Cautionary Statement Regarding Forward-Looking Statements

In this report, in other filings with the Securities and Exchange Commission ("SEC") and in press releases and other public communications throughout the year, AVAX Technologies, Inc. ("AVAX," the "Company," "we" or "us") makes, or will make statements that plan for or anticipate the future. These forward-looking statements involve risks and uncertainties, including, among other things: statements about the future of biotechnology products and the biopharmaceutical industry, statements about our future business plans and strategies, and other statements that are not historical in nature. These forward-looking statements are based on our current expectations. Many of these statements are found in this "Management's Discussion and Analysis of Financial Condition and Results of Operations."

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

· Our history of operating losses, our continuing cash requirements, our immediate need to raise substantial capital, and the uncertainty of our prospects of raising such capital or reaching a meaningful level of revenues.

· Uncertainty of attracting and retaining highly skilled personnel to fulfill important roles in the Company, including a new Chief Medical Officer in the United States.

· The business uncertainties arising from our decision to conduct all AC Vaccine manufacturing activities at our Lyon, France facility and the logistical issues and risks relating to shipping biologics from the U.S. and other countries to France and the vaccine from France to patients in the U.S. and other countries.

· Uncertainty about whether our products will successfully complete the long, complex and expensive clinical trial and regulatory approval process for approval of new drugs in the U.S. and certain European countries.

· Uncertainty about whether our AC Vaccine technology can be developed to produce safe and effective products and, if so, whether our AC Vaccine products will be commercially accepted and profitable.

· Difficulties arising from our competition with other companies conducting clinical trials and treatment regimens for patients and clinical sites for our clinical trials.

· The expenses, delays, uncertainties and complications typically encountered by development stage biopharmaceutical businesses, many of which are beyond our control.

· Our financial and development obligations and our responsibility to meet requisite research funding levels under our license agreements in order to protect our rights to our products and technologies.

· Our financial obligations under our existing contracts and arrangements and our ability to meet such commitments.

· Each of the other factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2007, under Item 1A - "Risk Factors."

GENERAL

Since our inception, we have primarily concentrated our efforts and resources on the development and commercialization of individualized vaccine therapies and other technologies for the treatment of cancer. These efforts require that we expend money in the development and clinical testing of our products.

We have been unprofitable since our founding and we fund our losses primarily through equity offerings of equity and debt. We incurred net losses of $6,413,648 and $5,355,500 for the 12 months ended December 31, 2007 and 2006, respectively, and $5,678,012 for the nine months ended September 30, 2008. We have a cumulative net loss of $89,932,842 as of September 30, 2008. We expect to continue to incur operating losses, primarily due to the expenses associated with our product development efforts and the cost of maintaining our manufacturing facilities in Europe and the U.S.

Our ability to continue as an operating company depends upon our immediate need to raise capital. Currently, our liabilities on our balance sheet exceed our assets. We closed a bridge financing of $1,291,000 of convertible promissory notes and warrants to purchase an aggregate of 12,910,000 shares of the Company's common stock (the "Bridge Financing") with certain insiders and accredited investors for the purpose of providing working capital for the next few months. The notes that the Company sold are due on December 31, 2008. Even with closing the Bridge Financing, we will need to raise additional funds immediately if we are to continue as a going concern. If we are successful in raising sufficient substantial additional capital, it should allow us to develop products, seek to obtain regulatory approval for our proposed products, and enter into agreements for product development, manufacturing and commercialization. There is no assurance that additional capital can be raised in an amount which is sufficient for all such purposes, or on terms favorable to us or to our stockholders.

In the event that we do not able to raise substantial additional financing, it will be difficult for the Company to continue operations as they exist. We will be forced to sell all or a portion of our assets, cease operations or seek bankruptcy relief. If we discontinue our operations, we will not have sufficient funds to pay any amounts to our stockholders.

Our M-Vax product does not currently generate any material revenue, and we may never achieve significant revenues or profitable operations from the sale of M-Vax or any other products that we may develop.

The major challenges for others and us in the biopharmaceutical industry are lack of finances, difficulty of obtaining financing on favorable terms or at all, the significant costs, time and uncertainties related to efforts to obtain regulatory approval to market drug products in the U.S. and foreign countries. We have encountered a number of these challenges in our efforts to develop the AC Vaccine into marketable products including the following:

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

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

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

· our past inability to agree with the FDA on an acceptable potency assay (which is a biological measure of the drug's active ingredients) of our product prior to administration of the vaccine, which was required before we could commence our Phase III registration trial for M-Vax;

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

· the periodic cutbacks in our development plans and programs due to the limited cash resources from time to time in recent years and in particular, currently.

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

Results of Operations for the Three and Nine Months Ended September 30, 2008 compared with the comparable periods ended September 30, 2007

Revenue

Revenue recognized for the three and nine months ended September 30, 2008 were $199,805 and $416,353, respectively, compared with revenue of $95,877 and $299,193, respectively, for the same periods in 2007. The increase in revenues for the three and nine months ended September 30, 2008 was due to higher manufacturing reimbursements related to compassionate use treatments and higher revenues realized from contract manufacturing.

Research and Development Expenses

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

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

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

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

Research and development costs incurred through September 30, 2008 were $55,642,184. The majority of these costs relate to clinical research and development of our AC Vaccine technology. Our management estimates that greater than 90% of the periodic and cumulative research and development expenses incurred relate to our one major program, the AC Vaccine. At this time, due to the risks inherent in the clinical trial process, risks associated with the product and product characterization, risks associated with regulatory review and approval of clinical product candidates and the limited funds available, we are unable to estimate with any certainty the costs we will incur in the continued development of our product candidates for commercialization.

During the three months ended September 30, 2008, research and development expenses decreased 23.4% from $1,350,907 as of September 30, 2007 to $1,034,206 as of September 30, 2008. For the nine-month period ended September 30, 2008, expenses decreased 0.2% from $3,402,404 as of September 30, 2007 to $3,394,444 as of September 30, 2008. Expenses for the periods are broken out by region as follows:

                              Three Months Ended           Nine Months Ended
                                 September 30,               September 30,
                              2008          2007          2008          2007
           United States   $   520,778   $   902,386   $ 1,592,336   $ 1,954,577
           France              513,428       448,521     1,802,108     1,447,827
                           $ 1,034,206   $ 1,350,907   $ 3,394,444   $ 3,402,404

In the U.S., the expense decrease in 2008 is the result of the decline in expenses for the Phase I/II study in M-Vax, which was completed in 2007 and less contract research organization costs because of the delayed launch of the Phase III registration study, MAVALDI, for M-Vax in the U.S., Europe and Israel. The decreased research costs were partially offset by higher legal fees, annual salaries and taxes for existing staff and hiring an additional staff in anticipation of the launch of Phase III. The increase in costs in France was due to higher salaries and taxes for new employees, allocation of general manager costs plus higher facility costs related to an increase in the amount of space.

Selling, General and Administrative Expenses

During the three months ended September 30, 2008, selling, general and
administrative expenses increased approximately 31.0%, from $719,286 as of
September 30, 2007 to $942,416, and for the nine month period ended September
30, 2008, expenses increased approximately 46.7% from $1,813,479 as of September
30, 2007 to $2,660,489. Expenses for the periods are broken out by region as
follows:

                              Three Months Ended          Nine Months Ended
                                 September 30,              September 30,
                               2008         2007         2008          2007
            United States   $ 1,020,031   $ 587,116   $ 2,636,158   $ 1,451,891
            France               23,635     132,170       125,581       361,588
                            $ 1,043,666   $ 719,286   $ 2,761,739   $ 1,813,479

In the U.S., the expense increase in 2008 is the result of higher salary costs and related expense for the Company's new executive officer, salary increases for existing administrative staff and higher consulting costs to improving existing accounting and financial processes. In addition, there were increased legal costs for securities, employment and financing matters and for patent counsel in connection with the filing and execution of ongoing patent expenses. Also, there were increased costs for investor relations and public relations activities related to on-going financing activities. The decrease in administrative costs in France is due to one less administrative person in 2008, allocation of general manager costs to research and development expenses and less spending on marketing and logistics activities for Phase III Mvax clinical trials.

Other income, net decreased from $108,085 and $202,963 earned in the three and nine months ended September 30, 2007, to $6,690 and $61,818 for the comparable periods in 2008. The decrease is the function of lower interest rates with a lower average invested balance of cash.

Assuming we are successful in raising substantial additional capital, we anticipate our spending over the next 12 months for research and development and selling, general and administrative expenses will increase as compared with 2008, as we continue to implement and accelerate the plan of operation described above.

Liquidity and Capital Resources

Currently, our liabilities on our balance sheet exceed our assets. Our ability to continue as an operating company depends upon our need to raise substantial additional capital immediately. We recently completed a Bridge Financing for the purpose of providing working capital. Even with closing the Bridge Financing, we will need to raise substantial additional funds immediately if we are to continue as a going concern. If we are successful in raising substantial additional capital, it should allow us to develop products, seek to obtain regulatory approval for our proposed products, and enter into agreements for product development, manufacturing and commercialization. There is no assurance that additional capital can be raised in an amount which is sufficient for all such purposes, or on terms favorable to us or to our stockholders.

Our current extremely limited cash resources require that we significantly curtail our efforts to enlist new clinical sites for the Phase III registration trial for M-Vax and to significantly slow the patient enrollment in that trial until we are successful in raising additional capital. We will use the proceeds of any offering primarily to fund the additional costs associated with enlisting clinical sites for and patient enrollment in the Phase III trial for M-Vax and to initiate the Phase II clinical trial for O-Vax ("O-Vax"), the Company's AC Vaccine for ovarian cancer, in the United States and for working capital and repayment of contractual obligations. To implement the current plan of operation described above for the balance of 2008 and into the first quarter of 2009, we need to raise substantial additional capital. If we are able to raise this additional capital, the key components of our plan of operation for the balance of 2008 and the first quarter of 2009 will include:

· Enrolling patients in our Phase III registration trial U.S. for M-Vax for the treatment of Stage 3 and 4 melanoma patients, which trial will proceed under the Special Protocol Assessment that we received from the U.S. FDA in October 2006.

· Continuing the treatment of melanoma patients outside the U.S. on a compassionate use basis with M-Vax.

· Initiating the launch of the O-Vax study with Cancer Treatment Centers of America.

· Continuing our discussions with the European Medical Evaluations Agency and AFSSAPs, the FDA equivalent regulatory bodies for the European Union and France, respectively, regarding the regulatory requirements for the AC Vaccine and its continued development in Europe and France.

· Initiating discussion with Japanese regulatory authorities regarding the regulatory approval process for autologous products like our AC Vaccines and the requirements for making M-Vax available for compassionate use in Japan.

We continually evaluate our plan of operation discussed above to determine the manner in which we can most effectively utilize our limited cash resources. The timing of completion of any aspect of our plan of operations is highly dependent upon the availability of cash to implement that aspect of the plan and other factors beyond our control.

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

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

Because our working capital requirements depend upon numerous factors, including progress of our research and development programs, pre-clinical and clinical testing, timing and cost of obtaining regulatory approvals, changes in levels of resources that we devote to the development of manufacturing and marketing capabilities, competitive and technological advances, status of competitors, and our ability to establish collaborative arrangements with other organizations, there can be no assurance that our current cash resources will be sufficient to fund our operations beyond December 31, 2008. Because we have no committed external sources of capital, and expect no significant product revenues for the foreseeable future, we will require substantial additional financing to fund future operations or will need to enter into contract manufacturing relationships on terms favorable to us. There can be no assurance, however, that we will be able to obtain the additional funds sought or attract contract-manufacturing relationships on acceptable terms, if at all and we may have to cease operations. We have begun to curtail certain initiatives and projects, including the deferral of senior management salaries, due to the fact we have not raised additional long term financing as of the date of this report.

We closed the Bridge Financing with certain insiders of the Company and accredited investors for the purpose of providing working capital. Even with closing the Bridge Financing, we currently need to raise immediate substantial funds if we are to continue as a going concern. If we are successful in raising sufficient additional capital, it should allow us to develop products, seek to obtain regulatory approval for our proposed products, and enter into agreements for product development, manufacturing and commercialization. There is no assurance that additional capital can be raised in an amount which is sufficient for all such purposes, or on terms favorable to us or to our stockholders. In the event that we do not able to raise additional funds, it will be difficult for the Company to continue operations as they exist. We may be forced to sell all or a portion of our assets, cease operations or seek bankruptcy relief. If we discontinue our operations, we may not have sufficient funds to pay any amounts to our stockholders.