UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-QSB
x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR
THE
QUARTERLY PERIOD ENDED MARCH 31, 2007
Commission
File Number 0-9314
ACCESS
PHARMACEUTICALS, INC.
(Exact
name of small business issuer 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)
(214)
905-5100
Issuer’s
Telephone Number, Including Area Code
Check
whether the issuer (1) filed all reports required to be filed by Section 13
or
15(d) of the Exchange Act during the past 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.
Yes
X
No
___
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes _ No
X
The
number of shares outstanding of the issuer's common stock, as of May 14, 2007
was 3,535,358 shares, $0.01 par value per share.
Transitional
Small Business Disclosure Format (Check One): Yes _ No
X
Total
No. of Pages 31
ACCESS
PHARMACEUTICALS, INC.
INDEX
|
PART I - FINANCIAL INFORMATION
|
Page
No.
|
|
Item
1.
|
Condensed Consolidated Financial Statements:
|
|
| |
Condensed
Consolidated Balance Sheets at March
31, 2007 (unaudited) and December 31, 2006
(audited)
|
25
|
| |
Condensed
Consolidated Statements of Operations (unaudited) for the three
months
ended March 31, 2007 and March 31, 2006 26
|
26
|
| |
Condensed
Consolidated Statements of Cash Flows (unaudited) for
the three
months ended March 31, 2007 and March 31, 2006 27
|
27
|
| |
Notes to Unaudited Condensed Consolidated Financial Statements
|
28
|
|
Item
2.
|
Management's Discussion and Analysis
or
Plan
of Operation |
2
|
|
Item
3.
|
Controls and Procedures
|
11
|
|
|
Risk Factors |
11
|
| |
|
|
| PART II - OTHER INFORMATION |
|
|
Item
1
|
Legal Proceedings |
22
|
|
Item
2
|
Unregistered Sales of Equity Securities
and
Use of Proceeds |
22
|
|
Item
3
|
Defaults Upon Senior Securities |
22
|
|
Item
4
|
Submission of Matters to a Vote of
Security Holders |
22
|
|
Item
5
|
Other Information |
22
|
|
Item
6.
|
Exhibits |
23
|
|
SIGNATURES
|
|
24
|
PART
I -FINANCIAL INFORMATION
This
Quarterly Report (including the information incorporated by reference) 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, that involve risks and uncertainties including, but not limited
to
the uncertainties associated with research and development activities, clinical
trials, our ability to raise capital, the timing of and our ability to achieve
regulatory approvals, dependence on others to market our licensed products,
collaborations, future cash flow, the timing and receipt of licensing and
milestone revenues, the future success of our marketed products and products
in
development, our sales projections, and the sales projections of our licensing
partners, our ability to achieve licensing milestones and other risks described
below as well as those discussed elsewhere in this Quarterly Report, documents
incorporated by reference and other documents and reports that we file
periodically with the Securities and Exchange Commission. These statements
include, without limitation, statements relating to our ability to continue
as a
going concern, anticipated product approvals and timing thereof, product
opportunities, clinical trials and U.S. Food and Drug Administration (“FDA”)
applications, as well as our drug development strategy, our clinical development
organization, expectations regarding our rate of technological developments
and
competition, our plan not to establish an internal marketing organization,
our
expectations regarding minimizing development risk and developing and
introducing technology, the size of our targeted markets, the terms of future
licensing arrangements, our ability to secure additional financing for our
operations and our expected cash burn rate. These statements relate to future
events or our future financial performance. In some cases, you can identify
forward-looking statements by terminology such as “may,” “will,” “should,”
“expects,” “plans,” “could,” “anticipates,” “believes,” “estimates,” “predicts,”
“potential” or “continue” or the negative of such terms or other comparable
terminology. These statements are only predictions and involve known and unknown
risks, uncertainties and other factors, including the risks outlined under
“Risk
Factors,” that may cause our or our industry’s actual results, levels of
activity, performance or achievements to be materially different from any future
results, levels or activity, performance or achievements expressed or implied
by
such forward-looking statements.
Although
we believe that the expectations reflected in the forward-looking statements
are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. We are under no duty to update any of the forward-looking
statements after the date of filing this Form 10-QSB to conform such statements
to actual results.
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 OR PLAN OF OPERATION
OVERVIEW
Access
Pharmaceuticals, Inc. (“Access” or the “Company”) is a Delaware corporation. We
are an emerging biopharmaceutical company developing products for use in the
treatment of cancer, the supportive care of cancer, and other disease states.
Our product for the management of oral mucositis, MuGard™, has received
marketing clearance by the FDA as a device. Our lead clinical development
program for the drug candidate ProLindac™ (formerly known as AP5346) is in Phase
II clinical testing. Access also has advanced drug delivery technologies
including Cobalamin™-mediated oral drug delivery and targeted
delivery.
Together
with our subsidiaries, we have proprietary patents or rights to one technology
approved for marketing and three drug delivery technology
platforms:
• MuGard™
(mucoadhesive liquid technology),
•
synthetic polymer targeted delivery,
•
Cobalamin-mediated oral delivery,
•
Cobalamin-mediated targeted delivery.
Products
We
have
used our drug delivery technologies to develop the following products and
product candidates:
ACCESS
DRUG PORTFOLIO
|
Compound
|
|
Originator
|
|
Technology
|
|
Indication
|
|
FDA
Filing
|
|
Clinical
Stage
(1)
|
|
Cancer
|
|
|
|
|
|
|
|
|
|
|
|
MuGard™
|
|
Access
|
|
Mucoadhesive
liquid
|
|
Mucositis
|
|
510(k)
|
|
Marketing
clearance
|
|
ProLindacTM
(Polymer
Platinate,
AP5346) (2)
|
|
Access
- U London
|
|
Synthetic
polymer
|
|
Cancer
|
|
Clinical
Development(3)
|
|
Phase
II
|
|
Oral
Insulin
|
|
Access
|
|
Cobalamin
|
|
Diabetes
|
|
Research
|
|
Pre-Clinical
|
|
Oral
Delivery System
|
|
Access
|
|
Cobalamin
|
|
Various
|
|
Research
|
|
Pre-Clinical
|
|
Cobalamin-Targeted
Therapeutics
|
|
Access
|
|
Cobalamin
|
|
Anti-tumor
|
|
Research
|
|
Pre-Clinical
|
(1)
For more information, see “Form 10-KSB, Government Regulation” for description
of clinical stages.
(2)
Licensed from the School of Pharmacy, The University of London. Subject to
a 1%
royalty and milestone payments on sales.
(3)
Clinical studies being conducted in Europe and US.
Approved
Products
MuGard™
- Mucoadhesive Liquid Technology (MLT)
Mucositis
is a debilitating condition involving extensive inflammation of mouth tissue
that affects annually an estimated 400,000 cancer patients in the United States
undergoing chemotherapy and radiation treatment. Any treatment that would
accelerate healing and/or diminish the rate of appearance of mucositis would
have a significant beneficial impact on the quality of life of these patients
and may allow for more aggressive chemotherapy. We believe the potential
addressable market for a mucositis product could be over $1 billion
world-wide.
Access’
MuGard™ is a viscous polymer solution which provides a coating for the oral
cavity. MuGard™ is dispensed in a ready to use form. A multi-site, randomized
clinical study was performed in the United States testing MuGard™ and MuGard™
containing an anti-inflammatory drug to determine the effect of these products
on the prevention and treatment of mucositis. The data from this trial indicated
that the patients using MuGard™ displayed a lower incidence of mucositis than is
typically seen in the studied population with no additional benefit from the
drug.
The
data
were retrospectively compared with two historical patient databases to evaluate
the potential advantages MuGard™ may represent in the prevention, treatment and
management of mucositis. The patient evaluation was conducted using the oral
mucositis assessment scale, which qualifies the disease severity on a scale
of
0-5. Key highlights of the comparison with the historical patient databases
are
as follows:
•
the average severity of the disease was reduced by approximately
40%;
•
the maximum intensity of the mucositis was approximately 35% lower;
and
•
the median peak intensity was approximately 50% lower.
These
data confirmed the fact that MuGard™ could represent an important advancement in
the management and prevention of mucositis. On September 20, 2006, we announced
that we had submitted a Premarket Notification 510(k) application to the United
States Food and Drug Administration (FDA) announcing the Company’s intent to
market MuGard™. On December 13, 2006, we announced that we had received
marketing clearance for MuGard™ from FDA for the indication of the management of
oral wounds including mucositis, aphthous ulcers and traumatic
ulcers.
Access
is
currently seeking marketing partners to market MuGard™ in the United States and
in other territories worldwide.
Products
in Development Status
ProLindac™
(Polymer Platinate, AP5346) DACH Platinum
Chemotherapy,
surgery and radiation are the major components in the clinical management of
cancer patients. Chemotherapy serves as the primary therapy for some solid
tumors and metastases and is increasingly used as an adjunct to radiation and
surgery to improve their effectiveness. For chemotherapeutic agents to be
effective in treating cancer patients, however, the agent must reach the target
cells in effective quantities with minimal toxicity in normal
tissues.
The
current optimal strategy for chemotherapy involves exposing patients to the
most
intensive cytotoxic regimens they can tolerate and clinicians attempt to design
a combination of chemotherapeutic drugs, a dosing schedule and a method of
administration to increase the probability that cancerous cells will be
destroyed while minimizing the harm to healthy cells. Notwithstanding
clinicians’ efforts, most current chemotherapeutic drugs have significant
shortcomings that limit the efficacy of chemotherapy. For example, certain
cancers are inherently unresponsive to chemotherapeutic agents. Alternatively,
other cancers may initially respond, but subgroups of cancer cells acquire
resistance to the drug during the course of therapy and the resistant cells
may
survive and cause a relapse. Serious toxicity, including bone marrow
suppression, renal toxicity, neuropathy, or irreversible cardiotoxicity, are
some of the limitations of current anti-cancer drugs that can prevent their
administration in curative doses.
Oxaliplatin,
a formulation of DACH platinum, is a chemotherapeutic which was initially
approved in France and in Europe in 1999 for the treatment of colorectal cancer.
It is now also being marketed in the United States and is generating worldwide
sales in excess of $2 billion annually. Carboplatin and Cisplatin, two other
approved platinum chemotherapy drugs, are not indicated for the treatment of
metastatic colorectal cancer. Oxaliplatin, in combination with 5-flurouracil
and
folinic acid (known as the FOLFOX regime) is indicated for the first-line
treatment of metastatic colorectal cancer in Europe and the U.S. The colorectal
cancer market is a significant opportunity as there are over 940,000 reported
new cases annually worldwide, increasing at a rate of approximately three
percent per year, and 500,000 deaths.
Currently,
platinum compounds are one of the largest selling categories of chemotherapeutic
agents, with annual sales in excess of $3.0
billion. As is the case with all chemotherapeutic drugs, the use of such
compounds is associated with serious systemic side effects. The drug development
goal therefore is to enhance delivery of the active drug to the tumor and
minimize the amount of active drug affecting normal organs in the
body.
Utilizing
a biocompatible water-soluble polymer HPMA as a drug carrier, Access’ drug
candidate ProLindac™, links DACH platinum to a polymer in a manner which permits
the selective release of active drug to the tumor by several mechanisms,
including taking advantage of the differential pH in tumor tissue compared
to
healthy tissue. The polymer also capitalizes on the biological differences
in
the permeability of blood vessels at tumor sites versus normal tissue. In this
way, tumor selective delivery and platinum release is achieved. The ability
of
ProLindac™ to inhibit tumor growth has been evaluated in more than ten
preclinical models. Compared with the marketed product oxaliplatin, ProLindac™
showed either marked superiority or superiority in most of these models.
Preclinical studies of the delivery of platinum to tumors in an animal model
have shown that, compared with oxaliplatin at equitoxic doses, ProLindac™
delivers in excess of 16 times more platinum to the tumor. An analysis of tumor
DNA, which is the main target for anti-cancer platinum agents, has shown that
ProLindac™ delivers
approximately 14 times more platinum to tumor DNA than oxaliplatin. Results
from
preclinical efficacy studies conducted in the B16 and other tumor models have
also shown that ProLindac™ is superior to oxaliplatin in inhibiting the growth
of tumors. An extensive preclinical package has been developed supporting the
development of ProLindac™.
In
2005
we completed a Phase I multi-center clinical study conducted in Europe, which
enrolled 26 patients. The study was reported at the AACR-NCI-EORTC conference
in
Philadelphia in November 2005. The European trial was designed to identify
the maximum tolerated dose, dose limiting toxicities, the pharmacokinetics
of
the platinum in plasma and the possible anti-tumor activity of
ProLindacTM.
The
open-label, non-randomized, dose-escalation Phase I study was performed at
two
European centers. ProLindacTM
was
administered as an intravenous infusion over one hour, once a week on days
1, 8
and 15 of each 28-day cycle to patients with solid progressive tumors. We
obtained results in 26 patients with a broad cross-section of tumor types,
with
doses ranging from 80-1,280 mg Pt/m2.
Of
the 26
patients, 10 were not evaluable for tumor response, principally due to
withdrawal from the study prior to completing the required cycle. Of the 16
evaluable patients, 2 demonstrated a partial response, 1 experienced a partial
response based on a biomarker and 4 experienced stable disease. One of the
patients who attained a partial response had a melanoma with lung metastasis;
a
CT scan revealed a tumor decrease of greater than 50%. The other patient who
responded had ovarian cancer; she had a reduction in lymph node metastasis
and
remission of a liver metastasis. The patient who experienced a partial response
based on a biomarker was an ovarian cancer patient for whom CA-125 levels
returned to normal. Also of note, a patient with cisplatin resistant cervical
cancer showed a short lasting significant reduction in lung metastasis after
3
doses. However, due to toxicity, the patient could not be retreated to determine
whether the partial response could be maintained.
We
have
commenced a European Phase II ProLindac™ trial in ovarian cancer patients who
have relapsed after first line platinum therapy. The primary aim of the study
is
to the determine the response rate of ProLindacTM
monotherapy in this patient population. The response rates for other platinum
compounds in this indication are well known, and will be used for comparison.
We
have
provided ProLindacTM
to the
Moores Cancer Center at the University of California, San Diego to conduct
a
Phase II clinical study in patients with head and neck cancer under a
physician-sponsored IND. The primary aim of the study is to demonstrate the
ability of the tumor-targeting polymer system to deliver more platinum to tumors
than can be attained with oxaliplatin, the approved DACH platinum compound.
The
company has submitted an IND application to the US Food and Drug Administration,
and has received clearance from the agency to proceed with a Phase I clinical
study of ProLindac in combination with fluorouracil and leucovorin. The study
is
designed to evaluate the safety of ProLindac in combination with two standard
drugs used to treat colorectal cancer and to establish a safe dose for Phase
II
clinical studies of this combination in colorectal cancer. The company is
currently evaluating whether clinical development of ProLindac in this
indication might proceed more rapidly by utilizing an alternative clinical
strategy and/or conducting studies in the US and/or elsewhere in the
world.
RECENT
EVENTS
On
April
26, 2007, Access and SCO Capital Partners LLC and affiliates (“SCO”) agreed to
extend the maturity date of an aggregate principal amount of $6,000,000 of
7.5%
convertible notes to June 11, 2007 from April 27, 2007. On April 30, 2007,
Access and SCO and affiliates agreed to amend an Investor Rights Agreement
to
extend the required filing date of a registration statement to the earlier
of
the filing of a future registration statement in connection with a qualified
financing or August 31, 2007.
On
April
24, 2007, Access and Oracle Partners LP and affiliates (“Oracle”) agreed to
extend the maturity date of an aggregate principal amount of $4,015,000 of
7.7%
convertible notes to June 12, 2007 from April 28, 2007.
SCO,
Oracle and their affiliates have extended the due dates of the convertible
notes
several times. If market conditions are right, we would like SCO, Oracle and
their affiliates to convert the notes to equity. We cannot predict whether
market conditions will be right for conversion and we do not know if SCO, Oracle
and their affiliates will convert or extend the maturity date of the notes
in
the future.
On
April
19, 2007 we announced we had entered into an agreement to acquire Somanta
Pharmaceuticals, Inc. Pursuant to the terms of the merger agreement, upon
consummation of the acquisition, Somanta’s preferred and common shareholders
would receive an aggregate of 1.5 million shares of Access’ common shares which
would represent approximately 13% of the combined company assuming the
conversion of Access’ existing convertible debt under existing terms of
conversion. The closing of the transaction is subject to numerous conditions
including receipt of necessary approvals including approval of Somanta
shareholders. There can be no assurance that the transaction will be consummated
or if consummated that it will be on the terms described herein.
LIQUIDITY
AND CAPITAL RESOURCES
We
have
funded our operations primarily through private sales of common stock and
convertible notes and our principal source of liquidity is cash and cash
equivalents. Contract research payments, licensing fees and milestone payments
from corporate alliances and mergers have also provided funding for operations.
As
of
March 31, 2006 our cash and cash equivalents and short-term investments were
$3,083,000 and our net cash burn rate for the three months ending March 31,
2007
was approximately $435,000 per month. Our working capital deficit was
$9,302,000. Our working capital at March 31, 2006 represented a decrease of
$3,520,000 as compared to our working capital deficit as of December 31, 2006
of
$5,782,000. Our working capital is negative reflecting approximately $10.9
million of debt that becomes due prior to March 31, 2008 and $899,000 of accrued
interest payments accrued at March 31, 2007.
As
of
March 31, 2007, the Company did not have enough capital to achieve its long-term
goals.
We
do not
have sufficient funds to repay our convertible notes at their maturity. We
may
not be able to restructure the convertible notes or obtain additional financing
to repay them on terms acceptable to us, if at all. If we raise additional
funds
by selling equity securities, the relative equity ownership of our existing
investors would be diluted and the new investors could obtain terms more
favorable than previous investors. A failure to restructure our convertible
notes or obtain additional funding to repay the convertible notes and support
our working capital and operating requirements, could cause us to be in default
of our convertible notes and prevent us from making expenditures that are needed
to allow us to maintain our operations. A failure to restructure our existing
convertible notes or obtain necessary additional capital in the future could
jeopardize our operations.
We
have
generally incurred negative cash flows from operations since inception, and
have
expended, and expect to continue to expend in the future, substantial funds
to
complete our planned product development efforts. Since
inception, our expenses have significantly exceeded revenues, resulting in
an
accumulated deficit as of March 31, 2007 of $81,799,000. We
expect
that our capital resources will be adequate to fund our current level of
operations for just over six months, excluding any obligation to repay the
convertible notes and the debt service on the convertible notes, which at this
time we do not have the ability to pay. We
cannot
assure you that
we
will ever be able to generate significant product revenue or achieve or sustain
profitability. We currently do not have the cash resources to repay our debt
obligations due in June and September 2007. We plan to satisfy our obligations
under the notes either through conversion of the notes into equity or through
the sale of equity.
All
shares and per share information reflect a one for five reverse stock split
effected June 5, 2006.
SCO
Capital Partners LLC - Notes and Warrants
On
December 6, 2006, we entered into a secured note and warrant purchase agreement
pursuant to which we sold and issued an aggregate of $500,000 of 7.5%
convertible notes now due June 11, 2007 and warrants to purchase 386,364 shares
of common stock of Access. Net proceeds to Access were $450,000. The notes
and
warrants were sold in a private placement to a group of accredited investors
led
by SCO and affiliates. Each noteholder received a warrant to purchase a number
of shares of common stock of Access equal to 75% of the total number shares
of
Access common stock into which such holder's note is convertible. Each warrant
has an exercise price of $1.32 per share and is exercisable at any time prior
to
December 6, 2012.
On
October 24, 2006, we entered into a secure note and warrant purchase agreement
pursuant to which we sold and issued an aggregate of $500,000 of 7.5%
convertible notes now due June 11, 2007 and warrants to purchase 386,364 shares
of common stock of Access. Net proceeds to Access were $450,000. The notes
and
warrants were sold in a private placement to a group of accredited investors
led
by SCO and affiliates. Each noteholder received a warrant to purchase a number
of shares of common stock of Access equal to 75% of the total number shares
of
Access common stock into which such holder's note is convertible. Each warrant
has an exercise price of $1.32 per share and is exercisable at any time prior
to
October 24, 2012.
On
February 16, 2006, we entered into a secured note and warrant purchase agreement
pursuant to which we sold and issued an aggregate of $5,000,000 of 7.5%
convertible notes now due June 11, 2007 and warrants to purchase an aggregate
of
3,863,634 shares of common stock of Access. Net proceeds to Access were $4.5
million after offering costs of approximately $500,000, which are being
amortized to interest expense over the term of the debt. The notes and warrants
were sold in a private placement to a group of accredited investors led by
SCO
and its affiliates. Each noteholder received a warrant to purchase a number
of
shares of common stock of Access equal to 75% of the total number shares of
Access common stock into which such holder's note is convertible. Each warrant
has an exercise price of $1.32 per share and is exercisable at any time prior
to
February 16, 2012.
All
the
secured notes mature on June 11, 2007, are convertible into Access common stock
at a fixed conversion rate of $1.10 per share, bear interest of 7.5% per annum
and are secured by the assets of Access. Each note may be converted at the
option of the noteholder or Access under certain circumstances as set forth
in
the notes.
In
the
event SCO and its affiliates were to convert all of their notes and exercise
all
of their warrants, it would own approximately 74.1% of the voting securities
of
Access. Access may be required to pay in cash, up to 2% per month, as defined,
as liquidated damages for failure to file and keep effective a registration
statement timely as required by investor rights agreements.
In
connection with the sale and issuance of notes and warrants, Access entered
into
an investors rights agreement whereby it granted SCO the right to designate
two
individuals to serve on the Board of Directors of Access while the notes are
outstanding, and also granted registration rights with respect to the shares
of
common stock of Access underlying the notes and warrants. SCO designated Jeffrey
B. Davis and Mark J. Alvino to the Board of Directors, and on March 13, 2006
Messrs, Davis and Alvino were appointed to the Board of Directors.
Uluru,
Inc. - Sale of Oral/Topical Care Assets
On
December 8, 2006 we amended our 2005 Asset Sale Agreement with Uluru, Inc.
Access received from Uluru an upfront payment of $4.9 million at the time of
the
amendment, received an additional $350,000 on April 9, 2007 and in the future
could receive potential milestones of up to $4.8 million based on Uluru sales.
The amendment agreement included the anniversary payment due October 12, 2006,
the early payment of the two year anniversary payment, and a payment in
satisfaction of certain future milestones. Access also transferred to Uluru
certain patent applications that Access had previously licensed to Uluru under
the 2005 License Agreement. Under a new agreement, Access has acquired a license
from Uluru to utilize the nanoparticle aggregate technology contained in the
transferred patent applications for subcutaneous, intramuscular,
intra-peritoneal and intra-tumoral drug delivery. Additionally, one future
milestone was increased by $125,000.
Other
Convertible Notes
One
holder of $4 million worth of 7.7% convertible notes (Oracle Partners LP and
related funds) has amended their notes to a new maturity date, initially to
April 28 (and subsequently to June 12, 2007), with the conversion price being
reduced from $27.50 per share to $5.00 per share. In addition, the Company
may
cause a mandatory conversion of the notes into common stock if the common stock
trades at a price of at least 1.5 times the conversion price for a minimum
number of trading days. There is also a provision to allow for a minimum price
for conversion in the event of a change of control of the Company. This
modification resulted in us recording additional debt discount of $2.1 million,
which will be accreted to interest expense to the revised maturity date. At
March 31, 2007, there is $100,000 of debt discount remaining.
Another
noteholder, holding $5.5 million worth of 7.7% convertible notes has amended
their note to a new maturity date, September 13, 2010 and elected to have the
2005 and 2006 interest of $880,000 to be paid on September 13, 2007 or earlier
if the Company receives $5.0 million of new funds. The delayed interest will
earn interest at a rate of 10.0%.
Since
our
inception, we have devoted our resources primarily to fund our research and
development programs. We have been unprofitable since inception and to date
have
received limited revenues from the sale of products. We cannot assure you that
we will be able to generate sufficient product revenues to attain profitability
on a sustained basis or at all. We expect to incur losses for the next several
years as we continue to invest in product research and development, preclinical
studies, clinical trials and regulatory compliance. As of March 31, 2007, our
accumulated deficit was $81,799,000.
FIRST
QUARTER 2007 COMPARED TO FIRST QUARTER 2006
Total
research spending for the first quarter of 2007 was $413,000, as compared to
$756,000 for the same period in 2006, a decrease of $343,000. The decrease
in
expenses was primarily due to the following:
| |
·
|
lower
costs for product manufacturing for ProLindac™ ($247,000). Product
manufacturing was completed early in 2006 which we believe is adequate
to
supply drug product for all of our current ovarian cancer
trial;
|
| |
·
|
lower
costs of clinical trials for ProLindac™ ($137,000). We incurred start-up
costs for the clinical trial in early 2006;
and
|
| |
·
|
Other
net decreases ($8,000).
|
The
decrease in research spending is partially offset by higher salary and related
cost due to the hiring of additional scientific staff ($49,000).
Total
general and administrative expenses were $1,139,000 for the first quarter of
2007, an increase of $473,000 as compared to the same period in 2006. The
increase in spending was due primarily to the following:
| |
·
|
higher
salary related expenses due to stock option expenses
($203,000);
|
| |
·
|
higher
investor relations expenses ($133,000) due to our increased investor
relations efforts;
|
| |
·
|
increased
salary and related expenses due to the hiring of a business development
officer ($47,000);
|
| |
·
|
higher
franchise taxes ($34,000);
|
| |
·
|
higher
patent costs ($28,000); and
|
· by
other
net increases ($28,000).
Depreciation
and amortization was $75,000 for the first quarter of 2007 as compared to
$77,000 for the same period in 2006 reflecting a decrease of $2,000. The
decrease in depreciation and amortization was due to assets becoming fully
depreciated.
Total
operating expenses in the first quarter of 2007 were $1,627,000 as compared
to
total operating expenses of $1,499,000 for the same period in 2006 an increase
of $128,000.
Interest
and miscellaneous income was $35,000 for the first quarter of 2007 as compared
to $92,000 for the same period in 2006, a decrease of $57,000. The decrease
in
interest income was due to accretion of the receivable due from Uluru that
was
recorded in 2006.
Interest
and other expense was $2,535,000 for the first quarter of 2007 as compared
to
$1,299,000 the same period in 2006, an increase of $1,236,000. The increase
in
interest and other expense was due to amortization of the discount on the Oracle
convertible notes and the amortization of the SCO notes.
In
2006
there was an unrealized loss on fair value of warrants of $2,150,000 due to
the
warrants issued to SCO and affiliates. We changed our accounting for the
warrants in the fourth quarter of 2006 and there is no unrealized losses or
gains in 2007.
Net
loss
in the first quarter of 2007 was $4,127,000, or a $1.17 basic and diluted loss
per common share, compared with a loss of $4,856,000, or a $1.38 basic and
diluted loss per common share for the same period in 2006.
Recent
Accounting Pronouncements
We
adopted FIN 48 as of the beginning of our 2007 fiscal year. See Notes to
Condensed Financial Statements.
In
September 2006, the FASB issued SFAS 157, Fair
Value Measurements (SFAS
157),
which
defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. The provisions of SFAS 157
are effective as of the beginning of our 2008 fiscal year. We are currently
evaluating the impact of adopting SFAS 157 on our financial statements.
In
February 2007, the FASB issued SFAS 159, The
Fair Value Option for Financial Assets and Financial Liabilities Including
an
amendment of FASB Statement No. 115 (SFAS
159),
which
permits entities to choose to measure many financial instruments and certain
other items at fair value. The provisions of SFAS 159 are effective as of the
beginning of our 2008 fiscal year. We are currently evaluating the impact of
adopting SFAS 159 on our financial statements.
ITEM
3 CONTROLS
AND PROCEDURES
Evaluation
of disclosure controls and procedures.
Our
disclosure controls and procedures are designed to ensure that information
required to be disclosed by us in the reports we file or submit under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms. An evaluation was performed under the supervision
and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in
Rule 13a — 15(e) under the Securities Exchange Act of 1934) as of the
end of the period covered by this quarterly report. Based on this evaluation,
our management, including our Chief Executive Officer and our Chief Financial
Officer, concluded that, as of March 31, 2007 our disclosure controls and
procedures were effective to ensure that information required to be disclosed
by
us in the reports we file or submit under the Securities Exchange Act of 1934,
as amended, is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission’s rules and
forms.
Changes
in Internal Control over Financial Reporting
For
the quarter ended March 31, 2007, there have been no changes in our internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934) that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
RISK
FACTORS
The
risk
factors set forth below, other than the risks under the heading “Additional
Risks”, were previously discussed in our Form 10-KSB for the fiscal year ended
December 31, 2006. There have not been any material changes from the risk
factors previously disclosed in our Form 10-KSB, other than the risks under
the
heading “Additional Risks”. These risk factors are not the only ones facing the
Company. Additional risks and uncertainties not currently deemed to be material
may also materially or adversely affect our financial condition and/or operating
results.
Although
Access and Somanta expect that the merger will result in benefits to the
combined company, the combined company may not realize those benefits because
of
integration and other challenges.
Access’
ability to realize the anticipated benefits of the merger will depend, in part,
on the ability of Access to integrate the business of Somanta with the business
of Access. The combination of two independent companies is a complex, costly
and
time-consuming process. This process may disrupt the business of either or
both
of the companies, and may not result in the full benefits expected by Access
and
Somanta. The difficulties of combining the operations of the companies include,
among others:
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•
|
|
unanticipated
issues in integrating information, communications and other systems;
|
|
|
•
|
|
retaining
key employees;
|
|
|
•
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|
consolidating
corporate and administrative infrastructures;
|
|
|
•
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|
the
diversion of management’s attention from ongoing business concerns; and
|
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•
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coordinating
geographically separate organizations.
|
We
cannot
assure you that the combination of Somanta with Access will result in the
realization of the full benefits anticipated from the merger.
Without
obtaining adequate capital funding, we may not be able to continue as a going
concern.
The
report of our independent registered public accounting firm for the fiscal
year
ended December 31, 2006 contained a fourth explanatory paragraph to reflect
its
significant doubt about our ability to continue a going concern as a result
of
our history of losses and our liquidity position, as discussed herein and in
this Form 10-QSB. If we are unable to obtain adequate capital funding in the
future, we may not be able to continue as a going concern, which would have
an
adverse effect on our business and operations, and investors’ investment in us
may decline.
We
have experienced a history of losses, we expect to incur future losses and
we
may be unable to obtain necessary additional capital to fund operations in
the
future.
We
have
recorded minimal revenue to date and we have incurred a cumulative operating
loss of approximately $81.8 million through March 31, 2007. Net losses for
the
years ended 2006, 2005 and 2004 were $12,874,000, $1,700,000 and $10,238,000,
respectively. Our losses have resulted principally from costs incurred in
research and development activities related to our efforts to develop clinical
drug candidates and from the associated administrative costs. We expect to
incur
additional operating losses over the next several years. We also expect
cumulative losses to increase if we expand research and development efforts
and
preclinical and clinical trials. Our net cash burn rate for the three months
ended March 31, 2007 was approximately $435,000 per month. We project our net
cash burn rate for the next six months to be approximately $450,000 per month.
Capital expenditures are forecasted to be minor for the next seven months.
We
require substantial capital for our development programs and operating expenses,
to pursue regulatory clearances and to prosecute and defend our intellectual
property rights. We believe that our existing capital resources, interest
income, product sales, royalties and revenue from possible licensing agreements
and collaborative agreements will be sufficient to fund our currently expected
operating expenses and capital requirements for six months (other than debt
and
interest obligations including the approximately $6
million of Senior Convertible notes due June 11, 2007 plus accrued interest;
and
approximately $4.0
million of convertible notes which are required to be repaid June 12, 2007
plus
accrued interest; and capitalized interest of $880,000 due September 13, 2007).
We will need to raise substantial additional capital to support our ongoing
operations and debt obligations.
If
we do
raise additional funds by issuing equity securities, further dilution to
existing stockholders would result and future investors may be granted rights
superior to those of existing stockholders. If adequate funds are not available
to us through additional equity offerings, we may be required to delay, reduce
the scope of or eliminate one or more of our research and development programs
or to obtain funds by entering into arrangements with collaborative partners
or
others that require us to issue additional equity securities or to relinquish
rights to certain technologies or drug candidates that we would not otherwise
issue or relinquish in order to continue independent operations.
We
do not have operating revenue and we may never attain
profitability.
To
date,
we have funded our operations primarily through private sales of common stock
and convertible notes. Contract research payments and licensing fees from
corporate alliances and mergers have also provided funding for our operations.
Our
ability to achieve significant revenue or profitability depends upon our ability
to successfully complete the development of drug candidates, to develop and
obtain patent protection and regulatory approvals for our drug candidates and
to
manufacture and commercialize the resulting drugs. We sold our only revenue
producing assets to Uluru, Inc. in October 2005. We are not expecting any
revenues in the short-term from our other assets. Furthermore, we may not be
able to ever successfully identify, develop, commercialize, patent, manufacture,
obtain required regulatory approvals and market any additional products.
Moreover, even if we do identify, develop, commercialize, patent, manufacture,
and obtain required regulatory approvals to market additional products, we
may
not generate revenues or royalties from commercial sales of these products
for a
significant number of years, if at all. Therefore, our proposed operations
are
subject to all the risks inherent in the establishment of a new business
enterprise. In the next few years, our revenues may be limited to minimal
product sales and royalties, any amounts that we receive under strategic
partnerships and research or drug development collaborations that we may
establish and, as a result, we may be unable to achieve or maintain
profitability in the future or to achieve significant revenues in order to
fund
our operations.
We
may not be able to pay our debt and other obligations and our assets may be
seized as a result.
We
may not generate the cash flow required to pay our liabilities as they become
due. Our outstanding debt includes $6 million of Senior Convertible notes due
June 11, 2007, and approximately $4.0 million of our Convertible Subordinated
Notes due June 12, 2007 and $5.5 million is due in September 2010. We also
have
capitalized interest of $880,000 plus interest due the Company otherwise it
will
be due September 13, 2007.
If
our
cash flow is inadequate to meet these obligations, we will default on the notes.
Any default on the notes could allow our note holders to foreclose upon our
assets, force us into bankruptcy. We
may be unable to repay or repurchase or restructure the convertible subordinated
notes due in June 2007 and September 2010 and be forced into bankruptcy.
In
the
event of a default, the holders of our secured convertible notes have the right
to foreclose on substantially all of our assets, which could force us to curtail
or cease our business operations.
The
holders of our convertible notes may require us to repurchase or prepay all
of
the outstanding convertible notes under certain circumstances. We may not have
sufficient cash reserves to repurchase the convertible notes at such time,
which
would cause an event of default under the convertible notes and may force us
to
declare bankruptcy.
We
may not successfully commercialize our drug candidates.
Our
drug
candidates are subject to the risks of failure inherent in the development
of
pharmaceutical products based on new technologies and our failure to develop
safe, commercially viable drugs would severely limit our ability to become
profitable or to achieve significant revenues. We may be unable to successfully
commercialize our drug candidates because:
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·
|
some
or all of our drug candidates may be found to be unsafe or ineffective
or
otherwise fail to meet applicable regulatory standards or receive
necessary regulatory clearances;
|
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·
|
our
drug candidates, if safe and effective, may be too difficult to develop
into commercially viable drugs;
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·
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it
may be difficult to manufacture or market our drug candidates on
a large
scale;
|
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·
|
proprietary
rights of third parties may preclude us from marketing our drug
candidates; and
|
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·
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third
parties may market superior or equivalent
drugs.
|
The
success of our research and development activities, upon which we primarily
focus, is uncertain.
Our
primary focus is on our research and development activities and the
commercialization of compounds covered by proprietary biopharmaceutical patents
and patent applications. Research and development activities, by their nature,
preclude definitive statements as to the time required and costs involved in
reaching certain objectives. Actual research and development costs, therefore,
could exceed budgeted amounts and estimated time frames may require extension.
Cost overruns, unanticipated regulatory delays or demands, unexpected adverse
side effects or insufficient therapeutic efficacy will prevent or substantially
slow our research and development effort and our business could ultimately
suffer. We anticipate that we will remain principally engaged in research and
development activities for an indeterminate, but substantial, period of
time.
We
may be unable to successfully develop, market, or commercialize our products
or
our product candidates without establishing new relationships and maintaining
current relationships.
Our
strategy for the research, development and commercialization of our potential
pharmaceutical products may require us to enter into various arrangements with
corporate and academic collaborators, licensors, licensees and others, in
addition to our existing relationships with other parties. Specifically, we
may
seek to joint venture, sublicense or enter other marketing arrangements with
parties that have an established marketing capability or we may choose to pursue
the commercialization of such products on our own. We may, however, be unable
to
establish such additional collaborative arrangements, license agreements, or
marketing agreements as we may deem necessary to develop, commercialize and
market our potential pharmaceutical products on acceptable terms. Furthermore,
if we maintain and establish arrangements or relationships with third parties,
our business may depend upon the successful performance by these third parties
of their responsibilities under those arrangements and relationships.
Our
ability to successfully commercialize, and market our product candidates could
be limited if a number of these existing relationships were
terminated.
Furthermore,
our strategy with respect to our polymer platinate program is to enter into
a
licensing agreement with a pharmaceutical company pursuant to which the further
costs of developing a product would be shared with our licensing partner.
Although we have had discussions with potential licensing partners with respect
to our polymer platinate program, to date we have not entered into any licensing
arrangement. We may be unable to execute our licensing strategy for polymer
platinate.
We
may be unable to successfully manufacture our products and our product
candidates in clinical quantities or for commercial purposes without the
assistance of contract manufacturers, which may be difficult for us to obtain
and maintain.
We
have
limited experience in the manufacture of pharmaceutical products in clinical
quantities or for commercial purposes and we may not be able to manufacture
any
new pharmaceutical products that we may develop. As a result, we have
established, and in the future intend to establish arrangements with contract
manufacturers to supply sufficient quantities of products to conduct clinical
trials and for the manufacture, packaging, labeling and distribution of finished
pharmaceutical products if any of our potential products are approved for
commercialization. If we are unable to contract for a sufficient supply of
our
potential pharmaceutical products on acceptable terms, our preclinical and
human
clinical testing schedule may be delayed, resulting in the delay of our clinical
programs and submission of product candidates for regulatory approval, which
could cause our business to suffer. Our business could suffer if there are
delays or difficulties in establishing relationships with manufacturers to
produce, package, label and distribute our finished pharmaceutical or other
medical products, if any, market introduction and subsequent sales of such
products. Moreover, contract manufacturers that we may use must adhere to
current Good Manufacturing Practices, as required by the FDA. In this regard,
the FDA will not issue a pre-market approval or product and establishment
licenses, where applicable, to a manufacturing facility for the products until
the manufacturing facility passes a pre-approval plant inspection. If we are
unable to obtain or retain third party manufacturing on commercially acceptable
terms, we may not be able to commercialize our products as planned. Our
potential dependence upon third parties for the manufacture of our products
may
adversely affect our ability to generate profits or acceptable profit margins
and our ability to develop and deliver such products on a timely and competitive
basis.
ProLindac™
is manufactured by third parties for our Phase II clinical trials. Manufacturing
is ongoing for the current clinical trials. Certain manufacturing steps are
conducted by the Company to enable significant cost savings to be
realized.
We
are subject to extensive governmental regulation which increases our cost of
doing business and may affect our ability to commercialize any new products
that
we may develop.
The
FDA
and comparable agencies in foreign countries impose substantial requirements
upon the introduction of pharmaceutical products through lengthy and detailed
laboratory, preclinical and clinical testing procedures and other costly and
time-consuming procedures to establish their safety and efficacy. All of our
drugs and drug candidates require receipt and maintenance of governmental
approvals for commercialization. Preclinical and clinical trials and
manufacturing of our drug candidates will be subject to the rigorous testing
and
approval processes of the FDA and corresponding foreign regulatory authorities.
Satisfaction of these requirements typically takes a significant number of
years
and can vary substantially based upon the type, complexity and novelty of the
product. The status of our principal products is as follows:
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·
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A
mucoadhesive liquid technology product, MuGard™, has received marketing
approval by the FDA.
|
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·
|
ProLindac™
is currently in a Phase II trial in Europe and a Phase II trial in
the
US.
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·
|
ProLindac™
has been approved for an additional Phase I trial in the US by the
FDA.
|
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·
|
Cobalamin™
mediated delivery technology is currently in the pre-clinical
phase.
|
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·
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We
also have other products in the preclinical
phase.
|
Due
to
the time consuming and uncertain nature of the drug candidate development
process and the governmental approval process described above, we cannot assure
you when we, independently or with our collaborative partners, might submit
a
NDA, for FDA or other regulatory review.
Government
regulation also affects the manufacturing and marketing of pharmaceutical
products. Government regulations may delay marketing of our potential drugs
for
a considerable or indefinite period of time, impose costly procedural
requirements upon our activities and furnish a competitive advantage to larger
companies or companies more experienced in regulatory affairs. Delays in
obtaining governmental regulatory approval could adversely affect our marketing
as well as our ability to generate significant revenues from commercial sales.
Our drug candidates may not receive FDA or other regulatory approvals on a
timely basis or at all. Moreover, if regulatory approval of a drug candidate
is
granted, such approval may impose limitations on the indicated use for which
such drug may be marketed. Even if we obtain initial regulatory approvals for
our drug candidates, Access, our drugs and our manufacturing facilities would
be
subject to continual review and periodic inspection, and later discovery of
previously unknown problems with a drug, manufacturer or facility may result
in
restrictions on the marketing or manufacture of such drug, including withdrawal
of the drug from the market. The FDA and other regulatory authorities
stringently apply regulatory standards and failure to comply with regulatory
standards can, among other things, result in fines, denial or withdrawal of
regulatory approvals, product recalls or seizures, operating restrictions and
criminal prosecution.
The
uncertainty associated with preclinical and clinical testing may affect our
ability to successfully commercialize new products.
Before
we
can obtain regulatory approvals for the commercial sale of any of our potential
drugs, the drug candidates will be subject to extensive preclinical and clinical
trials to demonstrate their safety and efficacy in humans. Preclinical or
clinical trials of any of our future drug candidates may not demonstrate the
safety and efficacy of such drug candidates at all or to the extent necessary
to
obtain regulatory approvals. In this regard, for example, adverse side effects
can occur during the clinical testing of a new drug on humans which may delay
ultimate FDA approval or even lead us to terminate our efforts to develop the
drug for commercial use. Companies in the biotechnology industry have suffered
significant setbacks in advanced clinical trials, even after demonstrating
promising results in earlier trials. In particular, polymer platinate has taken
longer to progress through clinical trials than originally planned. This extra
time has not been related to concerns of the formulations but rather due to
the
lengthy regulatory process. The failure to adequately demonstrate the safety
and
efficacy of a drug candidate under development could delay or prevent regulatory
approval of the drug candidate. A delay or failure to receive regulatory
approval for any of our drug candidates could prevent us from successfully
commercializing such candidates and we could incur substantial additional
expenses in our attempts to further develop such candidates and obtain future
regulatory approval.
We
may incur substantial product liability expenses due to the use or misuse of
our
products for which we may be unable to obtain insurance
coverage.
Our
business exposes us to potential liability risks that are inherent in the
testing, manufacturing and marketing of pharmaceutical products. These risks
will expand with respect to our drug candidates, if any, that receive regulatory
approval for commercial sale and we may face substantial liability for damages
in the event of adverse side effects or product defects identified with any
of
our products that are used in clinical tests or marketed to the public. We
generally procure product liability insurance for drug candidates that are
undergoing human clinical trials. Product liability insurance for the
biotechnology industry is generally expensive, if available at all, and as
a
result, we may be unable to obtain insurance coverage at acceptable costs or
in
a sufficient amount in the future, if at all. We may be unable to satisfy any
claims for which we may be held liable as a result of the use or misuse of
products which we have developed, manufactured or sold and any such product
liability claim could adversely affect our business, operating results or
financial condition.
We
may incur significant liabilities if we fail to comply with stringent
environmental regulations or if we did not comply with these regulations in
the
past.
Our
research and development processes involve the controlled use of hazardous
materials. We are subject to a variety of federal, state and local governmental
laws and regulations related to the use, manufacture, storage, handling and
disposal of such material and certain waste products. Although we believe that
our activities and our safety procedures for storing, using, handling and
disposing of such materials comply with the standards prescribed by such laws
and regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such accident, we
could be held liable for any damages that result and any such liability could
exceed our resources.
Intense
competition may limit our ability to successfully develop and market commercial
products.
The
biotechnology and pharmaceutical industries are intensely competitive and
subject to rapid and significant technological change. Our competitors in the
United States and elsewhere are numerous and include, among others, major
multinational pharmaceutical and chemical companies, specialized biotechnology
firms and universities and other research institutions.
The
following products may compete with polymer platinate:
•
Cisplatin, marketed by Bristol-Myers Squibb, the originator of the drug, and
several generic manufacturers;
•
Carboplatin, marketed by Bristol-Myers Squibb in the US; and
•
Oxaliplatin, marketed exclusively by Sanofi-Aventis.
The
following companies are working on therapies and formulations that may be
competitive with our polymer platinate:
• Antigenics
and Regulon are developing liposomal platinum formulations;
•
Spectrum Pharmaceuticals and GPC Biotech are developing oral platinum
formulations;
•
Poniard Pharmaceuticals is developing both iv and oral platinum
formulations;
•
Nanocarrier and Debio are developing micellar nanoparticle platinum
formulations; and
• American
Pharmaceutical Partners, Cell Therapeutics, Daiichi, and Enzon are developing
alternate drugs in combination with polymers and other drug delivery
systems.
Companies
working on therapies and formulations that may be competitive with our vitamin
mediated drug delivery system are Bristol-Myers Squibb, Centocor (acquired
by
Johnson & Johnson), Endocyte, GlaxoSmithKline, Imclone and Xoma which are
developing targeted monoclonal antibody therapy.
Amgen,
Carrington Laboratories, CuraGen Corporation, Cytogen Corporation, Endo
Pharmaceuticals, , MGI Pharma, Nuvelo, Inc. and OSI Pharmaceuticals are
developing products to treat mucositis that may compete with our mucoadhesive
liquid technology.
BioDelivery
Sciences International, Biovail Corporation, Cellgate, CIMA Labs, Inc., Cytogen
Corporation, Depomed Inc., Emisphere Technologies, Inc., Eurand, Flamel
Technologies, Nobex and Xenoport are developing products which compete with
our
oral drug delivery system.
Many
of
these competitors have and employ greater financial and other resources,
including larger research and development, marketing and manufacturing
organizations. As a result, our competitors may successfully develop
technologies and drugs that are more effective or less costly than any that
we
are developing or which would render our technology and future products obsolete
and noncompetitive.
In
addition, some of our competitors have greater experience than we do in
conducting preclinical and clinical trials and obtaining FDA and other
regulatory approvals. Accordingly, our competitors may succeed in obtaining
FDA
or other regulatory approvals for drug candidates more rapidly than we do.
Companies that complete clinical trials, obtain required regulatory agency
approvals and commence commercial sale of their drugs before their competitors
may achieve a significant competitive advantage. Drugs resulting from our
research and development efforts or from our joint efforts with collaborative
partners therefore may not be commercially competitive with our competitors'
existing products or products under development.
Our
ability to successfully develop and commercialize our drug candidates will
substantially depend upon the availability of reimbursement funds for the costs
of the resulting drugs and related treatments.
The
successful commercialization of, and the interest of potential collaborative
partners to invest in the development of our drug candidates, may depend
substantially upon reimbursement of the costs of the resulting drugs and related
treatments at acceptable levels from government authorities, private health
insurers and other organizations, including health maintenance organizations,
or
HMOs. Limited reimbursement for the cost of any drugs that we develop may reduce
the demand for, or price of such drugs, which would hamper our ability to obtain
collaborative partners to commercialize our drugs, or to obtain a sufficient
financial return on our own manufacture and commercialization of any future
drugs.
The
market may not accept any pharmaceutical products that we successfully
develop.
The
drugs
that we are attempting to develop may compete with a number of well-established
drugs manufactured and marketed by major pharmaceutical companies. The degree
of
market acceptance of any drugs developed by us will depend on a number of
factors, including the establishment and demonstration of the clinical efficacy
and safety of our drug candidates, the potential advantage of our drug
candidates over existing therapies and the reimbursement policies of government
and third-party payers. Physicians, patients or the medical community in general
may not accept or use any drugs that we may develop independently or with our
collaborative partners and if they do not, our business could
suffer.
Trends
toward managed health care and downward price pressures on medical products
and
services may limit our ability to profitably sell any drugs that we may
develop.
Lower
prices for pharmaceutical products may result from:
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·
|
third-party
payers' increasing challenges to the prices charged for medical products
and services;
|
| |
·
|
the
trend toward managed health care in the United States and the concurrent
growth of HMOs and similar organizations that can control or significantly
influence the purchase of healthcare services and products;
and
|
| |
·
|
legislative
proposals to reform healthcare or reduce government insurance
programs.
|
The
cost
containment measures that healthcare providers are instituting, including
practice protocols and guidelines and clinical pathways, and the effect of
any
healthcare reform, could limit our ability to profitably sell any drugs that
we
may successfully develop. Moreover, any future legislation or regulation, if
any, relating to the healthcare industry or third-party coverage and
reimbursement, may cause our business to suffer.
We
may not be successful in protecting our intellectual property and proprietary
rights.
Our
success depends, in part, on our ability to obtain U.S. and foreign patent
protection for our drug candidates and processes, preserve our trade secrets
and
operate our business without infringing the proprietary rights of third parties.
Legal standards relating to the validity of patents covering pharmaceutical
and
biotechnological inventions and the scope of claims made under such patents
are
still developing and there is no consistent policy regarding the breadth of
claims allowed in biotechnology patents. The patent position of a biotechnology
firm is highly uncertain and involves complex legal and factual questions.
We
cannot assure you that any existing or future patents issued to, or licensed
by,
us will not subsequently be challenged, infringed upon, invalidated or
circumvented by others. As a result, although we, together with our
subsidiaries, are either the owner or licensee to 13 U.S. patents and to 9
U.S.
patent applications now pending, and 4 European patents and 12 European patent
applications, we cannot assure you that any additional patents will issue from
any of the patent applications owned by, or licensed to, us. Furthermore, any
rights that we may have under issued patents may not provide us with significant
protection against competitive products or otherwise be commercially viable.
Our
patents for the following technologies expire in the years and during the date
ranges indicated below:
| |
·
|
Mucoadhesive
technology in 2021,
|
| |
·
|
Cobalamin
mediated technology between 2007 and
2019
|
In
addition to issued patents, we have a number of pending patent applications.
If
issued, the patents underlying theses applications could extend the patent
life
of our technologies beyond the dates listed above.
Patents
may have been granted to third parties or may be granted covering products
or
processes that are necessary or useful to the development of our drug
candidates. If our drug candidates or processes are found to infringe upon
the
patents or otherwise impermissibly utilize the intellectual property of others,
our development, manufacture and sale of such drug candidates could be severely
restricted or prohibited. In such event, we may be required to obtain licenses
from third parties to utilize the patents or proprietary rights of others.
We
cannot assure you that we will be able to obtain such licenses on acceptable
terms, if at all. If we become involved in litigation regarding our intellectual
property rights or the intellectual property rights of others, the potential
cost of such litigation, regardless of the strength of our legal position,
and
the potential damages that we could be required to pay could be
substantial.
Our
business could suffer if we lose the services of, or fail to attract, key
personnel.
We
are
highly dependent upon the efforts of our senior management and scientific team,
including our President and Chief Executive Officer, Stephen R. Seiler. The
loss
of the services of one or more of these individuals could delay or prevent
the
achievement of our research, development, marketing, or product
commercialization objectives. While we have employment agreements with Stephen
R. Seiler, David P. Nowotnik, PhD our Senior Vice President Research and
Development, and Stephen B. Thompson, our Vice President and Chief Financial
Officer, their employment may be terminated by them or us at any time. Mr.
Seiler’s, Dr. Nowotnik's and Mr. Thompson’s agreements expire within one year
and are extendable each year on the anniversary date. We do not have employment
contracts with our other key personnel. We do not maintain any "key-man"
insurance policies on any of our key employees and we do not intend to obtain
such insurance. In addition, due to the specialized scientific nature of our
business, we are highly dependent upon our ability to attract and retain
qualified scientific and technical personnel. In view of the stage of our
development and our research and development programs, we have restricted our
hiring to research scientists and a small administrative staff and we have
made
only limited investments in manufacturing, production, sales or regulatory
compliance resources. There is intense competition among major pharmaceutical
and chemical companies, specialized biotechnology firms and universities and
other research institutions for qualified personnel in the areas of our
activities, however, and we may be unsuccessful in attracting and retaining
these personnel.
An
investment in our common stock may be less attractive because it is not traded
on a recognized public market.
Our
common stock has traded on the OTC Bulletin Board, or OTCBB since June 5, 2006.
From February 1, 2006 until June 5, 2006 we traded on the “Pink Sheets” after
our common stock was de-listed from trading on AMEX. The OTCBB and Pink Sheets
are viewed by most investors as a less desirable, and less liquid, marketplace.
As a result, an investor may find it more difficult to purchase, dispose of
or
obtain accurate quotations as to the value of our common stock.
Our
common stock is subject to Rules 15g-1 through 15g-9 under the Exchange Act,
which imposes certain sales practice requirements on broker-dealers who sell
our
common stock to persons other than established customers and "accredited
investors" (as defined in Rule 501(c) of the Securities Act). For transactions
covered by this rule, a broker-dealer must make a special suitability
determination for the purchaser and have received the purchaser's written
consent to the transaction prior to the sale. This rule adversely affects the
ability of broker-dealers to sell our common stock and purchasers of our common
stock to sell their shares of our common stock.
Additionally,
our common stock is subject to SEC regulations applicable to "penny stock."
Penny stock includes any non-NASDAQ equity security that has a market price
of
less than $5.00 per share, subject to certain exceptions. The regulations
require that prior to any non-exempt buy/sell transaction in a penny stock,
a
disclosure schedule proscribed by the SEC relating to the penny stock market
must be delivered by a broker-dealer to the purchaser of such penny stock.
This
disclosure must include the amount of commissions payable to both the
broker-dealer and the registered representative and current price quotations
for
our common stock. The regulations also require that monthly statements be sent
to holders of penny stock that disclose recent price information for the penny
stock and information of the limited market for penny stocks. These requirements
adversely affect the market liquidity of our common stock.
Ownership
of our shares is concentrated in the hands of a few investors which could limit
the ability of our other stockholders to influence the direction of the
company.
As
calculated by the SEC rules of beneficial ownership, SCO Capital Partners LLC
and affiliates, Larry N. Feinberg (Oracle Partners LP, Oracle Institutional
Partners LP and Oracle Investment Management Inc.), and Jeffrey B. Davis each
beneficially owned approximately 74.1%, 26.4%, and 14.9%, respectively, of
our
common stock as of March 31, 2007. Accordingly,
they collectively may have the ability to significantly influence or determine
the election of all of our directors or the outcome of most corporate actions
requiring stockholder approval. They may exercise this ability in a manner
that
advances their best interests and not necessarily those of our other
stockholders.
Provisions
of our charter documents could discourage an acquisition of our company that
would benefit our stockholders and
may have the effect of entrenching, and making it difficult to remove,
management.
Provisions
of our Certificate of Incorporation, By-laws and Stockholders Rights Plan may
make it more difficult for a third party to acquire control of the Company,
even
if a change in control would benefit our stockholders. In particular, shares
of
our preferred stock may be issued in the future without further stockholder
approval and upon such terms and conditions, and having such rights, privileges
and preferences, as our Board of Directors may determine, including, for
example, rights to convert into our common stock. The rights of the holders
of
our common stock will be subject to, and may be adversely affected by, the
rights of the holders of any of our preferred stock that may be issued in the
future. The issuance of our preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party
to
acquire control of us. This could limit the price that certain investors might
be willing to pay in the future for shares of our common stock and discourage
these investors from acquiring a majority of our common stock. Further, the
existence of these corporate governance provisions could have the effect of
entrenching management and making it more difficult to change our
management.
Substantial
sales of our common stock could lower our stock price.
The
market price for our common stock could drop as a result of sales of a large
number of our presently outstanding shares or
shares that we may issue or be obligated to issue in the future.
All of
the 3,535,358 shares of our common stock that are outstanding as of May 14,
2007, are unrestricted and freely tradable or tradable pursuant to a resale
registration statement or under Rule 144 of the Securities Act or are covered
by
a registration rights agreement.
Failure
to achieve and maintain effective internal controls could have a material
adverse effect on our business.
Effective
internal controls are necessary for us to provide reliable financial reports.
If
we cannot provide reliable financial reports, our operating results could be
harmed. All internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation.
While
we
continue to evaluate and improve our internal controls, we cannot be certain
that these measures will ensure that we implement and maintain adequate controls
over our financial processes and reporting in the future. Any failure to
implement required new or improved controls, or difficulties encountered in
their implementation, could harm our operating results or cause us to fail
to
meet our reporting obligations.
Failure
to achieve and maintain an effective internal control environment could cause
investors to lose confidence in our reported financial information, which could
have a material adverse effect on our stock price.
PART
II -- OTHER INFORMATION
ITEM
1 LEGAL
PROCEEDINGS
None
ITEM
2 UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM
3 DEFAULTS
UPON SENIOR SECURITIES
None
ITEM
4 SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM
5 OTHER
INFORMATION
None
Exhibits:
| |
2.2
|
Agreement
and Plan of Merger, by and among Access Pharmaceuticals, Inc., Somanta
Acquisition Corporation, Somanta Pharmaceuticals, Inc. Somanta
Incorporated and Somanta Limited, dated April 18, 2007. (Incorporated
by
reference to Exhibit 2.1 to our Form 8-K dated April 18,
2007)
|
| |
10.35
|
2007
Special Stock Option Plan and Agreement, dated January 4, 2007, by
and
between us and Stephen R. Seiler, President and Chief Executive
Officer
|
| |
10.36
|
Employment
Agreement, dated January 4, 2007 by and between us and Stephen R.
Seiler,
President and Chief Executive
Officer
|
| |
|
10.37
|
Amendment
to 7.0% (Subject to Adjustment) Convertible Promissory Notes Due
April 28,
2007, dated April 24, 2007 by and between us and Oracle Partners
LP and
affiliates
|
| |
|
10.38
|
Amendment
to Amended and Restated 7.5% Secured Convertible Promissory Notes
Due
April 27, 2007, dated April 26, 2007 by and between us and SCO Capital
Partners LLC, Beach Capital LLC and Lake End Capital
LLC
|
| |
|
10.39
|
Amendment
To Investor Rights Agreements, dated April 30, 2007 by and between
us and
SCO Capital Partners LLC and Lake End Capital
LLC
|
| |
31.1
|
Certification
of Chief Executive Officer of Access Pharmaceuticals, Inc. pursuant
to
Rule 13a-14(a)/15d-14(a)
|
| |
31.2
|
Certification
of Chief Financial Officer of Access Pharmaceuticals, Inc. pursuant
to
Rule 13a-14(a)/15d-14(a)
|
| |
32.1*
|
Certification
of Chief Executive Officer of Access Pharmaceuticals, Inc. pursuant
to 18
U.S.C. Section 1350
|
| |
32.2*
|
Certification
of Chief Financial Officer of Access Pharmaceuticals, Inc. pursuant
to 18
U.S.C. Section 1350
|
______________
*
This
exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities
Exchange Act of 1934 or otherwise subject to the liabilities of that Section,
nor shall it be deemed incorporated by reference in any filings under the
Securities Act of 1933 or the Securities and Exchange Act of 1934, whether
made
before or after the date hereof and irrespective of any general incorporation
language in any filings.
SIGNATURES
In
accordance with the requirements of the Exchange Act of 1934, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly
authorized.
ACCESS
PHARMACEUTICALS, INC.
|
Date:
|
May,
15 2007
|
By:
|
/s/
Stephen R. Seiler
|
| |
|
Stephen
R. Seiler
|
| |
|
President
and Chief Executive Officer
|
| |
|
(Principal
Executive Officer)
|
| |
|
|
|
Date:
|
May,
15 2007
|
By:
|
/s/
Stephen B. Thompson
|
| |
|
Stephen
B. Thompson
|
| |
|
Vice
President and Chief Financial Officer
|
| |
|
(Principal
Financial and Accounting Officer)
|
| |
|
|
Access
Pharmaceuticals, Inc. and Subsidiaries
Condensed
Consolidated Balance Sheets
|
|
|
|
March
31, 2007
|
|
|
December
31,2006
|
|
|
ASSETS
|
|
|
(unaudited)
|
|
|
(audited)
|
|
|
Current
assets
Cash
and cash equivalents
Short
term investments, at cost
Receivables
Prepaid
expenses and other current assets
|
|
$
|
359,000
2,724,000
356,000
357,000
|
|
$
|
1,194,000
3,195,000
359,000
283,000
|
|
|
Total
current assets
|
|
|
3,796,000
|
|
|
5,031,000
|
|
|
Property
and equipment, net
|
|
|
207,000
|
|
|
212,000
|
|
|
Debt
issuance costs, net
|
|
|
-
|
|
|
158,000
|
|
|
Patents,
net
|
|
|
836,000
|
|
|
878,000
|
|
|
Licenses,
net
|
|
|
12,000
|
|
|
25,000
|
|
|
Other
assets
|
|
|
25,000
|
|
|
122,000
|
|
|
Total
assets
|
|
$
|
4,876,000
|
|
$
|
6,426,000
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
Current
liabilities
Accounts
payable and accrued expenses
Accrued
interest payable
Deferred
revenues
Current
portion of long-term debt, net of discount $101,000 at
March
31, 2007 and $2,062,000 at December 31, 2006
|
|
$
|
1,232,000
899,000
173,000
10,794,000
|
|
$
|
1,226,000
581,000
173,000
8,833,000
|
|
|
Total
current liabilities
|
|
|
13,098,000 |
|
|
10,813,000 |
|
|
Long-term
debt
|
|
|
5,500,000
|
|
|
5,500,000
|
|
|
Total
liabilities
|
|
|
18,598,000
|
|
|
16,313,000
|
|
|
Commitments
and contingencies
|
|
|
-
|
|
|
-
|
|
|
Stockholders'
deficit
Preferred
stock - $.01 par value; authorized 2,000,000 shares;
none
issued or outstanding
Common
stock - $.01 par value; authorized 100,000,000 shares;
issued,
3,535,358 at March 31, 2007 and 3,535,108 at
December
31, 2006
Additional
paid-in capital
Notes
receivable from stockholders
Treasury
stock, at cost - 163 shares
Accumulated
deficit
|
|
|
-
35,000
69,091,000
(1,045,000
(4,000
(81,799,000
|
)
)
)
|
|
-
35,000
68,799,000
(1,045,000
(4,000
(77,672,000
|
)
)
)
)
|
|
Total
stockholders' deficit
|
|
|
(13,722,000
|
) |
|
(9,887,000
|
) |
|
Total
liabilities and stockholders' deficit
|
|
$
|
4,876,000
|
|
$
|
6,426,000
|
|
The
accompanying notes are an integral part of these statements.
Access
Pharmaceuticals, Inc. and Subsidiaries
Condensed
Consolidated Statements of Operations
(unaudited)
| |
|
Three
Months ended March 31,
|
|
| |
|
2007
|
|
2006
|
|
|
Expenses
|
|
|
|
|
|
|
Research
and development
|
|
$
|
413,000
|
|
$
|
756,000
|
|
|
General
and administrative
|
|
|
1,139,000
|
|
|
666,000
|
|
|
Depreciation
and amortization
|
|
|
75,000
|
|
|
77,000
|
|
|
Total
expenses
|
|
|
1,627,000
|
|
|
1,499,000
|
|
| |
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(1,627,000
|
)
|
|
(1,499,000
|
)
|
| |
|
|
|
|
|
|
|
|
Interest
and miscellaneous income
|
|
|
35,000
|
|
|
92,000
|
|
|
Interest
and other expense
|
|
|
(2,535,000
|
)
|
|
(1,299,000
|
)
|
|
Unrealized
loss on fair value of warrants
|
|
|
-
(2,500,000
|
)
|
|
(2,150,000
(3,357,000
|
)
)
|
|
Net
loss
|
|
$
|
(4,127,000
|
)
|
$
|
(4,856,000
|
)
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per common share
Net
loss allocable to common stockholders
|
|
$
|
(1.17
|
)
|
$
|
(1.38
|
)
|
| |
|
|
|
|
|
|
|
|
Weighted
average basic and diluted
common
shares outstanding
|
|
|
3,535,197
|
|
|
3,528,831
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these statements.
Access
Pharmaceuticals, Inc. and Subsidiaries
Condensed
Consolidated Statements of Cash Flows
(unaudited)
| |
|
Three
Months ended March 31,
|
|
| |
|
2007
|
|
2006
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(4,127,000
|
)
|
$
|
(4,856,000
|
)
|
|
Adjustments
to reconcile net loss to cash used
in
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
75,000
|
|
|
77,000
|
|
|
Stock
option expense
|
|
|
292,000
|
|
|
95,000
|
|
|
Stock
expense
|
|
|
-
|
|
|
23,000
|
|
|
Amortization
of debt costs and discounts
|
|
|
2,215,000
|
|
|
986,000
|
|
|
Unrealized
loss on fair value of warrants
|
|
|
-
|
|
|
2,150,000
|
|
|
Change
in operating assets and liabilities:
|
|
|
|
|
|
-
|
|
|
Receivables
|
|
|
3,000
|
|
|
-
|
|
|
Prepaid
expenses and other current assets
|
|
|
(74,000
|
)
|
|
58,000
|
|
|
Other
assets
|
|
|
1,000
|
|
|
35,000
|
|
|
Accounts
payable and accrued expenses
|
|
|
6,000
|
|
|
(150,000
|
)
|
|
Accrued
interest payable
|
|
|
318,000
|
|
|
235,000
|
|
|
Net
cash used in operating activities
|
|
|
(1,291,000
|
)
|
|
(1,347,000
|
)
|
| |
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(15,000
|
)
|
|
-
|
|
|
Redemptions
of short term investments and
certificates
of deposit
|
|
|
471,000
|
|
|
(34,000
|
)
|
|
Net
cash provided by (used in) investing activities
|
|
|
456,000
|
|
|
(34,000
|
)
|
| |
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Payments
of notes payable
|
|
|
-
|
|
|
(37,000
|
)
|
|
Proceeds
from secured convertible notes payable
|
|
|
-
|
|
|
4,532,000
|
|
|
Net
cash provided by financing activities
|
|
|
-
|
|
|
4,495,000
|
|
| |
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(835,000
|
)
|
|
3,114,000
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
1,194,000
|
|
|
349,000
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
359,000
|
|
$
|
3,463,000
|
|
| |
|
|
|
|
|
|
|
|
Supplemental
cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
2,000
|
|
$
|
2,000
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these statements.
Access
Pharmaceuticals, Inc. and Subsidiaries
Notes
to
Condensed Consolidated Financial Statements
Three
Months Ended March 31, 2007 and 2006
(unaudited)
(1) Interim
Financial Statements
The
consolidated balance sheet as of March 31, 2007 and the consolidated statements
of operations and cash flows for the three months ended March 31, 2007 and
2006
were prepared by management without audit. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, except as
otherwise disclosed, necessary for the fair presentation of the financial
position, results of operations, and changes in financial position for such
periods, have been made. All share and per share information reflect a one
for
five reverse stock split effected on June 5, 2006.
Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted. It is suggested that
these interim financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in our Annual Report on Form
10-KSB for the year ended December 31, 2006. The results of operations for
the
period ended March 31, 2007 are not necessarily indicative of the operating
results which may be expected for a full year. The consolidated balance sheet
as
of December 31, 2006 contains financial information taken from the audited
financial statements as of that date.
The
report of our independent registered public accounting firm for the fiscal
year
ended December 31, 2006 contained a fourth explanatory paragraph to reflect
its
significant doubt about our ability to continue a going concern as a result
of
our history of losses and our liquidity position, as discussed herein and in
this Form 10-QSB. If we are unable to obtain adequate capital funding in the
future, we may not be able to continue as a going concern, which would have
an
adverse effect on our business and operations, and investors’ investment in us
may decline.
(2) Intangible
Assets
Intangible
assets consist of the following (in thousands):
| |
|
March
31, 2007
|
|
December
31, 2006
|
|
| |
|
Gross
carrying
value
|
|
Accumulated
amortization
|
|
Gross
carrying
value
|
|
Accumulated
amortization
|
|
|
Amortizable
intangible assets
Patents
Licenses
Total
|
|
$
$
|
1,680
500
2,180
|
|
$
$
|
844
488
1,332
|
|
$
$
|
1,680
500
2,180
|
|
$
$
|
802
475
1,277
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
expense related to intangible assets totaled $55,000 for each of the three
months ended March 31, 2007 and 2006. The aggregate estimated amortization
expense for intangible assets remaining as of March 31 is as follows (in
thousands):
| 2007 |
|
$ |
138 |
|
| 2008 |
|
|
168 |
|
| 2009 |
|
|
168 |
|
| 2010 |
|
|
168 |
|
| 2011 |
|
|
168 |
|
| Thereafter |
|
|
38 |
|
| |
|
|
|
|
| Total |
|
$ |
848 |
|
(3) Liquidity
The
Company incurred significant losses from continuing operations of $4.1 million
for the quarter ended March 31, 2007, $13.3 million for the year ended December
31, 2006 and $7.6 million for the year ended December 31, 2005. Additionally,
at
March 31, 2007, our working capital deficit is $9,302,000. As of March 31,
2007,
we did
not have
sufficient funds to repay our convertible notes at their maturity and support
our working capital and operating requirements. Our current funds will allow
us
to support our working capital and operating requirements for six months. We
do
not have funds to pay the obligations which are due in June 2007 or September
2007 and will have to raise more funds and/or attempt to restructure the
convertible notes.
(4)
Stock
Based Compensation
For
the
first quarter, we recognized stock-based compensation expense of $292,000 in
2007 and $95,000 in 2006. For the first quarter, we granted 205,000 stock
options at weighted average grant prices of $3.30, under the terms of our 2005
Equity Incentive Plan and 450,000 stock options at weighted average grant prices
of $2.90, under the terms of our 2007 Special Stock Option Plan.
Our
weighted average Black-Scholes fair value assumptions are as follows:
| |
|
|
|
|
|
|
|
| |
|
|
3/31/07
|
|
|
3/31/06
|
|
| |
Expected
life
|
|
4.3
yrs.
|
|
|
2 yrs.
|
|
| |
Risk
free interest rate
|
|
4.66
|
%
|
|
4.72
|
%
|
| |
Expected
volatility(a)
|
|
137
|
%
|
|
113
|
%
|
| |
Expected
dividend yield
|
|
0.0
|
%
|
|
0.0
|
%
|
| |
|
|
|
|
|
|
|
|
(a)
|
Reflects
movements in our stock price over the most recent historical period
equivalent to the expected life.
|
(5)
Income
Taxes
In
2006,
the Financial Accounting Standards Board issued FASB Interpretation No. 48
(FIN 48),
which
clarifies the accounting for uncertainty in tax positions. FIN 48 requires
that
we recognize in our financial statements the impact of a tax position, if that
position is more likely than not of being sustained on audit, based on the
technical merits of the position. We adopted the provisions of FIN 48 as of
the
beginning of our 2007 fiscal year. There was no effect as a result of our
adoption of FIN 48.
As
of the
beginning of our 2007 fiscal year, due to our cumulative net losses we do not
have any reserves for income taxes because no taxes are due.
We
file
income tax returns in the U.S. federal jurisdiction and various state
jurisdictions. A number of years may elapse before an uncertain tax position
is
audited and finally resolved. While it is often difficult to predict the final
outcome or the timing of resolution of any particular uncertain tax position,
we
believe that our reserves for income taxes reflect the most probable outcome.
We
adjust these reserves, as well as the related interest, in light of changing
facts and circumstances. Settlement of any particular position would usually
require the use of cash. The resolution of a matter would be recognized as
an
adjustment to our provision for income taxes and our effective tax rate in
the
period of resolution.
(7)
Debt
| |
|
March
31,
2007
|
|
December
31,
2006
|
|
|
Convertible
note - Oracle and affiliates
|
|
$
|
4,015,000
|
|
$
|
4,015,000
|
|
|
Convertible
note
|
|
|
5,500,000
|
|
|
5,500,000
|
|
|
Convertible
note
|
|
|
880,000
|
|
|
880,000
|
|
| |
|
|
10,395,000
|
|
|
10,395,000
|
|
|
Discount
|
|
|
(101,000
|
)
|
|
(456,000
|
)
|
| |
|
|
10,294,000
|
|
|
9,939,000
|
|
| |
|
|
|
|
|
|
|
|
Convertible
note - SCO and affiliates
|
|
|
6,000,000
|
|
|
6,000,000
|
|
|
Discount
|
|
|
-
|
|
|
(1,606,000
|
)
|
| |
|
|
6,000,000
|
|
|
4,394,000
|
|
| |
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,294,000
|
|
$
|
14,333,000
|
|
| |
|
|
|
|
|
|
|
|
Short
term
|
|
$
|
10,794,000
|
|
$
|
8,833,000
|
|
|
Long
term
|
|
|
5,500,000
|
|
|
5,500,000
|
|
|
Total
|
|
$
|
16,294,000
|
|
$
|
14,333,000
|
|
| |
|
|
|
|
|
|
|
(8)
Subsequent Events
On
April
26, 2007, Access and SCO Capital Partners LLC and affiliates (“SCO”) agreed to
extend the maturity date of an aggregate principal amount of $6,000,000 of
7.5%
convertible notes to June 11, 2007 from April 27, 2007. On April 30, 2007,
Access and SCO and affiliates agreed to amend an Investor Rights Agreement
to
extend the required filing date of a registration statement to the earlier
of
the filing of a future registration statement in connection with a qualified
financing or August 31, 2007.
On
April
24, 2007, Access and Oracle Partners LP and affiliates (“Oracle”) agreed to
extend the maturity date of an aggregate principal amount of $4,015,000 of
7.7%
convertible notes to June 12, 2007 from April 28, 2007.
On
April
19, 2007 we announced we had entered into an agreement to acquire Somanta
Pharmaceuticals, Inc. Pursuant to the terms of the merger agreement, upon
consummation of the acquisition, Somanta’s preferred and common shareholders
would receive an aggregate of 1.5 million shares of Access’ common shares which
would represent approximately 13% of the combined company assuming the
conversion of Access’ existing convertible debt under existing terms of
conversion. The closing of the transaction is subject to numerous conditions
including receipt of necessary approvals including approval of Somanta
shareholders. There can be no assurance that the transaction will be consummated
or if consummated that it will be on the terms described herein.