------|----------|
|                                                                                  |   | **2002**                         |       | **2003**                                                                |     |   |
| **Operating activities**                                                              |   |                             | * *   |                                                                    | * * |   | * * |
| Net loss                                                                              |   | $                                | (1,498,855 | )                                                                       | $        | (1,104,490 | ) | $ | (63,142,396 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities:          |   |                             |       |                                                                    |     |   |   |
| Depreciation and  amortization                                                        |   | 134,650                          |       | 125,322                                                                 |     | 3,494,148 |   |
| 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                             |   | (7,823                           | )          | —                                                                  |     | (80,427 | ) |
| Acquired  in-process research and development charge                                  |   | —                           |       | —                                                                  |     | 4,420,824 |   |
| Write down of  acquired intellectual property and other intangibles                   |   | —                           |       | —                                                                  |     | 3,416,091 |   |
| Gain from sale  of the Product                                                        |   | —                           |       | —                                                                  |     | (1,951,000 | ) |
| Gain on sale of  intellectual property                                                |   | —                           |       | —                                                                  |     | (787 | ) |
| Accretion of  interest on common stock receivable                                     |   | —                           |       | —                                                                  |     | (449,000 | ) |
| Accretion of  interest on amount payable to preferred stockholders and Former Officer |   | —                           |       | —                                                                  |     | 449,000 |   |
| Loss (gain) on  sale or abandonment of furniture and equipment                        |   | —                           |       | (5,600                                                                  | )        | 238,078 |   |
| Issuance of  common stock or warrants for services                                    |   | —                           |       | —                                                                  |     | 423,289 |   |
| Changes in  operating assets and liabilities:                                         |   |                             |       |                                                                    |     |   |   |
| Accounts  receivable                                                                  |   | 147,395                          |       | 65,016                                                                  |     | (50,070 | ) |
| Inventory                                                                             |   | 889                              |       | (5,697                                                                  | )        | (9,862 | ) |
| Research and  development tax credit receivable                                       |   | 7,843                            |       | (19,769                                                                 | )        | (261,776 | ) |
| Prepaid expenses  and other current assets                                            |   | (84,720                          | )          | 55,146                                                                  |     | (385,959 | ) |
| Accounts payable  and accrued liabilities                                             |   | (210,722                         | )          | (1,333,176                                                              | )        | 833,964 |   |
| Deferred revenue                                                                      |   | (56,743                          | )          | (63,966                                                                 | )        | — |   |
| Amount payable  to Former Officer                                                     |   | —                           |       | —                                                                  |     | 80,522 |   |
| Net cash used in  operating activities                                                |   | (2,642,503                       | )          | (2,287,214                                                              | )        | (54,141,593 | ) |
|                                                                                  |   |                             |       |                                                                    |     |   |   |
| **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                                                                 |     | 342,159,381 |   |
| Proceeds from  sale of short-term investments                                         |   | —                           |       | —                                                                  |     | 7,116,472 |   |
| Purchases of  furniture and equipment                                                 |   | (8,727                           | )          | (28,465                                                                 | )        | (3,073,631 | ) |
| 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                                  |   | 980,031                          |       | (23,565                                                                 | )        | (3,001,785 | ) |
|                                                                                       |        |                                  |            |                                                                         |          |  |  |  |  |  |

 

5

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AVAX Technologies, Inc.

***(a developmentstage company)***

ConsolidatedStatements of Cash Flows (continued)

*(Unaudited)*

 
|                                                                                |   | **Three  months ended March 31,** |      | **Period  from  January 12, 1990  (Incorporation)  to March 31,  2003** |     |
|-------------------------------------------------------------------------------------|--------|-----------------------------------|-----------|-------------------------------------------------------------------------|----------|
|                                                                                |   | **2002**                          |      | **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                                          |   | —                            |      | —                                                                  |     | 58,277,101 |   |
|                                                                                |   |                              |      |                                                                    |     |   |   |
| Effect of  exchange rate changes on cash                                            |   | 12,186                            |      | 32,242                                                                  |     | 428,146 |   |
|                                                                                |   |                              |      |                                                                    |     |   |   |
| Net increase  (decrease) in cash and cash equivalents                               |   | (1,650,286                        | )         | (2,278,537                                                              | )        | 1,561,869 |   |
|                                                                                |   |                              |      |                                                                    |     |   |   |
| Cash and cash  equivalents at beginning of period                                   |   | 11,649,447                        |      | 3,840,406                                                               |     | — |   |
|                                                                                |   |                              |      |                                                                    |     |   |   |
| Cash and cash  equivalents at end of period                                         |   | $                                 | 9,999,161 |                                                                    | $        | 1,561,869 |   | $ | 1,561,869 |   |
|                                                                                |   |                              |      |                                                                    |     |   |   |
| **Supplemental disclosure of cash  flow information**                               |   |                              |      |                                                                    |     |   |   |
| Interest paid                                                                       |   | $                                 | —    |                                                                    | $        | — |   | $ | 197,072 |   |

 

*Seeaccompanying notes.*

 

6

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**AVAXTechnologies, Inc.*(a development stage company)***Notesto Financial Statements *(Unaudited)***For the Three Months ended March 31, 2002 and 2003

 

# **1.**                                      Organization and Summary of Significant AccountingPolicies

 

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

 

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

 

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

 

In December 1996, the Company entered into a license agreement withRutgers 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 agreement withTexas A&M to develop, commercially manufacture and sell products embodyinga series of compounds for the treatment of cancer (the Texas A&MCompounds).

 

In November 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.  In January2002, the Joint Venture Companies repurchased 90% of AVT’s interest in the twojoint venture companies resulting in AVAX owning a 95% interest in the netequity of both joint venture companies. The Company was seeking but was unable to obtain a timely governmentalreimbursement for the costs of treatment with the AC Vaccine in Australia, anddetermined to discontinue operations in Australia in order to focus the cashresources of the Company on its U.S. and European operations.  In September 2002, the Company announcedthat it would be discontinuing its operations in Australia and in December 2002the Company completed the liquidation of its Australian subsidiary.

 

In August 2000, the Company completed itsacquisition of GPH, S.A. (“Holdings”) and Genopoietic S.A. (“Genopoietic”) eacha 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 expects that it will need toraise capital within the next 2-6 months to fund planned operations and productdevelopment.  However, there can be noassurance that the Company will be able to raise sufficient capital to fundthese activities.  The inability tosecure such funding could have a material adverse effect on the Company,including the possibility that the Company could have to curtail its operationssignificantly or cease operations 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 competent governmentalauthorities in the markets of interest, and competing with other biotechnologyand pharmaceutical companies.  However,there can be no assurance that it will successfully develop any product or, ifit does, that the product will generate any or sufficient revenues.

 

7

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**Basis of Presentation**

 

The financial informationas of March 31, 2003 and for the three-month period ended March 31, 2002 and2003 contained herein is unaudited.  TheCompany believes this information has been prepared in accordance withaccounting principles generally accepted in the United States for interimfinancial information and Article 10 of Regulation S-X.  The Company also believes this informationincludes all adjustments (consisting only of normal recurring adjustments)necessary to present fairly the financial position, results of operations andcash flows for the periods then ended. The results of operations for the three-month periods ended March 2002and 2003 are not necessarily indicative of the results of operations that maybe expected for the entire year.

 

The accompanyingfinancial statements and the related notes should be read in conjunction withthe Company’s audited financial statements for the years ended December 31, 2002and 2001 included in the Company’s annual report on Form 10-KSB.

 

**Principles of Consolidation**

 

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’s interest ineach company in exchange for cash consideration of approximately $1,860,000 AUD(approximately $970,000 US).  Thisresulted in AVAX Holdings owning a 95% interest in the Joint Venture Companiesas of the date of the transaction, giving AVAX Holdings control of the companiesand requires that the results of AVAX Holdings and its majority ownedsubsidiaries be consolidated into AVAX’s consolidated results.

 

**Revenue**

 

The Company’s revenuesare related to the provision of contract and other product services.  Contract service revenue is recognized ininstallments based upon the contractual agreement entered into withclients.  Product revenues representsfees received by the Company related to tumor cell banking and for sale of thevaccine through the Joint Venture Companies.

 

**ComprehensiveIncome**

 

Comprehensive income(loss) is comprised of the Company’s net loss and changes in the foreigncurrency translation adjustment. Translation adjustments for the three months ended March 31, 2003 was$32,242, compared with $12,186 for the three month period ended March 31,2002.  As such, comprehensive income(loss) for the three month period ended March 31, 2003 was ($1,072,248),compared with ($1,486,669) for the three month period ended March 31, 2002.

 

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

 

In November 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 Australia 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.

 

8

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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 Venture Companiesrepurchased 90% of AVT’s outstanding shares for cash consideration ofapproximately $1.8 million Australia 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 of December 31,2002, was recognized as a cumulative effect of change in accounting in thethree months ended March 31, 2002. The remaining difference of $186,295 was recognized as an extraordinarygain related to negative goodwill in the consolidated subsidiary.  As discussed further below, these amountsare both included in the loss from discontinued operations on the 2002consolidated statement of operations.

 

In September 2002 the Company made the decision to discontinue theoperations of the Joint Venture Companies. With the adoption of SFAS No. 144, the Australian operations arerequired to be accounted for and presented in the accompanying financialstatements as a discontinued operation.

 

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

 

On December 13, 2002 a liquidator was appointed to oversee the dissolutionof the joint venture companies.  Thecombined assets of the joint venture companies included in the March 31, 2003consolidated balance sheet consists of cash of $42,537 and recorded liabilitiesof $70,044.  Other long-term liabilitiesrelated to leasehold obligations were not recorded as the obligations will notbe required to be met pursuant to the liquidation proceedings.

 

The following is summarized financial information for the discontinuedAustralian operation for the three months ended March 31, 2002:

 
| Total revenue                                                                                                        |   | $        | —   |   |
|----------------------------------------------------------------------------------------------------------------------|--------|----------|----------|--------|
| Costs and  expenses:                                                                                                 |   |     |     |
| Manufacturing,  research and development                                                                             |   | 43,788   |     |
| Selling, general  and administrative                                                                                 |   | 125,497  |     |
| Total operating  loss                                                                                                |   | (169,285 | )        |
| Other income  (expense):                                                                                             |   |     |     |
| Interest income                                                                                                      |   | 12,820   |     |
| Minority interest  in net loss of consolidated subsidiary                                                            |   | 7,823    |     |
| Equity in net  loss of joint venture                                                                                 |   | (14,778  | )        |
| Other, net (loss  on asset disposal)                                                                                 |   | —   |     |
| Total other  expense                                                                                                 |   | 5,865    |     |
| Loss from  discontinued operations before cumulative effect and extraordinary item                                   |   | (163,420 | )        |
| 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  |     |
| Loss from  discontinued operations                                                                                   |   | $        | (925,775 | )      |

 

9

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### **3.**                                      Stock BasedCompensation

 

SFAS No. 123, “Accounting for Stock-Based Compensation,” prescribesaccounting and reporting standards for all stock-based compensation plans,including employee stock options, restricted stock, employee stock purchaseplans and stock appreciation rights. SFAS No. 123 requires compensation expense to be recorded (i) using thenew fair value method or (ii) using existing accounting rules prescribedby Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued toEmployees,” (APB 25) and related interpretations, with pro forma disclosure ofwhat net income and earnings per share would have been had the Company adoptedthe 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 March 31,** |       |
|------------------------------------------------------------|--------|-----------------------------------|------------|
|                                                       |   | **2002**                          |       | **2003** |   |
|                                                       |   |                              |       |   |   |
| Net loss as  reported                                      |   | $                                 | (1,498,855 | ) | $ | (1,104,490 | ) |
| Stock based  compensation expense as reported              |   | —                            |       | — |   |
| Stock based  compensation expenses under fair value method |   | (292,904                          | )          | (212,073 | ) |
| Pro forma net  loss attributable to common stockholders    |   | $                                 | (1,791,759 | ) | $ | (1,316,563 | ) |
|                                                       |   |                              |       |   |   |
| Pro forma net  loss per share                              |   | $                                 | (0.11      | ) | $ | (0.08 | ) |

 

### **4.**                                      Recently IssuedAccounting Pronouncements

 

In July 2001, the FASB issued SFAS No. 141, Business Combinations, andSFAS No. 142, Goodwill and Other Intangible Assets.  SFAS No. 141 requires that the purchase method of accounting beused for all business combinations initiated after June 30, 2001 as well as allpurchase method business combinations completed after June 30, 2001.  SFAS No. 141 also specifies the criteriaintangible assets acquired in a purchase method business combination must meetto be recognized and reported apart from goodwill, noting that any purchaseprice allocable to an assembled workforce may not be accounted forseparately.  SFAS No. 142 provides thatgoodwill and intangible assets with indefinite useful lives no longer beamortized, but instead that they be tested for impairment at least annually inaccordance with the provisions of SFAS No. 142.  SFAS No. 142 will also require that intangible assets withdefinite useful lives be amortized over their respective estimated useful livesto their estimated residual values, and reviewed for impairment in accordancewith SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and forLong-Lived Assets to Be Disposed Of.

 

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

 

Statement 141 requiresthat the Company evaluate its existing intangible assets and goodwill that wereacquired in a prior purchase business combination, and to make any necessaryreclassifications in order to conform with the new criteria in

 

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Statement 141 forrecognition apart from goodwill.  TheCompany is required to reassess the useful lives and residual values of allintangible assets acquired in purchase business combinations, and make anynecessary amortization period adjustments. In addition, to the extent an intangible asset is identified as having anindefinite useful life, the Company is required to test the intangible assetfor impairment in accordance with the provisions of Statement 142.

 

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

 

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**Item 2.****           Management’s Discussion and Analysisof 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-lookingstatements.  In order to comply with theterms of the safe harbor, and because forward-looking statements involve futurerisks and uncertainties, listed below are a variety of factors that could causeactual results and experience to differ materially from the anticipated resultsor other expectations expressed in the Company’s forward-lookingstatements.  These factors mightinclude:

 

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

 

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

 

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

 

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

 

•                  TheCompany’s difficulty or inability to compete with other clinical trials andtreatment regimens for patients and clinical sites for the Company’s plannedclinical trials.

 

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

 

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

 

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

 

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**PLAN OFOPERATION**

 

The Company is currently engaged in contract manufacturing and thedevelopment and commercialization of biotechnology and pharmaceutical productsand technologies.  AVAX is seeking toexpand its contract manufacturing in the United States and France for othercompanies engaged in pharmaceutical and gene therapy product developmentprograms.  The Company has one currentcontract manufacturing engagement at its Lyon, France facility, which providesrevenue to fund the costs of maintaining that facility.  Additional contract manufacturing agreementsin the United States and France would provide the Company with additionalrevenue to fund its operations and the costs of the facilities while theCompany continues to explore other options to finance its product andtechnology development programs.  TheCompany believes that it has developed significant expertise in producingcertain pharmaceutical and gene therapy products for clinical and developmentpurposes, and that this expertise can be marketed by the Company to othercompanies and research institutions engaged in clinical trials and productdevelopment programs.  In addition, theCompany has invested significant amounts to establish and maintain GoodManufacturing Practices at its manufacturing facilities in Philadelphia,Pennsylvania and Lyon, France.  TheCompany believes that services provided by these facilities can be valuable toother companies that wish to avoid the significant cash outlays associated withbuying or building their own GMP facilities.

 

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

 

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

 

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

 

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

 

**Results of Operations**

 

Revenues recognized in the first quarter of 2003 were $228,615 versusrevenues of $65,333 for the same quarter in 2002.  The increase in revenues was attributable to the Company’s Frenchoperations and was a function of securing a long-term contract manufacturingagreement for the Lyon facility in the second quarter of 2002.

 

13

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For the first quarter of 2003, the Company’s manufacturing, researchand development expenses decreased 54% to $786,555 from $1,700,076 for the samequarter in 2002.  Expenses for theperiods are broken out by region as follows:

 

|          |   | **Three months ended March 31,** |      |
|---------------|--------|----------------------------------|-----------|
|          |   | **2002**                         |      | **2003** |   |
| United States |   | $                                | 1,341,700 |   | $ | 622,794 |   |
| France        |   | 358,376                          |      | 163,761 |   |
|          |   | $                                | 1,700,076 |   | $ | 786,555 |   |

 

In the United States the cost decrease was the result of the decisionmade in 2002 not to re-initiate the clinical trials because of the Company’slack of financial resources to complete the trials.  With this decision, the Company reduced existing staff at thefacility in Philadelphia to the minimum level necessary to maintain thevalidations of the Philadelphia facility previously completed.  In addition, the Company closed its researchoperations in New York and certain clinical and regulatory positions thatexisted were not staffed in 2003.

 

In France, the cost decrease relates to the decisions made in 2002 tofocus the development initiatives in Europe to exclude certain gene therapyproducts and the chondrocyte technology previously being pursued by theCompany.  This allowed for the reductionin research funding for staff and facilities and elimination of patent costspaid in the prior year.

 

For the first quarter of 2003, the Company’sselling, general and administrative expenses decreased approximately32%, to $556,563 from $816,912 for the same quarter in 2002.  Expenses for the periods are broken out byregion as follows:

 

|          |   | **Three months ended March 31,** |    |
|---------------|--------|----------------------------------|---------|
|          |   | **2002**                         |    | **2003** |   |
| United States |   | $                                | 628,478 |   | $ | 496,371 |   |
| France        |   | 188,434                          |    | 60,192 |   |
|          |   | $                                | 816,912 |   | $ | 556,563 |   |

 

In the United States, cost savings realized were based upon headcountreductions and restriction of activities.

 

In France, selling, general and administrative expense decreased as aresult of reductions in staff and the closing of the Company’s offices in Parisin 2002.

 

Interest income decreasedto $4,413 for the first quarter 2003 from $45,864 for the same quarter in2002.  The decline is a function of thedecrease in the average invested asset base.

 

Results for the quarterended March 31, 2002 included a gain from discontinued operations of$925,775.  This reflects the activitiesof the Company’s Australian joint venture activities.  Operating loss for the Australian joint venture for the firstthree months of 2002 was $163,420.  Thisloss was offset by an extraordinary gain related to negative goodwill of theconsolidated subsidiary of $186,295 and a gain of $902,900 from the cumulativeeffect of a change in accounting for the deferred credit related to the equitymethod investment in joint venture, both of which were realized in the firstthree months of 2002.

 

The Company anticipates that, over the next 12 months, manufacturing,research and development expenses will decrease as compared with 2002 due tosizeable reductions in spending in the United States based upon the Company’sdecision to not implement the U.S. trials for the AC Vaccine technology withoutfirst obtaining additional funding or a strategic alliance relationship.  In addition, the Company anticipates thatselling, general and administration expenses will decrease due to additionalcost minimization strategies implemented during 2002.  If the Company is able to secure funding, a strategic alliancerelationship or revenue from additional contract manufacturing relationshipsthe Company would anticipate an increase in manufacturing, research anddevelopment expenses.

 

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**LIQUIDITY AND CAPITAL RESOURCES**

 

The Company presently anticipates that its current resources should besufficient to fund operations through the second or third quarter of 2003 basedupon the Company’s current operating plan. That current operating plan includes anticipated expenses relating to(1) continuing patent costs associated with each of the Company’s technologies,(2) continuing pre-clinical development of the topoisomerase compound, (3)continuing maintenance costs associated with the Philadelphia facility forutilization in production or contract manufacturing, and (4) costs associatedwith the production requirements pursuant to contract manufacturing agreementsin Lyon, France.  To the extent theCompany does not achieve one or more of its operating plan objectives in 2003,the anticipated cash needs of the Company are expected to decline.  AVAX needs to raise more money immediatelyor to initiate additional contract manufacturing relationships on termsfavorable to the Company or enter into a strategic alliance relationship in thesecond 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 money,secure additional contract manufacturing relationships or enter into strategicalliances, the Company will likely cease operations in 2003. 

 

Because the Company’s working capital requirements depend upon numerousfactors, including, without limitation, progress of the Company’s research anddevelopment programs, pre-clinical and clinical testing, timing and cost ofobtaining regulatory approvals, changes in levels of resources that the Companydevotes to the development of manufacturing and marketing capabilities,competitive and technological advances, status of competitors, and the abilityof the Company to establish collaborative arrangements with otherorganizations, there can be no assurance that the current cash resources of theCompany will be sufficient to fund its operations through the second or thirdquarter of 2003.  Because the Companyhas no committed external sources of capital, and expects no significantproduct revenues for the foreseeable future, it will require additionalfinancing to fund future operations or will need to enter into contractmanufacturing relationships on terms favorable to the Company.  There can be no assurance, however, that theCompany will be able to obtain the additional funds or attract contractmanufacturing relationships that it will require on acceptable terms, if at all.  If adequate funds are not available theCompany will likely cease operations in 2003.

 

**Tradingin 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 that it has failed tomeet this requirement.

 

On May 14, 2003, Nasdaq formally notified theCompany that Nasdaq was initiating the steps to delist the common stock fromthe Nasdaq SmallCap Market effective May 23, 2003.  The Company may appeal this determination, and a hearing requestwill stay the delisting until the appeal is heard.  The Company intends to appeal this staff determination.  Nasdaq and the SEC are considering proposalsto extend the period of time that Nasdaq-listed companies, including AVAX, canmaintain their listings even if the $1.00 minimum per share price is notsatisfied, but there can be no assurance that those proposals will be adoptedor that they will be adopted retroactive to the May 14, 2003 notice given theCompany.

 

If the common stock were not listed on theNasdaq SmallCap Market, the liquidity of the Company’s common stock could befurther materially impaired, not only in the number of shares that could bebought and sold at a given price, but also through delays in the timing oftransactions and reduction in media coverage of the Company.

 

**Item 3.****                       Controls and Procedures**

 

The Company’schief executive officer and chief financial officer, based on his evaluationwithin 90 days prior to the date of this report of the Company’s disclosure controlsand procedures, has concluded that the Company’s disclosure controls andprocedures are adequate and effective for purposes of SEC Rule 13a–14(c) intimely alerting him to material information relating to the Company required tobe included in the Company’s filings with the SEC under the Securities ExchangeAct of 1934.

 

There were nosignificant changes in the Company’s internal controls or in other factors thatcould significantly affect internal controls subsequent to the date of theirevaluation.

 

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**PART II - OTHER INFORMATION**

 

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

 

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

 

99.1*                          *Certificationof Chief Executive Officer and Chief Financial Officer Pursuant toSection 1350 of Chapter 63 of Title 18 of the United States Code

 

**(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. |
|--------------------------|-------------------------|
|                     |                    |
| Date:  May 14, 2003 |                    |
|                     | /s/ Richard P. Rainey   |   |
|                     | Richard P. Rainey       |
|                     | President               |

 

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**CERTIFICATIONS**

 

I, Richard P.Rainey, certify that:

 

1.                                       Ihave reviewed this quarterly report on Form 10-QSB of AVAX Technologies, Inc.;

 

2.                                       Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this quarterly report;

 

3.                                       Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

 

4.                                       Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

(a)                                  designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

 

(b)                                 evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

(c)                                  presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

 

5.                                       Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

 

(a)                                  allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

(b)                                 anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

 

6.                                       Theregistrant’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 
| Date:  May  14, 2003                                                |   |
|--------------------------------------------------------------------------|--------|
|                                                                     |   |
|                                                                     |   |
| /s/  Richard P. Rainey                                              |   |   |
| Richard P. Rainey                                                        |   |
| President (Principal Executive Officer  and Principal Financial Officer) |   |
|                                                                          |        |  |

 

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