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

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

                                    FORM 10-K
                                   (MARK ONE)
                ( ) 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, 1998

                                       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 February 28, 1998: 14,191,217

                Aggregate market value of Common Stock ($.001 par
                    value) held by non-affiliates on February
                                    28, 1998
         based on the last sale price on February 27, 1998: $144,177,612

               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 developing products using its
innovative vaccine-like technology for neutralizing hormones that participate in
gastrointestinal  system and reproductive system cancer and non-cancer diseases;
and the  prevention of pregnancy.  Aphton has strategic  alliances  with Pasteur
Merieux Connaught  (Rhone-Poulenc Group),  Schering Plough Animal Health and the
World Health Organization (WHO).  Aphton's Web page, describing the company, its
technology,   products,  strategic  alliances,  news  releases  and  reports  of
independent research analysts, can be visited at: www.aphton.com.

                                                 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,
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,  because  this
risk-averse strategy has been proven to be effective in humans.  Well-documented
examples of such  efficacy  in humans are:  blocking  gastrin  (Proglumide)  and
histamine (Zantac, Tagamet), which in turn is stimulated by gastrin, in order to
reduce stomach acid to treat ulcerations of the esophagus and to heal or prevent
peptic  ulcers;  blocking  estrogen  (Tamoxifen)  for breast cancer  therapy and
blocking testosterone for prostate cancer therapy.


                                                Results and Status
Safety / Dose Ranging
Aphton  successfully  completed both the safety and  dose-ranging  phases of its
Phase I/II clinical  trial with its  immunotherapeutic  product  Gastrimmune(TM)
with terminal cancer  patients.  Aphton  demonstrated,  during the  dose-ranging
phase, that Gastrimmune(TM) is very potent, inducing large antibody responses in
terminally  ill  patients  whose colon cancer had not only  metastasized  to the
liver, but were considered "end-Stage".

Survival
In January of 1998,  Aphton announced  increased  survival  results,  which were
statistically  significant,  from  a  comparative  analysis  of its  Phase  I/II
clinical   trials   in   which   Aphton's   anti-gastrin   therapeutic   vaccine
Gastrimmune(TM)  was administered to patients with end-stage  colorectal  cancer
("advanced"  Dukes D). The study was carried out at the Queens  Medical  Center,
University  of  Nottingham,  UK. The group  treated  with  Gastrimmune(TM)  (the
treatment group) had 40 evaluable  patients.  The comparative  placebo group was
from a  parallel  study  at the same  medical  center,  with the same  principal
investigator  as the Aphton study,  carried out under the auspices of the Cancer
Research  Campaign (CRC), a leading cancer research  organization in the UK. The
placebo group from the CRC study had 77 evaluable patients,  also with end-stage
colorectal cancer.

The treatment  group and the placebo  group had similar  inclusion and exclusion
criteria.  The  treatment  group had a higher  proportion of patients with liver
metastases  (87.5%  treatment  group  vs.  65.0%  placebo  group)  and a similar
incidence of lung metastases  (22.5% treatment group vs. 26.0% placebo group). A
larger  proportion  of  patients  in the  placebo  group had  received  adjuvant
chemotherapy  (16.9% placebo group vs. 7.5% treatment group) or chemotherapy for
advanced disease (27.2% placebo group vs. 17.5% treatment group), prior to entry
into  the  trial.  Both  the  lower  rate of  liver  metastases  and the  higher
proportion of antecedent  chemotherapy in the placebo group, tended to confer on
the placebo group an expected,  or  theoretical,  "survival  advantage" over the
treatment group.

Results:  The patients immunized with  Gastrimmune(TM)  had a median survival of
338 days vs. 184 days for the  placebo  group.  The  increased  survival  in the
Gastrimmune(TM) group was statistically significant both by univariate analysis,
with p=0.046 and by multivariate analysis, with p=0.026.

Aphton's  Chief  Medical  Officer  spoke for the  Company  when he said:  "These
statistically  significant  survival  results  with  Gastrimmune(TM),   in  such
terminally ill patients, are very encouraging".

Aphton's Phase III trial program encompasses the above  gastrointestinal  system
cancers.  Since all of these are  stimulated  by gastrin,  Aphton  could and did
select stomach cancer as the first indication for which regulatory approval will
be sought,  because:  (a) survival  time,  the "end point," is short relative to
colon  cancer  (the  patients  selected  in Phase  I/II);  (b)  trial  costs are
relatively  low; (c) there is no current  effective  therapy;  (d) the number of
patients, worldwide, is in the millions.

In 1997 Aphton  signed an  agreement  with  Pasteur  Merieux  Connaught  ("PMC")
(Rhone-Poulenc   Group),   for  a  strategic   alliance  for  all  human  cancer
applications  of   Gastrimmune(TM),   including  stomach,   colorectal,   liver,
esophageal and pancreatic cancers. Under the terms of the twenty-year agreement,
Aphton is responsible  for product  development,  clinical trials and regulatory
agency  approvals,  and PMC is  responsible  for and will  fund  the  promotion,
advertising,  marketing,  distribution  and  sales of  Gastrimmune(TM)  in North
America,  Mexico and Europe.  In addition,  Aphton and PMC have entered and will
enter into further agreements  providing for the supply of certain components of
Gastrimmune(TM)  (as  well  as  other  Aphton  products)  from  PMC  to  Aphton.
Discussions  are  continuing  between  PMC and  Aphton for  marketing  rights to
Gastrimmune(TM) in Japan and elsewhere in Asia.

During the past year Aphton,  together with its  collaborating  teams of leading
scientific researchers from universities in the UK, Canada and the US, presented
and published  papers in  international,  peer-reviewed  journals.  Perhaps most
important to note in the context of Aphton's  current  clinical trial  programs,
some of these papers  demonstrated  the central role that gastrin  plays in: (a)
both gastrointestinal  system cancers and in the genesis and progression of such
cancers;  and (b) the  ability of  Aphton's  product  Gastrimmune(TM)  to elicit
antibodies in the patient which block gastrin, inhibit tumor growth and increase
survival.

In  August,  1997,  Aphton  announced  that it  formed  an  exclusive  worldwide
strategic  alliance  with  Schering-Plough  Animal  Health for the  development,
clinical   testing,   manufacturing   and  marketing  of  Aphton's   proprietary
anti-gastrin  17 immunogen,  a veterinary  product,  that reduces  stomach acid.
Equine  ulcers was  selected as the first  indication  to be pursued.  Under the
terms of the  agreement,  Schering-Plough  Animal  Health will work closely with
Aphton's  scientists  and management to bring the  anti-gastrin  17 immunogen to
market.  Schering-Plough  is  responsible  for all capital  costs and  financial
requirements, product development, clinical trials and marketing for each animal
health  indication.  Schering-Plough  Animal Health and Aphton will share in all
product profits.

In November,  1997, Aphton Corporation  announced that it was issued a US Patent
relating  to  Aphton's   anti-Gonadotropin   Releasing  Hormone  (GnRH)  product
Gonadimmune(TM),  for the  therapeutic  treatment  of  prostate  cancer,  breast
cancer, endometrial cancer and endometriosis. Gonadimmune(TM) induces antibodies
in the patient which  neutralize (or block) GnRH.  This, in turn, shuts down the
production of estrogen and  testosterone  in the gonads (a  biological  blocking
which is reversible in males and females).  Estrogen  fuels the growth of breast
cancer and  testosterone  fuels  prostate  cancer,  both primary and  metastatic
(spread) in each cancer. It has been known for decades that biological blockage,
like physical castration, is efficacious in the treatment of prostate and breast
cancers. Gonadimmune(TM), induces such biological blockage.

Gonadimmune(TM)  has  successfully  completed the  toxicology  testing  (safety)
required for human use,  having  previously  completed  extensive and successful
preclinical  animal testing (safety and efficacy).  These efficacy tests,  which
compared  Gonadimmune(TM)  to therapeutic  drugs currently used in humans,  were
reported upon in the  scientific  literature and met or exceeded all of Aphton's
expectations.  Aphton plans to initiate Phase I/II clinical trials with patients
with breast cancer,  prostate cancer and also patients with other  diseases,  as
well. The timing will depend upon the results of the  negotiations  now underway
with major drug companies for a strategic  alliance for  Gonadimmune(TM).  These
negotiations  rely  significantly  on the  patent  which  issued  to  Aphton  in
November,  1997, in addition to the product development at Aphton which preceded
it.

It is also known that  biological  blockage  of GnRH  renders  males and females
infertile.  Aphton's  product for companion pets and food animals is the subject
of a possible strategic alliance with a major drug company. Aphton has exclusive
manufacturing,  distribution and sales rights for an immunocontraceptive product
which also utilizes  vaccine-like  technology.  Aphton is collaborating with the
World Health Organization (WHO) on the clinical development of the product. This
product will be sold,  when  approved,  worldwide in both the  developed and the
developing countries and will confer protective immunity and prevent pregnancy.

Aphton's  strengths  include  its  innovative   technology  and  products  which
specifically  neutralize,  or  block,  hormones  in a  novel  manner,  providing
significant benefits and advantages over conventional drugs (blockers),  some of
which have severe  disadvantages.  Aphton's  products,  of course,  must proceed
successfully  through the  clinical  trials and  regulatory  process in the same
manner  as many  newly  discovered  drugs  whose  mode of  action  have not been
demonstrated  previously to be clinically effective in humans.  However,  Aphton
believes that employing a strategy of therapeutic  approach that has been proven
effective in humans  significantly  reduces risk and enhances the likelihood of:
clinical  trials  success;  obtaining  regulatory  agency  approval;   achieving
commercial success in the market place; and, benefiting large number of patients
suffering from these serious diseases.

In view of the foregoing,  Aphton believes that its crucial task, in addition to
proper planning and execution during clinical trials, is to demonstrate in human
trials that each product induces the patient's  immune system to neutralize,  or
block, its targeted  hormone.  Aphton believes that therapeutic  efficacy should
then  follow and be  demonstrated  in the pivotal  Phase III  trials,  given the
history of success  and  efficacy  for hormone  therapy in humans,  in which the
targeted hormone is blocked.

                                               Technical Background

Aphton has developed an innovative  technology to create  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.  In contrast,  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,  and at the same
time: 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;   and  avoids  the
possibility of autoimmune  disease where the antibody  production is not "turned
off." This is because the  antibody  production  can only be "turned on and kept
on" in the  presence of the  "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 Gastrimmune(TM), for example, consists of:

              (a) A  synthetic  peptide,  which is  similar  to a portion of the
                  hormone G17 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 peptide (a) to proliferate  and to  "mass-produce"
                  the desired antibodies (all of which bind to the peptide (a)).

              (c)  A liquid slow-release suspender which contains (a) and (b).

Gastrimmune(TM),  which is  administered  by  injection,  with booster  shots at
six-month  intervals,  thus induces  antibodies  in the patient  which bind with
peptide (a) and which also bind (cross-react) with and neutralize G17 (when they
encounter  that portion on G17 which is similar to peptide (a)). G17 is known to
drive (or fuel) colorectal,  stomach, liver and pancreatic cancer.  Neutralizing
G17 inhibits both the growth and metastasis  (spread) of these  gastrointestinal
cancers. In addition, Gastrimmune(TM) uniquely neutralizes glycine-extended G17,
which has also been  shown,  recently,  to fuel  these  gastrointestinal  system
cancers.

G17 is  also  responsible  for  the  production  of the  bulk  of  stomach  acid
(approximately  90% in humans),  the reduction of which is therapeutic  for GERD
and for both peptic ulcers and NSAID (e.g., aspirin/Ibuprofen)-induced ulcers.

Aphton's  Gonadimmune(TM)  is very  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 is also very similarly constructed.  In this case,
the so-called "C-terminal" peptide portion of the hormone hCG (which is targeted
to be  neutralized)  is  synthesized.  (Not  using a larger  portion  of the hCG
molecule avoids inducing unwanted antibodies against other hormones in the woman
(LH and FSH),  which share domains with some portions of the hCG.)  Pregnancy is
prevented by immunizing  the woman;  this induces  antibodies  which bind to and
neutralize hCG.

                                                Strategic Alliances

During the previous year, discussions with potential strategic allies (corporate
partners)  culminated  in the above  discussed  agreement  with Pasteur  Merieux
Connaught   (Rhone-Poulenc   Group)  for  all  human  cancer   applications   of
Gastrimmune(TM).

Also, during the previous year,  discussions with one or more drug companies for
animal  healthcare  applications for both  Gonadimmune(TM)  and  Gastrimmune(TM)
cleared the scientific hurdles (due diligence).

During  the past  year,  discussions  on  commercial  terms  and  considerations
culminated in the above discussed agreement with  Schering-Plough  Animal Health
Division for all animal applications of Gastrimmune(TM).

During the past year,  discussions with potential  strategic  allies  (corporate
partners)  proceeded  beyond  exploratory  discussions and cleared the hurdle of
scientific  due diligence  considerations.  Discussions  are now in final stages
regarding the commercial terms and considerations of a possible agreement.

In January,  1995,  Aphton announced a major  relationship with the World Health
Organization(WHO), for the immunocontraceptive product, also discussed above.

                                            Manufacturing and Marketing

Absent  or  together   with  a  strategic   alliance  or  corporate   partnering
relationship (such as those with Pasteur Merieux Connaught and  Schering-Plough)
which may 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  manufacturing  approach takes advantage of the large and available
manufacturing  resources  of  pharmaceutical  industry  companies.   Aphton  has
contracted  with  drug  manufacturing   sources  which  have  provided  Aphton's
immunogens  for  toxicology  studies  and  clinical  trials.  Aphton's  contract
marketing,  distribution  and sales  strategy,  as  exemplified  by the  Pasteur
Merieux Connaught and Schering-Plough Animal Health agreements,  similarly takes
advantage of 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. This significantly enhances Aphton's ability
to achieve  rapid market  penetration  and growth and to exploit the benefits of
the patent life of its products.

It should be noted that contract  manufacturing  and contract  marketing  differ
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,  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 Pasteur Merieux Connaught
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. Additional patent applications are in preparation or being
filed or are  pending  in the U.S.  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.

                                                    Regulation

Government regulation in the U.S. 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. International regulations
governing  human  clinical  studies can vary  widely,  depending on the specific
country.  In particular,  regulatory  approvals in certain countries,  including
countries in the European Union with a combined  population  larger than that of
the U.S.,  often result in more rapid product  approvals than in the U.S. Aphton
will conduct  trials with some of its products  commencing in the UK (where much
of the data is expected  to be readily  acceptable  in the U.S.,  given the high
standards of medicine and clinical trials  monitoring in the UK), in addition to
conducting  trials in the U.S. and elsewhere in the world,  if, and as, required
or advantageous.  Regulatory  approval,  of course,  is required for marketing a
product in the U.S. and other countries.

Clinical trials of new drugs for  non-"life-threatening"  diseases 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 (pivotal) trials are undertaken in Phase III to fully evaluate
clinical  efficacy  and to test  further  for  safety  using a large  number  of
patients at geographically diverse medical centers.

Based on discussions with the regulatory  authorities,  Aphton believes that its
cancer immunogens will be placed on a significantly less expensive "fast track,"
because  they  treat  "life-threatening"  diseases.  The  "fast  track"  regimen
shortens the time for a clinical trial, thus offering Aphton the potential for a
more rapid approval process for these products.



                                    Directors, Executive Officers and Employees

The directors and executive officers of the Company are set forth below:
Name:                                       Position(s):
Philip C. Gevas                             Chairman of the Board of Directors,
                                            Chief Executive Officer 
                                            and President

William A. Hasler                           Vice Chairman of the Board of
                                            Directors and Chairman of
                                            Audit Committee

Robert S. Basso                             Chairman of Compensation Committee
                                            and Director

Nicholas John Stathis, Esq.                 Director

Dov Michaeli, M.D., Ph.D.                   Senior Vice President,
                                            Director of Medical Science
                                            and Chief Medical Officer

Paul Broome, MB., Ch.B., MFPM               Vice President and Medical Director,
                                            Clinical Trials and 
                                            Regulatory Affairs

Richard Ascione, Ph.D.                      Vice President, Director of 
                                            Laboratory of Molecular Medicine

Peter Blackburn Ph.D.                       Vice President, Program Development

Donald Henderson                            Regional Managing Director,
                                            Finance and Administration

Frederick W. Jacobs                         Treasurer and Chief 
                                            Accounting Officer

Philip C.  Gevas--Chairman  of the Board of  Directors,  has served as Director,
President  and  Chief  Executive  Officer  since  co-founding  Aphton  in  1981.
Previously,  Mr. Gevas had over ten years  experience  in executive  management,
including  finance,   manufacturing  and  marketing,   following  ten  years  of
experience as a project scientist/engineer. Mr. Gevas conceived and directed the
development of Aphton's inventions for the treatment of colorectal,  pancreatic,
liver,  esophageal and stomach cancers,  GERD and chronic peptic ulcers. He is a
co-inventor for Aphton's human contraceptive  product (issued patent). 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-- In October, 1996 Mr. Hasler was elected Vice Chairman of the
Company.  Mr.  Hasler has been a Director of the Company  since  October,  1991.
Since  1991,  Mr.  Hasler  has been the Dean of both  the  Graduate  School  and
Undergraduate School of Business at the University of California, Berkeley. Dean
Hasler  was  formerly  Vice  Chairman  of KPMG  Peat  Marwick,  responsible  for
management  consulting  worldwide.  Dean  Hasler is also a director  of The Gap,
Inc., Walker Interactive  Systems,  Tenera, Inc., TCSI Corporation and is Public
Governor of the Pacific Exchange.

Robert S.  Basso--Director  of the  Company  since  February,  1988,  has been a
Director of the Company or of its now dissolved  subsidiary,  Aphton Development
Corporation,  since 1984. Mr. Basso has been President,  Correspondent  Services
Corporation  (CSC) since 1990.  Formerly,  Mr.  Basso was  President,  Broadcort
Capital  Corporation  and Managing  Director,  Merrill Lynch,  Pierce,  Fenner &
Smith.

Nicholas John Stathis,  Esq.--Director  of the Company since January,  1994. Mr.
Stathis  is retired  from the law firm of White & Case,  where he was of counsel
from 1989 to 1993.  Prior to that he was partner at Botein,  Hays & Sklar,  from
1984 to 1989.  Previously,  Mr.  Stathis was a partner  successively  at Watson,
Leavenworth,  Kelton &  Taggart  and  Hopgood,  Calimafde,  Kalil,  Blaustein  &
Judlowe.  Since 1954, Mr. Stathis has been engaged in the practice of all phases
of patent, trademark, copyright and unfair competition law, including conduct of
litigation and counseling of clients.

Dov Michaeli, M.D. (University of California, San Francisco),  Ph.D. (University
of California, Berkeley)--Senior Vice President, Director of Medical Science and
Chief  Medical  Officer.  Dr.  Michaeli  joined Aphton as a senior member of the
management team and was elected Vice President in 1989. Previously, Dr. Michaeli
was a Professor for twenty years at the University of California,  San Francisco
(Departments of Biochemistry and Surgery). He has served as a member of Aphton's
Scientific  Advisory Board since 1988. He has over thirty years of experience in
scientific research and in clinical medicine. This experience includes extensive
consulting on human clinical trials  sponsored by drug  companies.  Dr. Michaeli
has five patents and over fifty published articles and book chapters.

Paul Broome, MB., Ch.B., MFPM (University of Sheffield Medical School, UK)--Vice
President and Medical Director for Clinical Trials and Regulatory  Affairs.  Dr.
Broome's more than twenty years of clinical experience  includes,  notably,  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 for BIOS, 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.

Richard  Ascione,  Ph.D.  (Princeton  University),  Vice President,  is Aphton's
Director of the Laboratory of Molecular Medicine. 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
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.  Prior to that,  Dr.  Ascione was with the National  Cancer  Institute
(NCI) of the National Institutes of Health (NIH) for approximately twenty years,
the last ten of which 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 of cancer,
human retroviruses and HIV/AIDS.

Peter Blackburn,  Ph.D.-Vice President, Program Development of the Company since
September, 1997. Previously Dr. Blackburn was Executive Vice President,  Applied
Microbiology,   Inc.,   where  he  was   employed   for  over  ten  years.   His
responsibilities  encompassed those of a chief operating officer, engaged in the
R&D and  manufacture of  antimicrobial  peptides and  pharmaceutical  grade bulk
drug.  Earlier,  and for ten years,  he was engaged in academic  research at the
Rockefeller University,  New York, in protein chemistry 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 U.S.
and foreign patents.

Donald Henderson-Regional  Managing Director,  Finance and Administration of the
Company since February,  1998. Mr. Henderson has held management  positions with
Warner Lambert and Fisons,  including  postings to Australia and Japan,  and was
most  recently  Director  of  Finance  and   Administration   for  Europe/Middle
East/Africa for the Australian based pharmaceuticals group Fauldings.


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.  There are no family  relationships  among  executive
officers or directors of the Company.

Directors  do not receive any fees for service on the Board.  Board  members are
reimbursed for their expenses for each meeting attended.

The  Company's  Audit  Committee  is composed of Messrs.  Hasler and Basso.  The
Compensation Committee is composed of Messrs. Basso and Hasler.

Messrs. Basso, Hasler and Stathis are non-executive Board Members.

                            Scientific Advisory Board

The members of the Scientific  Advisory Board,  which  functions  primarily as a
review board for  research  projects and for product  development  programs,  in
addition to Philip C. Gevas, Drs. Dov Michaeli, Paul Broome and Richard Ascione,
are:

Richard L.  Littenberg,  M.D. A co-founder of the Company,  Dr.  Littenberg is a
member  of  Aphton's  Scientific  Advisory  and  Program  Review  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 The
Honolulu Medical Group (HMG). Dr.  Littenberg  received his M.D. degree from the
State University of New York. He has practiced internal and nuclear medicine for
over  seventeen  years.  He  has  participated  in  clinical  trials  for  major
pharmaceutical  companies  and has  engaged in both  cancer  and  cardiovascular
research.

Eliezer Benjamini,  Ph.D.,  University of California,  Berkeley. A co-founder of
the Company, Dr. Benjamini is the Chairman of the Scientific Advisory Board. Dr.
Benjamini  is a  co-inventor  of two of the  Company's  issued US  patents.  Dr.
Benjamini  has been a professor in the  Department of Medical  Microbiology  and
Immunology at the University of California, Davis, for over twenty years. He now
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.

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  and  antigen
presentation.  Dr.  Scibienski is a co-inventor  of both issued US 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 for  contraception and synthetic peptide based immunogen
formulations.  He pioneered the development of synthetic peptide  immunogens for
human  use,   particularly  for  Aphton's   immunocontraceptive   vaccine  under
development with the World Health Organization(WHO).

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

                                Scientific Staff

In  addition  to  the  founding  scientists  (Drs.  Benjamini,   Scibienski  and
Pappagianis), the Company's full-time scientific staff includes the following:

      Dov Michaeli, M.D., Ph.D. - see "Directors and Executive Officers."

      Paul Broome, MB., Ch.B., MFPM, - see "Directors and Executive Officers."

      Richard Ascione, Ph.D. - see "Directors and Executive Officers."

Stephen L. Karr, Jr., Ph.D.,  University of California,  Davis.  Dr. Karr joined
Aphton in 1983 and serves in a number of capacities,  namely:.  Divisional  Vice
President and General  Manager,  Laboratory of  Immunobiology.  Responsible for:
daily operations;  program planning, budgeting and control; and Project Manager,
in  which  capacity  he  is  responsible   for  the   experimental   design  and
implementation   of   special    projects.    Dr.   Karr,   who   is   also   an
immunoparasitologist,  is an inventor of two of the Company's issued patents and
three pending patent  applications.  Dr. Karr has sixteen  publications  and had
presented twenty papers prior to joining the Company.

Stephen Grimes, Ph.D., University of California,  Davis. Dr. Grimes,  Divisional
Vice  President,  Immunology,  is  responsible  for research and  development in
immunology and the experimental  design and  implementation of  immunology-based
projects.  He also serves as the principal scientific deputy to Dr. Michaeli and
Dr. Broome for Aphton's clinical trials projects. Dr. Grimes is a co-inventor of
issued U.S. patents of the Company and of additional  patents in preparation and
pending.  Dr.  Grimes came  directly to the Company in 1981 upon  finishing  his
doctoral  dissertation  under Dr.  Scibienski at the  University of  California,
Davis.

Both Dr. Karr and Dr. Grimes support  closely the office of Program  Development
and Aphton's  Product  Development/Manufacturing  Team in the UK, which includes
former   SmithKline   Beecham   employees  with  many  years  of  development  /
manufacturing experience.
                              Intellectual Property

The Company's  policy,  in its early years, had been to protect and maximize the
value of its intellectual property assets by withholding papers and publications
from the  scientific  and medical  literature  until the subject matter is under
sufficient  patent  protection.  This  policy  has proven to be  successful,  as
evidenced  by the broad and growing  range of patents and claims which have been
issued to Aphton in countries around the world and upon which Aphton's strategic
alliances rely.  Aphton,  together with its scientific  collaborators at leading
Universities and Medical Centers in the UK, Canada and the US, has now published
numerous  papers  in  peer-reviewed  scientific  journals  and is  preparing  or
submitting  for  publication   additional  scientific  papers,  in  a  carefully
controlled manner designed to enhance the interests of the shareholders.

The Company  employs  approximately  twenty-five  individuals  directly  and has
numerous others under contracts with other supporting organizations.

Item 2.  Properties

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 1999 through 2003,  respectively,  are,
$115,000,  $101,000,  $103,000,  $80,000,  $22,000 and none  thereafter.  Rental
expense for these leases for the nine months ended  January 31, 1998 and for the
years ended April 30, 1997, 1996 and 1995, was approximately $80,000,  $108,000,
$108,000 and $87,000.

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.

A special meeting of shareholders of was held November 5, 1997. The shareholders
approved  the merger of Aphton  California  into  Aphton  Delaware  and  related
changes to the Company's Certificate of Incorporation and Bylaws. As part of the
reincorporation  the Company's  fiscal year was changed from April 30 to January
31.

                                                      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 April 30, 1996.  The Company's  Common Stock is traded
under the symbol "APHT."

Fiscal Year Ended April 30, 1997:       High                      Low
         1st Quarter                  $29 1/4                   $ 15 1/2
         2nd Quarter                   20 1/2                     13 1/2
         3rd Quarter                   22 1/2                     16 1/2
         4th Quarter                   23 3/4                     11 3/4
Fiscal Period Ended January 31, 1998:
         1st Quarter                  $15 1/2                   $ 11 1/2
         2nd Quarter                   16 1/2                     10 1/4
         3rd Quarter                   12 3/4                      9 3/8
Quarter ended April 30, 1998:          15                         11 7/16

As of January 31, 1998,  Aphton had approximately 300 shareholders of record and
approximately 4,000 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 nine months ended January
31,  1998 and each of the four 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.

                                           SUMMARY FINANCIAL INFORMATION
                                     (In thousands except for per share data)
                 Nine Months Ended
                     January 31,         Year Ended April 30,
Statement of Operations
Data:                   1998     1997    1996     1995    1994    1993
                        ----     ----    ----     ----    ----    ----
Revenue                $  534   $  271  $  438   $ 463   $  62   $ 125
Net Loss               (6,605)  (5,629) (4,711) (3,930) (3,139) (2,094)
Research & Development
Expenditures            4,963    5,206   4,501   3,905   2,924   2,085
Net Loss per Share     $(0.48)  $(0.44) $(0.37) $(0.32) $(0.28) $(0.20)
Weighted Average Shares
   Outstanding         13,733   12,913  12,723  12,378  11,268  10,593

                    January 31,        Year Ended April 30,
                       1998     1997      1996       1995     1994     1993
                       ----     ----      ----       ----     ----     ----
Balance Sheet Data:
Cash and Short-Term
   Cash Investments  $14,226   $8,846    $8,169    $7,520   $11,157   $2,781
Total Assets          23,580   18,362     8,354     7,741    11,290    2,924
Total Liabilities     12,273   15,851     1,313       997       619      137
Accumulated Deficit  (32,004) (25,399)  (19,770)  (15,059)  (11,130)  (7,991)
Total Stockholders'   11,307    2,511     7,041     6,744    10,671    2,787
Equity

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

             Nine Months Ended January 31, 1998 and the Fiscal Years
                       Ended April 30, 1997, 1996 and 1995

During the nine months ended January 31, 1998,  the Company  reported a net loss
of $6,604,544, including non-cash interest expense of $1,566,971 relating to the
convertible  debenture  described  below.  During this period the Company had no
contract  revenues.  Investment  earnings on cash increased $262,738 to $533,908
due to higher average cash balances.  Research and development expenditures were
$4,963,481  which  represented  an increase in average  quarterly  research  and
development  expenditures  from about $1.3 million per quarter in the year ended
April 30, 1997 to about $1.7  million  per  quarter  for the nine  months  ended
January 31, 1998. This increase was budgeted for and related to the on-going and
planned additional (human) Clinical Trials.

During the fiscal year ended April 30, 1997, the Company  reported a net loss of
$5,628,966.  During this period the Company had no contract revenues. Investment
earnings on cash  decreased  to $271,170  due to lower  average  cash  balances.
Research and development expenditures increased to $5,205,854. This increase was
budgeted for and related to the on-going and planned additional (human) Clinical
Trials.

During the fiscal year ended April 30, 1996, the Company  reported a net loss of
$4,710,933.  During this period the Company had no contract revenues. Investment
earnings  on cash  decreased  $24,681  to  $438,812.  Research  and  development
expenditures  increased  $596,310 to $4,500,877.  This increase was budgeted for
and related to the on-going and planned additional (human) Clinical Trials.

During the fiscal year ended April 30, 1995, the Company  reported a net loss of
$3,929,709.  During this period the Company had no contract revenues. Investment
earnings  on cash  increased  $401,162 to $463,493  due to higher  average  cash
balances.   Research  and  development   expenditures   increased   $980,342  to
$3,904,567.  This  increase  was  budgeted  for and related to the  on-going and
planned additional (human) Clinical Trials.

The   Financial   Accounting   Standards   Board  (FASB)   issued   several  new
pronouncements  in  1997,  including  SFAS  No.  130,  "Reporting  Comprehensive
Income";  and SFAS No. 131,  "Disclosures  About  Segments of an Enterprise  and
Related Information." SFAS No. 130 states that all items that are required to be
recognized under accounting  standards as components of comprehensive  income be
reported in a financial  statement that is displayed with the same prominence as
other financial statements. SFAS No. 131 requires disclosures regarding segments
of an enterprise and related  information  that reflects the different  types of
business  activities in which the enterprise  engages and the different economic
environments in which it operates.  The adoption of these  standards  during the
Company's  fiscal year ended January 31, 1999 is not expected to have a material
effect on the Company's  financial  statements.  In January 1998,  the FASB also
issued  SFAS  No.  132,   "Employers'   Disclosure   About  Pensions  and  Other
Postretirement  Benefits"  which is not  applicable  to the  Company  since  the
Company does not provide such benefits.

The  Company  is aware of the issues  associated  with the  programming  code in
existing digital  computer systems as the year 2000 approaches.  The "year 2000"
problem  is  pervasive  and  complex,   extending  beyond  purely  computational
considerations,  to control  systems,  as well.  Virtually  every  computer,  or
computer-chip  driven  operation will be affected in some way by the rollover of
the two digit  year  value to 00. The issue is  whether  computer  systems  will
properly  recognize  date sensitive  information  when the year changes to 2000.
Systems that do not properly recognize such information could generate erroneous
data or cause a system to fail.  Management  plans to  implement  any  necessary
vendor upgrades and modifications to assure continued functionality with respect
to the widely  discussed  software  problems  associated  with the year 2000. At
present,  management  does not expect that  material  incremental  costs will be
incurred in the aggregate or in any single future year.

Inflation and changing  prices have not had a  significant  effect on continuing
operations and are not expected to have any material  effect in the  foreseeable
future.  Dividend,  interest  and  other  income  were  primarily  derived  from
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.  In April 1997,  the
Company issued a $5,000,000 7% senior redeemable convertible  debenture.  During
the nine months ended January 31, 1998 the  debenture  and related  interest was
converted into 559,068 shares of the Company's common stock.  Non-cash  interest
on such debt  amounted to  approximately  $1,567,000  in the nine  months  ended
January 31, 1998 and $15,000 in fiscal 1997. The recorded cost of the debenture,
at April, 30, 1997, approximates market value.

On February 14, 1997 Aphton signed an agreement with Pasteur  Merieux  Connaught
("PMC")  (Rhone-Poulenc Group), a leader in medical science and research and the
world's largest vaccine manufacturer and marketer,  for a strategic alliance for
all human cancer applications of the Company's product Gastrimmune(TM) including
stomach,  colorectal,  liver  and  pancreatic  cancers.  Under  the terms of the
twenty-year license and co-promotion  agreement,  Aphton will be responsible for
product  development,  clinical trials and regulatory agency approvals,  and PMC
will be responsible  for promotion,  advertising,  marketing,  distribution  and
sales of  Gastrimmune(TM)  in the United States,  Canada,  Europe (including the
C.I.S.  countries)  and  Mexico.  In  addition,  Aphton  and PMC will enter into
agreements  providing for: (a) the supply of Gastrimmune(TM) from Aphton to PMC;
and (b) the supply of certain  components of  Gastrimmune(TM)  (as well as other
Aphton  products) from PMC to Aphton.  PMC will fund the costs  associated  with
product  introduction,  promotion,  advertising  and  marketing  throughout  the
territory  covered  by the  agreement.  Under  the  terms of the  agreement,  in
addition to upfront  consideration  aggregating $10 million including $1 million
cash and the  supply  commitment  (of  material  suitable  for human  use) of $9
million,  Aphton  will  receive  the  majority  of the  profits  from  sales  of
Gastrimmune(TM) with the balance of profits to be retained by PMC.

The supply commitment of materials suitable for human use consists of Diphtheria
Toxoid and/or Tetanus  Toxoid.  Aphton may use some or all of the  unconditional
supply  commitment in the Product under  development  with PMC or Aphton may use
some or all of the  supply  commitment  on  other  current  product  lines or on
Research and Development.  The supply  commitment of material suitable for human
use is not  readily  obtained on the open  market in such large  quantities.  By
comparison to lower quality material available in smaller quantities  management
estimates  that the market value of the supplies is  substantially  greater than
the carrying value of $9 million, if they could be obtained.  The carrying value
of $9 million is based on the negotiated  License Fee. The amount of material to
be received for the $9 million is based on negotiated per unit costs,  which are
well below the per unit costs of lower  quality  materials  available in smaller
quantities.

The $10 million upfront  consideration  has been classified as a license payment
and  has  been  deferred  and  will  be  recognized   for  financial   statement
(accounting) purposes as revenue within the twenty-year period of the agreement.
The revenue recognition will begin once regulatory agency approval to market the
product has been  received and will be  recognized  ratably  over the  remaining
period of the  contract,  which ends  February  13,  2017.  The Company does not
speculate on the timing of regulatory approvals. However, they are not likely to
occur in less  than two  years  and  quite  possibly  may occur in more than two
years.  Under the  agreement,  PMC shall  have the right to  terminate  upon one
hundred  eighty  (180)  days  prior  notice  to  Aphton,  in the  event  that it
determines,  following  completion  of Phase III clinical  trials of the Product
(and receipt by PMC of the results and supporting data obtained in such trials),
that for safety and efficacy  reasons it does not wish to co-promote,  market or
sell the Product.  In addition,  either party may terminate the agreement by (a)
mutual  agreement,  (b) for uncured  material breach and (c) due to liquidation,
insolvency, etc. Further, under the agreement, none of the aggregate $10 million
consideration, either the cash or the Company's rights to the full $9 million in
unconditional  supply  commitment,  is refundable  to PMC under any  conditions.
There  is  no  provision  under  the  agreement  for  the  unconditional  supply
commitment to be satisfied by PMC with a cash payment.  (The $10 million license
payment was  recognized  for tax  purposes  in the year ended  April 30,  1997.)
Discussions  are  continuing  between  PMC and  Aphton for  marketing  rights to
Gastrimmune(TM) in Japan and other Asian markets.

On June 17,  1997,  the  Company  announced  that it had  received  proceeds  of
$10,000,000 from the closing of a private  financing of Common Stock with one of
the largest investment  banking/stock  brokerage firms in the United States. The
Company  issued 715,000 shares of common stock with a 7-year warrant for 225,000
shares exercisable at $17.50 per share.

The Company  anticipates that its existing capital  resources which are composed
primarily of cash and short-term cash investments, including the proceeds of its
private  placements  and  interest  thereon,  would  enable it to  maintain  its
currently  planned  operations into the year 2000. The Company's working capital
and capital  requirements  will  depend upon  numerous  factors,  including  the
following:  the  progress of the  Company's  research and  development  program,
preclinical  testing  and  clinical  trials;  the timing  and cost of  obtaining
regulatory  approvals;  the  levels of  resources  that the  Company  devotes to
product  development,  manufacturing and marketing  capabilities;  technological
advances;  competition;  and collaborative  arrangements or strategic  alliances
with other drug companies, including the further development,  manufacturing and
marketing of certain of the Company's products and the ability of the Company to
obtain funds from such strategic alliances or from other sources.

Item 8.  Financial Statements and Supplementary Data.

Financial Statements are set forth in this report beginning at page F-1.

Item 9.  Changes in and Disagreements with Accountants
         on Accounting and Financial Disclosure.

Not applicable.
                                                     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.




                                                      PART IV

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:
             Report of Independent Accountants
             Balance sheets as of  January 31, 1998 and April 30, 1997 and 1996
             Statements of Operations for the nine months ended January 31, 1998
             and the years ended April 30,  1997,  1996 and 1995  Statements  of
             Stockholders' Equity for the nine months ended January 31, 1998 and
             for the years ended April 30,  1997,  1996 and 1995  Statements  of
             Cash Flows for the nine months  ended  January 31, 1998 and for the
             years  ended  April  30,  1997,  1996 and 1995  Notes to  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)

        23.1          Written Consent of Coopers & Lybrand L.L.P.
                      (attached as an exhibit)

        27.1          Financial Data Schedules.  (attached as an exhibit)

(c)    Reports on Form 8-K
       During the  three-month  period ending  January 31, 1998, the Company did
       not file any reports on Form 8-K.







                                   SIGNATURES


Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


Dated:  April 30, 1998                                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


                        Chairman of the Board, Chief Executive
  PHILIP C. GEVAS       Officer and President                    April 30, 1998



  WILLIAM A. HASLER     Vice Chairman of the Board and Director  April 30, 1998




  ROBERT S. BASSO        Director                                April 30, 1998




  NICHOLAS JOHN STATHIS  Director                                April 30, 1998




  FREDERICK W.  JACOBS   Treasurer and Chief Accounting Officer  April 30, 1998














                          INDEX TO FINANCIAL STATEMENTS
                              FINANCIAL STATEMENTS

Report of Independent Accountants..............................F-1

Balance Sheets - January 31, 1998, April 30, 1997 and 1996.....F-2

Statements of Operations - for the nine months ended January 31, 1998
     and for the years ended April 30, 1997, 1996 and 1995.....F-3

Statements of Stockholders' Equity - for the nine months ended January 31, 1998
     and for the years ended April 30, 1997, 1996 and 1995.....F-4

Statements of Cash Flows - for the nine months ended January 31, 1998
     and for the years ended April 30, 1997, 1996 and 1995.....F-5

Notes to the Financial Statements..............................F-6













                                                     
                        REPORT OF INDEPENDENT ACCOUNTANTS



To the Stockholders
Aphton Corporation


We have audited the  accompanying  balance  sheets of Aphton  Corporation  as of
January  31, 1998 and April 30, 1997 and 1996,  and the  related  statements  of
operations,  stockholders'  equity,  and cash  flows for the nine  months  ended
January 31, 1998 and each of the three fiscal years ending April 30, 1997. 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  in  accordance  with  generally   accepted  auditing
standards.  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 audits provide 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, 1998 and April 30, 1997 and 1996,  and the results of its operations
and its cash flows for the nine  months  ended  January 31, 1998 and each of the
three  years  ended  April  30,  1997  in  conformity  with  generally  accepted
accounting principles.


                                COOPERS & LYBRAND L.L.P.




Honolulu, Hawaii
March 23, 1998













                               APHTON CORPORATION

          Balance Sheets - January 31, 1998 and April 30, 1997 and 1996


                                              1998          1997       1996

                  Assets

Current Assets:
Cash and short-term cash investments      $14,226,000   $8,845,739  $8,169,368
Other assets (including current portion of
     unconditional supply commitment)         205,454      308,920      52,534
                                           ----------   ----------  ----------
         Total current assets              14,431,454    9,154,659   8,221,902
Equipment and improvements, at cost, net of
 accumulated depreciation and amortization    197,736      216,123     132,303
Unconditional supply commitment             8,951,000    8,991,000           -
                                           ----------    ---------   ---------
         Total assets                     $23,580,190  $18,361,782  $8,354,205
                                          ===========  ===========  ==========

   Liabilities and Stockholders' Equity

Liabilities:
Current liabilities:
     Accounts payable and other            $2,273,072  $1,948,827   $1,312,784
                                           ----------  ----------   ----------
         Total current liabilities          2,273,072   1,948,827    1,312,784
     Convertible debenture                          -   3,902,440            -
     Deferred revenue                      10,000,000  10,000,000            -
                                           ----------  ----------    ---------
         Total liabilities                 12,273,072  15,851,267    1,312,784
                                           ----------  ----------    ---------
Commitment

Stockholders' Equity:
     Common stock, $0.001 par value -
     Authorized:  30,000,000 shares
     Issued and outstanding:  14,191,217
         shares at January 31, 1998 and
         12,913,149 shares at April 30, 1997 and
         12,911,149 shares at April 30, 1996  14,191   26,665,091    26,664,591
     Additional paid in capital           42,955,207    1,097,560             -
     Purchase warrants                       341,404      147,004       147,004
     Accumulated deficit                 (32,003,684) (25,399,140)  (19,770,174)
                                         ------------ ------------  ------------
         Total stockholders' equity       11,307,118    2,510,515     7,041,421
                                         ------------ ------------  ------------
         Total liabilities and
            stockholders' equity         $23,580,190  $18,361,782    $8,354,205
                                         ===========  ===========    ==========


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






                               APHTON CORPORATION
                            Statements of Operations
                 for the nine months ended January 31, 1998 and
                for the years ended April 30, 1997, 1996 and 1995



                               1998        1997          1996         1995

Revenue:
  Dividend, interest
   and other income          $533,908    $271,170      $438,812     $463,493
                             --------    --------      --------     --------

         Total revenue        533,908     271,170       438,812      463,493
                             --------    --------      --------     --------

Costs and Expenses:
  General and administrative  608,000      543,939      648,868      488,635
  Research and development  4,963,481    5,205,854    4,500,877    3,904,567
  Non-cash interest expense 1,566,971       15,342            -            -
                            ---------    ---------    ---------    ---------
                                                                 
  Total costs and expenses  7,138,452    5,765,136    5,149,745    4,393,202
                            ---------    ---------    ---------    ---------
  Loss before 
       income tax expense  (6,604,544)  (5,493,966)  (4,710,933)  (3,929,709)
Income tax expense                         135,000
  Net loss                $(6,604,544) $(5,628,966) $(4,710,933) $(3,929,709)
                          ============ ============ ============ ============
Per share data
 Basic loss per common share   $(0.48)     $(0.44)      $(0.37)      $(0.32)
                               =======     =======      =======      ======= 
 Diluted loss per common share $(0.48)     $(0.44)      $(0.37)      $(0.32) 
                               =======     =======      =======      =======
  Weighted average number
   of common shares 
   outstanding              13,733,478 12,912,982   12,723,082    12,377,541
                            ========== ==========   ==========    ==========










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















                               APHTON CORPORATION
                       Statements of Stockholders' Equity
                   for the nine months ended January 31, 1998
              and for the years ended April 30, 1997, 1996 and 1995



               Common  Stock        Additional
                                     Paid in  Purchase  Accumulated
            Shares       Amount      Capital  Warrants    Deficit    Total

Balance,
May 1, 1994    12,367,949 $21,653,791 $    - $147,004 $(11,129,532) $10,671,263
             
Exercise of
purchase
warrants         11,100        2,775       -        -            -        2,775

Net loss              -            -       -        -    (3,929,709) (3,929,709)
       
Balance,
April 30,1995  12,379,049 21,656,566       -  147,004   (15,059,241)  6,744,329
               ---------- ---------- ------- --------    ----------   ---------
Exercise of
purchase
warrants           32,100      8,025       -        -             -       8,025

Sale of 
stock, net       500,000     5,000,000     -        -             -   5,000,000
       
Net loss               -             -     -        -    (4,710,933) (4,710,933)
          
Balance,
April 30,
 1996          12,911,149 26,664,591        -  147,004  (19,770,174)  7,041,421
               ---------- ----------  ------- --------  ------------  ---------
Exercise of
purchase
warrants            2,000       500         -        -           -          500

Conversion
feature of
convertible debt       -          - 1,097,560        -           -    1,097,560
          
Net loss               -          -         -        -  (5,628,966)  (5,628,966)
          
Balance,
April 30,
 1997         12,913,149 26,665,091 1,097,560  147,004 (25,399,140)   2,510,515
              ---------- ---------- ---------  ------- ------------   ---------
Sale of 
stock, net       715,000 10,000,000         -        -           -   10,000,000
                
Issuance of
purchase
warrants 
for services           -          -    198,900       -           -      198,900
             
Exercise of
purchase
warrants           1,000      4,000     (5,500)      -           -       (4,500)

Transfer between
equity accounts
resulting from a
change in the par
value of the stock    - (41,857,647)41,857,647       -           -         -
                    
Conversion of
convertible
 debt           559,068   5,201,247        -         -            -   5,201,247
                                          
Net loss            -           -          -         -   (6,604,544) (6,604,544)
          
Balance,
January 31,
1998        14,191,217    $14,191 $42,955,207 $341,404 $(32,003,684)$11,307,118
            ==========    ======= =========== ======== ============ ===========


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




                               APHTON CORPORATION
                            Statements of Cash Flows
                   for the nine months ended January 31, 1998
              and for the years ended April 30, 1997, 1996 and 1995

           Increase (decrease) in cash and short-term cash investments
                            1998          1997         1996          1995
Cash flows from 
operating activities:
 Cash paid to suppliers
 and employees          $(5,115,606) $(4,156,450) $(4,756,612)    $(4,011,652)

 Interest and
 dividends received         533,908      271,170      438,812         463,493
                        -----------   ----------   ----------     -----------
 Net cash used in
 operating activities    (4,581,698)  (3,885,280)  (4,317,800)     (3,548,159)
                        -----------   ----------   ----------     -----------
Cash flows from investing activities:
 Capital expenditures       (39,041)    (151,349)     (41,029)        (91,428)
                            -------     --------      -------         -------
Cash used in 
investing activities        (39,041)    (151,349)     (41,029)        (91,428)
                            -------     --------      -------         -------
Cash flows from financing activities:
Issuance of
convertible debenture             -    5,000,000            -               - 
Debenture issue costs             -     (287,500)           -               - 
Sales of stock           10,001,000          500    5,008,025            2,775
                         ----------    ---------    ---------          -------
Cash received from
financing activities     10,001,000    4,713,000    5,008,025            2,775
 
Net increase (decrease)
in cash and short-term
cash investments          5,380,261      676,371      649,196       (3,636,812)

Cash and short-term
cash investments:
 Beginning of period      8,845,739    8,169,368    7,520,172       11,156,984
                          ---------    ---------    ---------       ----------
 End of period          $14,226,000   $8,845,739   $8,169,368       $7,520,172
                        ===========   ==========   ==========       ==========

Reconciliation of net
loss to net cash used
in operating activities

Net loss                $(6,604,544) $(5,628,966) $(4,710,933)     $(3,929,709)

Adjustments to reconcile
net loss to net cash
used in operating activities:

Depreciation and
 amortization                57,428       67,529       52,780           47,073
Warrants issued for
 services received          198,900            -            -                - 
Stock issued for 
non-cash debenture
interest, debenture
discount and issuance
costs                     1,566,971            -            -                -
  
Changes in -
 Other assets              (124,698)      40,114       24,098          (43,119)
 Cash receipt treated
 as deferred revenue              -    1,000,000            -                -
 Accounts payable and other 324,245      636,043      316,255          377,596
                           --------    ---------      -------          ------- 
Net cash used in 
operating activities:   $(4,581,698) $(3,885,280) $(4,317,800)     $(3,548,159)
                        ===========  ===========  ===========      ===========

Non-cash investing and financing activities:
 For information about non-cash investing and financing
 activities, please see Notes 3 and 6

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




                               APHTON CORPORATION

                        Notes to the Financial Statements

1.       Organization and Operations

Aphton Corporation is a biopharmaceutical  company developing products using its
innovative vaccine-like technology for neutralizing hormones that participate in
gastrointestinal  system and reproductive system cancer and non-cancer diseases;
and the  prevention of pregnancy.  Aphton has strategic  alliances  with Pasteur
Merieux Connaught (PMC) (Rhone-Poulenc Group), Schering Plough Animal Health and
the World Health Organization (WHO).

Aphton changed its state of incorporation  from California to Delaware effective
January 29, 1998. As part of the reincorporation,  the company's fiscal year end
was changed from April 30 to January 31.

2.       Summary of Significant Accounting Policies

Use of Estimates in the Preparation of Financial Statements -
    The  preparation  of  financial  statements  in  conformity  with  generally
    accepted  accounting  principles  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.

General and Administrative Expenses -
    Amounts  shown  represent  expenses  not  clearly  related to  research  and
    development  expense.  A  significant  portion of these  expenses  relate to
    intellectual property/patent legal costs and salaries.

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.  Investment
    tax credits and research and experimentation credits are accounted for using
    the flow-through method.

Per Share Data -
    The Company has adopted SFAS No. 128,  "Earnings per Share," which specifies
    the computation,  presentation and disclosure  requirements for earnings per
    share.  The Company's basic loss per common share was calculated by dividing
    net loss by the weighted  average number of common shares  outstanding.  The
    Company's common stock equivalents are anti-dilutive, and accordingly, basic
    and  diluted  loss per share are the same.  Such  common  stock  equivalents
    consist of purchase warrants (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.

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 U.S.
    Government and U.S. Government agency securities.

Impairment of the unconditional supply commitment -
    As discussed in Note 3, the Company has the  unconditional  right to receive
    supplies  aggregating $9 million from PMC. The Company's policy is to review
    the current market prices of available supplies, if any, to assure that they
    remain above the stated PMC  contract  price of the  materials  and that the
    right to receive the supplies remains unimpaired.  PMC is one of the largest
    pharmaceutical  vaccine manufacturers in the world. The Company monitors the
    financial performance of PMC 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 PMC in large  quantities and sold to
    many  customers,  including  the U.S.  Government,  as part of  PMC's  basic
    franchise  (business).  The contract allows for inflation based increases in
    the per unit costs of the  supplies  which the Company and PMC  believes are
    sufficient  to  assure  that  there  will be no  future  financial  hardship
    incurred by PMC in the execution of the agreement.

New Accounting Pronouncements-
    The  Financial   Accounting   Standards  Board  (FASB)  issued  several  new
    pronouncements  in 1997,  including SFAS No. 130,  "Reporting  Comprehensive
    Income"; and SFAS No. 131,  "Disclosures About Segments of an Enterprise and
    Related  Information."  SFAS No. 130 states that all items that are required
    to be recognized under  accounting  standards as components of comprehensive
    income be reported in a financial  statement that is displayed with the same
    prominence as other financial statements.  SFAS No. 131 requires disclosures
    regarding  segments of an enterprise and related  information  that reflects
    the different types of business  activities in which the enterprise  engages
    and the different economic  environments in which it operates.  The adoption
    of these standards  during the Company's  fiscal year ended January 31, 1999
    is not  expected  to  have a  material  effect  on the  Company's  financial
    statements.  In January 1998, the FASB also issued SFAS No. 132, "Employers'
    Disclosure  About Pensions and Other  Postretirement  Benefits" which is not
    applicable to the Company since the Company does not provide such benefits.

3.       License and Co-Promotion Agreement

On February 14, 1997 Aphton signed an agreement with Pasteur  Merieux  Connaught
("PMC")  (Rhone-Poulenc Group), a leader in medical science and research and the
world's largest vaccine manufacturer and marketer,  for a strategic alliance for
all human cancer applications of the Company's product Gastrimmune(TM) including
stomach,  colorectal,  liver  and  pancreatic  cancers.  Under  the terms of the
twenty-year license and co-promotion  agreement,  Aphton will be responsible for
product  development,  clinical trials and regulatory agency approvals,  and PMC
will be responsible  for promotion,  advertising,  marketing,  distribution  and
sales of  Gastrimmune(TM)  in the United States,  Canada,  Europe (including the
C.I.S.  countries)  and  Mexico.  In  addition,  Aphton  and PMC will enter into
agreements  providing for: (a) the supply of Gastrimmune(TM) from Aphton to PMC;
and (b) the supply of certain  components of  Gastrimmune(TM)  (as well as other
Aphton  products) from PMC to Aphton.  PMC will fund the costs  associated  with
product  introduction,  promotion,  advertising  and  marketing  throughout  the
territory  covered  by the  agreement.  Under  the  terms of the  agreement,  in
addition to upfront  consideration  aggregating $10 million including $1 million
cash and the  supply  commitment  (of  material  suitable  for human  use) of $9
million,  Aphton  will  receive  the  majority  of the  profits  from  sales  of
Gastrimmune(TM) with the balance of profits to be retained by PMC.

The supply commitment of materials suitable for human use consists of Diphtheria
Toxoid and/or Tetanus  Toxoid.  Aphton may use some or all of the  unconditional
supply  commitment in the Product under  development  with PMC or Aphton may use
some or all of the  supply  commitment  on  other  current  product  lines or on
Research and Development.  The supply  commitment of material suitable for human
use is not  readily  obtained on the open  market in such large  quantities.  By
comparison to lower quality material available in smaller quantities  management
estimates  that the market value of the supplies is  substantially  greater than
the carrying value of $9 million, if they could be obtained.  The carrying value
of $9 million is based on the negotiated  License Fee. The amount of material to
be received for the $9 million is based on negotiated per unit costs,  which are
well below the per unit costs of lower  quality  materials  available in smaller
quantities.

The $10 million upfront  consideration  has been classified as a license payment
and  has  been  deferred  and  will  be  recognized   for  financial   statement
(accounting) purposes as revenue within the twenty-year period of the agreement.
The revenue recognition will begin once regulatory agency approval to market the
product has been  received and will be  recognized  ratably  over the  remaining
period of the  contract,  which ends  February  13,  2017.  The Company does not
speculate on the timing of regulatory approvals. However, they are not likely to
occur in less  than two  years  and  quite  possibly  may occur in more than two
years.

Under the  agreement,  PMC shall have the right to  terminate  upon one  hundred
eighty  (180) days  prior  notice to  Aphton,  in the event that it  determines,
following completion of Phase III clinical trials of the Product (and receipt by
PMC of the results and supporting data obtained in such trials), that for safety
and efficacy reasons it does not wish to co-promote, market or sell the Product.
In addition,  either party may terminate the agreement by (a) mutual  agreement,
(b) for uncured  material  breach and (c) due to liquidation,  insolvency,  etc.
Further,  under the agreement,  none of the aggregate $10 million consideration,
either the cash or the Company's  rights to the full $9 million in unconditional
supply  commitment,  is  refundable  to PMC  under any  conditions.  There is no
provision  under the agreement  for the  unconditional  supply  commitment to be
satisfied  by PMC with a cash  payment.  (The $10  million  license  payment was
recognized for tax purposes in the year ended April 30, 1997.)  Discussions  are
continuing  between PMC and Aphton for marketing  rights to  Gastrimmune(TM)  in
Japan and other Asian markets.

4.       Equipment And Improvements

At January 31, 1998, April 30, 1997 and 1996,
 equipment and improvements consisted of the following:
                                 January 31,     April 30,        April 30,
                                     1998           1997             1996
Laboratory equipment              $ 430,782      $ 414,408        $ 342,328
Leasehold improvements              266,123        243,456          190,333
Office and laboratory 
   furniture and fixtures           192,300        192,300          166,154
                                    -------        -------          -------
                                    889,205        850,164          698,815
Less accumulated depreciation
   and amortization                (691,469)      (634,041)        (566,512)
                                   --------        --------         -------
                                  $ 197,736      $ 216,123        $ 132,303
                                  =========      =========        =========

5.       Accounts Payable and Other

At January 31,  1998,  April 30, 1997 and 1996,  accounts  payable and other was
composed of  approximately  $1,167,000,  $934,000 and $479,000  payable on trade
accounts and  approximately  $1,106,000,  $1,015,000  and  $834,000  accrued for
employee wages and benefits, respectively.

6.       Senior Redeemable Convertible Debenture

In April 1997, the Company issued a $5,000,000 7% senior redeemable  convertible
debenture.  For  financial  reporting  purposes,  $1,097,560 of the proceeds was
allocated to the conversion  feature of the debt and recorded as additional paid
in capital. The value of the conversion feature was based on the Company's stock
market price at the date of issuance,  less an 18%  discount.  As a result,  the
convertible  debt instrument of $5,000,000 was recorded net of discount equal to
the conversion  feature which increases the effective interest rate of the debt.
Accordingly,  beginning  on the date of  issuance,  the  discount was charged to
interest expense on a pro rata basis using the effective  interest method as the
security became  convertible.  The effective interest rate on this debenture was
approximately  52%.  Non-cash  interest on such debt  amounted to  approximately
$15,000 in fiscal 1997. In the period ended January 31, 1998,  the debenture and
related  interest was  converted  to 559,068  shares of common  stock.  Non-cash
interest expense for the period then ended was approximately $1,567,000.

7.       Common Stock and Purchase Warrants

Common Stock -

    During fiscal 1998, in a private placement,  the Company sold 715,000 shares
    of common stock for $10,000,000 net of insignificant  legal,  accounting and
    filing fee  expenses and 4,000  shares  through the exercise of  outstanding
    purchase warrants.

    During fiscal 1997 the Company sold 2,000 shares of common stock through the
    exercise of outstanding purchase warrants.

    During fiscal 1996, in a private placement,  the Company sold 500,000 shares
    of common stock for $5,000,000 net of  insignificant  legal,  accounting and
    filing fee  expenses.  The Company  also sold 32,100  shares of common stock
    through the exercise of outstanding purchase warrants.

    The  Company  sold 11,100  shares of common  stock  during  fiscal 1995
    through  the  exercise of  outstanding purchase warrants.

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.  All  warrants  exercised  from
    inception of the Company have been from  warrants  issued prior to April 30,
    1991.

    The  Financial  Accounting  Standards  Board  issued  Statement of Financial
    Accounting   Standards   (SFAS)  No.  123,   "Accounting   for   Stock-Based
    Compensation,"  in October,  1995. Under SFAS No. 123,  companies can either
    continue  to account  for stock  compensation  plans  pursuant  to  existing
    accounting  standards  or elect to expense the value  derived  from using an
    option pricing model such as Black-Scholes. Aphton Corporation will continue
    to apply  existing  accounting  standards.  However,  SFAS No. 123  requires
    disclosure  of pro forma net income and earnings per share as if the Company
    had adopted the expensing provisions of SFAS No. 123. Based on Black-Scholes
    values,  for the year ended April 30, 1997,  the pro forma net loss would be
    $6,011,431 and the pro forma loss per common share would be $.47. There were
    no employee stock purchase warrants granted in 1998, 1996 or 1995.

    In the nine months ended January 31, 1998 the Company issued 13,000 warrants
    to individuals (non-employees) for services. The Company recorded an expense
    of $198,900 for these warrants.  The Company also issued 225,000 warrants to
    an institutional  investor in conjunction with the sale of 715,000 shares of
    stock for $10,000,000.

    The following  assumptions  were used in the  Black-Scholes  option  pricing
    model for the 25,000 purchase warrants granted in fiscal 1997 to a director.
    The stock  price  and  exercise  price of  $18.25  was set equal to the fair
    market  value  of the  Company's  common  stock on the  date of  grant.  The
    risk-free  rate of return used was 7.01%.  The expected  dividend yield used
    was 0%.  The  expected  time to  exercise  used was 10 years.  The  expected
    volatility used was 75%.

The following table summarizes 
purchase warrant activity                    Weighted-Average
over the past three fiscal periods:          Number of Shares  Exercise Price
Outstanding and exercisable at May 1, 1994      1,699,400          $12.57
                  Granted                              --              --
                  Exercised                       (11,000)           $.25
                  Canceled or expired             (20,000)         $12.00
                                                ----------
Outstanding and exercisable at April 30, 1995   1,668,400          $12.66
                  Granted                         125,000          $12.50
                  Exercised                       (32,100)           $.25
                  Canceled or expired                  --              --
                                                ---------         
Outstanding and exercisable at April 30, 1996   1,761,300          $12.88
                  Granted (1)                      25,000          $18.25
                  Exercised                        (2,000)           $.25
                  Canceled or expired                  --              --
                                                ---------   
Outstanding and exercisable at April 30, 1997   1,784,300          $13.26
                  Granted (1)                     238,000          $17.35
                  Exercised                        (4,000)           $.25
                  Canceled or expired                  --              --
                                                ---------   
Outstanding and exercisable at January 31, 1998 2,018,300          $13.76
                                                =========          ======

For options  outstanding and exercisable at January 31, 1998, the exercise price
ranges and average remaining lives were:
                                  Options Outstanding and Exercisable
 Range of Exercise Prices
                     Number Outstanding  Average Period (2) Average Price (3)
                     ------------------ ------------------  -----------------
   $.25  to  $14.00         771,300            15.5             $ 9.91
 $14.01  to  $24.00       1,247,000            15.7             $16.15
                          ---------
                          2,018,300            13.7             $13.76
                          =========
(1)  Weighted average grant date fair value is $15.30
(2)  Weighted average remaining years
(3)  Weighted average exercise price

8.       Income Taxes

The provision for income taxes consists of the following:
  Current       1998                1997              1996            1995
    Federal    $   -            $100,000            $    -          $    -
    State          -              35,000                 -               -
  Deferred         -                   -                 -               -
               -----            --------            ------           -----  
                   -            $135,000                 -               -
               =====            ========            ======           ===== 

The 1997 current provision reflects alternative minimum tax for which a deferred
tax asset was not recognized.

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 Statement 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,  1998 and April 30,  1997 and 1996.  The  changes  in the
valuation  allowance in 1998, 1997, 1996 and 1995 were  $2,578,000,  $2,886,000,
$3,071,000 and $1,614,000 respectively.
                                        January 31,    April 30,     April 30,
Deferred tax assets consisted of:          1998          1997          1996
                                          --------     ---------     --------

Federal net operating loss carryforward $5,956,000    $4,010,000    $5,760,000
State net operating loss carryforward      972,000       446,000       740,000
                                        ----------    ----------    ----------
Total operating loss carryforward        6,928,000     4,456,000     6,500,000

Deferred license payment revenues        4,330,000     4,330,000             -
Expenses deductible in future periods      479,000       453,000       361,000

Federal tax credits                      1,433,000     1,413,000     1,031,000
State tax credits                          501,000       557,000       451,000
                                         ---------     ---------     ---------
         Total tax credits               1,934,000     1,970,000     1,482,000
                                         ---------     ---------     ---------

         Total deferred tax assets      13,671,000    11,209,000     8,343,000
         Valuation allowance           (13,671,000)  (11,209,000)   (8,343,000)
                                       -----------   -----------    ----------
         Net deferred tax assets       $         -   $         -    $        -
                                       ===========   ===========    ==========

At January  31,  1998,  for  Federal  income tax  purposes,  the Company had net
operating loss carryforwards of approximately $17,518,000 and various income tax
credit  carryforwards,  primarily  research  and  experimentation,   aggregating
$1,433,000, which expire at various dates through 2013.

At January 31, 1998,  for  California  income tax purposes,  the Company had net
operating  loss  carryforwards  of  approximately  $10,449,000,  which expire at
various  dates  through  2003;  and  various  income tax  credit  carryforwards,
primarily research and experimentation,  aggregating  $501,000,  which expire at
various dates through 2013.

9.       Commitments and Contingencies

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 1999 through 2003,  respectively,  are,
$115,000,  $101,000,  $103,000,  $80,000,  $22,000 and none  thereafter.  Rental
expense for these leases for the nine months ended  January 31, 1998 and for the
years ended April 30, 1997, 1996 and 1995, was approximately $80,000,  $108,000,
$108,000 and $87,000.

10.      Fair Value of Financial Instruments

Statement of Financial  Accounting  Standards No. 107,  "Disclosures  About Fair
Values of Financial  Instruments,"  requires that the Company disclose estimated
fair values for its  financial  instruments.  The  carrying  amounts of cash and
short-term  cash  investments  and the recorded  cost (at April 30, 1997) of the
senior redeemable convertible debenture approximate fair value.

11.      Transition Period Comparative Data:
The following table presents certain  financial  information for the nine months
ended January 31, 1998 and 1997, respectively.

                                           1998               1997
                                                           (unaudited)
Revenues                                 $533,908           $207,369
                                         ========           ========
Net loss                              $(6,604,544)       $(4,188,256)
                                      ============       ============
Basic loss per common share                $(0.48)            $(0.32)
                                           ======             ======
Weighted average common 
  shares outstanding                   13,733,478         13,912,927
                                       ==========         ==========