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 July 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 (916)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 July 31, 1997:
Class Number of
Shares outstanding
Common Stock, no par value 13,633,404
APHTON CORPORATION
Index
Page
Part I - Financial Information 3
Item 1. Financial Statements:
Balance Sheets - July 31, 1997 and April 30, 1997 3
Statements of Operations - Three months ended
July 31, 1997 and 1996 4
Statements of Stockholders' Equity - Three months ended
July 31, 1997 and the year ended April 30, 1997 4
Statements of Cash Flows - Three months ended July 31, 1997
and 1996 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
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 July 31, 1997 and April 30, 1997 and the results of its
operations and its cash flows for the three months ended July 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 - July 31, 1997 and April 30, 1997
July 31, April 30,
1997 1997
Assets
Cash and short-term cash investments $17,182,930 $8,845,739
Other assets (including current portion
of unconditional supply commitment) 176,027 308,920
----------- ----------
Total current assets 17,358,957 9,154,659
Special order supplies receivable 8,991,000 8,991,000
Equipment and improvements,at cost,
net of accumulated depreciation 211,760 216,123
Other assets 167,027 299,920
---------- ----------
Total assets $26,561,717 $18,361,782
========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities:
Accounts payable and other $1,662,882 $1,948,827
---------- ----------
Total current liabilities 1,662,882 1,948,827
Convertible debenture 4,570,124 3,902,440
Deferred revenue 10,000,000 10,000,000
---------- ----------
Total liabilities 16,233,006 15,851,267
Commitment
Stockholders' Equity:
Common stock, no par value -
Authorized: 20,000,000 shares
Issued and outstanding:
13,633,404 shares at
July 31, 1997 and 12,913,149
at April 30, 1997 36,748,927 26,665,091
Additional paid in capital 1,097,560 1,097,560
Purchase warrants 147,004 147,004
Accumulated deficit (27,664,780) (25,399,140)
---------- ----------
Total stockholders' equity 10,328,711 2,510,515
---------- ----------
Total liabilities and
stockholders' equity $26,561,717 $18,361,782
========== ==========
APHTON CORPORATION
Statements of operations
for the three months ended July 31, 1997 and 1996
Three Months Ended
July 31,
1997 1996
Revenue:
Dividend, interest and other income $153,942 $74,898
-------- -------
Total 153,942 74,898
Costs and Expenses:
Research and development expense 1,450,135 1,275,294
General and administrative expense 189,657 180,521
Non-cash interest expense of
convertible security 87,260 --
Amortized (non-cash) interest expense
of convertible security 692,530 --
Total costs and expenses 2,419,582 1,455,815
---------- ----------
Net loss $(2,265,640) $(1,380,917)
========== ==========
Net loss per common share
($0.05 per share for amortized
(non-cash) interest expense of
convertible securities in 1997
and $0.00 in 1996) $(0.17) $(0.11)
======= =======
Weighted average number of common
shares outstanding 13,393,319 12,912,482
========== ==========
Statements of stockholders' equity
for the three months ended July 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
Issuance from
convertible
debenture 5,255 73,836 - - - 73,836
Sale of stock,
net 715,000 10,010,000 - - - 10,010,000
Net loss - - - - (2,265,640) (2,265,640)
_______ __________ _______ _________ ___________ __________
Balance,
July 31,
1997 13,633,404 $36,748,927 $147,004$1,097,560$(27,664,780)$10,328,711
========== =========== ======== ========= =========== ===========
APHTON CORPORATION
Statements of cash flows for the three months ended July 31, 1997 and 1996
Increase (decrease) in cash and short-term cash investments
Three Months Ended July, 31
1997 1996
Net cash used in operating activities $(966,761) $(1,142,565)
Net cash provided from non-operating activities 9,303,952 (62,320)
--------- ---------
Net change in cash and short-term
cash investments 8,337,191 (1,204,885)
Cash and short-term cash investments:
Beginning of year 8,845,739 8,169,368
---------- ---------
End of period $17,182,930 $6,964,483
========== =========
Reconciliation of net loss to net cash
used in operating activities
Net loss $(2,265,640) $(1,380,917)
Adjustments to reconcile net loss to net cash
used in operating activities:
Non-cash interest expense settled
by issuance of stock 73,836 -
Depreciation 17,881 13,195
Amortized (non-cash) interest
expense of convertible security 692,530 -
Decrease (increase) in other assets 132,893 (137)
Increase in accounts payable 381,739 225,294
------- ---------
Net cash used in operating activities $(966,761) $(1,142,565)
======== =========
In the quarter ended July 31, 1997, the Company issued 5,255 shares of
stock in settlement of accrued interest of $73,836.
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 concluded a Strategic Alliance with
Schering-Plough Animal Health (described in a news release on August 4th), for
the veterinary applications of Aphton's Gastrimmune(TM) to treat and prevent
equine (stress) ulcers. There are hundreds of thousands of highly-valued race
horses in the U.S.; the scientific literature indicates that a very high
percentage of them suffer from (stress) ulcers, particularly during training.
Equine ulcers will be the first market targeted under this agreement. This
Agreement followed Aphton's Strategic Alliance which was concluded and announced
in February, 1997 with Pasteur Merieux Connaught (Rhone-Poulenc Group), for all
human cancer applications of Gastrimmune(TM) in North America and Europe,
including the C.I.S. countries.
During this reporting period, Aphton also began incorporating into its
stomach cancer clinical trials program the large resources of Pasteur Merieux
Connaught (PMC), utilizing PMC's knowledge and direct experience with Clinical
Research Organizations (CRO) worldwide. Aphton is now enlarging its Phase III
stomach cancer program to include high quality medical centers, globally. This
will entail more organizational effort, but will increase both the number of
patients available for recruitment and the number of participating countries for
ultimate marketing approval of Gastrimmune(TM).
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 months ended July 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: September 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
July 31,
Primary Earnings Per Share 1997 1996 Note
Balance at the beginning of the period 12,913,149 12,911,149
Weighted average of shares issued or shares
reacquired during the period 480,170 1,333
Weighted average - primary earnings per share 13,393,319 12,912,482
Net loss for the period $(2,265,640) $(1,380,917)
Net loss per share for the period
($0.05 per share for amortized
(non-cash) interest expense of
convertible securities in 1997
and $0.00 in 1996) $(0.17) $(0.11)
======= =======
Fully Diluted Earnings Per Share 1997 1996
Balance at the beginning of the period 12,913,149 12,911,149
Weighted average of shares issued or
shares reacquired during the period 480,170 1,333
Incremental common stock equivalents
from the treasury stock method (187,857) (412,365) 1
Weighted average-fully diluted shares 13,205,462 12,500,117
Net loss for the period $(2,265,640) $(1,380,917)
Net loss per share for the period
($0.05 per share for amortized
(non-cash) interest expense of
convertible securities in 1997
and $0.00 in 1996) $(0.17) $(0.11)
======= =======
Note:
Fully diluted earnings per share includes certain common stock equivalents
that are anti-dilutive and are therefore not reflected in primary earnings per
share. This calculation is provided as required by SEC regulations, even though
the fully diluted earnings per share amounts are not required to be disclosed in
the financial statements.
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 three months ended July 31, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000840319
<NAME> APHTON CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-1-1997
<PERIOD-END> JUL-31-1997
<CASH> 17,183
<SECURITIES> 0
<RECEIVABLES> 9,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,359
<PP&E> 864
<DEPRECIATION> (652)
<TOTAL-ASSETS> 26,562
<CURRENT-LIABILITIES> 1,663
<BONDS> (4,570)
0
0
<COMMON> (36,749)
<OTHER-SE> (1,155)
<TOTAL-LIABILITY-AND-EQUITY> (26,562)
<SALES> 0
<TOTAL-REVENUES> 154
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,420
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 760<F1>
<INCOME-PRETAX> (2,266)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,265)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,265)
<EPS-PRIMARY> (0.17)<F1>
<EPS-DILUTED> (0.17)<F1>
<FN>
<F1>NON-CASH INTEREST EXPENSE IS COMPRISED OF NON-CASH INTEREST EXPENSE FOR
CONVERTIBLE DEBENTURE. $0.05 OF THE $0.17 LOSS PER SHARE RELATES TO THE
AMORTIZED NON-CASH INTEREST EXPENSE.
</FN>
</TABLE>
