----------------------
                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             ----------------------

                                   FORM 10-K/A
(MARK ONE)
   (x)            Annual Report Pursuant to Section 13 or 15(d)
            of the Securities and Exchange Act of 1934 (Fee Required)
                   For the Fiscal Year Ended January 31, 2001

                                       Or

   ( )          Transition Report Pursuant to Section 13 or 15(d)
            of the Securities Exchange Act of 1934 (No Fee Required)
                  For the transition period from _____ to _____

                           Commission File No. 0-19122
                                   -----------

                               APHTON CORPORATION
                        444 Brickell Avenue, Suite 51-507
                            Miami, Florida 33131-2492
                                 (305) 374-7338
Incorporated in                                                  I.R.S. Employer
Delaware                                                          Identification
                                                                  No. 95-3640931

           Securities Registered pursuant to Section 12(g) of the Act:

                         Common Stock ($.001 par value)
                             ----------------------
                               Title of Each Class

               Number of shares of Common Stock ($.001 par value)
                  Outstanding as of April 25, 2001: 16,199,493

            Aggregate market value of Common Stock ($.001 par value)
                    held by non-affiliates on April 25, 2001
          based on the last sale price on April 25, 2001: $247,160,901

            Indicate by check mark if disclosure of delinquent filers
         pursuant to Item 405 of Regulation S-K is not contained herein
            and will not be contained to the best of the registrant's
            knowledge, in definitive proxy or information statements
           incorporated by reference in Part III of this Form 10-K or
                      any amendment to this Form 10-K. ( )

                       Documents Incorporated by Reference

         Document                                       Part of Form 10-K
         --------                                       -----------------
   Proxy Statement for the Annual                            Part III
   Meeting of Stockholders



<PAGE>

                                     PART I

Item 1.  Business

                                   The Company

Aphton  Corporation  is a  biopharmaceutical  company in advanced stage clinical
trials. We are developing products using our innovative  vaccine-like technology
for neutralizing,  and removing from  circulation,  hormones that participate in
gastrointestinal  system and reproductive system cancer and non-cancer diseases.
We also are developing products to neutralize hormones to prevent pregnancy.  We
have strategic  alliances  with Aventis  Pasteur  (NYSE:  AVE),  GlaxoSmithKline
(NYSE:  GSK),  Schering  Plough Animal  Health (NYSE:  SGP) and the World Health
Organization (WHO).

Aphton is engaged in the research  and  development  and clinical  trials of its
products,  both independently and through various strategic  alliances.  We have
financed  our  operations  since  inception  through  the  sale  of  our  equity
securities and, to a lesser extent,  using  operating  revenues from R&D limited
partnerships to conduct research and  development.  These funds provided us with
the  resources  to  acquire  staff,   construct  our  research  and  development
facilities,  acquire  capital  equipment  and  finance  technology  and  product
development,  manufacturing and clinical trials. Aphton Corporation,  a Delaware
corporation,  was  incorporated  in 1981.  The  Common  Stock of Aphton has been
trading on Nasdaq's  National Market System since June 2, 1994.  Aphton had been
traded in the Nasdaq Small-Cap Issues (formerly  over-the-counter)  market since
April 1, 1991,  the date of Aphton's  initial  public  offering.  The  Company's
Common Stock is traded under the symbol "APHT."

Aphton's primary development efforts are for products to treat  gastrointestinal
system cancers and  reproductive  system  cancers.  In 1997, the Company entered
into a strategic  alliance with Pasteur Merieux  Connaught,  now Aventis Pasteur
for products that treat  gastrointestinal  cancers. In 1998, the Company entered
into a strategic  alliance with  SmithKline  Beecham,  now  GlaxoSmithKline  for
products that treat reproductive system cancers.

                                Basis of Approach

Aphton's  approach  to the  treatment  of major  diseases  is to  employ  (anti)
"hormone therapy." Aphton's hormone therapy involves neutralizing,  or blocking,
targeted hormones which play a critical role in diseases of the gastrointestinal
and  reproduction  systems.  Aphton has selected the strategy of hormone therapy
because it has proved,  over many years,  to be  efficacious in the treatment of
major diseases,  both malignant and  non-malignant.  In short,  this risk-averse
strategy has been proven to be effective in humans.  Well-documented examples of
such efficacy in humans are blocking  gastrin  (Proglumide) or blocking  another
hormone  stimulated by gastrin,  namely histamine (Zantac,  Tagamet),  to reduce
stomach  acid.  These treat GERD  (gastroesophageal  reflux  disease,  or severe
"heart  burn"),  ulcerations  of the  esophagus  and peptic  ulcers.  Additional
examples  are  blocking  estrogen  (Tamoxifen),  for breast  cancer  therapy and
blocking the production of  testosterone  (Lupron,  Zoladex) for prostate cancer
therapy.

                               Results and Status

The status of our products under  research and  development is summarized in the
following table.

<TABLE>

<CAPTION>

   Product           Indication(s)             Product Description                  Status*          Strategic
   -------           ------------              -------------------                  -------          Alliances
                                                                                                     ---------

<S>                   <C>                 <C>                                  <C>                     <C>    <C>    <C>

Anti-Gastrin 17 for   Advanced            The vaccine, containing a portion     Phase III clinical     Aventis
Gastrointestinal      pancreatic cancers  of the hormone gastrin 17 (G17),      trial:  G17DT          Pasteur
Cancers                                   and diphtheria toxoid (DT),           administered with
                                          chemically bound together to form     Gemcitabine, a
                                          G17DT, neutralizes both G17 and the   chemotherapy
                                          hormone Gly-G17 to treat
                                          advanced pancreatic cancer.


</TABLE>


                                                                 -2-

<PAGE>

<TABLE>

<CAPTION>

   Product           Indication(s)             Product Description                  Status*          Strategic
   -------           ------------              -------------------                  -------          Alliances
                                                                                                     ---------
<S>                   <C>                 <C>                                  <C>                     <C>    <C>    <C>
Anti-Gastrin 17 for   Advanced stomach    The vaccine, containing a portion     Phase II clinical      Aventis
Gastric and           cancer and/or       of the hormone gastrin 17 (G17),      trial: G17DT           Pasteur
Gastro-Esophageal     esophagus cancers   and diphtheria toxoid (DT),           administered with
Cancers                                   chemically bound together to form     Cisplatin, a
                                          G17DT, neutralizes both G17 and the   chemotherapy
                                          hormone Gly-G17 to treat
                                          advanced stomach cancer and/or
                                          esophagus cancer.

Anti-Gastrin 17 for   Colorectal cancers  The vaccine, containing a portion     Phase II clinical      Aventis
Chemo-refractory                          of the hormone gastrin 17 (G17),      trial: G17DT           Pasteur
Colorectial Cancers                       and diphtheria toxoid (DT),           administered with
                                          chemically bound together to form     Irinotecan, a
                                          G17DT, neutralizes both G17 and the   chemotherapy
                                          hormone Gly-G17 to treat
                                          chemo-failed or chemo-resistant
                                          patients with colorectal cancer.

GnRH Pharmaccine      Reproductive        A vaccine that neutralizes the GnRH   Phase II clinical      GlaxoSmith
                      system cancers      hormone for hormone-failed or         trial: GnRH            Kline
                      (including          hormone-resistant patients with       pharmaccine
                      prostate cancer)    prostate cancer.                      administered with
                                                                                Taxotere, a
                                                                                chemotherapy

Anti-Gastrin 17       Gastro-intestinal   An anti-gastrin vaccine,              Phase II clinical      None
Encapsulation         ulcerations and     encapsulating G17DT, that             trial
(G17eDT) for          GERD                neutralizes G17 to treat
Gastro-Esophageal                         gastro-intestinal ulcerations and
Reflux Disease                            GERD.
(GERD)

Immuno-               Prevent pregnancy   A prophylactic (contraceptive)        Phase II clinical      World Health
Contraception         in women            vaccine that neutralizes a female     trial                  Organization
                                          hormone known as hCG.

</TABLE>


*Clinical  trials  of a new drug are  typically  conducted  in three  sequential
phases.  Phase I studies typically test the product for safety tolerance.  Phase
II studies involve limited trials to determine the optimal dose and frequency of
administration and an indication of efficacy for defined  indications.  When the
product has been found safe and shows  promise of efficacy,  further  trials are
undertaken in Phase III to fully evaluate  clinical efficacy and to further test
for safety typically using a large number of patients at geographically  diverse
medical centers.

Anti-Gastrin Immunogen

Aphton's current  anti-gastrin  immunogen,  or vaccine,  clinical programs treat
several human gastrointestinal  system  adenocarcinomas,  including those of the
esophagus,  stomach,  pancreas,  liver,  colon and rectum.  These cancers of the
gastrointestinal   system  are  stimulated  by  the  hormones   gastrin  17  and
glycine-extended gastrin


                                      -3-


<PAGE>


17.  Aphton's  proprietary  anti-gastrin  immunogen  induces  antibodies  in the
patient that  neutralize  both of them. The company knows of no other vaccine or
drug that selectively blocks or neutralizes both gastrin 17 and glycine-extended
gastrin 17. Aphton believes that its anti-gastrin vaccine can extend survival in
patients suffering from adenocarcinomas of the gastrointestinal  system, without
adding toxicity to a therapy regimen.

Aphton has successfully  completed Phase I/II safety and dose ranging trials and
has reported on the results  through  news  releases  and in  publications  with
collaborating scientists in the US and abroad, in peer-reviewed journals.

The most recent of these was on  February  9, 2001,  at a meeting of the British
Society of Upper Gastrointestinal  System Surgeons held in the UK. The principal
investigator  in the study  presented  results  from a second  Phase II clinical
trial for advanced pancreatic cancer patients treated with Aphton's anti-gastrin
therapeutic vaccine. These results showed greater increased survival of patients
treated with Aphton's anti-gastrin vaccine as compared to the increased survival
results in the first Phase II trial with advanced  pancreatic  cancer  patients,
announced last year by Aphton. The study consisted of 33 evaluable patients, all
of whom had  advanced  pancreatic  cancer.  All  patients in the trial  received
Aphton's  anti-gastrin  vaccine,  at  one  dose-level,  with  no  additional  or
concurrent therapies.

Overall   median   survival  of  the  33  evaluable   patients  was  8.6  months
post-initiation  of  therapy  (and 10 months  post-diagnosis),  compared  to 6.7
months post initiation of therapy for the first study.  The median  survivals of
both Phase II studies  compare  favorably  with  published data showing a median
survival of  approximately  4.3 months for  patients  with  advanced  pancreatic
cancer, who either receive no therapy or do not respond to additional therapies.
Gemcitabine,  the  only  approved  drug  in the US for  pancreatic  cancer,  was
reported in its trial adding approximately 5 to 6 weeks to the 4.3 months median
survival for advanced pancreatic cancer patients.

Of equal or greater  significance,  in our view,  is that the  expected one year
patient  survival in this study is 30%.  This  compares to an expected  one year
patient survival of 5% for untreated or  non-chemo-responding  patients,  and an
expected one year patient survival of 15% for patients treated with gemcitabine,
as  reported  in the medical  literature.  In  addition,  it was  reported  that
Aphton's  anti-gastrin  therapy was well  tolerated  with no systemic  toxicity,
consistent with all previous Aphton clinical trials.

During the past 10K reporting period, Aphton significantly expanded its clinical
trials programs.  Aphton is currently in late-stage  clinical trials in both the
US and in Europe to treat  patients with  advanced  pancreatic,  colorectal  and
gastric (stomach)/esophageal adenocarcinomas.

These include:
     a)   a Phase III clinical  trial in the US for the  treatment of metastatic
          pancreatic cancer, with a combination  immuno-chemo therapy regimen of
          Aphton's  anti-gastrin 17 immunogen and gemcitabine  (Gemzar),  versus
          gemcitabine.  Gemcitabine, a chemotherapeutic, is the current standard
          of care for  treatment  of  pancreatic  cancer  in the US;

     b)   a second Phase III trial in the UK and on the continent of Europe, for
          the treatment of advanced  pancreatic cancer. In this trial,  Aphton's
          anti-gastrin   17   immunogen  is  being   tested   directly   against
          gemcitabine, since gemcitabine has not been adopted as the standard of
          care in every  country  in  Europe  for the  treatment  of  pancreatic
          cancer;

     c)   a  clinical  trial  in the US and on the  continent  of  Europe,  with
          patients who have failed the approved chemotherapy regimen of 5-FU and
          irinotecan,  for the treatment of colorectal  cancer,  stage Dukes' D.
          These "chemo-refractive" patients are being treated with a combination
          regimen of Aphton's anti-G17 immunogen and irinotecan;

     d)   a late-stage  clinical trial in the US and on the continent of Europe,
          for the  treatment of  metastatic  gastric  (stomach)  cancer,  with a
          combination  immuno-chemo therapy regimen of Aphton's  anti-gastrin 17
          immunogen and 5-FU plus cisplatin.

Anti-Gastrin Immunogen Alliance

In 1997 Aphton signed an agreement  with Pasteur  Merieux  Connaught (now called
Aventis Pasteur),  for a strategic alliance for all human cancer applications of
its anti-gastrin immunogen product,  including  stomach/esophageal,  colorectal,
and pancreatic cancers. Under the terms of the twenty-year agreement,  Aphton is
responsible  for product  development,  clinical  trials and  regulatory  agency
approvals,  and Aventis  Pasteur is responsible for and will fund the promotion,
advertising,  marketing, distribution and sales of Aphton's anti-gastrin vaccine
in North America,  Mexico and Europe.  In addition,  Aphton and Aventis  Pasteur
have entered into agreements  providing for the supply


                                      -4-



<PAGE>


of certain  components  of the  anti-gastrin  immunogen (as well as other Aphton
products) from Aventis Pasteur to Aphton. See our full discussion of the Aventis
Pasteur agreements under Strategic Alliances in this Section.

GnRH pharmaccine

Overview
Aphton has developed a second major  anti-hormone  immunogen,  GnRH pharmaccine,
for  human  cancer  indications,  one  that  targets  the  reproductive  hormone
Gonadotropin Releasing Hormone (GnRH). By successfully  neutralizing  (blocking)
GnRH, the immunogen shuts down the production of estrogen and  progesterone  (in
females)  and  testosterone  (in males),  which are  normally  produced in their
respective  gonadal organs.  Estrogen fuels breast cancer and testosterone fuels
prostate cancer.  It has been known for decades that biological  blockage,  like
physical  castration,  is  efficacious  in the  treatment of prostate and breast
cancers. Aphton's anti-GnRH immunogen induces biological blockage.

Aphton  successfully  completed a pilot Phase I/II safety and dose ranging trial
and has reported on the results through a news release and in a publication with
collaborating scientists in the UK, in a peer-reviewed journal.

The  primary  purpose of the safety and dose  ranging  trial was to  demonstrate
safety;  the  secondary  purpose  was to  gather  data  using  various  doses of
immunogen  and to show  that a  biological  castration  could  be  induced  with
Aphton's immunogen.

Aphton's GnRH  pharmaccine  reduced,  in some patients at the lowest dose level,
gonadal testosterone to levels achieved by surgical castration.  This biological
castration  demonstrated  "proof of concept" in man. In  addition,  the prostate
cancer  "progression"  marker,  Prostate  Specific  Antigen  (PSA),  was reduced
markedly in these patients to very low levels,  in some cases from  triple-digit
to single-digit.

Aphton is now in a Phase II clinical  trial in the US to treat  prostate  cancer
patients who have failed hormone therapy (called hormone  refractory  patients),
with a combination immuno-chemo therapy regimen comprised of Aphton's immunogen,
called GnRH pharmaccine,  and the chemotherapeutic  taxotere. Such patients will
likely  have been  treated  with a GnRH  agonist  drug (to  achieve  a  chemical
castration) or an orchiectomy (a surgical castration), following therapy for the
primary tumor, but will have metastases, relapsed and have a rising PSA.

Strategic Alliance
In June 1998,  Aphton and  GlaxoSmithKline  signed a  Collaboration  and License
agreement,  granting  GlaxoSmithKline  exclusive  rights  worldwide  to Aphton's
GnRH-related  patents  and  proprietary  technology.  The  agreement  covers the
diagnosis,  treatment and prevention of GnRH-related  cancers and other diseases
in humans.  Human cancer  indications  for the  anti-GnRH  product are prostate,
breast,  ovarian and endometrial cancer.  Additional medical indications for the
anti-GnRH  product are  endometriosis,  polycystic  ovaries,  uterine  fibroids,
contraception, infertility and precocious puberty. Under terms of the agreement,
Aphton and  GlaxoSmithKline  are  collaborating  in a joint product  development
program,  with  GlaxoSmithKline  responsible  for clinical trials and regulatory
approvals,  and for worldwide  marketing and distribution of approved  products.
The  agreement  uses a royalty  mechanism  based on product  sales,  in dollars,
worldwide  to  determine  Aphton's  revenues.  See our  full  discussion  of the
GlaxoSmithKline license agreement under Strategic Alliances in this Section.

GERD
Aphton is also in late-stage product development with its anti-Gastrin immunogen
approach for the treatment of gastroesophageal reflux disease (GERD), also known
as  "severe  heartburn."  GERD  affects  more than 10% of the adult  population.
Prescription  drugs to treat  this  problem  have  annual  revenues  of over $13
billion.  Aphton believes it's therapy for GERD, which is not yet partnered with
any drug company,  will obviate major risks  associated  with current  therapies
while still providing their benefits. As a preliminary to conducting a Phase III
trial  for  GERD,  Aphton  is  conducting  limited  Phase II trials in Europe to
optimize the product, given the different  performance-profile  desired for this
major, non-cancer application.


                                      -5-


<PAGE>


Immunocontraceptive
Aphton's anti-hCG  immunocontraceptive  product,  which prevents pregnancy,  has
been in a Phase II trial, funded by the World Health Organization (WHO). See our
discussion  of the WHO  strategic  alliance  under  Strategic  Alliances in this
Section.

Equine Anti-Gastrin Immunogen
A product  development  and analysis  study is being  conducted  using  Aphton's
Equine  (horse)  anti-gastrin  immunogen to reduce  stomach acid and heal peptic
ulcers in horses.  In 1997, the Company  entered into a strategic  alliance with
Schering-Plough  Animal Health  covering all animal health  applications  of our
anti-gastrin immunogen.  See our discussion of the Schering-Plough Animal Health
agreement under Strategic Alliances in this Section.

                                   Technology

Aphton's  approach  to the  treatment  of major  diseases  is to  employ  (anti)
"hormone therapy." Aphton's hormone therapy involves neutralizing,  or blocking,
certain  hormones  that  play  a  critical  role  in  these  diseases.  This  is
accomplished by immunizing the patients with a product called, appropriately, an
"immunogen,"   that  induces  in  them  a  directed   antibody   response  which
neutralizes, and removes from circulation, the targeted hormone.

Aphton  has  developed  an  innovative  and  proprietary   active   immunization
technology  platform  to create  effective  immunogens,  which are  vaccine-like
products.  They  harness  and  direct  the  body's  immune  system  to  generate
antibodies,  which  bind  to  specific  peptide  portions  of  the  administered
immunogen.  These antibodies  cross-react (bind) with targeted "self" molecules,
such as hormones,  when they  encounter  that  portion of the hormone,  which is
similar to the peptide portion of the administered  immunogen.  Because diseases
involving hormones are not pathogen  (microorganism)  driven, they have not been
viewed  traditionally as being  susceptible to treatment using the body's immune
system. Instead, the traditional pharmaceutical industry approach to controlling
these diseases has been to treat them with synthetic drugs. Unfortunately, these
drugs  typically must be administered  in relatively  large  quantities and on a
daily or more frequent basis,  giving rise to patient compliance  problems,  and
often have adverse side effects.

More recently,  drugs based on passive immunization using monoclonal antibodies,
derived from mouse  antibodies,  have been introduced to treat certain  cancers.
Aphton's active immunization technology platform can be targeted to give rise to
a polyclonal  antibody  response,  derived from the patient's own immune system,
against any  hormone,  molecule,  cell  receptor  or surface  antigen to which a
monoclonal antibody can be targeted.  Moreover, Aphton's technology platform has
significant  advantages over passive  immunization  with  monoclonal  antibodies
(humanized or human). These include: a) the patient needs only a booster shot at
approximately six month intervals after the initial  immunization  protocol with
Aphton's  immunogens,  rather than having to infuse the patient with  monoclonal
antibodies  on a weekly  basis,  for one to two  hours  each  time;  b)  passive
immunization with monoclonal antibodies requires thousands of fold more material
to be administered,  at much higher costs, than Aphton's active immunization; c)
Aphton's  immunogens  are  formulated  and  composed  of  ingredients  that  are
manufactured  using low-cost,  proven,  organic  chemistry and classical vaccine
technology,  while monoclonal antibody  manufacturing  plants are limited,  more
complex, more expensive and of limited production capacity for years to come; d)
active  immunization and the ensuing  polyclonal  antibodies induced by Aphton's
immunogens  avoid or greatly  mitigate  the  problems of mutation and changes in
receptor  or other  antigen  configurations,  as the cancer  progresses;  e) the
binding  affinity of  monoclonal  antibodies  is  normally  lower than the mouse
antibody from which they had been derived, and lower than polyclonal  antibodies
resulting  from Aphton's  active  immunization.  Furthermore,  while  monoclonal
antibodies'   affinity  remains  static,  the  binding  affinity  of  polyclonal
antibodies   progressively   rises  through  a  dynamic  process  called  clonal
selection.

In contrast to either drugs or monoclonal antibodies, Aphton's immunogens create
a  strong  antibody  response  from  the  patient's  own  immune  system  (which
effectively  becomes a "drug factory") and have a more potent and longer-lasting
therapeutic  effect.  Aphton's  technology  enables it to specifically  target a
small  sequence  within  the  hormone to be  neutralized,  in order to achieve a
specific desired  biological and physiological  response.  This approach directs
all of the immunogen-induced antibodies to the targeted hormone sequence. At the
same time it minimizes the possibility of undesired  physiological  consequences
through  cross-reactivity  of the  immunogen  with any self  molecule or portion
thereof, other than the specifically-targeted  hormone sequence. This avoids the
possibility of autoimmune  disease where the antibody  production is not "turned
off." This is because the  antibody  production


                                      -6-


<PAGE>

can only be "turned on and kept on" in the  presence of the  foreign,  "carrier"
portion of the immunogen  (see below).  Indeed,  without a "booster shot" of the
immunogen,  the antibodies  wane  (diminish)  and are cleared by the body,  over
time.  Aphton's  products may be  administered  in much smaller dosages and on a
much less frequent basis than pharmaceutical drugs; typically twice a year. This
virtually eliminates the problem of patient compliance, which is associated with
pharmaceutical drugs.

Aphton's anti-gastrin immunogen product, for example, consists of:

     (a)  A  synthetic  peptide,  which is similar  to a portion of the  hormone
          gastrin  17 which is  targeted  to be  neutralized  (i.e.,  blocked or
          prevented from reaching and binding to its receptor).

     (b)  A "carrier,"  Diphtheria Toxoid (DT),  foreign to the body, to which a
          number  of  the  synthetic   peptides  in  (a)  are  chemically  bound
          (conjugated).  This  makes  them  available  to be both  bound to and,
          together  with the DT,  internalized  by  "B-cells."  DT contains  the
          structures  (epitopes)  which,  when  internalized  and "presented" on
          B-cells  and  Macrophages,  are bound to by  "T-cells."  By binding to
          these foreign epitopes,  these T-cells in turn, proliferate and signal
          the  B-cells,  which bind to the peptides  (a) to  proliferate  and to
          "mass  produce"  the  desired  antibodies  (all of  which  bind to the
          peptide (a)).

     (c)  A proprietary,  slow-release  "suspender"  which contains (a) and (b).
          This "delivery  vehicle" is designed to enable the achievement of four
          objectives,  concurrently:  i) a high  antibody  response;  ii) a long
          antibody  response;  iii) no  systemic  toxicity;  and  iv)  long-term
          stability, or "shelf-life."

The anti-gastrin product, which is administered by injection, with booster shots
at approximately  six-month  intervals,  thus induces  antibodies in the patient
which  bind  with  peptide  (a) and  which  also  bind  (cross-react)  with  and
neutralize  gastrin 17 (when they  encounter that portion on gastrin 17 which is
similar to  peptide  (a)).  Gastrin  17 is known to drive (or fuel)  colorectal,
stomach, liver and pancreatic cancer.  Neutralizing gastrin 17 inhibits both the
growth and metastasis (spread) of these  gastrointestinal  cancers. In addition,
the anti-gastrin product uniquely neutralizes glycine-extended gastrin 17, which
has  also  been  shown   recently   to  be   secreted   by  and  to  fuel  these
gastrointestinal system cancers.

Gastrin 17 is also  responsible  for the  production of the bulk of stomach acid
(approximately  90% in  humans),  the  reduction  of  which is  therapeutic  for
gastroesophageal  reflux  disease  (GERD) and for both  peptic  ulcers and NSAID
-induced ulcers (NSAID examples include aspirin and ibuprofen).

Aphton's anti-GnRH product is similarly constructed. In this case, the synthetic
peptide  sequence in (a)  represents  the hormone GnRH,  which is targeted to be
neutralized. Neutralizing GnRH inhibits the production of estrogen, progesterone
and  testosterone.  Inhibiting  estrogen (and  progesterone)  is therapeutic for
women with breast cancer,  endometrial cancer, ovarian cancer and endometriosis.
Inhibiting testosterone is therapeutic for men with prostate cancer.

Aphton's  immunocontraceptive  product,  which prevents  pregnancy in humans, is
also similarly  constructed.  In this case, the so-called  "C-terminal"  peptide
portion of the hormone hCG (which is targeted to be neutralized) is synthesized.
A second,  unique  epitope  (peptide),  located on the hormone  hCG, is now also
conjugated to the  immunogen,  which  enhances  efficacy.  By not using a larger
portion of the hCG molecule,  Aphton avoids inducing unwanted antibodies against
other hormones in the woman (LH and FSH), which share domains with some portions
of the hormone hCG. Pregnancy is prevented by immunizing the woman; this induces
antibodies which bind to and neutralize hCG.

                               Strategic Alliances

Aventis Pasteur
In February  1997, we signed an agreement  with Pasteur  Merieux  Connaught (now
called  Aventis  Pasteur),  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 our anti-gastrin  immunogen  product including
stomach, colorectal,  liver and pancreatic cancer applications.  Under the terms
of the twenty-year  license and co-promotion  agreement,  we are responsible for


                                      -7-


<PAGE>


product development,  clinical trials and regulatory approvals.  Aventis Pasteur
was granted an exclusive  license to promote,  market,  distribute  and sell the
anti-gastrin  immunogen product in the United States,  Canada, Europe (including
the  Commonwealth of Independent  States  countries) and Mexico,  subject to our
right to co-promote the product either  independently or in  collaboration  with
Aventis Pasteur.

In  addition  to  the  license  and  co-promotion  agreement,  we  entered  into
agreements  with Aventis  Pasteur  providing for the supply of the  anti-gastrin
immunogen  product  from us to  Aventis  Pasteur  for  distribution  and sale by
Aventis Pasteur pursuant to the license and co-promotion  agreement,  as well as
the supply of Diphtheria Toxoid and/or Tetanus Toxoid from Aventis Pasteur to us
for  use  in the  anti-gastrin  immunogen  product  (as  well  as  other  Aphton
products).   Aventis  Pasteur  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 a
supply commitment (of Diphtheria Toxoid and/or Tetanus Toxoid suitable for human
use) of $9 million,  we will  receive the  majority of the profits from sales of
the  anti-gastrin  immunogen  product.  Diphtheria  Toxoid and/or Tetanus Toxoid
suitable for human use is not readily  obtained on the open market in such large
quantities as will be supplied to us as part of the upfront  consideration.  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.  We do not  speculate on the timing of
regulatory approvals.

Either party may  terminate  the  agreement  for,  among other  things,  uncured
material  breach or certain events of bankruptcy or insolvency.  Aventis Pasteur
has the right to terminate  the  agreement,  following  completion  of Phase III
clinical  trials in the event that it  determines  that for safety and  efficacy
reasons it does not wish to co-promote, market or sell the product. In the event
that the agreement is terminated  due to a material  breach by Aventis  Pasteur,
all  rights of Aventis  Pasteur  granted by the  agreement  will be  terminated.
However,  Aventis  Pasteur's  obligations with regard to the $10 million upfront
consideration,  both  the  cash  and  our  rights  to the  full  $9  million  in
unconditional supply commitment,  survive termination of the agreement. There is
no provision under the agreement for the  unconditional  supply commitment to be
satisfied  by  Aventis  Pasteur  with a cash  payment.  In the  event  that  the
agreement is  terminated  due to a material  breach by us, we will,  among other
things,  grant Aventis  Pasteur a  co-exclusive  license,  under our patents and
know-how in North  America and Europe and the  product  trademarks,  to make and
sell the anti-gastrin  immunogen product in exchange for royalty payments to the
other party at a royalty rate based on a percentage of net sales.

GlaxoSmithKline
In June 1998, we signed a  collaboration  and license  agreement with SmithKline
Beecham, now called  GlaxoSmithKline,  granting it exclusive rights worldwide to
our GnRH-related patents and proprietary  technology.  The twenty-year agreement
covers the diagnosis, treatment and prevention of gonadotropin,  gonadal steroid
hormone and  GnRH-related  cancers and other  diseases in humans.  Human  cancer
indications for the anti-GnRH  product  include  prostate,  breast,  ovarian and
endometrial   cancer,  in  each  case,  either  alone  or  in  combination  with
chemotherapy.  Additional medical  indications for the anti-GnRH product include
endometriosis, polycystic ovaries, uterine fibroids, contraception,  infertility
and  precocious  puberty.  The agreement uses a royalty  mechanism  based on net
sales of the product,  worldwide, to determine our revenues.  Under terms of the
agreement,  we  are  collaborating  with  GlaxoSmithKline  in  a  joint  product
development program,  with  GlaxoSmithKline  responsible for worldwide marketing
and distribution of approved  products.  Under the agreement as amended,  we are
responsible for the initial cost of product  development prior to the acceptance
of the  anti-GnRH  product by both  parties.  Our  product  development  work is
reviewed on an ongoing basis with  GlaxoSmithKline  and after the  acceptance of
the product by both parties for development,  GlaxoSmithKline is responsible for
the funding of the development  costs of the accepted  product,  clinical trials
and approvals for worldwide  marketing and  distribution up to an agreed amount.
We believe that this product will be accepted in 2002,  although there can be no
assurance that we will achieve our goal.

As part of the agreement,  GlaxoSmithKline  made an equity investment in 1998 of
$5,000,000 for 237,867 shares of newly issued Aphton common stock.  Either party
may terminate the agreement for, among other things,  uncured material breach or
certain events of bankruptcy or insolvency.  Under the agreement as amended,  if


                                      -8-


<PAGE>


the  anti-GnRH  product has not been formally  accepted by both parties,  either
party may terminate  the  agreement in 2002.  Once the product has been accepted
for further  development,  GlaxoSmithKline  may only terminate the agreement for
safety,  efficacy or economical reasons and Aphton may terminate for the reasons
stated above. During the term of the agreement,  GlaxoSmithKline  will have full
access to all matters  encompassed  within our patents and know-how  relating to
the  anti-GnRH  product.  Upon  termination  or  expiration  of  the  agreement,
GlaxoSmithKline  will  cease  to have the  right  to use or sell  the  anti-GnRH
product, and all registrations and intellectual property rights in the anti-GnRH
product will be fully  transferred  to us. Until the  agreement is terminated or
otherwise  expires,  any invention or discovery made jointly by  GlaxoSmithKline
and us during the  development  program will be jointly  owned,  and the product
trademarks and any intellectual  property developed by  GlaxoSmithKline  will be
owned by them.

The  Schering-Plough  Animal Health agreement and the World Health  Organization
(WHO)  agreement  described  below  together  account  for  less  than 1% of our
research and development efforts and expenditures.

Schering-Plough Animal Health
In August 1997, we completed a strategic  alliance with  Schering-Plough  Animal
Health covering all animal health  applications of our  anti-gastrin  immunogen.
Schering-Plough,  in  terms  of  annual  sales,  is one of  the  largest  animal
healthcare  companies in the world.  Equine  (horse)  ulcers was selected as the
first  indication  to be  pursued  under  the  alliance.  Under the terms of the
ten-year agreement,  we have granted Schering-Plough an exclusive license in the
US to promote,  distribute and sell the anti-gastrin immunogen product under our
patents and know-how.  Schering-Plough will work closely with our scientists and
management  to bring  the  anti-gastrin  immunogen  product  to  market.  We are
currently  responsible  for  developing  the  costs of the  product  and for the
manufacture  and  supply of the  product.  Schering-Plough  is  responsible  for
certain  current and future  capital costs and financial  requirements,  product
development costs and clinical trial costs, and product introduction,  promotion
and marketing.

The  agreement  provides  that we  will  share  equally  all  net  profits  with
Schering-Plough,  initially taking into account certain research and development
costs of Schering-Plough in determining net profits.  Either party may terminate
the agreement for, among other things, uncured material breach or certain events
of  bankruptcy  or  insolvency.  Upon prior  notice to us,  Schering-Plough  may
terminate the  agreement for safety or efficacy  reasons.  Upon  termination  or
expiration of the agreement, Schering-Plough will cease to have the right to use
or  sell  the  anti-gastrin   immunogen   product  and  all   registrations  and
intellectual property rights in the anti-gastrin immunogen product will be fully
transferred to us. Until the agreement is terminated or otherwise  expires,  any
intellectual  property  developed  jointly  by  Schering-Plough  and us  will be
jointly  owned,  and  the  product  trademarks  and  any  intellectual  property
developed by Schering-Plough will be owned by them.

World Health Organization
In January  1995,  we  announced a  relationship  with WHO and another  research
party, for the development and testing of an immunocontraceptive  product (which
prevents   pregnancy),   under  which  we  received  exclusive  rights  for  the
manufacture,   distribution  and  supply  of  the  immunocontraceptive   product
worldwide,  for the term of the applicable patents on a patent-by-patent  basis.
In exchange for these rights,  we make payments to support  certain  research by
the research party.

In the event that a safe and effective product is developed,  we have undertaken
to WHO to  dedicate  a portion of our  production  capacity  for the  product to
produce and supply the product to public sector agencies in developing countries
only, according to a cost-related pricing structure.  Either party may terminate
the agreement for uncured  material breach by the other party. In the event that
we have  ceased and  continue  to cease to  perform  our  obligations  under the
contract,  WHO may  terminate  the agreement and we will grant WHO an exclusive,
royalty-free  license  to our  technology  to  develop,  manufacture  and supply
immunocontraceptive  products to public sector agencies in developing  countries
only,  as  well  as  a  non-exclusive,   royalty-bearing   license  to  develop,
manufacture and supply  immunocontraceptive  products in developed countries and
to the  private  sector  generally.  Once the  immunocontraceptive  product  has
reached a certain development stage and subject to certain consequences, WHO may
be released from its obligations  under the agreement for lack of funds or after
an  assessment  of safety and  efficacy of the  product and the Company  will be
released from its obligations.

                           Manufacturing and Marketing

Absent  or  together   with  a  strategic   alliance  or  corporate   partnering
relationship (such as those with Aventis Pasteur and GlaxoSmithKline)  which may


                                      -9-


<PAGE>


impact on the following, Aphton plans to commercialize its products by executing
long-term   contracts  with  third  parties,   including  major   pharmaceutical
companies,  to  manufacture  its products and by  contracting  with similar drug
companies to market, sell and distribute its products.

The contract  (outsourcing)  manufacturing  approach  leverages on the large and
available manufacturing  resources of pharmaceutical industry companies.  Aphton
has  contracted  with drug  manufacturing  sources which are providing  Aphton's
immunogens for toxicology studies and clinical trials.  Aphton's  outsourcing of
marketing,  distribution  and sales,  as  exemplified  by the  Aventis  Pasteur,
GlaxoSmithKline   and  Schering-Plough   Animal  Health  agreements,   similarly
leverages on the large and  effective  sales forces of the major  pharmaceutical
companies.  Aphton's  capital  formation,  personnel  and  plant  and  equipment
requirements,  together with  associated  risks,  are clearly greatly reduced by
such  a  commercialization  strategy,  which  Aphton  pioneered.  In  fact,  the
outsourcing of non-core  functions has now been adopted by major drug companies.
This strategy  significantly  enhances  Aphton's ability to achieve rapid market
penetration  and growth and to exploit  the  benefits  of the patent life of its
products.

                              Strategy and Earnings

It should be noted  that  Aphton's  product  development  and  commercialization
strategy differs  significantly from the normal "licensing" of products to third
parties.  In the  former,  Aphton can retain a  significantly  larger  degree of
control,  share of profits and thus  earnings.  Under  typical  licensing  (with
royalty payments which are generally a small percentage of sales),  the opposite
would be the case. By avoiding the industry norm of "corporate  partnering" with
drug companies in its earlier  development  stages,  and by both undertaking and
overcoming the associated  risks during product  development,  Aphton has earned
and  retained   its  options  and  the  ability  to  optimally   carry  out  its
commercialization  approach.  This  strategy  was  successfully  validated  with
Aphton's  agreements with Aventis Pasteur,  GlaxoSmithKline  and Schering-Plough
Animal Health.

                            Patents and Trade Secrets

Proprietary  protection  for  Aphton's  products  is  central  to the  Company's
business.  Aphton's  policy is to protect its technology by, among other things,
filing patent  applications in worldwide  markets of interest for products which
it considers  important and intends to market. In that regard,  Aphton has filed
patent applications and has continued to receive patents for its products,  both
domestic  and  foreign.  As of December  14, 2001 we held 24 issued  patents and
approximately 5 licenses.  Additional patent  applications are in preparation or
being filed or are pending in the US and in other  countries.  Aphton intends to
continue filing  additional  patent  applications  relating to its products and,
when  appropriate,  improvements  in its technology and other specific  products
that it develops.

                                   Competition

The biotechnology and pharmaceutical industries are subject to rapid and intense
technological change. Our competitors include major pharmaceutical companies and
specialized   biotechnology   firms  supported  by  universities   and  research
institutions.  Our  current  competitive  position  with  respect to each of our
products is summarized in the following table.

<TABLE>

<S>                       <C>                <C>

      Product             Indication(s)                                 Competition
Anti-Gastrin 17 for       Advanced           The only FDA-approved drug currently available for pancreatic cancer
Gastrointestinal Cancers  pancreatic         is Gemcitabine manufactured by Eli Lily.  Our anti-Gastrin 17 product
                          cancers            is intended to be an additive or complementary therapy administered
                                             with Gemcitabine. We believe two other pharmaceutical companies,
                                             Pharmacia & Upjohn and AstraZeneca, are also developing pancreatic
                                             cancer therapy.

Anti-Gastrin 17 for       Advanced           There is currently no FDA-approved drug available for gastric cancer
Gastric and Gastro-       stomach cancer     or gastro-esophageal cancer. FDA-approved chemotherapies used to
Esophageal Cancers        and/or             treat cancer in other indications, as well as experimental cancer drugs
                          esophagus          in clinical trials, are currently being tried on patients with advanced
                          cancers            gastric cancer or gastro-esophageal cancer. Roche Laboratories and Bristol-Myers
                                             Squibb are among our competitors in this market.
</TABLE>


                                                                -10-


<PAGE>


<TABLE>

<S>                       <C>                <C>

      Product             Indication(s)                                 Competition

Anti-Gastrin 17 for       Colorectal         There is currently no FDA-approved drug available for this stage of disease. Imclone, a
Chemo-refractory          cancers            biotechnology company, is developing a monoclonal antibody therapy for chemo-refractory
Colorectal Cancers                           colorectal cancer. This potentially  competitive and/or complementary therapy employs a
                                             different mechanism of action on and within the cancer cell.


GnRH Pharmaccine          Reproductive       There is currently no FDA-approved  drug for advanced prostate cancer patients who have
                          system cancers     failed  the  GnRH  agonists,   Leuprolide  or  Goserelin. We  believe  several  other
                                             pharmaceutical  companies,  including  Pharmacia Upjohn, Immunex and AstraZeneca,  are
                                             conducting clinical trials for this class of patients.

Anti-Gastrin 17           Gastro-intestinal  Unlike G17eDT, none of the products currently available treat hyper-gastrinemia, which
Encapsulation (G17eDT)    ulcerations and    results from standard of care therapy using Proton Pump Inhibitors (PPIs).
for Gastro-Esophageal     GERD
Reflux Disease (GERD)

Immuno-                   Prevent            The use of a contraceptive vaccine eliminates patient compliance problems that are
Contraception             pregnancy in       inherent with oral medications and intrusive devices made by our competitors in the
                          humans             current birth control market.
</TABLE>


Our  competitive  position  depends on the safety and efficacy of products,  the
timing of regulatory approval and commercial introduction, and the effectiveness
of marketing and sales efforts.  Our success also depends on our ability to form
strategic  alliance  relationships  with other companies with greater  marketing
resources  than  ours,  attract  and  retain  qualified  personnel,  and  secure
sufficient   capital  resources  for  the  often   substantial   period  between
technological conception and commercial sales.

Some of our competitors have far greater  financial  resources,  larger research
staffs and more extensive  physical  facilities.  These  competitors may develop
products that are more effective than ours and may be more successful than us at
producing  and  marketing  their  products.   In  addition,   many   specialized
biotechnology firms have formed collaborations with large, established companies
to support the research,  development and commercialization of products that may
be competitive with ours.

                                   Regulation

Government  regulation in the US and other countries is a significant  factor in
the  development  and  marketing  of all of the  Company's  products  and in the
Company's  ongoing  research  and  development   activities.   Clinical  trials,
manufacture  and  marketing  of the  Company's  products are expected to undergo
extensive  testing and approval  processes  by the Food and Drug  Administration
(FDA) and equivalent  foreign  regulatory  authorities,  including the Medicines
Control Agency (MCA) in the United Kingdom.

Aphton conducts human clinical trials with the objective of obtaining regulatory
approvals in the key markets,  worldwide. The regulatory requirements and status
of each of our products are summarized in the following table.

<TABLE>

      Product              Trial Stage        Regulatory Requirements              Regulatory Status
      -------              -----------        -----------------------              -----------------
<S>                        <C>                <C>                         <C>
Anti-Gastrin 17 for        Clinical Trial -   FDA, MCA and other          Amended Investigational New Drug
Gastrointestinal Cancers   Phase III          countries' approvals.       application (IND) filed with FDA and
                                                                          European countries; received permission
                                                                          to proceed with clinical trials
                                                                          in the US and in Europe.
</TABLE>


                                                                -11-


<PAGE>


<TABLE>


    Product                Trial Stage        Regulatory Requirements                Regulatory Status
    -------                -----------        -----------------------                -----------------
<S>                        <C>                <C>                         <C>
Anti-Gastrin 17 for        Clinical Trial -   FDA, MCA and other          Investigational New Drug application
Gastric and                Phase II           countries' approvals.       (IND) filed with FDA and European
Gastro-Esophageal                                                         countries; received permission to
Cancers                                                                   proceed with clinical trials in the US
                                                                          and in Europe.

Anti-Gastrin 17 for        Clinical Trial -   FDA, MCA and other          Amended Investigational New Drug
Chemo-refractory           Phase II           countries' approvals.       application (IND) filed with FDA;
Colorectal Cancers                                                        received permission from FDA to proceed
                                                                          with clinical trials in the US.

GnRH Pharmaccine           Clinical Trial -   FDA, MCA and other          Investigational New Drug application
                           Phase II           countries' approvals.       (IND) filed with FDA; received
                                                                          permission to proceed with clinical
                                                                          trials in the US and Europe.

Anti-Gastrin 17            Clinical Trial -   FDA, MCA and other          Amended Investigational New Drug
Encapsulation (G17eDT)     Phase II           countries' approvals.       application (IND) filed in Europe;
for Gastro-esophageal                                                     received permission to proceed with
Reflux Disease (GERD)                                                     clinical trial.

Immuno-Contraception       Clinical Trial -   FDA, MCA and other          Investigational New Drug application
                           Phase II           countries' approvals.       (IND) filed in Europe; received
                                                                          permission to proceed with clinical
                                                                          trial.


                        Directors and Executive Officers

The directors and executive officers of the Company are set forth below:

Name:                                Position(s):
Philip C. Gevas                      Chairman of the Board of Directors, President and Chief Executive Officer
William A. Hasler                    Vice Chairman of the Board, Director and Co-Chief Executive Officer
Robert S. Basso                      Chairman of Compensation and Audit Committees and Director
Georges Hibon                        Director
Nicholas John Stathis, Esq.          Director
</TABLE>

Philip C. Gevas - 67,  Chairman of the Board of  Directors,  President and Chief
Executive  Officer.  Mr.  Gevas has  served  as  Director,  President  and Chief
Executive  Officer since  co-founding  Aphton in 1981.  Mr. Gevas  conceived and
directed the development of Aphton's  inventions which have resulted in numerous
patents  for  Aphton  for  the  treatment  of  colorectal,   pancreatic,  liver,
esophageal  and stomach  cancers,  and GERD.  After serving as an officer in the
United States Air Force,  Mr. Gevas had  experience  in the defense  industry in
management, science and engineering. Mr. Gevas has the degrees of M.E., and M.S.
Mathematics   (Stevens  Institute  of  Technology)  and  M.S.E.E.   (Ohio  State
University).

William A.  Hasler - 59,  Vice  Chairman  of the Board,  Director  and  Co-Chief
Executive Officer.  Mr. Hasler has served as Director of the Company since 1991.
Mr. Hasler's expertise and experience in management are focused both on strategy
and on the execution of plans and programs. Prior to his appointment as Aphton's
Co-Chief  Executive  Officer  in July  1998,  Mr.  Hasler  was  Dean of both the
Graduate  School and  Undergraduate  School of  Business  at the  University  of
California,  Berkeley  for more than five years.  Earlier,  Mr.  Hasler was Vice
Chairman of KPMG Peat Marwick,  responsible for management consulting worldwide.
He is currently  also a director of

                                      -12-
<PAGE>

Solectron   Corporation,   Walker  Interactive   Systems,   Tenera,  Inc.,  TCSI
Corporation and is Public Governor of the Pacific Exchange.

Robert S.  Basso - 56,  Director.  For more than five  years Mr.  Basso has been
President of Correspondent Services Corporation (CSC). Previously, Mr. Basso was
President  of Broadcort  Capital  Corporation  and Managing  Director of Merrill
Lynch, Pierce, Fenner & Smith.

Georges Hibon - 63,  Director.  For the past ten years,  Mr. Hibon has served as
Chairman and Chief  Executive  Officer of Pasteur  Merieux  Connaught,  NA and a
member of its Board of Directors.  Previously,  Mr. Hibon was President of Merck
France.  The French  Government  awarded Mr. Hibon the honor of "Chevalier de la
Legion d'Honor," created in 1802 by Napoleon Bonaparte to recognize  outstanding
military and civilian accomplishments.

Nicholas John Stathis, Esq. - 77, Director. Mr. Stathis was a partner at White &
Case LLP.  Prior to that,  Mr.  Stathis  was a partner at Botein,  Hays & Sklar;
Watson, Leavenworth,  Kelton & Taggart; and Hopgood, Calimafde, Kalil, Blaustein
& Judlowe. Mr. Stathis practiced in all phases of patent,  trademark,  copyright
and unfair competition law.

The  Company's  Bylaws  authorize  the Board of  Directors  to fix the number of
directors from time to time by vote.  All directors  currently hold office until
the next annual meeting of  shareholders  and until their  successors  have been
elected.  Officers are elected to serve,  subject to the discretion of the Board
of Directors, until their successors are appointed. Directors do not receive any
fees for service on the Board.  Board members are  reimbursed for their expenses
for each meeting  attended.  There are no family  relationships  among executive
officers or directors of the Company.

The Company's Audit Committee is composed of Messrs.  Basso,  Hibon and Stathis.
The  Compensation  Committee is composed of Messrs.  Basso and Stathis.  Messrs.
Basso, Hibon and Stathis are non-executive Board Members.

                  Executive and Principal Scientific Officers

In addition to the Company's executive officers Philip C. Gevas and William A.
Hasler, Aphton's principal scientific officers are:

Dov Michaeli, M.D. (University of California, San Francisco),  Ph.D. (University
of  California,  Berkeley)  - 65,  Senior  Vice  President,  Director of Medical
Science and Chief Medical  Officer for more than five years.  Dr.  Michaeli is a
senior member of Aphton's management team with extensive  experience in clinical
medicine and scientific  research.  Previously,  Dr. Michaeli was a professor at
the University of California,  San Francisco  (Departments of  Biochemistry  and
Surgery).  Dr. Michaeli has numerous  patents and over fifty published  articles
and book chapters.

Paul Broome, MB., Ch.B., MFPM (University of Sheffield Medical School, UK) - 51,
Vice President and Medical Director for Clinical Trials and Regulatory  Affairs,
Europe - Asia. Dr Broome has been with the Company for more than five years. His
years of clinical  experience  includes the responsibility at Glaxo for clinical
trials  which  provided  data for US  (FDA)  and UK  (MCA)  registration  of the
indication for  ranitidine  (Zantac) as  maintenance  therapy,  which became the
world's  largest-selling  drug.  Later,  Dr.  Broome was  Medical  Director of a
leading  company in the UK which provides  services  ranging from consulting and
R&D through  clinical trials,  regulatory  affairs and the registration of drugs
for marketing approval from government regulatory agencies.

William D. Perkins, Ph.D. - 63, Vice President, Director for Clinical Trials and
Regulatory Affairs,  North America. Prior to joining Aphton Corporation in 2000,
Dr. Perkins had years of experience in the medical  field.  He has been actively
involved in oncology/immunology  clinical trials, including directing all phases
of clinical  trial  development,  from Phase I through  post-marketing  approval
(Phase IV). Dr.  Perkins has been a major  contributor  to the  formulation  and
writing  of both  investigational  new drug (IND)  applications  and of new drug
application  (NDA)   submissions  to  the  FDA.  Previous  senior   professional
responsibilities  in clinical trials and medical  affairs  include  affiliations
with ILEX Oncology (NASDAQ: ILXO), Elan Corporation PLC (NYSE: ELN) and Novartis
(NYSE: NVS).

                                      -13-
<PAGE>

Richard Ascione, Ph.D. (Princeton University) - 64, Vice President,  Director of
the Laboratory of Molecular Medicine.  Dr. Ascione has been with the Company for
more than five years.  Dr. Ascione directs R&D in the area of Molecular  Biology
and works closely with  Aphton's  Laboratory  of  Immunobiology  in research and
product development.  Previously,  Dr. Ascione was a professor in the Department
of Experimental  Oncology and Associate Director of the Center for Molecular and
Structural  Biology at the Hollings Cancer Center and the Medical  University of
South  Carolina,  respectively,  in Charleston,  South  Carolina.  Earlier,  Dr.
Ascione was with the National Cancer Institute (NCI) of the National  Institutes
of  Health  (NIH),  where he  served  as  Deputy  Chief of NCI's  Laboratory  of
Molecular  Oncology.  Dr.  Ascione has published over  sixty-five  peer-reviewed
papers,  several book chapters and articles related to the molecular biology and
gene regulation of cancer, human retroviruses and HIV/AIDS.

Theo  de  Roij,  Ph.D.,  D.V.M.  - 51,  Vice  President,  Business  and  Product
Development.  Prior to joining the Company in 1998,  Dr. de Roij served for more
than one year as Director of Business Development at GlaxoSmithKline Biologicals
S.A., responsible for its worldwide business development activities. Previously,
Dr. de Roij was employed by the Animal Health Division of Solvay, S.A., where he
held several senior positions,  including  responsibility for worldwide business
development and strategic planning.

Peter  Blackburn,   Ph.D.  -  51,  Vice  President,   Program   Development  and
Manufacturing.  Dr. Blackburn has been with the Company since 1997.  Previously,
Dr.  Blackburn  was Executive  Vice  President  and Chief  Operating  Officer of
Applied  Microbiology,  Inc.  Earlier,  he was involved in academic  research in
protein chemistry at Rockefeller University, New York, working in the laboratory
of two recipients of the Nobel Prize for Chemistry.  Dr. Blackburn has published
numerous papers in peer-reviewed journals and is the inventor on numerous US and
foreign patents.

                      Administrative and Scientific Staff

Frederick W. Jacobs - Vice President,  Treasurer,  Chief Accounting  Officer and
Principal Financial Officer.  Previously, Mr. Jacobs, a CPA, was Chief Financial
Officer of a Health Maintenance Organization and before that served on the staff
of  PricewaterhouseCoopers  (then  Coopers & Lybrand),  providing  audit and tax
services.

Donald   Henderson  -  Vice  President  and  Managing   Director,   Finance  and
Administration,  Europe. Previously, Mr. Henderson, a chartered accountant, held
financial management positions at a number of pharmaceutical companies.

Jeannette L. Whitmore - Vice President,  Director, Investor and Media Relations,
Corporate  Communications.  Previously,  Ms. Whitmore held positions in business
administration in the medical and healthcare fields.

Douglas A. Eayrs, CFA - Vice President,  Finance.  Prior to joining Aphton,  Mr.
Eayrs was a research  analyst at J. G.  Kinnard & Company,  an NASD member firm,
where he was named an "All-Star Analyst" by the Wall Street Journal.

Stephen L. Karr, Jr., Ph.D.,  University of California,  Davis,  Dr. Karr joined
the Company  soon after its  founding in 1981 and serves as Vice  President  and
General  Manager of the Laboratory of  Immunobiology.  He is responsible for the
Laboratory's  daily  operations,   including  program  planning,  budgeting  and
control. As Project Manager, Dr. Karr is responsible for the experimental design
and   implementation   of  special   projects.   Dr.   Karr,   who  is  also  an
immunoparasitologist,  is an inventor of numerous Aphton  patents.  Dr. Karr has
sixteen  publications  and had  presented  twenty  papers  prior to joining  the
Company.

Stephen  Grimes,  Ph.D.,  University  of  California  -  Vice  President  of the
Laboratory of Immunology.  Dr. Grimes joined the Company  immediately  after its
founding and is responsible  for research and  development in immunology and for
the experimental design and implementation of immunology-based projects. He also
serves as the principal  scientific  deputy for Aphton's  clinical  trials.  Dr.
Grimes is a co-inventor of numerous issued patents of the Company and additional
patents in preparation and pending. Dr. Grimes joined the Company upon finishing
his doctoral dissertation at the University of California, Davis.

The  Company has  approximately  50  employees,  of which 40 work  primarily  in
Research and Development.


                                      -14-


<PAGE>

                            Scientific Advisory Board

The members of the company's Scientific Advisory Board, which functions
primarily as a review board for research projects and for product development
programs, in addition to its senior staff members, are:

     Robert J.  Scibienski,  Ph.D.,  University of  California,  Los Angeles.  A
     co-founder of the Company,  Dr.  Scibienski  focuses on  immunology-related
     basic  technology  at  the  Company,  currently  addressing  immune  system
     regulation, antigen presentation and gene interactions. Dr. Scibienski is a
     co-inventor of issued Aphton patents and a number of patent applications of
     the Company. Dr. Scibienski is Associate  Professor,  Department of Medical
     Microbiology  and  Immunology  and  Director  of  the  campus-wide  Central
     Hybridoma  Facility at the University of California,  Davis. Dr. Scibienski
     has over thirty publications.

     Demosthenes  Pappagianis,   M.D.  (Stanford  School  of  Medicine),   Ph.D.
     (University  of  California,  Berkeley).  A co-founder of the Company,  Dr.
     Pappagianis  is its  principal  resource on the  mechanisms of infection of
     pathogens and of host defenses.  Professor and Chairman  (1967-1985) in the
     Department of Medical  Microbiology  and  Immunology  at the  University of
     California,  Davis,  Dr.  Pappagianis is widely  recognized in the field of
     infectious  diseases.  He is a Diplomate of the  National  Board of Medical
     Examiners and Diplomate of the American Board of Medical  Microbiology.  In
     addition,  he is a Fellow of the Infectious Diseases Society of America and
     an  Associate  Member  of  the  Armed  Forces  Epidemiological  Board.  Dr.
     Pappagianis has over one hundred publications.

     Vernon C. Stevens,  Ph.D.  Professor of  Reproductive  Biology,  Ohio State
     University.  Dr. Stevens is recognized  worldwide as one of the pre-eminent
     authorities  on  vaccines,   contraception   and  synthetic  peptide  based
     immunogen  formulations.  He pioneered the development of synthetic peptide
     immunogens  for human use,  particularly  for Aphton's  immunocontraceptive
     product, which prevents pregnancy,  under development with the World Health
     Organization (WHO).

     Richard L. Littenberg,  M.D. A co-founder of the Company, Dr. Littenberg is
     an  emeritus  member  of  Aphton's  Scientific  Advisory  Board  and  is  a
     co-inventor  of  three  Aphton  patent  filings.  Dr.  Littenberg  is Board
     Certified in both Internal Medicine and Nuclear Medicine and a Diplomate of
     the  National  Board  of  Medical  Examiners  and is  President  and  Chief
     Executive Officer of HMG. Dr. Littenberg  received his M.D. degree from the
     State  University  of New  York.  He has  practiced  internal  and  nuclear
     medicine for over twenty years. He has  participated in clinical trials for
     major pharmaceutical companies and has engaged in gastrointestinal,  cancer
     and cardiovascular research.

     Eliezer Benjamini, Ph.D., University of California,  Berkeley. A co-founder
     of the  Company,  Dr.  Benjamini  is an emeritus  member of the  Scientific
     Advisory Board and is a co-inventor of two Aphton  patents.  Dr.  Benjamini
     retired as a full Professor in the Department of Medical  Microbiology  and
     Immunology at the University of California, Davis, where he holds the title
     of Professor  Emeritus.  Dr. Benjamini is widely recognized in the field of
     immunology.  He has received  awards from industry and academia,  including
     the Distinguished  Scientists Award in Virology and Immunology (1984) which
     was given for his pioneering work in the  development of synthetic  peptide
     vaccines. Dr. Benjamini has over one hundred publications and is co-author,
     with Dr. Sidney  Leskowitz,  of Immunology:  A Short Course, a textbook for
     medical students.

     Other scientists  (consultants)  participate when their expertise is needed
     on a specific project.


                                      -15-

<PAGE>


                           Glossary of Selected Terms

Adenocarcinoma:     cancer that originates in glandular epithelial cells that
                    line certain internal organs.

Adjuvant Treatment: an ancillary treatment that is given to patients in addition
                    to a primary treatment to enhance the effectiveness of the
                    primary treatment. For example, in colon cancer,
                    chemotherapy often is given as an adjuvant treatment
                    following surgery to remove the primary cancer from the
                    colon.

Antibody:           a protein produced by certain white blood cells as part of
                    an immune response. These proteins, called antibodies, bind
                    in a specific manner to a separate molecule and neutralize
                    or inhibit its biological activity.

Antigen:            any substance that can induce antibodies (B-cells) or
                    activate T-cells, which bind to it.

Cancer  Vaccine:    technically a misnomer: a large weakly-antigenic molecule
                    derived from the surface of cancer cells, which when
                    combined with a foreign molecule (e.g., virus) induces a
                    stronger immune response against it and, then, where located
                    on the surface of the cancer cells.

Control Group:      the patient group (or arm) of a clinical trial that receives
                    the placebo or a standard treatment for a disease, against
                    which the experimental drug is compared.

Gastrin:            a hormone produced in the stomach that regulates stomach
                    acid secretion and stimulates the proliferation of
                    gastrointestinal cells and adenocarcinomas of the
                    gastrointestinal tract. It occurs in the body in several
                    forms, including gastrin 17 (a 17 amino acid peptide) and
                    gastrin 34 (a 34 amino acid peptide).

Gonadotropin
Releasing
Hormone(GnRH):      a hormone secreted in the hypothalmus that stimulates the
                    release of other reproductive hormones (including
                    ultimately, testosterone, estrogen and progesterone).

Hapten:             a small molecule (peptide), not antigenic by itself, that
                    can be bound to by antibodies. It can be made antigenic and
                    elicit such antibodies when joined to a foreign molecule
                    (carrier).

Hormone:            a chemical substance produced by an organ or cells of an
                    organ in one part of the body, and carried in the blood to
                    another organ or part of the body; and which has a specific
                    regulatory effect on the activity of the body including
                    growth, metabolism and reproduction.

human Chorionic
Gonadotropin (hCG): a female hormone secreted by a fertilized egg necessary to
                    start pregnancy.

Immune System:      the complex group of organs and cells which has the ability
                    to fight infection and disease.

Immunogen:          any molecule capable of inducing the immune system to
                    produce an antibody response against it.

Metastasis:         a process by which cancer cells spread from the primary
                    tumor to distant sites such as the lung, liver, bone, or
                    brain. A cancer that has spread is said to be metastatic,
                    and the distant tumors are called metastases.

Peptide:            a molecule composed of amino acids that are linked to each
                    other in a sequence.

Placebo:            an inert  non-drug  substance  that is given to the  control
                    group for comparison to a new experimental  drug, usually in
                    a randomized clinical trial.

Randomized Clinical
Trial:              a clinical trial with at least two arms, in which the
                    decision as to which arm a new patient is assigned is, by
                    design, made by chance.

Standard Treatment: a currently accepted treatment for a given disease. The drug
                    treatment often given to one group (or arm) of patients in a
                    clinical trial. The standard treatment can serve as the
                    control arm, in place of a placebo, for comparison to a new
                    experimental drug treatment.

Treatment Group:    the patient group, or arm, of a clinical trial that receives
                    the new experimental drug treatment.

Vaccine:            an immunogen consisting of an attenuated or killed
                    microorganism, administered to induce the immune system to
                    produce antibodies to fight an infectious disease.

Vaccine-Like:       an immunogen consisting of a synthetic hapten (peptide)
                    joined together with a foreign molecule, administered to
                    induce the immune system to produce antibodies against the
                    peptide.


                                      -16-


<PAGE>


Item 2.  Properties

The  Company  does not own any  real  property.  The  Company  presently  leases
research  and  development   facilities  in  Yolo  County,   California  and  in
Leicestershire   County,  United  Kingdom.  The  Company  leases  its  corporate
headquarters in Miami,  Florida.  The Company believes that these facilities are
suitable for its operations for the foreseeable  future.  These leases expire at
various dates through fiscal 2003. The minimum rental commitments for the fiscal
years 2002 and 2003, respectively, are, $80,000 and $22,000 and none thereafter.
The leases  provide  various  options to renew,  but the  Company may or may not
choose to renew any of the leases.  The Company may or may not  relocate  one or
more of the Company facilities based on strategic planning.

Item 3.  Legal Proceedings

The Company is not involved,  and has never been  involved,  in any  litigation,
administrative or governmental  proceeding and none is believed by the Company's
management to be threatened.

Item 4. Submission of Matters to a Vote of Security Holders.

Not applicable.

                                      -17-

<PAGE>


                                    PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters.

The Common Stock of Aphton has been trading on Nasdaq's  National  Market System
since  June 2,  1994.  Aphton had been  traded in the  Nasdaq  Small-Cap  Issues
(formerly  over-the-counter)  market  since April 1, 1991,  the date of Aphton's
initial  public  offering.  The  following  table  sets forth high and low price
information,  provided by Nasdaq Historical Research  Department,  for each full
quarter  beginning after January 31, 1999. The Company's  Common Stock is traded
under the symbol "APHT."

Fiscal Period Ended January 31, 2000:           High          Low
         1st Quarter                           $17.75        $10.75
         2nd Quarter                            14.75          9.81
         3rd Quarter                            15.63         12.00
         4th Quarter                            27.38         11.25
Fiscal Period Ended January 31, 2001:
         1st Quarter                           $45.00        $21.50
         2nd Quarter                            34.00         16.00
         3rd Quarter                            31.91         22.00
         4th Quarter                            30.00         15.75

As of January 31, 2001,  Aphton had approximately 300 shareholders of record and
approximately 5,000 beneficial holders of its Common Stock.

Item 6.  Selected Financial Data

                         SELECTED FINANCIAL INFORMATION

The  selected  financial  data set forth  below with  respect  to the  Company's
statements  of  operations  and balance  sheets for the years ended  January 31,
2001,  2000 and 1999, the nine months ended January 31, 1998 and each of the two
years in the period  ended April 30, 1997,  are derived  from audited  financial
statements and should be read together with the financial statements and related
notes  included in this  Annual  Report.  All  selected  financial  data are not
covered by the independent  accountants' report. The data presented below should
be read  together  with the  financial  statements,  related  notes,  and  other
financial information included herein.

<TABLE>
<CAPTION>
                                                                                 Nine Months
                                           Year Ended January 31,              Ended January 31,       Year Ended April 30,
                                                                    (In thousands except for per share data)

Statement of Operations
 Data:                              2001             2000             1999             1998            1997            1996
                                    ----             ----             ----             ----            ----            ----
<S>                                 <C>              <C>              <C>              <C>             <C>             <C>
Research & Development
  Expenditures                      $15,302          $10,821          $9,454           $4,963          $5,206          $4,501
Net Loss                            (16,397)         (11,193)         (9,757)          (6,605)         (5,629)         (4,711)
Net Loss per Share                  $ (1.02)         $ (0.76)        $ (0.68)          $(0.48)         $(0.44)        $ (0.37)
Weighted Average Shares
  Outstanding                        16,100           14,731          14,431           13,733          12,913          12,723

                                                          January 31,                                        April 30,
                                     2001             2000             1999            1998            1997              1996
                                     ----             ----             ----            ----            ----              ----
Balance Sheet Data:
Cash and Current
  Investments                       $18,664          $19,179         $10,555          $14,226          $8,846          $8,169
Total Assets                         27,364           28,192          19,891           23,580          18,362           8,354
Total Liabilities                    16,208           16,132          13,339           12,273          15,851           1,313
Accumulated Deficit                 (69,351)         (52,954)        (41,760)         (32,004)        (25,399)         19,770)
Total Stockholders' Equity           11,157           12,060           6,552           11,307           2,511           7,041

</TABLE>

                                                                -18-



<PAGE>
Item 7.   Management's  Discussion  and  Analysis  of  Financial  Condition  and
          Results of Operations

                  Years Ended January 31, 2001, 2000 and 1999

During the year ended  January  31,  2001,  the  Company  reported a net loss of
$16,397,139.  During  this period the  Company  had no  contract  revenues.  The
investment earnings on cash and current investments for the year was $1,554,611.
This  significant  increase  was due to  higher  average  cash  balances.  Total
research  and  development  expenditures  increased  $4,480,822.   Research  and
development cash expenditures were approximately  $5,468,000 greater in the year
ended  January 31, 2001 than in the year ended  January 31, 2000.  This increase
was a  result  of the  increased  clinical  trials  costs  associated  with  the
development  of the  Company's  products.  These  costs  included  the  costs of
establishing centers where patients could be treated and monitored. Research and
development  expenses were reduced by approximately  $1,000,000.  This reduction
corresponds  with an  adjustment  of the  same  amount  for  unrealized  loss on
investment  securities.  The Company allows certain employees to defer a portion
of  compensation,  and the Company  transfers  this  amount  into an  investment
account that the employee then directs the investment of the funds.  The related
investment  securities  are held by the Company,  and are subject to the general
creditors of the Company.  These  employees  direct the investment of the funds,
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 the carrying  value of the  investment  account.  The same amount is
used to adjust research and development expense and the corresponding  liability
for employees' wages and benefits payable.  Unrealized holding losses on trading
securities and the  corresponding  decrease in research and development  expense
totaled  approximately $1.0 million in 2001. Unrealized holding gains on trading
securities and the  corresponding  increase in research and development  expense
totaled  approximately  $1.0  million in 2000 and  approximately  $.4 million in
1999.

The Company does not accumulate cost information by major  development  product.
Many costs are  applicable to more than one product.  We receive  reimbursements
from our strategic  partners for some of our research and  development  expenses
and these  expenses are not included in our costs.  We estimate  that 93% of our
research and development  costs are spent on  gastrointestinal  and reproductive
system cancers.  There are no payment or penalty milestones  associated with any
of the  projects,  all of  which  are in Phase II or III  clinical  trials.  The
Company does not speculate on the timing of approvals by regulatory authorities.

During the year ended  January  31,  2000,  the  Company  reported a net loss of
$11,193,296. During this period the Company had no contract revenues. Investment
earnings on cash and  current  investments  for twelve  months was less than the
$547,000  earned in the year ended  January 31, 1999 due to lower  average  cash
balances.  Although ending cash and investments  were  approximately  $9,000,000
greater than at January 31,  1999,  most of the funds were  received  during the
period from  October,  1999 to January,  2000.  Total  research and  development
expenditures increased approximately  $1,400,000.  Research and development cash
expenditures were approximately  $800,000 greater than in the year ended January
31, 1999.  Non-cash research and development  expenses  increased  approximately
$600,000  and were  related to a Company  plan  whereby  individuals  may forego
immediate receipt of wages, as described above.

During the year ended  January  31,  1999,  the  Company  reported a net loss of
$9,756,815.  During this period the Company had no contract revenues. Investment
earnings on cash and current investments for twelve months was approximately the
same as the  $534,000  earned in the nine months  ended  January 31, 1998 due to
lower  average  cash  balances.   Research  and  development  expenditures  were
$9,453,826  (including  approximately  $.4  million  in  non-cash  expenses,  as
discussed above) which represented an increase in average quarterly research and
development  expenditures from about $1.7 million per quarter in the nine months
ended  January  31,  1998 to about $2.3  million  per quarter for the year ended
January 31, 1999. This 35% increase was budgeted for and related to the on-going
and planned additional (human) clinical trials.

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.


                                      -19-


<PAGE>

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.

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.

During fiscal 2001, the Company  received net proceeds of $15.2 million from the
closing    of    a    private     financing    with    several     international
biotechnology/healthcare  funds.  The Company  issued  491,509  shares of common
stock  and  there  were no  warrants  or  options  included  with  this  private
placement.  The Company has not performed any research for third parties and has
no sources of income from operations.  Cash flows from investing  activities are
not anticipated to be significant. The Company has no short or long term debt or
lines of credit established. The Company anticipates that the sale of its equity
securities will continue to finance operations for the foreseeable future.

During  fiscal 2000, in a private  placement the Company sold 800,000  shares of
common stock for  $11,200,000  net of expenses.  The Company also issued 359,000
shares through the exercise of outstanding  purchase warrants,  resulting in net
proceeds of $5,502,250.  During fiscal 1999,  SmithKline  Beecham made an equity
investment of $5,000,000 for 237,867 shares of newly issued Aphton common stock.

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.

Item 7a.  Qualitative and Quantitative  Disclosures About Market Risk.
Aphton'smarket   risks  are  all  immaterial.   Investment   securities  consist
principally of debt securities issued by the US Treasury and other US Government
agencies and corporations and investment in other  securities,  including mutual
funds.

Item 8.  Financial Statements and Supplementary Data.
Financial Statements are set forth in this report beginning at page 17.

Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure.
The registrant changed  accountants from  PricewaterhouseCoopers  LLP to Ernst &
Young  LLP,  effective  May 19,  2000,  for the year  ended  January  31,  2001.
PricewaterhouseCoopers  LLP was dismissed effective May 19, 2000. The reports of
PricewaterhouseCoopers LLP on the financial statements of the registrant for the
past two years contained no adverse  opinion or other  disclaimer of opinion and
were not  qualified  or modified as to  uncertainty,  audit scope or  accounting
principle.

                                      -20-

<PAGE>


                                    PART III

Item 10.  Directors and Executive Officers of the Registrant.
The  information  required  for this item is  incorporated  by  reference to the
section  captioned  "Election of Directors" in the Company's Proxy Statement for
the Annual Meeting of Stockholders.

Item 11.  Executive Compensation
The  information  required  for this item is  incorporated  by  reference to the
section captioned "Executive  Compensation" in the Company's Proxy Statement for
the Annual Meeting of Stockholders.

Item 12.  Security Ownership of Certain Beneficial Owners and Management.
The  information  required  for this item is  incorporated  by  reference to the
section  captioned  "Election of Directors" of the Company's Proxy Statement for
the Annual Meeting of Stockholders.

Item 13.  Certain Relationships and Related Transactions.

Not applicable.

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a)     Documents filed as part of this Form 10-K

(i)     Financial Statements:

        Reports of Independent Certified Public Accountants

        Balance sheets as of January 31, 2001 and 2000

        Statements of Operations for the years ended January 31, 2001, 2000 and
        1999

        Statements of Stockholders' Equity for the years ended January 31,
        2001, 2000 and 1999

        Statements of Cash Flows for the years ended January
        31, 2001, 2000 and 1999

        Notes to the Financial Statements

(ii)    Financial Statements Schedules:

        Financial Statement Schedules are omitted because they are either not
        required, not applicable, or the information is included in the
        Financial Statements or Notes thereto.

(b)     Exhibits

        Exhibit Number                      Description

            3.1         Certificate of Incorporation  (Incorporated by reference
                        to  Exhibit  B  of  the  Registrant's  Definitive  Proxy
                        Statement filed October 8, 1997)

            3.3         By-Laws  (Incorporated  by reference to Exhibit C of the
                        Registrant's Definitive Proxy Statement filed October 8,
                        1997)

           10.1A*       Collaboration  and  License  Agreement  by  and  between
                        Aphton  Corporation  and  SmithKline  Beecham  PLC  (now
                        GlaxoSmithKline) dated as of June 12, 1998.

           10.1B*       Amendment No. 1 dated May 10, 2000 to the  Collaboration
                        and License Agreement by and between Aphton  Corporation
                        and SmithKline Beecham PLC dated as of June 12, 1998.

           10.1C*       Amendment No. 2 dated July 2, 2001 to the  Collaboration
                        and License Agreement by and between Aphton  Corporation
                        and SmithKline Beecham PLC dated as of June 12, 1998, as
                        amended through Amendment No. 1dated May 10, 2000.

                                      -21-
<PAGE>

           10.2A*       Co-Promotion Agreement and License by and between Aphton
                        Corporation and Connaught  Laboratories Limited dated as
                        of February 14, 1997.

           10.2B*       Aphton   Supply   Agreement   by  and   between   Aphton
                        Corporation  and  Connaught   Laboratories   Limited  (a
                        Pasteur Merieux Connaught company,  now Aventis Pasteur)
                        dated as of August 1, 1998.

           10.2C*       PMC Supply  Agreement by and between Aphton  Corporation
                        and Connaught Laboratories Limited dated as of August 1,
                        1998.

           10.2D*       Letter  Agreement by and between Aphton  Corporation and
                        Connaught  Laboratories  Limited  dated as of August 25,
                        1998.

           23.1         Written Consent of Ernst & Young LLP.

           23.2         Written Consent of PricewaterhouseCoopers LLP.

(c)     Reports on Form 8-K

        During the  three-month  period ending January 31, 2001, the Company did
        not file any reports on Form 8-K.


* Confidential treatment requested for portions of these agreements.





                                      -22-

<PAGE>



Dated:  December 19, 2001         APHTON CORPORATION




                                    By:    PHILIP C. GEVAS
                                           Chairman of the Board,
                                             Chief Executive Officer,
                                             and President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.

      Signatures                         Title                    Date

       /s/ Philip C. Gevas
    --------------------------   Chairman of the Board,     December 19, 2001
       PHILIP C. GEVAS           Chief Executive Officer
                                      and President



      /s/ William A. Hasler
  ----------------------------   Vice Chairman of the       December 19, 2001
      WILLIAM A. HASLER          Board, Director and
                                 Co-Chief Executive
                                       Officer


     /s/ Robert S. Basso
 -----------------------------          Director            December 19, 2001
     ROBERT S. BASSO



   /s/ Nicholas John Stathis
 -----------------------------         Director            December 19, 2001
     NICHOLAS JOHN STATHIS



  /s/ Frederick W. Jacobs
------------------------------   Vice President,           December 19, 2001
   FREDERICK W. JACOBS           Treasurer, Chief
                                 Accounting Officer
                                  and Principal
                                 Financial Officer


                                      -23-

<PAGE>


                          INDEX TO FINANCIAL STATEMENTS
                              FINANCIAL STATEMENTS

<TABLE>
                                                                                                      Page
                                                                                                      ----
<S>                                                                                                    <C>
Reports of Independent Certified Public Accountants                                                    25

Balance Sheets - January 31, 2001 and 2000                                                             26

Statements of Operations - for the years ended January 31, 2001, 2000 and 1999                         27

Statements of Stockholders' Equity - for the years ended January 31, 2001, 2000 and 1999               27

Statements of Cash Flows - for the years ended January 31, 2001, 2000 and 1999                         28

Notes to the Financial Statements                                                                      29


</TABLE>






                                      -24-




<PAGE>


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors
Aphton Corporation

We have  audited the  accompanying  balance  sheet of Aphton  Corporation  as of
January 31, 2001 and the related statements of operations,  stockholders' equity
and cash  flows for the year then  ended.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audit  provides a  reasonable  basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  financial  position of Aphton  Corporation  as of
January 31, 2001,  and the results of its  operations and its cash flows for the
year then ended, in conformity with accounting  principles generally accepted in
the United States.

                                        /s/ Ernst & Young LLP

Miami, Florida
April 20, 2001


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Stockholders
Aphton Corporation

In our opinion,  the accompanying  balance sheets and the related  statements of
operations,  stockholders' equity and cash flows present fairly, in all material
respects,  the  financial  position of Aphton  Corporation  (the  "Company")  at
January 31, 2000,  and the results of its  operations and its cash flows for the
two years ended  January 31, 2000,  in  conformity  with  accounting  principles
generally accepted in the United States of America.  These financial  statements
are the  responsibility of the Company's  management;  our  responsibility is to
express  an  opinion  on these  financial  statements  based on our  audits.  We
conducted our audits of these  statements in accordance with auditing  standards
generally  accepted in the United States of America,  which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements,  assessing the accounting  principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

                                        /s/ PricewaterhouseCoopers LLP

Honolulu, Hawaii
April 24, 2000


                                      -25-

<PAGE>


                               APHTON CORPORATION

                   Balance Sheets - January 31, 2001 and 2000


          Assets                                   2001              2000


Current Assets:
Cash and current investments:
   Cash and short-term cash investments          $3,508,577        $9,920,263
   Investment securities-trading                  1,653,180         2,380,880
   Investment securities-held-to-maturity        13,502,695         6,878,097
                                                ------------    -------------
     Total cash and current investments          18,664,452        19,179,240
Other assets (including current portion
  of unconditional supply commitment)               733,323           688,013
                                                ------------    -------------
     Total current assets                        19,397,775        19,867,253
Equipment and improvements, at cost,
  net of accumulated depreciation
  and amortization                                  166,437           173,350
Unconditional supply commitment                   7,800,000         8,151,650
                                               ------------     -------------
     Total assets                               $27,364,212       $28,192,253
                                               ============       ===========

   Liabilities and Stockholders' Equity

Liabilities:
Current liabilities:
  Accounts payable and other                    $ 6,207,569        $6,131,771
                                                  -----------      -----------
    Total current liabilities                     6,207,569         6,131,771
  Deferred revenue                               10,000,000        10,000,000
                                                -----------       -----------
    Total liabilities                            16,207,569        16,131,771
                                                 ----------        ----------
Commitments

Stockholders' Equity:
   Common stock, $0.001 par value -
   Authorized:  30,000,000 shares
   Issued and outstanding:  16,199,493
      shares at January 31, 2001 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                          (69,350,934)      (52,953,795)
                                              --------------    --------------
     Total stockholders' equity                  11,156,643        12,060,482
                                               ------------      ------------
     Total liabilities and stockholders'
       equity                                   $27,364,212       $28,192,253
                                                ===========       ===========


    The accompanying notes are an integral part of the financial statements.


                                      -26-

<PAGE>




                               APHTON CORPORATION
                            Statements of Operations
               for the years ended January 31, 2001, 2000 and 1999
<TABLE>
<CAPTION>
                                                      2001              2000            1999

Revenue:                                            $       -       $       -        $      -
                                                     ---------       ----------       --------


<S>                                               <C>               <C>             <C>
 Costs and Expenses:
   General and administrative                        1,661,910         1,775,652     1,241,323
   Research and development                         15,302,183        10,821,361     9,453,826
                                                  -------------     -------------  ------------
       Total costs and expenses                     16,964,093        12,597,013    10,695,149
                                                  -------------     -------------  ------------
       Loss from operations                         16,964,093        12,597,013    10,695,149
                                                  -------------     -------------  ------------
Other Income (expense):
   Dividend and interest income                      1,554,611           444,980       547,283
   Unrealized (losses) gains from investments         (987,657)          958,737       391,051
                                                  -------------     -------------   -----------
   Net loss                                       $(16,397,139)     $(11,193,296)  $(9,756,815)
                                                  =============     =============  ============
Per share data
   Basic and diluted loss per common share              $(1.02)           $(0.76)       $(0.68)
                                                       ========          ========       ========
   Weighted average number of
      common shares outstanding                     16,100,108        14,731,301    14,431,417
                                                    ==========        ==========    ==========
</TABLE>

    The accompanying notes are an integral part of the financial statements.



                               APHTON CORPORATION
                       Statements of Stockholders' Equity
               for the years ended January 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                                                Additional
                                Common           Stock            Paid in        Purchase     Accumulated
                                Shares           Amount           Capital        Warrants       Deficit           Total
<S>                             <C>             <C>              <C>             <C>         <C>               <C>
Balance, February 1, 1998       14,191,217      $14,191          $42,955,207     $341,404    $(32,003,684)     $11,307,118
  Exercise of purchase
    warrants                         4,900            5                5,720       (4,500)             -             1,225
  Sale of stock, net               237,867          238            4,999,762            _              _         5,000,000
  Net loss                               _            _                    -            _      (9,756,815)      (9,756,815)
                                ----------     --------          -----------    ---------    -------------      -----------
Balance, January 31, 1999       14,433,984       14,434           47,960,689      336,904     (41,760,499)       6,551,528
                                ----------     --------          -----------    ----------   -------------      -----------
  Exercise of purchase
    warrants                       359,000          359             5,639,895    (138,004)              _        5,502,250
  Sale of stock, net               800,000          800            11,199,200           _               _       11,200,000
  Net loss                               _            _                     _           _      (11,193,296)    (11,193,296)
                                ----------     --------          ------------      -------    -------------    ------------
Balance, January 31, 2000       15,592,984       15,593            64,799,784     198,900      (52,953,795)     12,060,482
                                ----------     ---------          -----------      -------    -------------     ------------
  Exercise of purchase
    warrants                       115,000          115               246,385            _               _          246,500
  Sale of stock, net               491,509          491            15,246,309            _                       15,246,800
  Net loss                               _            _                     _            _      (16,397,139)    (16,397,139)
                                ----------     ---------          -----------    ----------  ---------------    ------------
Balance, January 31, 2001       16,199,493       16,199           $80,292,478    $198,900      $(69,350,934)    $11,156,643
                                ==========     =========          ===========    ==========   ==============    ===========

                              The accompanying notes are an integral part of the financial statements.

</TABLE>


                                                                -27-

<TABLE>


                                                         APHTON CORPORATION
                                                      Statements of Cash Flows
                                        for the years ended January 31, 2001, 2000 and 1999

                                      Increase (decrease) in cash and short-term cash investments
                                                       2001             2000            1999

<S>                                              <C>                <C>             <C>
Cash flows from operating activities:
  Cash paid to suppliers and employees           $(15,467,013)       $(9,446,861)   $(9,119,463)
  Purchase of trading securities                     (259,957)        (2,201,968)    (1,207,786)
  Proceeds (losses) from trading securities          (987,657)         1,987,611             --
  Interest and dividends received                   1,554,611            444,980        547,283
                                                  --------------    ------------    ------------
Net cash used in operating activities             (15,160,016)        (9,216,238)    (9,779,966)
                                                  --------------    ------------    ------------
Cash flows from investing activities:
  Purchase of held to maturity securities         (59,471,854)       (10,438,097)            --
  Proceeds from maturity of held to
  maturity securities                              52,788,000         3,560,000              --
Capital expenditures                                  (61,116)          (34,986)        (99,925)
                                                 ---------------- --------------  --------------
    Net cash used in investing activities          (6,744,970)       (6,913,083)        (99,925)
                                                 --------------    -------------  --------------
Cash flows from financing activities:
  Sales of stock                                   15,493,300        16,702,250       5,001,225
                                                  ------------      -----------      -----------
Cash received from financing activities            15,493,300        16,702,250       5,001,225
                                                  ------------      -----------      -----------
   Net increase (decrease) in cash and
   short-term cash investments                     (6,411,686)          572,929      (4,878,666)
Cash and short-term cash investments:
   Beginning of period                              9,920,263         9,347,334      14,226,000
                                                   ------------     ------------     -----------
   End of period                                   $3,508,577        $9,920,263      $9,347,334
                                                   ============     ===========      ===========

       Reconciliation of net loss to net cash
            used in operating activities
Net loss                                           $(16,397,139)   $(11,193,296)    $(9,756,815)
Adjustments to reconcile net loss to net cash used
in operating activities:
  Depreciation and amortization                          68,029          77,236          82,062
  Net (increase) decrease in investment
    securities-trading                                  379,581        (214,357)             --
  Unrealized (gains) losses from investments            987,657        (958,737)       (391,051)
  Increase (decrease) in accrued employee
    benefits                                           (987,657)        958,737         391,051
      Changes in -
      Other assets                                       45,311          75,148        (138,357)
      Unconditional supply commitment                   820,000         205,000         175,000
      Accounts payable and other                        (75,798)      1,834,031        (141,856)
                                                   -------------    -----------     ------------
  Net cash used in operating activities:           $(15,160,016)    $(9,216,238)    $(9,779,966)
                                                   =============    ============    ============


                              The accompanying notes are an integral part of the financial statements.

</TABLE>


                                                                -28-




                                                     APHTON CORPORATION
                                             Notes to the Financial Statements

1.  Organization and Operations

Aphton Corporation is a biopharmaceutical  company in late-stage clinical trials
for four cancer indications.  Aphton is 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 for the prevention of pregnancy. Aphton has strategic alliances with Aventis
Pasteur (NYSE: AVE),  GlaxoSmithKline (NYSE: GSK), Schering Plough Animal Health
(NYSE: SGP), and the World Health Organization (WHO).

Aphton's  fiscal year end was changed in March from  January 31 to December  31,
effective for the 11 month period ending December 31, 2001.

2.  Summary of Significant Accounting Policies

Use of Estimates in the Preparation of Financial Statements
     The  preparation  of financial  statements  in conformity  with  accounting
     principles  generally accepted in the United States requires  management to
     make estimates and assumptions  that affect the reported  amounts of assets
     and liabilities and disclosures of contingent assets and liabilities at the
     date of the financial  statements and the reported  amounts of revenues and
     expenses  during the  reporting  period.  Actual  results could differ from
     those estimates,  however management believes such differences are unlikely
     to be significant.

Research and Development Expenses
     Research  and  development  costs are  expensed  as  incurred.  These costs
     include internal research and development  costs, the salaries of dedicated
     personnel, the allocated salaries of personnel who also perform general and
     administrative  tasks, the costs of the dedicated  research and development
     facilities and the costs of contracted researchers.  There is no allocation
     of  administrative  expense or corporate  costs to research and development
     costs.

General and Administrative Expenses
     Amounts  shown  represent  expenses  not clearly  related to  research  and
     development expense. A significant portion of these expenses are related to
     intellectual  property/patent legal costs and salaries, which are typically
     excluded from research and development according to Statement of Accounting
     Standards No. 2 "Accounting for Research and Development Costs."

Equipment and Improvements
     Equipment and furniture are depreciated using accelerated  methods over the
     estimated  economic  lives  (5-7  years) of the  assets.  Improvements  are
     amortized  over the  term of the  lease  using  the  straight-line  method.
     Betterments  that  substantially  extend the useful life of  equipment  and
     furniture  are  capitalized  and  depreciated  over the period of  expected
     benefit.

Income Taxes
     The Company  accounts for income  taxes  pursuant to Statement of Financial
     Accounting  Standards  (SFAS) No. 109  "Accounting for Income Taxes," which
     requires an asset and liability  approach in  accounting  for income taxes.
     Under  this  method,  the  amount of  deferred  tax asset or  liability  is
     calculated  by  applying  the   provisions  of  enacted  tax  laws  to  the
     differences in the bases of assets and liabilities for financial and income
     tax purposes.  Income tax expense is the tax payable for the period and the
     change during the period in deferred tax assets and liabilities.

Per Share Data
     The  Company  complies  with 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   potential   common   shares   are
     anti-dilutive,  and  accordingly,  basic and diluted loss per share are the


                                      -29-

<PAGE>

     same. Such potential  common shares consist of purchase  warrants (See Note
     7) and could potentially dilute basic earnings per share in the future.

Cash Equivalents
     For purposes of the  statement  of cash flows,  the Company  considers  all
     highly liquid debt  instruments,  including  short-term  cash  investments,
     purchased  with an  original  maturity  of three  months or less to be cash
     equivalents.

Investment Securities
     Investment  securities consist principally of debt securities issued by the
     US  Treasury  and  other  US  Government   agencies  and  corporations  and
     investment in other securities, including mutual funds.

     Investment  securities are classified  into three  categories and accounted
     for as follows:  (1)  Held-to-maturity  securities are debt securities that
     the Company has the positive intent and ability to hold to maturity.  These
     securities  are  reported at amortized  cost.  (2) Trading  securities  are
     securities which are bought and held principally for the purpose of selling
     them in the near term.  These  securities are reported at fair value,  with
     unrealized   gains  and   losses   included   in  current   earnings.   (3)
     Available-for-sale securities are debt and equity securities not classified
     as either held-to-maturity or trading securities. The Company does not have
     available-for-sale  securities.  Gains and losses  realized on the sales of
     investment  securities  are  determined  using the specific  identification
     method.

Concentrations of Credit Risk
     The Company's  short-term cash  investments  are held in several  financial
     institutions  and consist  principally of insured money market accounts and
     cash  management  accounts  that are  collateralized  by or  invested in US
     Government and US Government agency securities.

     The  Company's  held-to-maturity  securities  consist  of  marketable  debt
     securities.  These  securities  are issued by a  diversified  selection  of
     corporate  and US  government  agencies  with strong  credit  ratings.  The
     Company's  investment  policy limits the amount of credit exposure with any
     one institution.  Other than asset-backed securities, these debt securities
     are  generally  not  collateralized.  The Company has not  experienced  any
     material losses due to credit  impairment on investments in marketable debt
     securities in any year.

Impairment of the Unconditional Supply Commitment
     As discussed in Note 3, the Company has the unconditional  right to receive
     supplies  originally  aggregating  $9 million  from  Aventis  Pasteur.  The
     Company's  policy is to  review  the  current  market  prices of  available
     supplies,  if any,  to assure  that they  remain  above the stated  Aventis
     Pasteur  contract  price of the materials and that the right to receive the
     supplies  remains  unimpaired.  Aventis  Pasteur  is  one  of  the  largest
     pharmaceutical vaccine manufacturers in the world. The Company monitors the
     financial  performance of Aventis Pasteur to assure that they will continue
     to be able to  perform  under  the  contract,  wherein  the  special  order
     supplies are to be provided from supplies  manufactured  by Aventis Pasteur
     in  large  quantities  and  sold  to  many  customers,   including  the  US
     Government,  as part of Aventis Pasteur's basic franchise  (business).  The
     contract  allows for inflation based increases in the per unit costs of the
     supplies  which the Company and Aventis  Pasteur  believe are sufficient to
     assure that there will be no future financial  hardship incurred by Aventis
     Pasteur in the execution of the agreement.

New Accounting Pronouncements
     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
     Company  adopted  SFAS No.  133,  as  amended  by SFAS No.  137,  effective
     February 1, 2001 and this  adoption  did not have a material  effect on the
     financial statements.


                                      -30-

<PAGE>


Comprehensive Income
     The Company complies with SFAS No. 130, "Reporting  Comprehensive  Income,"
     which established standards for reporting  comprehensive income (defined to
     include  net  income,  unrealized  gains and  losses on  available-for-sale
     investment securities, foreign currency adjustments and certain other items
     not included in the income  statement).  The Company does not have elements
     of other comprehensive income other than net loss.

3.   License and Co-Promotion Agreements

     In June 1998,  Aphton and  SmithKline  Beecham signed a  Collaboration  and
     License agreement,  granting  SmithKline Beecham exclusive rights worldwide
     to Aphton's GnRH-related patents and proprietary technology.  The agreement
     covers the diagnosis,  treatment and prevention of GnRH-related cancers and
     other  diseases  in humans.  Human  cancer  indications  for the  anti-GnRH
     product are prostate,  breast,  ovarian and endometrial cancer.  Additional
     medical indications for the anti-GnRH product are endometriosis, polycystic
     ovaries,  uterine  fibroids,  contraception,   infertility  and  precocious
     puberty.  Under terms of the agreement,  Aphton and SmithKline  Beecham are
     collaborating  in a joint  product  development  program,  with  SmithKline
     Beecham responsible for clinical trials and regulatory  approvals,  and for
     worldwide  marketing and distribution of approved  products.  The agreement
     uses a royalty  mechanism based on product sales, in dollars,  worldwide to
     determine Aphton's revenues.  As part of the Agreement,  SmithKline Beecham
     made an equity  investment of $5,000,000 for 237,867 shares of newly issued
     Aphton common stock.

     On February  14, 1997  Aphton  signed an  agreement  with  Pasteur  Merieux
     Connaught  (Rhone-Poulenc  Group) which is now known as Aventis Pasteur,  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  anti-gastrin  immunogen  product  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  Aventis  Pasteur  will  be  responsible  for  promotion,  advertising,
     marketing,  distribution and sales of the anti-gastrin immunogen product in
     the United States,  Canada,  Europe  (including  the C.I.S.  countries) and
     Mexico.  In addition,  Aphton and Aventis  Pasteur  entered into agreements
     providing for: (a) the supply of the  anti-gastrin  immunogen  product from
     Aphton to Aventis Pasteur;  and (b) the supply of certain components of the
     anti-gastrin  immunogen  product (as well as other  Aphton  products)  from
     Aventis Pasteur to Aphton.  Aventis Pasteur 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 the  anti-gastrin  immunogen  product  with the balance of profits to be
     retained by Aventis Pasteur.

     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
     Aventis  Pasteur 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 the
     supplies is based on the negotiated  License Fee. The amount of material to
     be received 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.

     Under the agreement, Aventis Pasteur 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 Aventis  Pasteur 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


                                      -31-

<PAGE>


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 Aventis
Pasteur under any conditions.  There is no provision under the agreement for the
unconditional  supply  commitment to be satisfied by Aventis Pasteur with a cash
payment. (The $10 million license payment was recognized for tax purposes in the
year ended April 30, 1997.)

4.   Equipment and Improvements

At January 31, 2001 and 2000, equipment and improvements consisted of
the following:
                                                   January 31,    January 31,
                                                        2001           2000
Laboratory equipment                               $ 502,607      $ 501,078
Leasehold improvements                               349,646        293,584
Office and laboratory furniture and fixtures         232,980        229,454
                                                   ---------     ----------
                                                   1,085,233      1,024,116
  Less accumulated depreciation and amortization    (918,796)      (850,766)
                                                   ----------    ----------
                                                   $ 166,437      $ 173,350
                                                   =========      =========

5.  Accounts Payable and Other

At January 31, 2001 and 2000, accounts payable
and other was composed of:                         January 31,    January 31,
                                                      2001           2000
                                                      ----           ----
Trade accounts payable                             $4,140,227     $3,131,861
Accrued wages payable                               1,789,223      2,640,880
Employee benefits payable                             278,119        359,030
                                                    ---------     -----------
                                                   $6,207,569     $6,131,771
                                                   ==========     ==========
See related Note 6.

6.   Investment Securities

Securities  classified as trading and  held-to-maturity  at January 31, 2001 and
2000 are summarized below. Estimated fair value is based on quoted market prices
for these or similar investments.

<TABLE>
<CAPTION>
                                                                                  Unrealized     Unrealized
                     January 31, 2001                             Cost              Gains         Losses       Fair Value
                     ----------------                            -----               -----         ------       ----------
<S>                                                         <C>                    <C>           <C>           <C>
Total trading securities (carried at fair value):            $2,640,837            $--           $987,657      $1,653,180

Securities held to maturity (carried at amortized cost):    $13,502,695            $   13,270    $--          $13,515,965

                     January 31, 2000
                     ----------------
Total trading securities (carried at fair value):            $1,031,092            $1,349,788    $--           $2,380,880

Securities held to maturity (carried at amortized cost):     $6,878,097                  $448    $499          $6,878,046

The Company held no available-for-sale investment securities at January 31, 2001
and January 31, 2000.

The carrying value of all investment securities held at January 31, 2001 and
2000 is summarized below:

Security                                                          2001                2000
--------                                                          ----                ----
Trading securities                                               $1,653,180          $2,380,880
Securities held-to-maturity maturing within one year             13,502,695           6,878,097
                                                                 ----------          ---------
  Total short-term investments                                  $15,155,875          $9,258,977
                                                                ============         ==========
</TABLE>


                                      -32-

<PAGE>


The Company's trading securities consist of mutual funds and relate to a Company
plan whereby  individuals may forego  immediate  receipt of wages. In connection
therewith, the Company establishes a liability for accrued wages and records the
related  compensation  expense as services are performed.  Further,  the Company
segregates an amount of funds in investment  accounts equal to the liability for
accrued wages. The investment accounts (trading securities) remain assets of the
Company, and are subject to the general creditors of the Company.  Upon transfer
of the funds to the  investment  accounts,  the  employees  direct the  specific
investment  of the  funds.  The  changes  in  value in the  investment  accounts
(trading  securities)  are  recognized  as  unrealized  gains and  losses in the
statement of operations,  with a corresponding  increase or decrease to research
and  development  expense and the liability for  employees'  wages and benefits.
Unrealized holding losses on trading  securities and the corresponding  decrease
in research and development expense totaled  approximately $1.0 million in 2001.
Unrealized holding gains on trading securities and the corresponding increase in
research and development expense totaled  approximately $1.0 million in 2000 and
approximately $.4 million in 1999.

7.  Common Stock, Preferred Stock and Purchase Warrants

Common Stock -

    During fiscal 2001, the Company received  proceeds of  approximately  $15.2
    million net of  approximately  $1.0 million offering costs from the closing
    of a private financing with several international  biotechnology/healthcare
    funds.  The Company issued 491,509 shares of common stock and there were no
    warrants or options included with this private placement.

    During fiscal 2000, in a private  placement the Company sold 800,000 shares
    of common stock for $11,200,000 net of insignificant legal,  accounting and
    filing fee expenses.  The Company also issued  359,000  shares  through the
    exercise of outstanding purchase warrants, netting $5,502,250 in proceeds.

    During  fiscal  1999,  SmithKline  Beecham  made an  equity  investment  of
    $5,000,000 for 237,867 shares of newly issued Aphton common stock.

Preferred Stock -

    The Company has 2,000,000  shares of authorized  preferred  stock,  none of
    which has ever been issued or outstanding.

Purchase Warrants -

    Each warrant  described  below is exercisable for one share of common stock
    and is subject to the restrictive holding requirements of SEC Rule 144. The
    term of the warrants is from 8 to 23 years.

    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  36,000  employee
    stock purchase warrants granted in 2001. Based on Black-Scholes values, for
    the  year  ended  January  31,  2001,  the pro  forma  net  loss  would  be
    $16,908,699  and the pro forma loss per common share would be $1.05.  There
    were 150,000  employee stock purchase  warrants  granted in 2000.  Based on
    Black-Scholes  values,  for the year ended January 31, 2000,  the pro forma
    net loss would be $13,231,796 and the pro forma loss per common share would
    be $.90. There were no employee stock purchase warrants granted in 1999.

    The following  assumptions  were used in the  Black-Scholes  option pricing
    model for the 36,000 and 150,000  purchase  warrants granted in fiscal 2001
    and 2000, respectfully, to employees. 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.

                                      -33-

<PAGE>

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%.
<TABLE>
<CAPTION>

The following table summarizes purchase warrant activity                          Weighted-Average
over the past three fiscal periods:                          Number of Shares      Exercise Price
                                                             ----------------     ----------------
<S>                                                             <C>                    <C>
    Outstanding and exercisable at February 1,1998              2,018,300              $13.76
          Exercised                                                (4,900)               $.25
                                                                  --------
    Outstanding and exercisable at January 31,1999              2,013,400              $13.76
          Granted                                                 150,000              $14.75
          Exercised                                              (359,000)             $15.33
                                                                ----------
    Outstanding and exercisable at January 31,2000              1,804,400              $13.58
                                                                ----------
          Granted                                                  36,000              $14.75
          Exercised                                              (115,000)              $2.14
                                                                ----------
    Outstanding and exercisable at January 31,2001              1,725,400              $14.37
                                                                =========
</TABLE>


In December, 1999 there were 1,000,000 warrants with an exercise price of $14.75
reserved for future use that were not issued or outstanding at January 31, 2001.
For warrants outstanding and exercisable at January 31, 2001, the exercise price
ranges and average remaining lives were:

                      Warrants Outstanding and Exercisable
                      ------------------------------------
<TABLE>
<CAPTION>

  Range of Exercise Prices     Number Outstanding         Average Period (1)          Average Price (2)
  ------------------------     ------------------         ------------------          -----------------
    <S>                               <C>                   <C>                            <C>
      $.25  to  $14.00                532,400               13.9                           $11.38
    $14.01  to  $14.99                770,000               13.9                           $14.75
    $15.00  to  $24.00                423,000               13.9                           $17.42
                                   -----------
                                    1,725,400               13.9                           $14.37
                                   ===========
</TABLE>

(1) Weighted average remaining years
(2) Weighted average exercise price

8.  Income Taxes

Gross  deferred tax assets result from net operating  loss and income tax credit
carryforwards. Realization of these assets is dependent on the Company's ability
to generate  sufficient  future taxable  income,  prior to the expiration of the
carryforwards,  which is dependent on the completion of research and development
activities and successful  marketing of the Company's various  products.  Due to
the uncertainties related to the above and in accordance with guidance contained
in SFAS No. 109, a valuation  allowance has been provided for these deferred tax
assets.  Accordingly,  these assets do not appear in the Company's balance sheet
at January 31, 2001 and 2000. The changes in the valuation allowance in 2001 and
2000 were $5,553,000 and $3,160,000, respectively.

     Deferred tax assets consisted of:        January 31, 2001  January 31, 2000
                                              ----------------  ----------------
       Federal net operating loss carryforward    $17,968,000       $12,218,000
       State net operating loss                       324,000           324,000
                                                --------------   --------------
       Total operating loss carryforward           18,292,000        12,542,000
       Deferred license payment revenues            4,014,000         4,014,000
       Expenses deductible in future periods          803,000         1,200,000
       Federal tax credits                          2,171,000         1,971,000
       State tax credits                              554,000           554,000
                                                  --------------    ------------
       Total tax credits                            2,725,000         2,525,000
                                                -------------     -------------
       Total deferred tax assets                   25,834,000        20,281,000
       Valuation allowance                        (25,834,000)      (20,281,000)
                                                -----------       -----------
       Net deferred tax assets                    $   --            $   --
                                                  ===========      ============

                                      -34-


<PAGE>


At January  31,  2001,  for  Federal  income tax  purposes,  the Company had net
operating loss carryforwards of approximately $52,847,000 and various income tax
credit  carryforwards,  primarily  research  and  experimentation,   aggregating
$2,171,000, which expire at various dates through 2021.

At January 31, 2001,  for  California  income tax purposes,  the Company had net
operating  loss  carryforwards  of  approximately  $5,281,000,  which  expire at
various  dates  through  2005;  and  various  income tax  credit  carryforwards,
primarily research and experimentation,  aggregating  $554,000,  which expire at
various dates through 2014.

9.   Commitments

The Company  has  noncancelable  facilities  leases  expiring  at various  dates
through fiscal 2003. The leases provide  various  options to renew.  The minimum
rental  commitments  for the  fiscal  years  2002 and 2003,  respectively,  are,
approximately $80,000 and $22,000 and none thereafter.  Rental expense for these
leases for the years ended  January 31,  2001,  2000 and 1999 was  approximately
$103,000,  $101,000 and $115,000.  Rental expense is allocated  between research
and development expense and general and administrative expense, based on use, in
the accompanying statements of operations.

10.  Selected Quarterly Financial Data (unaudited)

Selected unaudited quarterly financial data for the years ended 2001 and 2000
are summarized below.
<TABLE>
<CAPTION>

          Statement of Operations Data:           First            Second             Third            Fourth
       For the year ended January 31, 2001       Quarter           Quarter           Quarter           Quarter
                                                 -------           -------           -------           -------
<S>                                              <C>            <C>                <C>               <C>
   Research and Development Expenditures         $2,949,508     $3,647,340         $3,790,199        $4,915,136
   Investment Income                                329,904        546,612            372,125           305,970
   Net Loss                                      (3,237,514)    (3,705,035)        (4,088,111)       (5,366,479)
   Basic and Diluted Net Loss per Share              $(0.20)        $(0.23)            $(0.25)           $(0.33)
   Weighted Average Shares Outstanding           15,804,954     16,199,493         16,199,493        16,199,493

          Statement of Operations Data:           First            Second             Third            Fourth
       For the year ended January 31, 2000       Quarter           Quarter           Quarter           Quarter
                                                 -------           -------           -------           -------
   Research & Development Expenditures           $1,452,084      $2,316,700        $2,870,908       $4,181,669
   Investment Income
                                                    102,987          70,976            42,839          228,178
   Net Loss                                      (1,506,844)     (2,321,004)       (2,969,122)      (4,396,326)
   Basic and Diluted Net Loss per Share              $(0.10)         $(0.16)           $(0.20)          $(0.28)
   Weighted Average Shares Outstanding           14,433,384      14,433,384        14,700,051       15,592,184

</TABLE>