SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter ended October 31, 1997 Commission File Number 0-19122
APHTON CORPORATION
(Exact name of registrant as specified in its charter)
California 95-3640931
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
PO BOX 1049, Woodland, CA. 95776
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (530)666-5226
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 14 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No __
The number of shares of Common Stock
outstanding as of the close of
business on October 31, 1997:
Class Number of
Shares outstanding
Common Stock, no par value 13,778,288
APHTON CORPORATION
Index
Page
Part I - Financial Information 3
Item 1. Financial Statements:
Balance Sheets - October 31, 1997 and April 30, 1997 3
Statements of Operations - Three and six months ended
October 31, 1997 and 1996 4
Statements of Stockholders' Equity - Six months ended
October 31, 1997 and the year ended April 30, 1997 5
Statements of Cash Flows - Six months ended October 31,
1997 and 1996 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Part II - Other Information
Item 1. Legal Proceedings 7
Item 2. Changes in Securities 7
Item 3. Defaults Upon Senior Securities 7
Item 4. Submission of Matters to a Vote of Security Holders 7
Item 5. Other Information 7
Item 6. Exhibits and Reports on Form 8-K 7
Signature Page 7
APHTON CORPORATION
Part I - Financial Information
The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, the financial statements
include all adjustments necessary to present fairly the financial position of
the Company as of October 31, 1997 and April 30, 1997 and the results of its
operations and its cash flows for the three and six months ended October 31,
1997 and 1996. It is suggested that these financial statements be read in
conjunction with the financial statements and the notes thereto included in the
Company's latest annual report on Form 10-K.
APHTON CORPORATION
Balance Sheets - October 31, 1997 and April 30, 1997
October 31, April 30,
1997 1997
Assets
Cash and short-term cash investments $15,760,897 $8,845,739
Other assets (including current portion
of unconditional supply commitment) 206,027 308,920
----------- ----------
Total current assets 15,966,924 9,154,659
Special order supplies receivable 8,970,000 8,991,000
Equipment and improvements, at cost,
net of accumulated depreciation
and amortization 193,975 216,123
Other assets 157,893 299,920
------------ -----------
Total assets $25,112,765 $18,361,782
=========== ===========
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities:
Accounts payable and other $1,751,798 $1,948,827
---------- ----------
Total current liabilities 1,751,798 1,948,827
Convertible debenture 3,553,000 3,902,440
Deferred revenue 10,000,000 10,000,000
----------- ----------
Total liabilities 15,304,798 15,851,267
---------- ----------
Commitment
Stockholders' Equity:
Common stock, no par value -
Authorized: 20,000,000 shares
Issued and outstanding: 13,778,288
shares at October 31, 1997 and
12,913,149 at April 30, 1997 38,275,916 26,665,091
Additional paid in capital 1,097,560 1,097,560
Purchase warrants 147,004 147,004
Accumulated deficit (29,712,513) (25,399,140)
------------ -----------
Total stockholders' equity 9,807,967 2,510,515
----------- ----------
Total liabilities and
stockholders' equity $25,112,765 $18,361,782
=========== ===========
APHTON CORPORATION
Statements of operations
for the three and six months ended October 31, 1997 and 1996
Three Months Ended Six Months Ended
October 31, October 31,
1997 1996 1997 1996
Revenue:
Dividend, interest
and other income $198,999 $78,202 $352,941 $153,100
-------- ------- -------- --------
Total 198,999 78,202 352,941 153,100
-------- ------- -------- --------
Costs and Expenses:
Research and development
expense 1,262,789 1,290,058 2,712,924 2,565,352
General and administrative
expense 192,734 180,606 382,391 361,126
Non-cash interest expense of
convertible debenture 98,679 - 185,939 -
Amortized (non-cash) discount
(interest)expense of
convertible debenture 692,530 - 1,385,060 -
Total costs and expenses 2,246,732 1,470,664 4,666,314 2,926,478
--------- --------- --------- ---------
Net loss $(2,047,733)$(1,392,462)$(4,313,373)$(2,773,378)
=========== =========== =========== ===========
Net loss per common and
common equivalent share
($0.05 and $0.10 per share
for amortized (non-cash)
interest expense of convertible
securities in the three and six
months ended October 31, 1997,
respectively and $0.00 in 1996)$(0.15) $(0.11) $(0.33) $(0.22)
======= ======= ======= =======
Weighted average number of
common shares outstanding 13,347,000 12,500,178 13,166,221 12,500,451
========== ========== ========== ==========
Statements of stockholders' equity
for the six months ended October 31, 1997
and for the year ended April 30, 1997
Common Stock Purchase Additional Accumulated
Shares Amount Warrants Paid in Deficit Total
Capital
Balance,
May 1, 1996 12,911,149 $26,664,591 $147,004 $ - $(19,770,174)$7,041,421
Exercise of
purchase
warrants 2,000 500 - - - 500
Conversion feature
of convertible debt - - - 1,097,560 - 1,097,560
Net loss - - - -(5,628,966) (5,628,966)
Balance,
April 30,
1997 12,913,149 26,665,091 147,004 1,097,560(25,399,140) 2,510,515
-----------------------------------------------------------------
B
Issuance
from
convertible
debenture 150,139 1,600,825 - - - 1,600,825
Sale of stock
, net 715,000 10,010,000 - - - 10,010,000
Net loss - - - - (4,313,373) (4,313,373)
-----------------------------------------------------------------
Balance,
October 31,
1997 13,778,288 $38,275,916 $ 147,004$1,097,560$(29,712,513) $9,807,967
========================================= =========== ===========
APHTON CORPORATION
Statements of cash flows for the six months ended October
31, 1997 and 1996 Increase (decrease) in cash and
short-term cash investments
Six Months Ended October, 31
1997 1996
Net cash used in operating activities $(3,427,222) $(2,097,770)
Net cash provided from
non-operating activities 10,342,380 (77,255)
---------- -----------
Net change in cash and
short-term cash investments 6,915,158 (2,175,025)
Cash and short-term cash investments:
Beginning of year 8,845,739 8,169,368
----------- -----------
End of period $15,760,897 $5,994,343
=========== ==========
Reconciliation of net loss to net cash
used in operating activities
Net loss $(4,313,373) $(2,773,378)
Adjustments to reconcile net loss to net cash
used in operating activities:
Non-cash interest expense settled
by issuance of stock 153,825 -
Depreciation 35,762 25,375
Amortized (non-cash) interest
expense of convertible security 1,385,060 -
Decrease (increase) in other assets (142,027) 15,194
Increase (decrease) in
accounts payable (546,469) 635,039
--------- ----------
Net cash used in operating activities $(3,427,222) $(2,097,770)
============ ============
In the six months ended October 31, 1997, the Company
issued 11,191 shares ofstock in settlement of accrued interest of $153,825.
Management's Discussion and Analysis of Financial
Conditions and Results of Operations
General
Aphton Corporation is a biopharmaceutical company developing products using its
innovative vaccine-like technology for neutralizing, or "blocking," hormones.
The precisely targeted hormones are for the most part those that participate in
diseases, both malignant and non-malignant, in (a) the gastrointestinal system
and (b) the reproductive system. These products, called immunogens, treat the
following diseases: (a) Gastroesophageal Reflux Disease (GERD, or severe
heartburn), ulcers and colorectal, stomach, liver and pancreatic cancers; (b)
endometriosis and prostate, breast, endometrial and ovarian cancers. In
addition, Aphton is developing an immunogen for women in the developed
countries, and, through its strategic alliance with the World Health
Organization (WHO), in the developing countries, which prevents pregnancy for
months and is naturally reversible.
Operations
During this reporting period, Aphton continued to integrate operational
resources of Pasteur Merieux Connaught (PMC), both personnel and facilities,
into Aphton's expanding stomach cancer clinical trials program. In addition,
Aphton and PMC agreed that PMC will increase its role in the manufacturing
process as soon as feasible. To that end, Aphton began transferring certain
manufacturing technology to PMC. During this reporting period, Aphton and
Schering Plough initiated the development program to apply and test Aphton's
Gastrimmune(TM) immunogen for treatment and prevention of equine ulcers.
Research and development expenses increased over the same period in the prior
year $147,572 to $2,712,924 for the six months ended October 31, 1997. This
reflects the increased resources which Aphton devoted to its expanding clinical
trials program.
Manufacturing and Marketing
Coupled with one or more strategic alliances, Aphton plans to commercialize its
products by (a) executing long-term contracts with third parties, including
major pharmaceutical companies and their suppliers, to manufacture its products
and by (b) contracting with large drug companies to promote, market, sell and
distribute its products, worldwide. The contract manufacturing approach utilizes
the large and available manufacturing resources of pharmaceutical companies.
Aphton already contracted with drug manufacturing sources to produce Aphton's
immunogens for its toxicology studies and clinical trials. Aphton's marketing,
distribution and sales approach similarly utilizes the large and effective sales
forces and resources of the major pharmaceutical companies. This maximizes
Aphton's return on revenues and minimizes its requirements and risks for capital
formation, personnel and plant and equipment.
Liquidity and Capital Resources
The Company had financed its operations since inception through the sale of
its equity securities and, to a lesser extent, operating revenues from R&D
limited partnerships to conduct research and development. These funds provided
the Company with the resources to acquire staff, construct its research and
development facility, acquire capital equipment and to finance technology and
product development, manufacturing and clinical trials. In April 1997, the
Company issued a $5,000,000 7% senior redeemable convertible debenture. The
recorded cost of the debenture, at April, 30, 1997, approximates market value.
On February 14, 1997 Aphton signed an agreement with Pasteur Merieux Connaught
("PMC") (Rhone-Poulenc Group), a leader in medical science and research and the
world's largest vaccine manufacturer and marketer, for a strategic alliance for
all human cancer applications of the Company's product Gastrimmune(TM) including
stomach, colorectal, liver and pancreatic cancers. Under the terms of the
twenty-year license and co-promotion agreement, Aphton will be responsible for
product development, clinical trials and regulatory agency approvals, and PMC
will be responsible for promotion, advertising, marketing, distribution and
sales of Gastrimmune(TM) in the United States, Canada, Europe (including the
C.I.S. countries) and Mexico. In addition, Aphton and PMC will enter into
agreements providing for: (a) the supply of Gastrimmune(TM) from Aphton to PMC;
and (b) the supply of certain components of Gastrimmune(TM) (as well as other
Aphton products) from PMC to Aphton. PMC will fund the costs associated with
product introduction, promotion, advertising and marketing throughout the
territory covered by the agreement. Under the terms of the agreement, in
addition to upfront consideration aggregating $10 million including $1 million
cash and the supply commitment (of material suitable for human use) of $9
million, Aphton will receive the majority of the profits from sales of
Gastrimmune(TM) with the balance of profits to be retained by PMC.
The supply commitment of materials suitable for human use consists of Diphtheria
Toxoid and/or Tetanus Toxoid. Aphton may use some or all of the unconditional
supply commitment in the Product under development with PMC or Aphton may use
some or all of the supply commitment on other current product lines or on
Research and Development. The supply commitment of material suitable for human
use is not readily obtained on the open market in such large quantities. By
comparison to lower quality material available in smaller quantities management
estimates that the market value of the supplies is substantially greater than
the carrying value of $9 million, if they could be obtained. The carrying value
of $9 million is based on the negotiated License Fee. The amount of material to
be received for the $9 million is based on negotiated per unit costs, which are
well below the per unit costs of lower quality materials available in smaller
quantities.
The $10 million upfront consideration has been classified as a license payment
and has been deferred and will be recognized for financial statement
(accounting) purposes as revenue within the twenty-year period of the agreement.
The revenue recognition will begin once regulatory agency approval to market the
product has been received and will be recognized ratably over the remaining
period of the contract, which ends February 13, 2017. The Company does not
speculate on the timing of regulatory approvals. However, they are not likely to
occur in less than two years and quite possibly may occur in more than two
years. Under the agreement, PMC shall have the right to terminate upon one
hundred eighty (180) days prior notice to Aphton, in the event that it
determines, following completion of Phase III clinical trials of the Product
(and receipt by PMC of the results and supporting data obtained in such trials),
that for safety and efficacy reasons it does not wish to co-promote, market or
sell the Product. In addition, either party may terminate the agreement by (a)
mutual agreement, (b) for uncured material breach and (c) due to liquidation,
insolvency, etc. Further, under the agreement, none of the aggregate $10 million
consideration, either the cash or the Company's rights to the full $9 million in
unconditional supply commitment, is refundable to PMC under any conditions.
There is no provision under the agreement for the unconditional supply
commitment to be satisfied by PMC with a cash payment. (The $10 million license
payment was recognized for tax purposes in the year ended April 30, 1997.)
Discussions are continuing between PMC and Aphton for marketing rights to
Gastrimmune(TM) in Japan and other Asian markets.
On June 17, 1997, the Company announced that it had received proceeds of
$10,000,000 from the closing of a private financing of Common Stock with one of
the largest investment banking/stock brokerage firms in the United States. The
Company issued 715,000 shares of common stock with a 7-year warrant for 225,000
shares exercisable at $17.50 per share.
The Company anticipates that its existing capital resources which are composed
primarily of cash and short-term cash investments, including the proceeds of its
private placements and interest thereon, would enable it to maintain its
currently planned operations into the year 2000. The Company's working capital
and capital requirements will depend upon numerous factors, including the
following: the progress of the Company's research and development program,
preclinical testing and clinical trials; the timing and cost of obtaining
regulatory approvals; the levels of resources that the Company devotes to
product development, manufacturing and marketing capabilities; technological
advances; competition; and collaborative arrangements or strategic alliances
with other drug companies, including the further development, manufacturing and
marketing of certain of the Company's products and the ability of the Company to
obtain funds from such strategic alliances or from other sources.
PART II - Other information
Item 1. Legal Proceedings. Not applicable.
Item 2. Changes in Securities. Not applicable.
Item 3. Defaults Upon Senior Securities. Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders. Not applicable.
Item 5. Other Information. Not applicable.
Item 6. Exhibits and Report on Form 8-K.
a. Exhibit Numbers
11.l Computation of net loss per common and common stock
equivalent for the three and six months ended October 31, 1997
and 1996.
27.1 Financial Data Schedule
b. There were no reports on Form 8-K filed
during the quarter for which this report is filed.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
Aphton Corporation
Date: December 11, 1997 By: /s/ Philip C. Gevas
----------------------------------
Philip C. Gevas
Chairman, President and
Chief Executive Officer
APHTON CORPORATION
Reconciliation of shares outstanding for earnings per share calculations
Three Months Ended Six Months Ended
October 31, October 31,
Net loss per common and common
equivalent share 1997 1996 1997 1996
Balance at the beginning
of the period 13,633,404 12,913,149 12,913,149 12,911,149
Weighted average of shares
issued or shares reacquired
during the period 121,472 - 660,948 1,667
Incremental common stock
equivalents from the
treasury stock method (407,876) (412,365) (407,876) (412,365)
________ ________ _______ _______
Weighted average shares 13,347,000 12,500,784 13,166,221 12,500,451
========== ========== ========== ==========
Net loss for the period $(2,047,733) $(1,392,462) $(4,313,373) $(2,773,378)
============ ============ ============ ============
Net loss per share
for the period ($0.05
and $0.10 per share for
amortized (non-cash)
interest expense of
convertible securities
in the three and six months
ending October 31,1997,
respectively and
$0.00 in 1996) $(0.15) $(0.11) $(0.33) $(0.22)
======= ======= ======= =======
Fully diluted loss per share 1997 1996 1997 1996
Balance at the beginning
of the period 13,633,404 12,913,149 12,913,149 12,911,149
Weighted average of shares
issued or shares
reacquired during the period 121,472 - 660,948 1,667
Incremental common stock
equivalents from the
"if converted" debenture 559,068 - 559,068 -
Incremental common stock
equivalents from the
treasury stock method (407,876) (412,365) (407,876) (412,365)
----------- ---------- ---------- -----------
Weighted average-
fully diluted shares 13,906,076 12,500,784 13,725,289 12,500,451
========== ========== ========== ==========
Net loss for the period $(2,047,733)$(1,392,462) $(4,313,373) $(2,773,378)
Adjustment for
debenture interest 791,209 - 1,570,999 -
Fully diluted net loss
for the period $(1,256,524)$(1,392,462) $(2,742,374) $(2,773,378)
============ ============ ============ ============
Fully diluted net loss
per share for the period $(0.09) $(0.11) $(0.20) $(0.22)
======= ======= ======= =======
Exhibit 11.1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Annual
Report on Form 10-K for the year ended April 30, 1997 and the Quarterly Report
on Form 10-Q for the quarter and six months ended July 31, 1997 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-1-1997
<PERIOD-END> OCT-31-1997
<CASH> 15,761
<SECURITIES> 0
<RECEIVABLES> 9,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,967
<PP&E> 864
<DEPRECIATION> (670)
<TOTAL-ASSETS> 25,113
<CURRENT-LIABILITIES> 1,752
<BONDS> (3,553)
0
0
<COMMON> (38,276)
<OTHER-SE> (1,245)
<TOTAL-LIABILITY-AND-EQUITY> (25,113)
<SALES> 0
<TOTAL-REVENUES> 353
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,420
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,571<F1>
<INCOME-PRETAX> (4,666)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,313)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,313)
<EPS-PRIMARY> (0.33)<F1>
<EPS-DILUTED> (0.33)<F1>
<FN>
<F1>NON-CASH INTEREST EXPENSE IS COMPRISED OF NON-CASH INTEREST EXPENSE FOR
CONVERTIBLE DEBENTURE. $0.10 OF THE $0.33 LOSS PER SHARE RELATES TO THE
AMORTIZED NON-CASH INTEREST EXPENSE.
</FN>
