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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q/A

Amendment No. 1 to Form 10-Q


(Mark One)x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the quarterly period ended September 30, 2003oro
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from                         to


Commission File Number: 000-19122

APHTON CORPORATION

---

(Exact name of registrant as specified in its charter)


Delaware
    
    95-3640931(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification No.)80 SW Eighth Street, Miami, Florida
    
    33130(address of principal executive offices)
    
    (Zip Code)


(305) 374-7338

---

(Registrants telephone number, including area code)




---

(Former name, former address and former fiscal year, if changed since last report)


Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

x       Yes           o      No

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

x       Yes           o      No

Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date:

Number ofClass
    
    Shares outstanding
    
    As ofCommon Stock, $0.001 par value
    
    29,514,463
    
    February 24, 2004






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APHTON CORPORATION

Index

Amendment No. 1 to Form 10-Q amends and restates certain items of the Quarterly
Report of Aphton Corporation (the Company) on Form 10-Q as previously filed
for the three and nine months ended September 30, 2003. The restatement of
certain items of the Companys previously filed Form 10-Q for the three and
nine months ended September 30, 2003 and 2002 is being made in order to (i)
correct an application of certain accounting rules relating to our $20 million
convertible notes financing in the 2nd quarter of 2003; and (ii) revise related
disclosures. Changes related to these items have been made in the following
items of the Form 10-Q:

PagePart I - Financial InformationItem 1. Financial Statements:
    
    
    3Balance Sheets  September 30, 2003 (unaudited) and December 31, 2002
    
    
    4Statements of Operations (unaudited)  Three and nine months ended
September 30, 2003 and 2002
    
    
    5Statements of Cash Flows (unaudited)  Nine months ended September 30,
2003 and 2002
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9Signatures
    
    
    14


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Part I - Financial Information

Item 1. Financial Statements

The interim financial statements included herein have been prepared by us,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, the financial statements
include all adjustments (consisting of normal recurring entries) necessary to
present fairly our financial position as of September 30, 2003 and December 31,
2002 and the results of our operations for the three and nine months ended
September 30, 2003 and 2002; and our cash flows for the nine months ended
September 30, 2003 and 2002. It is suggested that these financial statements
be read in conjunction with the financial statements and the notes thereto
included in our latest annual report on Form 10-K.

3



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APHTON CORPORATION
Balance Sheets

September 30, 2003
    
    December 31, 2002(unaudited)RestatedAssetsCurrent Assets:Cash and current investments:Cash and short-term cash investments
    
    $
    25,064,788
    
    
    $
    7,824,182Investment securities-trading
    
    
    714,387
    
    
    
    749,095Total cash and current investments
    
    
    25,779,175
    
    
    
    8,573,277Other assets (including current portion of
unconditional supply commitment)
    
    
    328,965
    
    
    
    374,740Total current assets
    
    
    26,108,140
    
    
    
    8,948,017Equipment and improvements, at cost,
net of accumulated depreciation and amortization
    
    
    180,885
    
    
    
    245,063Unconditional supply commitment
    
    
    6,797,900
    
    
    
    6,797,900Total assets
    
    $
    33,086,925
    
    
    $
    15,990,980Liabilities and Stockholders Equity (Deficit)Liabilities:Current liabilities:Trade accounts payable
    
    $
    3,659,896
    
    
    $
    10,130,944Amounts payable to Aventis
    
    
    3,232,000
    
    
    
    3,184,000Other
    
    
    977,843
    
    
    
    1,001,672Interest payable
    
    
    547,500
    
    
    
    Total current liabilities
    
    
    8,417,239
    
    
    
    14,316,616Convertible debentures, net of discount of
$12,499,508 as of September 30, 2003
    
    
    10,500,492
    
    
    
    3,000,000Deferred revenue
    
    
    10,000,000
    
    
    
    10,000,000Total liabilities
    
    
    28,917,731
    
    
    
    27,316,616CommitmentsStockholders Equity (Deficit):Preferred stock, $0.001 par value -
Authorized: 4,000,000 shares -
Issued and outstanding: none
    
    
    
    
    
    
    Common stock, $0.001 par value -
Authorized: 60,000,000 shares
Issued and outstanding: 28,621,639 shares at
September 30, 2003 and 24,201,639 shares
at December 31, 2002
    
    
    28,622
    
    
    
    24,202Additional paid in capital
    
    
    164,174,877
    
    
    
    128,956,652Purchase warrants
    
    
    317,650
    
    
    
    298,900Accumulated deficit
    
    
    (160,351,955
    )
    
    
    (140,605,390
    )Total stockholders equity (deficit)
    
    
    4,169,194
    
    
    
    (11,325,636
    )Total liabilities and stockholders
equity (deficit)
    
    $
    33,086,925
    
    
    $
    15,990,980


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APHTON CORPORATION
Statements of Operations (Unaudited)
For the three and nine months ended September 30, 2003 and 2002

Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2003
    
    2002
    
    2003
    
    2002Restated
    
    
    
    RestatedRevenue:
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Costs and expenses:General and administrative
    
    
    709,487
    
    
    
    657,405
    
    
    
    1,988,456
    
    
    
    1,611,332Research and development
    
    
    5,537,669
    
    
    
    10,180,407
    
    
    
    16,542,202
    
    
    
    29,182,312Total costs and expenses
    
    
    6,247,156
    
    
    
    10,837,812
    
    
    
    18,530,658
    
    
    
    30,793,644Loss from operations
    
    
    (6,247,156
    )
    
    
    (10,837,812
    )
    
    
    (18,530,658
    )
    
    
    (30,793,644
    )Other income (expense):Dividend and interest income
    
    
    12,602
    
    
    
    29,011
    
    
    
    43,087
    
    
    
    100,624Interest expense including amortized discount
    
    
    (786,500
    )
    
    
    
    
    
    
    (1,306,500
    )
    
    
    Unrealized gains (losses) from investments
    
    
    15,576
    
    
    
    (115,043
    )
    
    
    47,506
    
    
    
    (152,558
    )Net loss
    
    $
    (7,005,478
    )
    
    $
    (10,923,844
    )
    
    $
    (19,746,565
    )
    
    $
    (30,845,578
    )Per share data:Basic and fully diluted loss per common share
    
    $
    (0.28
    )
    
    $
    (0.52
    )
    
    $
    (0.80
    )
    
    $
    (1.55
    )Weighted average number of common
shares outstanding
    
    
    25,255,552
    
    
    
    20,961,639
    
    
    
    24,831,529
    
    
    
    19,934,496


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APHTON CORPORATION
Statements of Cash Flows (Unaudited)
For the nine months ended September 30, 2003 and 2002

2003
    
    2002RestatedCash flows from operating activities:Cash paid to suppliers and employees
    
    $
    (24,986,272
    )
    
    $
    (28,928,147
    )Net cash used in operating activities
    
    
    (24,986,272
    )
    
    
    (28,928,147
    )Cash flows from investing activities:Proceeds from maturity of held to maturity securities
    
    
    
    
    
    
    1,999,024Capital expenditures
    
    
    (6,049
    )
    
    
    (62,262
    )Net cash (used in) provided by investing activities
    
    
    (6,049
    )
    
    
    1,936,762Cash flows from financing activities:Proceeds from sale of common stock and warrants
    
    
    22,297,927
    
    
    
    32,066,754Proceeds from convertible debentures
    
    
    19,935,000
    
    
    
    Net cash received from financing activities
    
    
    42,232,927
    
    
    
    32,066,754Net increase in cash and short-term cash investments
    
    
    17,240,606
    
    
    
    5,075,369Cash and short-term cash investments:Beginning of period
    
    
    7,824,182
    
    
    
    3,176,717End of period
    
    $
    25,064,788
    
    
    $
    8,252,086Reconciliation of net loss to net cash used in
operating activitiesNet loss
    
    $
    (19,746,565
    )
    
    $
    (30,845,578
    )Adjustments to reconcile net loss to net cash used in operating
activities:Depreciation and amortization
    
    
    70,227
    
    
    
    58,707Amortization of discount on convertible debentures
    
    
    508,960
    
    
    
    Unrealized gain on investments
    
    
    (47,506
    )
    
    
    152,558Non-cash employee compensation credit
    
    
    47,506
    
    
    
    (152,558
    )Changes in -Investment securities- trading
    
    
    34,708
    
    
    
    454,931Other assets
    
    
    45,775
    
    
    
    185,661Unconditional supply commitment
    
    
    
    
    
    
    270,000Current liabilities
    
    
    (5,899,377
    )
    
    
    948,132Net cash used in operating activities:
    
    $
    (24,986,272
    )
    
    $
    (28,928,147
    )


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Updated Notes to the Financial Statements (unaudited)

Restatement

The Company has restated its Consolidated Financial Statements for the three-
and nine-month periods ended September 30, 2003 to reflect a recalculation of
the value of the beneficial conversion feature (BCF) attributable to the
Companys issuance of $20.0 million convertible debentures. The Company
previously recorded a discount to the convertible notes, and a corresponding
entry to additional paid in capital, in accordance with the Emerging Issues Task
Force (EITF) No. 98-5, Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Conversion Ratios. The
beneficial conversion feature represents the non-detachable conversion feature
that is in-the-money at the commitment date and is valued by allocating a
portion of the proceeds from the issuance of the convertible debentures equal
to the intrinsic value of that feature to additional paid-in-capital. Pursuant
to the original calculation, the Company had previously recorded a discount of
$18.1 million, as of June 30, 2003, with respect to the two tranches of the
convertible debentures. However, it has recently come to the Companys
attention that the amount of the discount assigned to the BCF should have been
limited to the amount of the proceeds allocated to the convertible
instrument. As a result, the Company is restating the discount associated with
the convertible debentures by $4.7 million to reduce the amount
recorded as of September 30, 2003. Consequently, as of September 30, 2003, there is an adjustment
to reduce the unamortized discount, which is an offset to the recorded amount of the
convertible debentures, with a corresponding decrease in Additional
Paid in Capital of $5.7 million, a decrease in Accumulated Deficit of $1.0
million and a reduction in Total Stockholders Equity of $4.7 million.
Further, the correction of this error resulted in a restatement of the
Companys interest expense and net loss for the three- and nine-month period
ended September 30, 2003 to reduce the amounts previously reported by $0.6
million and $1.0 million.

Comprehensive Loss

The net loss for the three and nine months ended September 30, 2003 and 2002
was the comprehensive loss for those periods.

Earnings (loss) per share

At September 30, 2003, shares of our common stock issuable upon the exercise of
approximately 6.1 million warrants and options were excluded from the
computation of net loss per share because their effect was anti-dilutive. At
September 30, 2002, shares of our common stock issuable upon the exercise of
approximately 3.7 million warrants and options were excluded from the
computation of net loss per share because their effect was anti-dilutive.

Stock-Based Compensation

On December 31, 2002, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. This Statement amends SFAS No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for an entity that voluntarily changes to the fair value based
method of accounting for stock-based employee compensation. It also amends the
disclosure provisions of that Statement to require prominent disclosure about
the effects on reported net income of an entitys accounting policy decisions
with respect to stock-based employee compensation. Finally, this Statement
amends APB Opinion No. 28, Interim Financial Reporting, to require disclosure
about those effects in interim financial information. We intend to continue to
account for stock-based compensation based on the provisions of APB Opinion No.
25.

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The following table summarizes our results as if we had recorded stock-based
compensation expense for the nine months ended September 30, 2003 and 2002,
based on the provisions of SFAS 123, as amended by SFAS 148:

Net loss:
    
    September 30, 2003
    
    September 30, 2002RestatedAs reported
    
    $
    (19,746,565
    )
    
    $
    (30,845,578
    )Compensation expense, net of tax
    
    
    (429,378
    )
    
    
    (212,346
    )Pro forma
    
    $
    (20,175,943
    )
    
    $
    (31,057,924
    )Basic loss per share:As reported
    
    $
    (0.80
    )
    
    $
    (1.55
    )Compensation expense, net of tax
    
    
    (0.02
    )
    
    
    (0.01
    )Pro forma
    
    $
    (0.82
    )
    
    $
    (1.56
    )Diluted loss per share:As reported
    
    $
    (0.80
    )
    
    $
    (1.55
    )Compensation expense, net of tax
    
    
    (0.02
    )
    
    
    (0.01
    )Pro forma
    
    $
    (0.82
    )
    
    $
    (1.56
    )


September 2003 sale of common stock and warrants

On September 18, 2003, we sold units consisting of an aggregate of 3,920,000
shares of common stock and five-year warrants to purchase an aggregate of
980,000 shares of common stock to a group of accredited institutional investors
for gross proceeds of $22.7 million. The units were sold to accredited
investors in reliance upon Section 4(2) of the Securities Act and/or Rule 506
promulgated thereunder. The warrants are exercisable at any time on or after
December 18, 2003 until September 18, 2008 at a price of $8.12 per share. The
warrants are initially exercisable into 980,000 shares of our common stock.
Each warrant includes customary anti-dilution provisions, without any
price-based anti-dilution protection, and provides for cashless exercise in
certain circumstances.

Convertible Debentures

As of September 30, 2003 we have outstanding $23.0 million in convertible
debentures, up from $3.0 million as of December 31, 2002. There was an initial
discount calculated against the value of the notes of $12.9 million, comprised
of the beneficial conversion feature of $8.3 million and other discounts of
$4.6 million on the notes. The unamortized discount as of September 30, 2003
is $12.5 million, which is offset against the $23.0 million and is shown as
$10.5 million of convertible debentures in the accompanying financial
statements. Of this amount, $3.0 million is our Series A Convertible
Debenture. Our Series A Convertible Debenture is a convertible, redeemable,
five-year note that matures on December 19, 2007. The Series A Convertible
Debenture bears interest at a rate of 11.0% per annum, payable annually. The
debenture is convertible at the holders option at a conversion price equal to
the average closing price of our common stock, as defined in the debenture, at
the time of conversion. The Series A Convertible Debenture contains provisions
that place a cap on the number of shares of our common stock issuable upon its
conversion, such that the holder thereof shall not have the right to convert
any portion of the Series A Convertible Debenture to the extent that after
giving effect to such conversion the holders would beneficially own more than
19.99% of the number of shares of our common stock outstanding immediately
prior to such conversion.

The remaining $20.0 million in convertible notes were issued in two tranches to
accredited investors during the six months ended June 30, 2003. On April 4,
2003, we issued $15.0 million of convertible, redeemable, 5-year,
interest-bearing senior convertible notes (which we refer to as our 2003 senior
convertible notes) and 5-year warrants to purchase an aggregate total of
1,080,000 shares of our common stock to various accredited investors. On June
12, 2003 we issued an additional $5 million of our 2003 senior convertible
notes and a 5-year warrant to purchase an aggregate total of 360,000 shares of
our common stock to an accredited investor. The senior convertible notes
mature on March 31, 2008. The senior convertible notes bear interest at a rate
of 6.0% per annum, payable quarterly in cash or shares of our common stock, at
our option.

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The senior convertible notes are convertible at a fixed price of $2.50 per
share, unless otherwise adjusted prior to conversion pursuant to the price
adjustment provisions set forth therein. The conversion price of the senior
convertible notes will be lowered in the event of a sale by us of our common
stock or securities convertible into our common stock at a per share offering
price less than the conversion price of the senior convertible notes in effect
immediately prior to such sale. The warrants are exercisable into shares of
our common stock at $2.70 per share, unless otherwise adjusted prior to
exercise pursuant to the price adjustment provisions that are substantially
similar to those set forth in the senior convertible notes. The senior
convertible notes and the warrants contain provisions that place a cap on the
numbers of shares of our common stock issuable upon their conversion or
exercise, such that the holders thereof shall not have the right to convert any
portion of the notes to the extent that after giving effect to such conversion
the holders would beneficially own more than 19.99% or 4.99%, as the case may
be for the respective holder, of the number of shares of our common stock
outstanding immediately prior to such conversion or exercise.

Item 2.    Managements Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

The Company has restated its Consolidated Financial Statements for the three-
and nine-month periods ended September 30, 2003 to reflect a recalculation of
the value of the beneficial conversion feature (BCF) attributable to the
Companys issuance of $20.0 million convertible debentures. The Company
previously recorded a discount to the convertible notes, and a corresponding
entry to additional paid in capital, in accordance with the Emerging Issues Task
Force (EITF) No. 98-5, Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Conversion Ratios. The
beneficial conversion feature represents the non-detachable conversion feature
that is in-the-money at the commitment date and is valued by allocating a
portion of the proceeds from the issuance of the convertible debentures equal
to the intrinsic value of that feature to additional paid in capital. Pursuant
to the original calculation, the Company had previously recorded a discount of
$18.1 million, as of June 30, 2003, with respect to the two tranches of the
convertible debentures. However, it has recently come to the Companys
attention that the amount of the discount assigned to the BCF should have been
limited to the amount of the proceeds allocated to the convertible
instrument. As a result, the Company is restating the discount associated with
the convertible debentures by $4.7 million to reduce the amount
recorded as of September 30, 2003. Consequently, as of September 30, 2003, there is an adjustment
to reduce the unamortized discount, which is an offset to the recorded amount of the
convertible debentures, with a corresponding decrease in Additional
Paid in Capital of $5.7 million, a decrease in Accumulated Deficit of $1.0
million and a reduction in Total Stockholders Equity of $4.7 million.
Further, the correction of this error resulted in a restatement of the
Companys interest expense and net loss for the three- and nine-month period
ended September 30, 2003 to reduce the amounts previously reported by $0.6
million and $1.0 million.

Three months and nine months ended September 30, 2003 and 2002

General and administrative expenses for the three months ended September 30,
2003 were $709,487 compared to $657,405 for the three months ended September
30, 2002, an increase of 8%. General and administrative expenses for the nine
months ended September 30, 2003 were $1,988,456 compared to $1,611,332 for the
nine months ended September 30, 2002, an increase of 23%. The increase for
both periods was primarily due to increased fund raising activities.

Research and development expenses for the three months ended September 30, 2003
were $5,537,669 compared to $10,180,407 for the three months ended September
30, 2002, a decrease of 46%. Research and development expenses for the nine
months ended September 30, 2003 were $16,542,202 compared to $29,182,312 for
the nine months ended September 30, 2002, a decrease of 43%. This decrease for
both periods is primarily due to the completion of recruitment and final stages
of our clinical trials. We do not accumulate cost information by major
development product. Many costs are applicable to more than one product. We
estimate that 95% of our research and development costs are spent on
gastrointestinal and reproductive system cancers. There are no payment or
penalty milestones associated with any of the projects, all of which are in
Phase II or III clinical trials. We do not speculate on the timing of
approvals by regulatory authorities.

9



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Net loss for the three months ended September 30, 2003 was $7,005,478 compared
to $10,923,844 for the three months ended September 30, 2002, a decrease of
36%. Net loss for the nine months ended September 30, 2003 was $19,746,565
compared to $30,845,578 for the nine months ended September 30, 2002, a
decrease of 36%. The decrease in net loss is primarily a result of our lower
research and development expenses, which was offset by an increase in our
interest expense including amortized discount which was $786,500 for the three
months ended September 30, 2003 and $1,306,500 for the nine months ended
September 30, 2003 as compared to none for the three and nine months ended
September 30, 2002. The interest expense including amortized discount was
incurred in connection with the $20,000,000 senior convertible notes the
Company issued this year and interest expense on the $3,000,000 convertible
debenture issued last year. During this period we had no revenues.

Liquidity and Capital Resources

We finance our operations through the sale of our equity securities,
convertible debentures and licensing fees. These funds provide us with the
resources to operate our business, attract and retain key personnel and
scientific staff, fund our research and development program, preclinical
testing and clinical trials, obtain the necessary regulatory approvals and
develop our technology and products.

On September 18, 2003, we sold units consisting of an aggregate of 3,920,000
shares of common stock and five-year warrants to purchase an aggregate of
980,000 shares of common stock to a group of accredited institutional investors
for gross proceeds of $22.7 million. The warrants are exercisable at any time
on or after December 18, 2003 until September 18, 2008 at a price of $8.12 per
share. The warrants are initially exercisable into 980,000 shares of our common
stock. Each warrant includes customary anti-dilution provisions, without any
price-based anti-dilution protection, and provides for cashless exercise in
certain circumstances.

As of September 30, 2003 we have outstanding $23.0 million in convertible
debentures, up from $3.0 million as of December 31, 2002. There was an initial
discount calculated against the value of the notes of $12.9 million, comprised
of the beneficial conversion feature of $8.3 million and other discounts of
$4.6 million on the notes. The unamortized discount as of September 30, 2003
is $12.5 million, which is offset against the $23.0 million and is shown as
$10.5 million of convertible debentures in the accompanying financial
statements. Of this amount, $3.0 million is our Series A Convertible
Debenture. Our Series A Convertible Debenture is a convertible, redeemable,
five-year note that matures on December 19, 2007. The Series A Convertible
Debenture bears interest at a rate of 11.0% per annum, payable annually. The
debenture is convertible at the holders option at a conversion price equal to
the average closing price of our common stock, as defined in the debenture, at
the time of conversion. The Series A Convertible Debenture contains provisions
that place a cap on the number of shares of our common stock issuable upon its
conversion, such that the holder thereof shall not have the right to convert
any portion of the Series A Convertible Debenture to the extent that after
giving effect to such conversion the holders would beneficially own more than
19.99% of the number of shares of our common stock outstanding immediately
prior to such conversion.

The remaining $20.0 million in convertible notes were issued in two tranches to
accredited investors during the six months ended June 30, 2003. On April 4,
2003, we issued $15.0 million of convertible, redeemable, 5-year,
interest-bearing senior convertible notes (which we refer to as our 2003 senior
convertible notes) and 5-year warrants to purchase an aggregate total of
1,080,000 shares of our common stock to various accredited investors. On June
12, 2003 we issued an additional $5 million of our 2003 senior convertible
notes and a 5-year warrant to purchase an aggregate total of 360,000 shares of
our common stock to an accredited investor. The senior convertible notes
mature on March 31, 2008. The senior convertible notes bear interest at a rate
of 6.0% per annum, payable quarterly in cash or shares of our common stock, at
our option.

The senior convertible notes are convertible at a fixed price of $2.50 per
share, unless otherwise adjusted prior to conversion pursuant to the price
adjustment provisions set forth therein. The conversion price of the senior
convertible notes will be lowered in the event of a sale by us of our common
stock or securities convertible into our common stock at a per share offering
price less than the conversion price of the senior convertible notes in effect
immediately prior to such sale. The warrants are exercisable into shares of
our common stock at $2.70 per share,
unless otherwise adjusted prior to exercise pursuant to the price adjustment
provisions that are substantially similar to those set forth in the senior
convertible notes. The senior convertible notes and the warrants contain
provisions that place a cap on the numbers of shares of our common stock
issuable upon their conversion or exercise, such that

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the holders thereof shall
not have the right to convert any portion of the notes to the extent that after
giving effect to such conversion the holders would beneficially own more than
19.99% or 4.99%, as the case may be for the respective holder, of the number of
shares of our common stock outstanding immediately prior to such conversion or
exercise.

On February 24, 2003, we issued 500,000 shares of our common stock at $2.96 per
share and 150,000 warrants at $0.125 per warrant for gross proceeds of
approximately $1.5 million. Each warrant entitles the holder thereof to
purchase a share of our common stock at a price of $2.96 per share within the
next five years.

Cash flow used in operating activities decreased to $25.0 million for the nine
months ended September 30, 2003 from $28.9 million for the nine months ended
September 30, 2002, primarily due to the decrease in our accounts payable of
$3.9 million and a decrease in our net loss for the period. Cash flow from
investing activities decreased by $1.9 million for the nine months ended
September 30, 2003 from $1.9 million for the nine months ended September 30,
2002. Cash flow from financing activities increased to $42.2 million for the
nine months ended September 30, 2003 compared to $32.1 million for the nine
months ended September 30, 2002. During the nine months ended September 30,
2003, we received gross proceeds of approximately $20 million from the sale of
the senior convertible notes and approximately 22.3 million from the sale of
stock and warrants discussed above.

We believe that our existing capital resources, which consist primarily of cash
and short-term cash investments, including the proceeds from the financing
activities described in the preceding paragraphs, will enable us to maintain a
range of operations and satisfy our periodic interest obligations into the
first quarter of 2005.

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Inflation

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. Interest and other income were primarily derived from money-market
accounts.

Effect Of Recently Issued Accounting Pronouncements

In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity, effective for
financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003. This statement establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. It requires that an issuer classify a freestanding
financial instrument that is within its scope as a liability (or an asset in
some circumstances). The adoption of SFAS 150 did not have an impact on the
Companys financial position, results of operations or cash flows.

On January 1, 2003, the Financial Accounting Standards Board issued Financial
Accounting Standards Board Interpretation No. 46, Consolidation of Variable
Interest Entities (FIN 46). FIN 46 addresses consolidation of business
enterprises of variable interest entities. FIN 46 is effective immediately for
all variable interest entities created after January 31, 2003 and for the first
fiscal year or interim period beginning after December 2003 for variable
interest entities in which an enterprise holds a variable interest that it
acquired before February 1, 2003. The Company has not acquired any variable
interest entities subsequent to January 31, 2003 and will therefore adopt FIN
46 for the period ending December 31, 2003. The Company is currently performing
a comprehensive analysis of the impact of FIN 46, if any, on the Companys
financial position, results of operations or cash flows.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
CompensationTransition and Disclosure, an amendment of FASB Statement No.
123. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. SFAS No.
148 is effective for fiscal years and interim periods ending after December 15,
2002. SFAS No. 148 does not amend SFAS 123 to require companies to account for
employee stock options using the fair value method. We adopted the disclosure
provisions required under SFAS No. 148 effective December 31, 2002.

Critical Accounting Policies

Our significant accounting policies are described in Note 2 to the financial
statements included in our Annual Report on Form 10-K for the year ended
December 31, 2002, filed with the SEC on March 31, 2003. We believe that our
most critical accounting policies include the use of estimates. The impact of
these estimates on results of operations in 2003 and 2002 are not significant.
Our management periodically reviews these policies and estimates, the effect of
which is reflected as a component of net loss in the period in which the change
is known. Such changes to these estimates have not been material to our
results of operations during the three and nine months ended September 30,
2003.

Beneficial conversion feature:

The value of the beneficial conversion was based upon the intrinsic value of
the number of shares that would be obtained upon conversion at the commitment
date. The value of the beneficial conversion feature was recorded at the
closing dates and is included in the discount on the convertible debenture and
in additional paid in capital. Subsequent adjustments to the conversion price
will result in the measurement of addition beneficial conversion and will be
measured at that time.

Warrants:

The fair value of the warrants was determined using the Black-Scholes
valuation model. This fair value is a discount on the convertible debentures
and is amortized to interest expense over the life of the debentures under the

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effective interest method. As the underlying debt is converted, the pro-rata
portion of the related discount related to the warrants will be expensed
through interest expense.

Forward-Looking Statements

This quarterly report contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. Discussions containing
forward-looking statements may be found in the material set forth in the
section entitled, Managements Discussion and Analysis as well as in the
quarterly report generally.

These statements concern expectations, beliefs, projections, future plans and
strategies, anticipated events or trends and similar expressions concerning
matters that are not historical facts. Specifically, this quarterly report
contains forward-looking statements regarding:



| |  | our expectations as to the adequacy of existing capital resources to maintain a range of operations and satisfy our
periodic interest obligations through the first quarter of 2005; and
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | our beliefs regarding the financial impact of certain accounting pronouncements.
|- |  | --------------------------------------------------------------------------------

These forward-looking statements reflect our current views about future events
and are subject to risks, uncertainties and assumptions. We caution readers
that certain important factors may have affected and could in the future affect
our actual results and could cause actual results to differ significantly from
those expressed in any forward-looking statement. The most important factors
that could prevent us from achieving our goals, and cause the assumptions
underlying forward-looking statements and the actual results to differ
materially from those expressed in or implied by those forward-looking
statements include, but are not limited to, the following:



| |  | our ability to obtain additional financing or reduce our costs and expenses;
|- |  | ----------------------------------------------------------------------------



| |  | our ability to maintain our arrangements and collaborations with third parties for the supply of key materials and
assistance in the manufacture, market, sale and distribution of any product we develop;
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | our ability to enforce our patents and proprietary rights;
|- |  | ----------------------------------------------------------



| |  | our level of debt obligations and the impact of restrictions imposed on us by the terms of this debt;
|- |  | -----------------------------------------------------------------------------------------------------



| |  | our ability to attract and retain highly qualified scientists and other technical personnel; and
|- |  | ------------------------------------------------------------------------------------------------



| |  | changes in healthcare reform.
|- |  | -----------------------------

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.

APHTON CORPORATIONDate: February 25, 2004
    
    By:
    
    /s/ Patrick T. Mooney, M.D.Patrick T. Mooney, M.D.
Chief Executive Officer and President
(Principal Executive Officer)By:
    
    /s/ Frederick W. JacobsFrederick W. Jacobs
Vice President, Chief Financial
Officer, Treasurer and Chief Accounting Officer
(Principal Financial Officer)


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EXHIBIT INDEX

Exhibit Number
    
    Description31.1
    
    Certification by Patrick T. Mooney, M.D., Chief Executive Officer,
pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification by Frederick W. Jacobs, Chief Financial Officer, pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification by Patrick T. Mooney, M.D., Chief Executive Officer,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification by Frederick W. Jacobs, Chief Financial Officer, pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.