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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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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, 2003
| | -------------------------------------------------



or



| ̈ | 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



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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)



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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 ̈No



Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).     x  Yes ̈No



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



|Class                          |  | Number of Shares outstanding |  | As of            
|------------------------------ |  | ---------------------------- |  | -----------------
|Common Stock, $0.001 par value |  | 28,707,257                   |  | November 13, 2003



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APHTON CORPORATION



Index



|                                                                                               |  | Page
|---------------------------------------------------------------------------------------------- |  | ----
|Part I - Financial Information                                                                 |  |     
|                                                                                               | 
|Item 1.
Financial Statements:                                                                  |  | 3   
|                                                                                               | 
|Balance Sheets  September 30, 2003 (unaudited) and December 31, 2002                          |  | 4   
|                                                                                               | 
|Statements of Operations (unaudited) - Three and nine months ended September 30, 2003 and 2002 |  | 5   
|                                                                                               | 
|Statements of Cash Flows (unaudited) - Nine months ended September 30, 2003 and 2002           |  | 6   
|                                                                                               | 
|Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations  |  | 8   
|                                                                                               | 
|Item 3.
Quantitative and Qualitative Disclosures About Market Risk                             |  | 14  
|                                                                                               | 
|Item 4.
Controls and Procedures                                                                |  | 14  
|                                                                                               | 
|Part II - Other Information                                                                    |  |     
|                                                                                               | 
|Item 2.
Changes in Securities                                                                  |  | 15  
|                                                                                               | 
|Item 6.
Exhibits and Reports on Form 8-K                                                       |  | 15  
|                                                                                               | 
|Signatures                                                                                     |  | 16  
|                                                                                               | 
|Exhibits                                                                                       |  |     



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##### Table of Contents

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.



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APHTON CORPORATION

Balance Sheets



|                                                                                                                                                                        |  | September 30,2003 |              |   | December 31,2002 |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------------ | - | ---------------- | -
|                                                                                                                                                                        |  | (unaudited)       |              |   |                  |  
|Assets                                                                                                                                                                  |  |                   |              |   |                  |  
|Current Assets:                                                                                                                                                         |  |                   |              |   |                  |  
|Cash and current investments:                                                                                                                                           |  |                   |              |   |                  |  
|Cash and short-term cash investments                                                                                                                                    |  | $                 | 25,064,788   |   |                  | $
|Investment securities-trading                                                                                                                                           |  |                   | 714,387      |   |                  |  
|                                                                                                                                                                        |  |                   |              |   |                  |  
|Total cash and current investments                                                                                                                                      |  |                   | 25,779,175   |   |                  |  
|Other assets (including current portion of unconditional supply commitment)                                                                                             |  |                   | 328,965      |   |                  |  
|                                                                                                                                                                        |  |                   |              |   |                  |  
|Total current assets                                                                                                                                                    |  |                   | 26,108,140   |   |                  |  
|Equipment and improvements, at cost, net of accumulated depreciation and amortization                                                                                   |  |                   | 180,885      |   |                  |  
|Unconditional supply commitment                                                                                                                                         |  |                   | 6,797,900    |   |                  |  
|                                                                                                                                                                        |  |                   |              |   |                  |  
|Total assets                                                                                                                                                            |  | $                 | 33,086,925   |   |                  | $
|                                                                                                                                                                        |  |                   |              |   |                  |  
|Liabilities and Stockholders Equity (Deficit)                                                                                                                          |  |                   |              |   |                  |  
|Liabilities:                                                                                                                                                            |  |                   |              |   |                  |  
|Current liabilities:                                                                                                                                                    |  |                   |              |   |                  |  
|Trade accounts payable                                                                                                                                                  |  | $                 | 3,659,896    |   |                  | $
|Amounts payable to Aventis                                                                                                                                              |  |                   | 3,232,000    |   |                  |  
|Other                                                                                                                                                                   |  |                   | 977,843      |   |                  |  
|Interest payable                                                                                                                                                        |  |                   | 547,500      |   |                  |  
|                                                                                                                                                                        |  |                   |              |   |                  |  
|Total current liabilities                                                                                                                                               |  |                   | 8,417,239    |   |                  |  
|Convertible debentures, net of discount of $17,182,707 as of September 30, 2003                                                                                         |  |                   | 5,817,293    |   |                  |  
|Deferred revenue                                                                                                                                                        |  |                   | 10,000,000   |   |                  |  
|                                                                                                                                                                        |  |                   |              |   |                  |  
|Total liabilities                                                                                                                                                       |  |                   | 24,234,532   |   |                  |  
|                                                                                                                                                                        |  |                   |              |   |                  |  
|Commitments                                                                                                                                                             |  |                   |              |   |                  |  
|Stockholders 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 sharesIssued and outstanding: 28,621,639 shares at September 30,
2003 and 24,201,639 shares at December 31, 2002 |  |                   | 28,622       |   |                  |  
|Additional paid in capital                                                                                                                                              |  |                   | 169,836,716  |   |                  |  
|Purchase warrants                                                                                                                                                       |  |                   | 317,650      |   |                  |  
|Accumulated deficit                                                                                                                                                     |  |                   | (161,330,595 | ) |                  |  
|                                                                                                                                                                        |  |                   |              |   |                  |  
|Total stockholders equity (deficit)                                                                                                                                    |  |                   | 8,852,393    |   |                  |  
|                                                                                                                                                                        |  |                   |              |   |                  |  
|Total liabilities and stockholders equity (deficit)                                                                                                                    |  | $                 | 33,086,925   |   |                  | $
|                                                                                                                                                                        |  |                   |              |   |                  |  



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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 September 30, |                   |   | Nine months ended September 30, |  
|---------------------------------------------------- |  | -------------------------------- | ----------------- | - | ------------------------------- | -
|                                                     |  | 2003                             |                   |   | 2002                            |  
|Revenue:                                             |  | $                                |                  |   |                                 | $
|                                                     |  |                                  |                   |   |                                 |  
|Costs and expenses:                                  |  |                                  |                   |   |                                 |  
|General and administrative Research and development  |  |                                  | 709,487 5,537,669 |   |                                 |  
|                                                     |  |                                  |                   |   |                                 |  
|Total costs and expenses                             |  |                                  | 6,247,156         |   |                                 |  
|                                                     |  |                                  |                   |   |                                 |  
|Loss from operations                                 |  |                                  | (6,247,156        | ) |                                 |  
|                                                     |  |                                  |                   |   |                                 |  
|Other income (expense):                              |  |                                  |                   |   |                                 |  
|Dividend and interest income                         |  |                                  | 12,602            |   |                                 |  
|Interest expense including amortized discount        |  |                                  | (1,431,017        | ) |                                 |  
|Unrealized gains (losses) from investments           |  |                                  | 15,576            |   |                                 |  
|                                                     |  |                                  |                   |   |                                 |  
|Net loss                                             |  | $                                | (7,649,995        | ) |                                 | $
|                                                     |  |                                  |                   |   |                                 |  
|Per share data:                                      |  |                                  |                   |   |                                 |  
|Basic and fully diluted loss per common share        |  | $                                | (0.30             | ) |                                 | $
|                                                     |  |                                  |                   |   |                                 |  
|Weighted average number of common shares outstanding |  |                                  | 25,255,552        |   |                                 |  
|                                                     |  |                                  |                   |   |                                 |  



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APHTON CORPORATION

Statements of Cash Flows (Unaudited)

For the nine months ended September 30, 2003 and 2002



|                                                                            |  | 2003 |             |   | 2002 |  
|--------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | -
|Cash flows from operating activities:                                       |  |      |             |   |      |  
|Cash paid to suppliers and employees                                        |  | $    | (24,986,272 | ) |      | $
|                                                                            |  |      |             |   |      |  
|Net cash used in operating activities                                       |  |      | (24,986,272 | ) |      |  
|Cash flows from investing activities:                                       |  |      |             |   |      |  
|Proceeds from maturity of held to maturity securities                       |  |      |            |   |      |  
|Capital expenditures                                                        |  |      | (6,049      | ) |      |  
|                                                                            |  |      |             |   |      |  
|Net cash (used in) provided by investing activities                         |  |      | (6,049      | ) |      |  
|                                                                            |  |      |             |   |      |  
|Cash flows from financing activities:                                       |  |      |             |   |      |  
|Proceeds from sale of common stock and warrants                             |  |      | 22,297,927  |   |      |  
|Proceeds from convertible debentures                                        |  |      | 19,935,000  |   |      |  
|                                                                            |  |      |             |   |      |  
|Net cash received from financing activities                                 |  |      | 42,232,927  |   |      |  
|                                                                            |  |      |             |   |      |  
|Net increase in cash and short-term cash investments                        |  |      | 17,240,606  |   |      |  
|Cash and short-term cash investments:                                       |  |      |             |   |      |  
|Beginning of period                                                         |  |      | 7,824,182   |   |      |  
|                                                                            |  |      |             |   |      |  
|End of period                                                               |  | $    | 25,064,788  |   |      | $
|                                                                            |  |      |             |   |      |  
|Reconciliation of net loss to net cash used in operating activities         |  |      |             |   |      |  
|Net loss                                                                    |  | $    | (20,725,205 | ) |      | $
|Adjustments to reconcile net loss to net cash used in operating activities: |  |      |             |   |      |  
|Depreciation and amortization                                               |  |      | 70,227      |   |      |  
|Amortization of discount on convertible debentures                          |  |      | 1,487,600   |   |      |  
|Unrealized gain on investments                                              |  |      | (47,506     | ) |      |  
|Non-cash employee compensation credit                                       |  |      | 47,506      |   |      |  
|Changes in -                                                                |  |      |             |   |      |  
|Investment securities- trading                                              |  |      | 34,708      |   |      |  
|Other assets                                                                |  |      | 45,775      |   |      |  
|Unconditional supply commitment                                             |  |      |            |   |      |  
|Current liabilities                                                         |  |      | (5,899,377  | ) |      |  
|                                                                            |  |      |             |   |      |  
|Net cash used in operating activities:                                      |  | $    | (24,986,272 | ) |      | $
|                                                                            |  |      |             |   |      |  



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Updated Notes to the Financial Statements (unaudited)



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.



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:



|                                 |  | September 30,2003 |             |   | September 30,2002 |  
|-------------------------------- |  | ----------------- | ----------- | - | ----------------- | -
|Net loss:                        |  |                   |             |   |                   |  
|As reported                      |  | $                 | (20,725,205 | ) |                   | $
|Compensation expense, net of tax |  |                   | (429,378    | ) |                   |  
|                                 |  |                   |             |   |                   |  
|Pro forma                        |  | $                 | (21,154,583 | ) |                   | $
|                                 |  |                   |             |   |                   |  
|Basic loss per share:            |  |                   |             |   |                   |  
|As reported                      |  | $                 | (0.83       | ) |                   | $
|Compensation expense, net of tax |  |                   | (0.02       | ) |                   |  
|                                 |  |                   |             |   |                   |  
|Pro forma                        |  | $                 | (0.85       | ) |                   | $
|                                 |  |                   |             |   |                   |  
|Diluted loss per share:          |  |                   |             |   |                   |  
|As reported                      |  | $                 | (0.83       | ) |                   | $
|Compensation expense, net of tax |  |                   | (0.02       | ) |                   |  
|                                 |  |                   |             |   |                   |  
|Pro forma                        |  | $                 | (0.85       | ) |                   | $
|                                 |  |                   |             |   |                   |  



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.



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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 a discount calculated
against a value of the notes of $18.6 million, comprised of the beneficial conversion feature of $14.0 million and other discounts of $4.6 million on the notes and so the $23.0 million is shown as $5.8 million 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 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



General



Aphton Corporation is a biopharmaceutical company. We are engaged in research and development and conduct clinical trials for our products, both independently and with our corporate strategic partners. We apply our
innovative active immunization technology-platform to develop products for neutralizing, and removing from circulation, hormones and other molecules that participate in gastrointestinal system and reproductive system cancer and non-cancer diseases.
We are also developing a product to neutralize hormones to prevent pregnancy.



Since 1997 we have had a strategic alliance with Pasteur Merieux Connaught, now Aventis Pasteur, for products that treat gastrointestinal cancers, in North America and Europe. Since 1998, we have had a strategic alliance with SmithKline
Beecham, now GlaxoSmithKline, for products that treat reproductive system cancers and non-cancer diseases, worldwide.



On September 18, 2003 we completed a $22.7 million private placement of common stock and warrants. Under the terms of the private placement, the Company 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 $22.7 million in gross proceeds.



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On September 10, 2003 we announced the appointment of David H. Sachs, M.D. to Aphtons Board of Directors. The
addition of Dr. Sachs expanded Aphtons Board of Directors from 5 to 6 members. Dr. Sachs is a member of the Institute of Medicine of the National Academy of Sciences, Director of the Transplantation Biology Research Center at Massachusetts
General Hospital and is the first Paul S. Russell/Warner-Lambert Professor of Surgery (Immunology) at the Harvard Medical School. He graduated from Harvard College, Summa Cum Laude, with an A.B. in Chemistry, received a Diplome dEtudes
Superieures de Sciences in organic chemistry from the University of Paris the following year where he studied as a Fulbright fellow, and received an M.D., Magna Cum Laude, from Harvard Medical School.



On May 2, 2003 we announced that Patrick T. Mooney, MD, has joined our senior management
team, reporting to the office of the Chief Executive Officer in the capacity of Chief Medical Officer. Dr. Mooney was most recently Vice President and Senior Biotechnology Analyst at Thomas Weisel Partners. Dr. Mooney works closely with our other
senior management in finance, legal, business development and operations; including clinical trials and regulatory affairs, research, development and manufacturing.



We have retained our favorable royalty split, which is in excess of 50%, in our agreement with Aventis Pasteur for our anti-gastrin 17
immunogen (G17DT) for cancer indications for countries in North America and Europe. We are pursuing our primary objective of filing for approval to market G17DT for monotherapy for advanced pancreatic cancer patients in Canada, Australia and the
European Union, as well as the US, if possible. The registration strategy for this was described in our Letter to Shareholders dated July 17, 2003, filed with the SEC on Form 8-K.



We have resumed our intention to expand our current strategic partnership alliances in the following product areas: a) G17DT to treat human
cancers in markets worldwide outside of North America and Europe, focusing on Japan, where discussions are continuing and preliminary negotiations have been initiated; b) monoclonal antibody products to target gastrointestinal system cancers,
worldwide; and c) G17DT for non-cancer therapy, to treat gastroesophageal reflux disease (GERD), worldwide.



Our primary approach for the treatment of major diseases such as cancer has been to employ (anti) hormone therapy. Our hormone therapy involves neutralizing, or blocking, targeted hormones which play a
critical role in diseases of the gastrointestinal and reproduction systems. We have selected the strategy of hormone therapy because hormone therapy has proved over decades to be efficacious in the treatment of major diseases, both malignant and
non-malignant. Well-documented examples of the efficacy of hormone therapy in humans are blocking gastrin (Proglumide) or blocking another hormone stimulated by gastrin, namely histamine (Zantac, Tagamet), to reduce stomach acid. These hormone
therapies treat GERD, ulcerations of the esophagus and peptic ulcers. Additional examples of hormone therapy include blocking estrogen (Tamoxifen), for breast cancer therapy and blocking the production of testosterone (Lupron, Zoladex) for prostate
cancer therapy.



Aphtons anti-gastrin targeted immunotherapy induces in
patients antibodies that bind to both gastrin 17 and gly-gastrin and remove them from circulation before they can bind to the cancer cell and initiate cell growth. Gastrin 17 and gly-gastrin are believed to be central growth factors, or the
initiating signals, for cell growth, cell proliferation and metastasis, or spread, in pancreatic, gastric (i.e. stomach), esophageal, colorectal and other gastrointestinal (GI) system cancers. This signaling cascade is triggered by gastrin binding
to the large numbers of gastrin receptors which appear, de novo, in the great majority of cases, on tumor cell surfaces of the gastrointestinal system. Interrupting this process by immunizing the patient with Aphtons anti-gastrin immunogen is
specifically targeted immunotherapy. This specificity of targeting only cancer cells occurs because gastrin is not normally secreted and gastrin receptors are not normally found on cells in the GI system, unless they are malignant, or on the path to
malignancy (except for cells involved with normal acid secretion).



Recent
findings have shown that inhibiting gastrin inhibits cell growth, proliferation and metastasis, leading to programmed cell death (apoptosis). This tilts the balance, from cell growth, to cell suicide. Gastrin also stimulates the secretion and
expression of other important growth factors and receptors within and on the surfaces of the cancer cells involved in tumor growth. Hence, inhibiting gastrin inhibits all of the foregoing factors that contribute to tumor growth and spread, resulting
in tumor cell death.



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Clinical Trials



The following is a description of our current clinical trial program. The first trial is a randomized, double blind placebo controlled phase
III trial conducted outside of the United States for pancreatic cancer with our G17DT as a monotherapy. Positive trial results from the audited data were released publicly by Aphton on October 30, 2003, both in a news release and in a webcast. The
voluminous documentation required for filing for drug approval in pancreatic cancer monotherapy, in accord with the registration strategy described above, is being prepared for submission. The second trial is a second phase III trial that has
completed patient recruitment. This trial was conducted in the United States and foreign countries for advanced pancreatic cancer patients, with G17DT in combination with the chemotherapeutic gemcitabine. The third trial is a phase II clinical trial
conducted in the United States and foreign countries, with G17DT in combination with the chemotherapeutics cisplatin and 5-FU, for advanced gastric cancer patients. Preliminary results from this ongoing trial were presented at the annual meeting of
ASCO in Chicago on June 3, 2003, by J.R.Hecht, MD, clinical investigator from the UCLA Jonsson Comprehensive Cancer Center in Los Angeles, CA. The results from this trial were discussed in the public release of our Letter to Shareholders dated July
17, 2003. The data base is now being audited and compiled for final analysis and documentation. The fourth trial is a phase II trial in Europe with GnRH pharmaccine for prostate cancer patients, as part of our prostate cancer therapy development
program.. The fifth trial was initiated, but we are not currently recruiting patients, pending funding for a phase II trial in Europe with G17DT for GERD, or severe heart burn patients. The sixth trial is a Phase I/II clinical trial for
immuno-contraception. Funding has been released by the World Health Organization (WHO) for the manufacture of product for the trial, which process has been initiated. Patient recruitment is pending further release of funds by WHO to conduct the
trial.



On July 8, 2003, we announced that the European Union had granted
Orphan Drug status for Aphtons anti-gastrin immunogen G17DT, also known as G17(9)DT, for treatment of both pancreatic cancer and gastric (stomach) cancer indications.



Results of Operations



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.



Net loss for the three months ended September 30, 2003 was $7,649,995 compared to $10,923,844 for the three months ended September 30, 2002,
a decrease of 30%. Net loss for the nine months ended September 30, 2003 was $20,725,205 compared to $30,845,578 for the nine months ended September 30, 2002, a decrease of 33%. 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 $1,431,017 for the three months ended September 30, 2003 and $2,285,140 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.



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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 a discount calculated against a value of the notes of $18.6 million, comprised of the beneficial
conversion feature of $14 million and other discounts of $4.6 million on the notes. The remaining discount at September 30, 2003 is $17.2 million and so the $23.0 million is shown as $5.8 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 holder 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 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.



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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.



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 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.



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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;
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | our intention to expand our current strategic partnership alliances with respect to G17DT to treat human cancers in markets worldwide outside of North America and Europe, monoclonal
antibody products to target gastrointestinal system cancers, worldwide and G17DT for non-cancer therapy, to treat gastroesophageal reflux disease (GERD) worldwide;
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | our estimates regarding the effects of inflation and changing prices on our continuing operations for the foreseeable future; 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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Item 3. Quantitative and Qualitative Disclosures About Market Risk



We are exposed to certain market risks that are inherent in our financial instruments. Investment securities consist principally of debt securities issued by the US Treasury and other US Government agencies and
corporations and investment in other securities, including mutual funds. Substantially all of our indebtedness currently consists of fixed rate debt. The following table presents the future principal payment obligations and interest rates associated
with our long-term debt instruments assuming our actual level of long-term debt indebtedness as of September 30, 2003 (in thousands):



|                                       |  | 2003 |  | 2004 |  | 2005 |  | 2006 |  | 2007 |       | There-after
|-------------------------------------- |  | ---- |  | ---- |  | ---- |  | ---- |  | ---- | ----- | -----------
|Long-term debt:                        |  |      |  |      |  |      |  |      |  |      |       |            
|Series A Convertible Debenture (11.0%) |  |     |  |     |  |     |  |     |  | $    | 3,000 |            
|Senior Convertible Notes (6.0%)        |  |     |  |     |  |     |  |     |  |      |      |            



Item 4. Controls and Procedures



In order to
ensure that the information we must disclose in our filings with the Securities and Exchange Commission is recorded, processed, summarized, and reported on a timely basis, we have formalized our disclosure controls and procedures. Our principal
executive officer and principal financial officer have reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), as of September 30, 2003. Based on such evaluation,
such officers have concluded that, as of September 30, 2003, our disclosure controls and procedures were effective in timely alerting them to material information relating to us (and our consolidated subsidiaries) required to be included in our
periodic SEC filings. There has been no change in our internal control over financial reporting during the quarter ended September 30, 2003 that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.



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##### Table of Contents

Part II - Other Information



Item 2. Changes in Securities and Use of Proceeds.



Recent Sales of Unregistered Securities



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.



Senior Convertible Notes and Warrants



During the three months ended June 30, 2003 we sold in a private
placement $20.0 million of convertible, redeemable, 5-year, interest-bearing senior convertible notes and 5-year warrants to purchase an aggregate total of 1,440,000 shares of our common stock to various accredited investors, for gross proceeds of
$20.0 million. The first tranche of this transaction, comprising of $15.0 million of senior convertible notes and warrants to purchase an aggregate of 1,080,000 shares of common stock were sold on April 4, 2003. The second tranche of this
transaction, comprising of $5.0 million of senior convertible notes and warrants to purchase an aggregate of 360,000 shares of common stock were sold on June 12, 2003. The senior convertible notes and the warrants were sold to accredited investors
in reliance upon Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder.



Item 6. Exhibits and Report on Form 8-K.



(a) Exhibits





| | 31.1 | Certification by Philip C. Gevas, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | ---- | ---------------------------------------------------------------------------------------------------------------------



| | 31.2 | Certification by Frederick W. Jacobs, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | ---- | -------------------------------------------------------------------------------------------------------------------------



| | 32.1 | Certification by Philip C. Gevas, 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.
| | ---- | -------------------------------------------------------------------------------------------------------------------------



(b) Reports on Form 8-K



During the three months ended September 30, 2003, we filed the following
current reports on Form 8-K:



| | 1. | On July 1, 2003, we furnished information under Items 7 and 9 regarding the filing of a registration statement.
| | -- | ---------------------------------------------------------------------------------------------------------------



| | 2. | On July 8, 2003, we furnished information under Items 7 and 9 regarding the European Unions grant of Orphan Drug status for Aphtons anti-gastrin immunogen G17DT, also
known as G17(9)DT, for treatment of both pancreatic cancer and gastric (stomach) cancer indications.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | On July 17, 2003, we furnished information under Items 7 and 9 regarding our periodic letter to shareholders.
| | -- | -------------------------------------------------------------------------------------------------------------



| | 4. | On July 18, 2003, we furnished information under Items 7 and 9 providing clarification to our periodic letter to shareholders dated July 17, 2003.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------



| | 5. | On September 25, 2003, we furnished information under Items 7 and 9 regarding the completion of a $22.7 million private placement of common stock and warrants.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



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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 CORPORATION     
|----------------------- |  |  |  | --- |  | -----------------------
|                        |  |  | 
|Date: November 14, 2003 |  |  |  | By: |  | /s/ Philip C. Gevas    
|                        |  |  |  |     |  |                        
|                        |  |  | 
|                        |  |  |  | By: |  | /s/ Frederick W. Jacobs
|                        |  |  |  |     |  |                        



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EXHIBIT INDEX



|Exhibit Number |  | Description                                                                                                              
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------
|               | 
|31.1           |  | Certification by Philip C. Gevas, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 .   
|               | 
|31.2           |  | Certification by Frederick W. Jacobs, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|               | 
|32.1           |  | Certification by Philip C. Gevas, 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.