UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
Commission File Number 0-9314
ACCESS PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 83-0221517
- ------------------------ --------------------------
(State of Incorporation) (I.R.S. Employer I.D. No.)
2600 Stemmons Frwy, Suite 176, Dallas, TX 75207
--------------------------------------------------
(Address of principal executive offices)
Telephone Number (214) 905-5100
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 requirement for the past 90 days.
Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock outstanding as
of November 12, 1996 31,391,324 shares, $0.04 par value
----------------- ----------
Total No. of Pages 12
PART I -- FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
The response to this Item is submitted as a separate section of this report.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In connection with the merger of Access Pharmaceuticals, Inc., a Texas
corporation ("API") with and into Chemex Pharmaceuticals, Inc. ("Chemex")
on January 25, 1996, the name of Chemex was changed to Access Pharmaceuticals,
Inc. ("Access" or the "Company").
Subsequent to the merger of API into Access (the "Merger"), the Company has
been managed by the former management of API and the focus of the Company has
changed to the development of enhanced parenteral therapeutic and diagnostic
imaging agents through the utilization of its patented and proprietary
endothelial binding technology which selectively targets sites of disease. The
Company has a broad platform technology for enhancing the site targeting of
intravenous therapeutic drugs, MRI contrast agents and radiopharmaceutical
diagnostic and therapeutic agents. The Access technology is based on natural
carbohydrate carriers.
The technology development of the Company is currently focused on increasing
the therapeutic benefit of oncology agents and improving the efficiency of
oncology diagnosis by selectively targeting sites of disease and accelerating
drug clearance.
The Company has developed four possible product candidates, two of which are
anticipated to be ready to be advanced into human testing in the next nine to
twelve months. These product candidates are new formulations of existing
compounds which increase therapeutic efficacy and reduce toxicity, designed to
address the clinical shortfalls of currently available treatments.
As a result of the Merger and immediately after the Merger, the former API
stockholders owned approximately 60% of the issued and outstanding shares of
the Company. Generally accepted accounting principles require that a company
whose stockholders retain the controlling interest in a combined business be
treated as the acquiror for accounting purposes. As a consequence, the Merger
has been accounted for as a "reverse acquisition" for financial reporting
purposes and API has been deemed to have acquired an approximate 60% interest
in Chemex. Despite the financial reporting requirement to account for the
acquisition as a "reverse acquisition," Chemex (now called Access) remains
the continuing legal entity and registrant for Securities and Exchange
Commission reporting purposes.
The unaudited balance sheets, statements of operations and statements of cash
flows have been prepared using "purchase" accounting for the Merger, with API
as the acquirer. The values used in the preparation of the financial
statements were determined based on negotiations between Chemex and API and
comparable values for companies at API's stage of development. As a result,
common stock and paid in capital of API was recorded at a $10.0 million
valuation. The excess purchase price over the fair value of Chemex's assets
was written off in the first quarter of 1996. The accompanying balance sheet
at December 31, 1995 and the related statements of operations and cash flows
for the nine months ended September 30, 1995 are the statements of
API.
2
RECENT DEVELOPMENTS
On April 26, 1996, Access executed a letter of intent to acquire Tacora Corp.,
a privately-held pharmaceutical company based in Seattle. The transaction is
currently scheduled to close in the fourth quarter of 1996. Under the terms of
the letter of intent, the purchase price is contingent upon the achievement of
certain milestones. Stock up to a maximum value of $14,000,000 could be
payable to Tacora's shareholders over a 30 month period on an escalating
value over the milestone period. The consummation of the transaction is
subject to customary conditions to closing including completion of due
diligence, negotiation of definitive documents and approval of the
stockholders of Tacora Corp.
Liquidity and Capital Resources
Working capital as of September 30, 1996 was $4,920,000, an increase of
$5,435,000 as compared to the working capital as of December 31, 1995 of
$(515,000). The increase in working capital was principally due to $6
million in proceeds from the private placement of 8.57 million shares of
common stock in March 1996 and the addition of $1.69 million in working
capital of Chemex resulting from the Merger between Chemex and API, offset
by payments for 1996 operating expenses, $89,000 for 1996 capital lease
payments and $480,000 for payment to a consultant as a result of the completion
of the private placement. The net cash infusion from the private placement
will be used to continue the development of the Access technology. The
shares issued in the private placement have been registered for resale by
the holders.
Management believes its working capital will cover planned operations through
December 1997.
Currently, royalty revenues are not expected during the remainder of 1996.
Research and development expenditures to advance products into human testing
will remain high for several years and there can be no assurance that the
Company will be successful in attaining a partner or future equity financing
to complete the testing of its products.
Third Quarter 1996
Compared to
Third Quarter 1995
The Company had no revenue in the third quarter 1996 as compared to $45,000
in 1995. Third quarter 1995 revenues were comprised of sponsored research
and development revenues from an agreement that was terminated in June 1995.
Total research spending for the third quarter of 1996 was $430,000 as compared
to $106,000 for the same period in 1995, an increase of $324,000. The
increase in expenses was the result of the increase in staffing for projects
in 1996. Research spending will increase in future quarters as the Company
has hired additional scientific management and staff and is accelerating
activities to develop the Company's product candidates.
Total general and administrative expenses were $454,000 for the third
quarter of 1996, an increase of $359,000 as compared to the same period in
1995. The increase in spending was due primarily to the following:
increased professional expenses due to the Merger, Private Placement offering
and public company reporting and compliance requirements- $108,000; salaries
of recently hired employees- $122,000; patent expenses- $51,000; travel and
entertainment expenses- $30,000; general business consulting fees and
expenses- $21,000; director fees and director and officer insurance-
$14,000; and other miscellaneous increases- $13,000.
Accordingly, total expenses were $930,000, with interest income of $58,000
resulting in a loss for the quarter of $872,000, or $.03 per share.
3
Nine Months ended September 30, 1996
Compared to
Nine Months ended September 30, 1995
Net revenues for the nine months ended September 30, 1996 were $165,000 as
compared to $575,000 in the same period in 1995, representing a decrease of
$410,000. 1996 revenues related entirely to an option agreement for rights to
certain of the Company's technology that terminated in April 1996. 1995
revenues were entirely comprised of sponsored research and development
revenues from an agreement that was terminated in June 1995.
Research spending for the nine months ended September 30, 1996 was $887,000
as compared to $547,000 for the same period in 1995, an increase of $340,000.
Research spending will increase in future quarters as the Company has hired
additional scientific management and staff and is accelerating activities to
develop the Company's product candidates.
General and administrative expenses were $1,145,000 for the nine months ended
September 30, 1996, an increase of $785,000 as compared to the same period in
1995. The increase was due to the following: increased professional expenses
due to the Merger, Private Placement offering and public company reporting
and compliance requirements- $300,000; salaries of newly hired employees-
$159,000; director fees and director and officer insurance- $86,000;
patent expenses- $78,000; travel and entertainment expenses- $62,000;
general business consulting fees and expenses- $56,000; and other
miscellaneous increases- $44,000.
Excess purchase price over the fair value of Chemex's assets of $8,314,000
was recorded in the first quarter due to the merger of API and Chemex.
Accordingly, total expenses were $10,491,000, including $8,314,000 of excess
purchase price written off in the first quarter, which resulted in a loss for
the nine months ended September 30, 1996 of $10,188,000, or $.35 per share.
Certain statements in this Form 10-Q including Management's Discussion and
Analysis of Financial Condition and Results of Operations, are forward-
looking statements that involve risks and uncertainties. In addition to
the risks and uncertainties set forth in this Form 10-Q, other factors could
cause actual results to differ materially, including but not limited to the
Company's research and development focus, uncertainties associated with
research and development activities, future capital requirements and dependence
on others, and other risks detailed in the Company's reports filed under
the Securities Exchange Act, including but not limited to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.
PART II -- OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
None
ITEM 2 CHANGES IN SECURITIES
None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
4
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 OTHER INFORMATION
On April 26, 1996, Access executed a letter of intent to acquire
Tacora Corp., a privately-held pharmaceutical company based in
Seattle. The transaction is currently scheduled to close in the
fourth quarter of 1996. Under the terms of the letter of intent, the
purchase price is contingent upon the achievement of certain
milestones. Stock up to a maximum value of $14,000,000 could be
payable to Tacora's shareholders over a 30 month period on an
escalating value over the milestone period. The consummation of
the transaction is subject to customary conditions to closing
including completion of due diligence, negotiation of definitive
documents and approval of the stockholders of Tacora Corp.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
Exhibits: 10.19 Lease Agreement with Pollock Realty Corporation
dated July 25, 1996.
Reports on Form 8-K: None
5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ACCESS PHARMACEUTICALS, INC.
Date: November 14, 1996 By: /s/ Kerry P. Gray
-----------------------------
Kerry P. Gray
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 1996 By: /s/ Stephen B. Thompson
-----------------------------
Stephen B. Thompson
Chief Financial Officer
(Principal Financial and
Accounting Officer)
6
ACCESS PHARMACEUTICALS, INC.
a development stage company
Balance Sheets
Assets September 30, 1996 December 31, 1995
- ------ ------------------ -----------------
Current Assets
Cash and cash equivalents $ 5,160,000 $ 30,000
Accounts receivable - 3,000
Prepaid expenses and other current assets 124,000 4,000
------------- -------------
Total current assets 5,284,000 37,000
------------- -------------
Property and Equipment, at cost 572,000 558,000
Less accumulated depreciation (281,000) (173,000)
------------- -------------
291,000 385,000
------------- -------------
Other Assets 8,000 2,000
------------- -------------
Total Assets $ 5,583,000 $ 424,000
============= =============
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities
Accounts payable and accrued expenses $ 210,000 $ 169,000
Unearned revenue - 150,000
Note payable due to Chemex
Pharmaceuticals, Inc. - 100,000
Current portion of obligations under
capital leases 154,000 133,000
------------- -------------
Total current liabilities 364,000 552,000
------------- -------------
Obligations under capital leases,
net of current portion 119,000 220,000
Note payable 110,000 -
------------- -------------
Total Liabilities 593,000 772,000
------------- -------------
Stockholders' Equity (Deficit)
Preferred stock, at September 30, 1996
$.01 par value, authorized 10,000,000
shares, none issued or outstanding;
at December 31, 1995, $.10 par value,
authorized 1,000,000 shares, none
issued or outstanding - -
Common stock, at September 30, 1996
$.04 par value, authorized 60,000,000
shares, issued and outstanding
31,391,324 shares; at December 31,
1995 $.01 par value, authorized
10,000,000 shares, issued and
outstanding 3,639,928 shares 1,256,000 36,000
Additional paid-in capital 17,766,000 3,460,000
Deficit accumulated during the
development stage (14,032,000) (3,844,000)
------------- -------------
Total Stockholders' Equity (Deficit) 4,990,000 (348,000)
------------- -------------
Total Liabilities and Stockholder's
Equity (Deficit) $ 5,583,000 $ 424,000
============= =============
- ---------------------------------------------
See accompanying notes to financial statements and Management's Discussion and
Analysis of Financial Conditions and Results of Operations.
7
ACCESS PHARMACEUTICALS, INC.
a development stage company
Statements of Operations
Three Months ended Nine Months ended
September 30 September 30, February 24, 1988
---------------------- ---------------------- (inception)
1996 1995 1996 1995 Sept 30, 1996
---------- ---------- ---------- ---------- -------------
Revenues
Research and development $ - $ 45,000 $ - $ 575,000 $ 2,711,000
Option income - - 165,000 - 2,037,000
---------- ---------- ---------- ---------- -----------
Total Revenues - 45,000 165,000 575,000 4,748,000
---------- ---------- ---------- ---------- -----------
Expenses
Research and development 430,000 106,000 887,000 547,000 5,413,000
General and administrative 454,000 95,000 1,145,000 360,000 4,532,000
Interest 10,000 13,000 37,000 49,000 113,000
Depreciation and amortization 36,000 31,000 108,000 93,000 879,000
Write off of excess purchase price - - 8,314,000 - 8,314,000
---------- ---------- ---------- ---------- -----------
Total Expenses 930,000 245,000 10,491,000 1,049,000 19,251,000
---------- ---------- ---------- ---------- -----------
Loss from operations (930,000) (200,000) (10,326,000) (474,000) (14,503,000)
---------- ---------- ---------- ---------- -----------
Other Income
Interest and miscellaneous income 58,000 - 138,000 4,000 597,000
---------- ---------- ---------- ---------- -----------
Loss before income taxes (872,000) (200,000) (10,188,000) (470,000) (13,906,000)
Provision for income taxes - - - - 127,000
---------- ---------- ---------- ---------- -----------
Net after income taxes $ (872,000) $(200,000)$(10,188,000) $ (470,000) $(14,033,000)
========== ========== =========== ========== ===========
Loss per common share $(0.03) $(0.07) $(0.35) $(0.16)
========== ========== ========== ==========
Average number of common and equiivalent
common shares outstanding 31,386,405 2,925,983 29,326,544 2,925,983
========== ========== ========== ==========
- ----------------------------------------------
See accompanying notes to financial statements and Management's Discussion and
Analysis of Financial Conditions and Results of Operations
8
ACCESS PHARMACEUTICALS, INC.
a development stage company
Statements of Cash Flows
Nine Months ended September 30, February 24, 1988
------------------------------ (inception) to
1996 1995 Sept 30, 1996
------------ ------------ ---------------
Cash Flows form Operating Activities
Net loss $(10,188,000) $ (470,000) $(14,033,000)
Adjustments to reconcile
net loss to cash used in
operating activities:
Write off of excess
purchase price 8,314,000 - 8,314,000
Depreciation and amortization 108,000 93,000 879,000
Change in assets and liabilities:
Accounts receivable 3,000 (138,000) -
Prepaid expenses and other
current assets (126,000) 20,000 (131,000)
Accounts payable and accrued
expenses 41,000 39,000 163,000
Unearned revenue (150,000) (180,000) -
---------- --------- ---------
Net Cash Used in
Operating Activities (1,998,000) (636,000) (4,808,000)
----------- --------- ---------
Cash Flows From Investing Activities
Capitalized expenditures (14,000) - (1,124,000)
----------- --------- ---------
Net Cash Used in
Investing Activities (14,000) - (1,124,000)
----------- --------- ---------
Cash Flows From Financing Activities
Payments on obligations
under capital leases (89,000) (67,000) (238,000)
Proceeds from notes payable 119,000 - 722,000
Proceeds from Merger with
Chemex Pharmaceuticals 1,587,000 - 1,587,000
Proceeds from stock issuances,
net 5,525,000 170,000 9,021,000
---------- --------- ---------
Net Cash Provided By (Used in)
Financing Activities 7,142,000 103,000 11,092,000
---------- --------- ----------
Net Increase (Decrease) in Cash
and Cash Equivalents 5,130,000 (533,000) 5,160,000
Cash and Cash Equivalents at
Beginning of Year 30,000 533,000 -
---------- --------- ----------
Cash and Cash Equivalents at
End of Period $5,160,000 $ - $5,160,000
========== ========= ==========
Supplemental disclosure of
non cash transactions:
eliminations of note payable
to Chemex Pharmaceutical
due to Merger $ 100,000
- ----------------------------------------------
See accompanying notes to financial statements and Managements Discussion and
Analysis of Financial Conditions and Results
9
ACCESS PHARMACEUTICALS, INC.
a development stage company
Notes to Financial Statements
Nine Months Ended September 30, 1996 and 1995
(1) Interim Financial Statements
The balance sheet as of September 30, 1996 and the statements of
operations and cash flows for the nine months ended September 30, 1996
and 1995 were prepared by management without audit. In the opinion of
management, all adjustments, including only normal recurring adjustments
necessary for the fair presentation of the financial position, results
of operations, and changes in financial position for such periods, have
been made, except for the merger accounting discussed below.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1995. The
results of operations for the period ended June 30, 1996 are not
necessarily indicative of the operating results which may be expected
for a full year. The balance sheet as of December 31, 1995 contains
financial information taken from the audited financial statements of
Access Pharmaceuticals, Inc., a Texas corporation, ("API") as of that
date.
API merged with and into Chemex Pharmaceuticals, Inc. ("Chemex") on
January 25, 1996. Under the terms of the agreement, API was merged into
Chemex with Chemex as the surviving legal entity. The name of Chemex
was changed to Access Pharmaceuticals, Inc. ("Access" or the "Company").
The Company acquired all of the outstanding shares of API in exchange
for 13,919,979 shares of its registered common stock.
The Company is engaged in research and development activities with a
broad platform technology for enhancing the site targeting of
intravenous therapeutic drugs, MRI contrast agents and
radiopharmaceutical diagnostic and therapeutic agents. The Access
technology is based on natural carbohydrate carriers.
As a result of the merger and immediately after the merger, the former
API stockholders owned approximately 60% of the issued and outstanding
shares of the Company. Generally accepted accounting principles
require that a company whose stockholders retain the controlling
interest in a combined business be treated as the acquiror for
accounting purposes. As a consequence, the merger was accounted for as
a "reverse acquisition" for financial reporting purposes and API has
been deemed to have acquired an approximate 60% interest in Chemex.
Despite the financial reporting requirement to account for the
acquisition as a "reverse acquisition," Chemex remains the continuing
legal entity and registrant for Securities and Exchange Commission
reporting purposes. However, the name of Chemex was changed to
Access Pharmaceuticals, Inc. ("Access" or the "Company").
Certain numbers have been reclassified to conform with the current
presentation.
10
ACCESS PHARMACEUTICALS, INC.
a development stage company
Notes to Financial Statements
Nine Months Ended September 30, 1996 and 1995
The unaudited financial statements at September 30, 1996 have been
prepared using "purchase" accounting for the merger with API as the
acquirer. The values used in the preparation of the financial
statements were determined based on negotiations between Chemex and
API and comparable values for companies at API's stage of development.
As a result, common stock and paid in capital of API was recorded at
a $10.0 million valuation. The excess purchase price over the fair
value of Chemex's assets of $8,314,000 was written off in the first
quarter of 1996. The balance sheet at December 31, 1995 and the
related statements of operations and cash flows for the nine months
ended September 30, 1995 are the statements of API.
Proforma condensed results of operations "as if" the acquisition had
been made on January 1, 1996 and 1995, respectively, are as follows:
Nine months ended September 30
------------------------------
1996 1995
---------- ----------
Revenues $303,000 $3,464,000
Expenses 2,135,000 3,071,000
---------- ----------
Net income (loss) (1,832,000) 393,000
========== ==========
Net income (loss) per share $(0.06) $0.02
========== ==========
(2) In March 1996 the Company concluded a $6 million Private Placement of
8.57 million shares of common stock. The cash infusion will be used to
continue the advancement of the Access technology which focuses on
increasing the therapeutic benefit and improving the efficacy of
oncology therapeutics and diagnostic agents by selectively targeting
sites of disease and accelerating drug clearance.
(3) SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of," effective for fiscal years
beginning after December 15, 1995, requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. In addition,
this statement requires that long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of
carrying amount or fair value less cost to sell. The Company adopted
this statement January 1, 1996, and the adoption of SFAS No. 121 did
not have material impact on the financial statements of the Company.
11
ACCESS PHARMACEUTICALS, INC.
a development stage company
Notes to Financial Statements
Nine Months Ended September 30, 1996 and 1995
(4) SFAS No. 123, "Accounting for Stock Based Compensation", effective for
fiscal years beginning after December 15, 1995 established financial,
accounting and reporting standards for stock-based employee
compensation plans. These plans include all arrangements by which
employees receive shares of stock or other equity investments of the
employer or the employer incurs liabilities to employees in amounts
based on the price of the employer's stock. This statement also applies
to transactions in which an entity issues its equity instruments to
acquire goods or services from non-employees. The Company has elected
to continue to account for employee stock compensation plans under
APB 25 but will disclose the required pro forma effect on net income
and earnings per share in the Company's year ending December 31, 1996
financial statements.
(5) On April 26, 1996, Access executed a letter of intent to acquire Tacora
Corp., a privately-held pharmaceutical company based in Seattle. The
transaction is currently scheduled to close in the fourth quarter of
1996. Under the terms of the letter of intent, the purchase price is
contingent upon the achievement of certain milestones. Stock valued
at up to a maximum of $14,000,000 could be payable to Tacora's
shareholders over a 30 month period on an escalating value over the
milestone period. The consummation of the transaction is subject to
customary conditions to closing including completion of due diligence,
negotiation of definitive documents and approval of the stockholders
of Tacora Corp.
12