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, 1998 Commission File Number 0-19122
APHTON CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-3640931
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
444 Brickell Avenue, Suite 51-507 33131-2492
Miami, Florida (Zip Code)
(address of principal executive offices)
Registrant's telephone number, including area code (305) 374-7338
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, 1998:
Class Number of
Shares outstanding
Common Stock, $0.001 par value 14,429,784
APHTON CORPORATION
Index
Page
Part I - Financial Information 3
Item 1. Financial Statements:
Balance Sheets - July 31, 1998 and January 31, 1998 3
Statements of Operations - Three months and six months ended
July 31, 1998 and 1997 4
Statements of Stockholders' Equity - Six months ended July 31, 1998
and the nine months ended January 31, 1998 4
Statements of Cash Flows - Six months ended July 31, 1998 and 1997 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
Part II - Other Information
Item 1. Legal Proceedings 8
Item 2. Changes in Securities 8
Item 3. Defaults Upon Senior Securities 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 8
Signature Page 8
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, 1998 and January 31, 1998 and the results of its
operations and its cash flows for the three months and six months ended July 31,
1998 and 1997. The January 31, 1998 balance sheet data was derived from audited
financial statements but does not include all disclosures required by generally
accepted accounting principles 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, 1998 and January 31, 1998
July 31, January 31,
1998 1998
Assets
Current Assets:
Cash and short-term cash investments $14,824,949 $14,226,000
Other assets (including current portion of
unconditional supply commitment) 318,117 205,454
Total current assets 15,143,066 14,431,454
Equipment and improvements, at cost,
net of accumulated depreciation
and amortization 215,550 197,736
Unconditional supply commitment 8,951,000 8,951,000
Total assets $24,309,616 $23,580,190
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities:
Accounts payable and other $2,760,429 $2,273,072
Total current liabilities 2,760,429 2,273,072
Deferred revenue 10,000,000 10,000,000
Total liabilities 12,760,429 12,273,072
Commitment
Stockholders' Equity:
Common stock, $0.001 par value -
Authorized: 30,000,000 shares
Issued and outstanding: 14,429,784
shares at July 31, 1998 and 14,191,217
at January 31, 1998 14,430 14,191
Additional paid in capital 47,955,143 42,955,207
Purchase warrants 341,404 341,404
Accumulated deficit (36,761,790) (32,003,684)
Total stockholders' equity 11,549,187 11,307,118
Total liabilities and
stockholders' equity $24,309,616 $23,580,190
APHTON CORPORATION
Statements of operations
for the three and six months ended July 31, 1998 and 1997
Three Months Ended Six Months Ended
July 31, July 31,
Revenue: 1998 1997 1998 1997
Dividend, interest
and other income $134,825 $153,942 $288,140 $217,743
Total 134,825 153,942 288,140 217,743
Costs and Expenses:
Research and
development expense 2,235,344 1,450,135 4,460,235 2,813,322
General and administrative
expense 345,888 189,657 586,011 315,638
Non-cash interest and
amortized interest
expense of
convertible security -- 779,790 -- 795,132
Total costs _________ _________ _________ _________
and expenses 2,581,232 2,419,582 5,046,246 3,924,092
Net loss $(2,446,407)$(2,265,640) $(4,758,106) $(3,706,349)
Basic loss per
common share $(0.17) $(0.17) $(0.33) $(0.28)
Diluted loss per
common share $(0.17) $(0.17) $(0.33) $(0.28)
Weighted average
number of common
shares outstanding 14,270,506 13,393,319 14,230,861 13,153,234
The Company has adopted SFAS No. 128, "Earnings per Share," which specifies the
computation, presentation and disclosure requirements for earnings per share.
The Company's basic loss per common share was calculated by dividing net loss by
the weighted average number of common shares outstanding. The Company's common
stock equivalents are anti-dilutive, and accordingly, basic and diluted loss per
share are the same. Such common stock equivalents consist of purchase warrants
and could potentially dilute basic earnings per share in the future.
Statements of stockholders' equity
for the six months ended July 31, 1998 and
for the nine months ended January 31, 1998
Common Stock Additional
Paid in Purchase Accumulated
Shares Amount Capital Warrants Deficit Total
Balance,
May 1, 1997 12,913,149 $26,665,091 $1,097,560 $147,004 $(25,399,140)$2,510,515
Sale of
stock, net 715,000 10,000,000 - - - 10,000,000
Exercise of
warrants
for services - - - 198,900 - 198,900
Exercise of
purchase
warrants 4,000 5,500 - (4,500) - 1,000
Transfer between
equity accounts
resulting from a
change in the par
value of the stock (41,857,647)41,857,647 - - -
Conversion of
convertible
debt 559,068 5,201,247 - - - 5,201,247
Net loss - - - - (6,604,544)(6,604,544)
__________ ______ __________ _______ ___________ __________
Balance,
January 31,
1998 14,191,217 14,191 42,955,207 341,404 (32,003,684)11,307,118
Exercise of
purchase
warrants 700 1 174 - - 175
Sale of
stock, net 237,867 238 4,999,762 - - 5,000,000
Net loss - - - - (4,758,106)(4,758,106)
__________ ________ ___________ _______ ____________ __________
Balance,
July 31,1998 14,429,784 $14,430 $47,955,143 $341,404 $(36,761,790)$11,549,187
APHTON CORPORATION
Statements of cash flows for the six months ended July 31, 1998 and 1997
Increase (decrease) in cash and short-term cash investments
Six Months Ended July 31,
1998 1997
Net cash used in operating activities $(4,352,205) $(1,992,427)
Net cash provided from
non-operating activities-financing 5,000,175 14,796,836
Net cash used from
non-operating activities-investing (49,021) (7,266))
Net change in cash and short-term cash investments 598,949 12,797,143
Cash and short-term cash investments:
Beginning of period 14,226,000 4,385,787
End of period $14,824,949 $17,182,930
Reconciliation of net loss to net cash used in operating activities
Net loss $(4,758,106) $(3,706,349)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 31,205 42,674
Changes in-
Interest expense settled by issuance of stock -- 72,386
Amortized interest expense of convertible security -- 692,530
Cash receipt treated as deferred revenue -- 1,000,000
Decrease (increase) in other assets (112,663) 128,829
Increase (decrease) in accounts payable 487,357 (222,497)
Net cash used in operating activities $(4,352,205) $(1,992,427)
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 hormones that participate in
gastrointestinal system and reproductive system cancer and non-cancer diseases;
and the prevention of pregnancy. Aphton has strategic alliances with Pasteur
Merieux Connaught (Rhone-Poulenc Group), SmithKline Beecham, Schering Plough
Animal Health and the World Health Organization (WHO). Aphton's Web page,
describing the company, its technology, products, strategic alliances, news
releases and reports of independent research analysts, can be visited at:
www.aphton.com
Background / Major Results
Results of Operations
The Company's total costs and expenses increased by $1,122,154 to $5,046,246 for
the six months ended July 31, 1998 over the corresponding period of the prior
year. This 29% increase was due primarily to increased research and development
activities. Research and development expenses during that period increased by
$1,646,913 to $4,460,235. This 59% increase was due to increased clinical trial
activity. Non-cash interest and amortized interest expense relating to a
convertible security decreased by $795,132 to zero due to the conversion of the
convertible security to equity in fiscal 1998.
Safety / Dose Ranging
Aphton successfully completed both the safety and dose-ranging phases of its
Phase I/II clinical trial with its immunotherapeutic product Gastrimmune(TM)
with terminal cancer patients. Aphton demonstrated, during the dose-ranging
phase, that Gastrimmune(TM) is very potent, inducing large antibody responses in
terminally ill patients whose colon cancer had not only metastasized to the
liver, but were the "end-stage" of advanced Dukes D.
Survival
In January of 1998, Aphton announced increased survival results, which were
statistically significant, from a comparative analysis of its Phase I/II
clinical trials in which Aphton's anti-gastrin therapeutic vaccine
Gastrimmune(TM) was administered to patients with end-stage colorectal cancer
(i.e. end-stage "advanced" Dukes D). A more detailed discussion of the study,
including the treatment group and placebo group, prior treatments and spread
(metastases), median survival advantage (in contrast to merely response /
reduction of tumor size) of the treatment group, statistical significance, both
by univariate and multivariate analysis, was presented in Aphton's Form 10-K for
the (new) fiscal year ended January 31, 1998, and at the American Society of
Clinical Oncology (ASCO), in May, 1998. Aphton's Phase III trial program
currently encompasses the gastrointestinal system cancers of the colon / rectum;
stomach; pancreas; liver and esophagus. Since all of these are stimulated by
gastrin, Aphton could and did select stomach cancer as the first indication for
which regulatory approval will be sought, because: (a) survival time, the "end
point," is short relative to colon cancer; (b) trial costs are relatively low;
(c) there is no current effective therapy; (d) the number of patients,
worldwide, is in the millions.
Trials
While Aphton has been building the infrastructure and network of patient
recruitment centers, Aphton is close to completion of large batches of
manufactured material which could be used for large numbers of doses of
Gastrimmune(TM). This capacity significantly exceeds the amounts required for
the pivotal stomach cancer trial; thus, planning is now well underway for the
colon and pancreatic cancer indications, as well. Aphton has been receiving many
calls from physicians and patients with cancers of the gastrointestinal system
seeking "Compassionate Use" with Gastrimmune(TM). Regretfully, however, Aphton
cannot offer such treatments at this time.
Strategic Alliances and Wall Street Research Coverage
We are very pleased to report that in June, 1998, both of management's highest
priority-strategic objectives, exclusive of operations, were achieved.
A) On June 19, 1998, in a joint news release with SmithKline Beecham PLC (SB),
we announced our worldwide collaboration and license agreement for the
diagnosis, treatment and prevention of GnRH-related cancers and other diseases
in humans. These reproductive system diseases include prostate, breast, ovarian
and endometrial cancers, and endometriosis (non-cancer).
Under the agreement, which was described by research analysts (see (B) below) as
having a royalty mechanism which provides Aphton with "unusually rich commercial
terms" and which provides exclusive rights for SmithKline Beecham to Aphton's
related patents and proprietary technology, SmithKline Beecham will be
responsible for funding all costs of product development, clinical trials and
approvals for worldwide marketing and distribution. At July 31, 1998 there was
approximately $150,000 due to Aphton from SmithKline Beecham for product
development costs incurred by Aphton.)
In addition: 1) SmithKline Beecham purchased from Aphton 237,867 newly issued
common shares, at a premium, for $5,000,000, and 2) Aphton has a two-year option
to sell to SmithKline Beecham additional newly-issued shares of common stock for
$5,000,000, at the then market price.
B) Also on June 19, 1998, Morgan Stanley Dean Witter's Biotech research
analysts, Douglas D. Lind, MD and Christopher R. Leonard, initiated research
coverage with an Outperform rating for Aphton. Our strategic objective was to
have a "Wall Street" firm initiate research coverage, which we recognized was
crucial to our long-term development plans. We would be less than forthright if
we did not state that we are very pleased that our first Wall Street research
coverage was initiated by Morgan Stanley Dean Witter.
Finally, we are very pleased to report that SmithKline Beecham's management has
moved rapidly and aggressively to implement the agreement with Aphton. Joint
teams of SmithKline Beecham and Aphton Scientists and senior management have
been meeting and developing clinical trial plans for the first indication,
prostrate cancer, with Aphton's anti-GnRH immunogen. In parallel, under a
manufacturing program initiated previously by Aphton, product will be released
shortly for human use. A Phase I/II safety, dose-ranging and preliminary
efficacy (testosterone marker) clinical trial will be initiated in the UK, where
regulatory authority and ethics committee permissions to proceed have been
received. In addition, plans are being formulated to expand the human trial into
Western Europe, early in 1999.
Year 2000 and Other Issues
Many computer programs were written to use only two digits to identify the year.
Thus, a computer program could read the digits "00" as the year 2000 or as the
year 1900. In addition, microprocessors embedded in many operating facilities
such as communication systems may cause equipment malfunctions because of the
year 2000 date change. Failure by third parties upon which the Company relies
(or by the Company) to address the year 2000 issues could cause material loss to
the Company.
Management has completed the awareness and assessment phase of a comprehensive
program to address the year 2000 issue. The Company utilizes standard
"off-the-shelf" software and will implement any necessary vendor upgrades and
modifications to assure continued functionality. At present, management does not
expect that material incremental costs will be incurred in the aggregate or in
any single future year.
The Company has also begun to assess the year 2000 compliance efforts of
external parties upon which the Company relies. The Company is developing
contingency plans for addressing any material failure to deal with the year 2000
date change that will address the Company's exposure to year 2000 noncompliance
by third parties.
Even though the Company's planned software and hardware modifications and system
upgrades should adequately address year 2000 issues, there can be no assurance
that unforeseen difficulties will not arise. There is no assurance that the
failure of any external party to resolve its year 2000 issues would not have a
material adverse effect on the Company.
Although the Company does not own or engage in the trading of derivative
instruments or hedging activities we note that in June 1998, the Financial
Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and hedging activities. SFAS No.
133 requires the recognition of all derivative instruments as either assets or
liabilities in the statement of financial position and measurement of those
derivative instruments at fair value. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. The adoption of this
standard will not effect the Company's financial statements.
Inflation and changing prices have not had a significant effect on continuing
operations and are not expected to have any material effect in the foreseeable
future. Dividend, interest and other income were primarily derived from
money-market accounts.
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.
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. 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. 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.
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
27.1 Financial Data Schedule
b. There were no reports on Form 8-K filed during this quarter.
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 14, 1998 By: /s/ Philip C. Gevas
--------------------
Philip C. Gevas
Chairman, President and
Chief Executive Officer
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<LEGEND>
This schedule contains summary financial information extracted from the Annual
Report on Form 10-K for the nine month fiscal period ended January 31, 1998 and
the Quarterly Report on Form 10-Q/A for the quarter and six months ended July
31, 1998 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
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