SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly ended April 30, 2000 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 13 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 June 6, 2000:
Class Number of
Shares outstanding
Common Stock, $0.001 par value 16,199,493
APHTON CORPORATION
Index
Page
Part I - Financial Information 3
Item 1. Financial Statements:
Balance Sheets - April 30, 2000 and January 31, 2000 3
Statements of Operations - Three months ended
April 30, 2000 and 1999 4
Statements of Cash Flows - Three months ended April 30, 2000
and 1999 4
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 April 30, 2000 and January 31, 2000 and the results of its
operations and its cash flows for the three months ended April 30, 2000 and
1999. 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
April 30, January 31
Assets 2000 2000
Current Assets: (Unaudited)
Cash and current investments:
Cash and short-term cash investments $13,816,643 $9,920,263
Investment securities-held-to-maturity 15,307,894 6,878,097
Investment securities-trading 2,332,844 2,380,880
Total cash and current investments 31,457,381 19,179,240
Other assets (including current portion of
unconditional supply commitment) 669,151 688,013
Total current assets 32,126,532 19,867,253
Equipment and improvements, net 159,819 173,350
Unconditional supply commitment 8,151,650 8,151,650
Total assets $40,438,001 $28,192,253
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities:
Accounts payable and other $6,121,733 $6,131,771
Total current liabilities 6,121,733 6,131,771
Deferred revenue 10,000,000 10,000,000
Total liabilities 16,121,733 16,131,771
Commitments and Contingencies
Stockholders' Equity:
Common stock, $0.001 par value -
Authorized: 30,000,000 shares
Issued and outstanding: 16,199,493
shares at April 30, 2000 and
15,592,984 shares at January 31, 2000 16,199 15,593
Additional paid in capital 80,292,478 64,799,784
Purchase warrants 198,900 198,900
Accumulated deficit (56,191,309) (52,953,795)
Total stockholders' equity 24,316,268 12,060,482
Total liabilities and
stockholders' equity $40,438,001 $28,192,253
APHTON CORPORATION
Statements of Operations (Unaudited)
For the three months ended April 30, 2000 and 1999
2000 1999
Revenue: $ - $ -
Costs and expenses:
General and administrative 540,474 321,220
Research and development 2,949,508 1,452,084
Total costs and expenses 3,489,982 1,773,304
Loss from operations 3,489,982 1,773,304
Other income (expense):
Dividend, interest and other income 329,904 102,987
Unrealized gains (losses)
from investments (77,436) 163,473
_______ _______
Net loss $(3,237,514) $(1,506,844)
========== ===========
Per share data:
Basic loss per common share $(0.20) $(0.10)
===== =====
Diluted loss per common share $(0.20) $(0.10)
===== =====
Weighted average number of
common shares outstanding 15,804,954 14,433,384
========== ==========
APHTON CORPORATION
Statements of Cash Flows (Unaudited)
For the three months ended April 30, 2000 and 1999
Increase (decrease) in cash and short-term cash investments
Cash flows from operating activities: 2000 1999
Cash paid to suppliers and employees $(3,467,197) $(1,791,337)
Purchase of trading securities (29,400) --
Interest and dividends received 329,904 102,987
--------- ---------
Net cash used in operating activities (3,166,693) (1,688,350)
Cash flows from investing activities:
Purchase of held to maturity securities (19,830,227) --
Proceeds from maturity of
held to maturity securities 11,400,000 --
Capital expenditures -- (21,676)
---------- ---------
Net cash used in investing activities (11,596,920) (21,676)
Cash flows from financing activities:
Sales of stock, net 15,493,300 --
---------- --------
Cash received from financing activities 15,493,300 --
Net increase (decrease) in cash and
short-term cash investments 3,896,380 (1,710,026)
Cash and short-term cash investments:
Beginning of period 9,920,263 10,164,069
---------- ---------
End of period $13,816,643 $8,454,043
Reconciliation of net loss to
net cash used in operating activities
Net loss $(3,237,514) $(1,506,844)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 13,961 18,643
Net decrease in investment securities-trading 48,036 --
Unrealized (gains) losses from investments 77,436 (163,473)
Increase (decrease) in accrued employee benefits(77,436) 163,473
Changes in -
Other assets 18,862 98,535
Accounts payable and other (10,038) (298,684)
-------- --------
Net cash used in operating activities: $(3,166,693) $(1,688,350)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Three Months Ended April 30, 2000 and 1999
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 Aventis
Pasteur (formerly 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 and news releases can be visited at: www.aphton.com.
Results of Operations
During the three months ended April 30, 2000, the Company reported a net loss of
$3,237,514. During this period the Company had no contract revenues. Investment
earnings on cash for the quarter was $329,904 which represented a 220% increase
over investment earnings of $102,987 during the quarter ended April 30, 1999 due
to higher average cash and investment balances. Total research and development
expenditures increased $1,497,424. Research and development cash expenditures
were approximately $1,740,000 greater than in the quarter ended April 30, 1999.
Non-cash research and development expenses decreased approximately $240,000 and
were related to a Company plan whereby selected individuals may forego immediate
receipt of wages. The Company has established a liability for these accrued
wages payable and funded the liability with the establishment of investment
accounts which are subject to the general creditors of the Company. The selected
employees may direct the investments and the changes in value in these
investments are recognized as unrealized gains and losses in the statement of
operations with a corresponding increase or decrease to research and development
expense to adjust the liability for employees' wages and benefits. Unrealized
holding losses on trading securities and the corresponding decrease in research
and development expense totaled $77,436 for the quarter ended April 30, 2000.
Unrealized holding gains on trading securities and the corresponding increase in
research and development expense totaled $163,473 in the quarter ended April 30,
1999.
Results
Aphton's achievements during this reporting period are best summarized by
reviewing our News Releases (see www.aphton.com) as follows: March 16, 2000 (FDA
allows IND application for stomach cancer patients); March 24, 2000 (increased
survival results for pancreatic cancer patients-UK); April 11, 2000 (FDA and MCA
allow Phase III pivotal trials for pancreatic cancer) and April 12, 2000 ($16.22
million private financing).
Other
In June 1998, the Financial Accounting Standards Board ("FASB") 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 recognition of all derivative
instruments in the statement of financial position as either assets or
liabilities and the measurement of derivative instruments at fair value. In June
1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133."
The original effective date for SFAS No. 133 was for all fiscal years beginning
after June 15, 1999. As a result of the issuance of SFAS No. 137, the effective
date for SFAS No. 133 is for all fiscal quarters of all fiscal years beginning
after June 15, 2000. The adoption of SFAS No. 133, as amended by SFAS No. 137,
is not expected to have a material effect on the financial statements.
The Company has had no adverse impact from the year 2000 issue and does not
expect that material incremental costs will be incurred in the aggregate or in
any single future year.
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
commercial paper and money-market accounts.
Liquidity and Capital Resources
The Company has 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 April 12, 2000, the Company announced that it had received gross proceeds of
$16.22 million from the closing of a private financing with several
international biotechnology/healthcare funds. The company issued 491,509 shares
of common stock at a price of $33.00 per share. There were no warrants or
options included with this private placement.
On January 14, 2000, the Company announced that it had received $5.5 million
from a leading investment banking firm through the exercise of 350,000 warrants
issued in prior years. The new Aphton common shares were purchased at an average
price of $15.714 per share through the exercise of these warrants.
In December, 1999, the Company reserved 1,000,000 shares of common stock, in the
form of common stock equivalents, at an exercise price of $14.75 per share. Some
or all of these common stock equivalents may eventually be distributed to
employees of the Company as part of their total compensation package. The
Company accounts for stock-based awards to employees using the intrinsic value
method as prescribed by Accounting Principles Board Opinion ("APB") No. 25,
:Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, no compensation expense is recorded for warrants issued to
employees in fixed amounts and with fixed exercise prices at least equal to the
fair market value of the Company's common stock at the date of grant. The
Company has adopted the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," through disclosure only. All stock-based awards to nonemployees
are accounted for at their fair value in accordance with SFAS No. 123. There
were an additional 150,000 employee stock purchase warrants granted in 2000,
also at $14.75 per share. Based on Black-Scholes values for the 1,150,000 common
stock equivalents, for the year ended January 31, 2000, the pro forma net loss
would increase $15,628,500 to $26,821,796 and the pro forma loss per common
share would be $1.82.
The following assumptions were used in the Black-Scholes option pricing model
for the 1,150,000 common stock equivalents granted in the year ended January 31,
2000. The stock price and exercise price of $14.75 was set equal to the fair
market value of the Company's common stock on the date of grant. The risk-free
rate of return used was 7.0%. The expected dividend yield used was 0%. The
expected time to exercise used was 10 years. The expected volatility used was
100%.
On October 13, 1999, the Company announced that it had received $11.2 million
from the closing of a private financing of common stock with an undisclosed
institutional investor. The company placed 800,000 shares of common stock at a
price of $14.00 per share. There were no warrants, options or agent fees
included with this private financing.
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 2002. 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 the
quarter ended April 30, 2000.
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: June 12, 2000 By: /s/ Frederick W. Jacobs
--------------------------------
Frederick W. Jacobs, Vice President,
Treasurer and Chief Accounting Officer
