UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A AMENDMENT No. 2 /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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 May 10, 1996 31,377,610 shares, $0.04 par value -------------- ---------- Total No. of Pages 13 PART I -- FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS The response to this Item is submitted as a separate section of this report. ITEM 2 MANAGEMENTS 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"). Until the sale of its rights to the drug Amlexanox in September 1995 to Block Drug Company ("Block"), Chemex focused on the development of novel drugs for the treatment of various skin diseases and had a diversified portfolio of drugs under development. As a consideration for the sale of the Company's share of Amlexanox, Block (a) made an initial non-refundable upfront royalty payment of $2.5 million; (b) is obligated to pay the Company $1.5 million as a prepaid royalty at the end the calendar month during which Block together with any sublicensee has achieved cumulative worldwide sales of Amlexanox oral products of $25 million; and (c) after the payment of such $1.5 million royalty, is obligated to pay the Company a royalty for all sales in excess of cumulative worldwide sales of Amlexanox oral products of $45 million, as defined in the agreement. ACCESS' obligations following such sale are limited to performing reasonable activities in support of obtaining FDA approval of Amlexanox until the earlier of (i) three years after FDA approval of Amlexanox, or (ii) the liquidation or dissolution of ACCESS. An NDA for Amlexanox was filed in April 1995 and the Company is awaiting approval of this product. As a result, there have been no sales of Amlexanox to date. Subsequent to the merger of API into ACCESS, the Company has been managed by the former management of API and the focus of the Company changed to the development of enhanced delivery of 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 efficacy 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 first half of 1997. These product candidates are new formulations of existing compounds which increase therapeutic efficacy and reduce toxicity, designed to address the clinical shortfalls of available treatments. 2 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 is being 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. The unaudited balance sheet, statement of operations and statement of cash flow have been prepared using "purchase" accounting 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 flow for the three months ended March 31, 1995 are the financial statements of API. 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 expected to close in the next 60-90 days. 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. Liquidity and Capital Resources Working capital as of March 31, 1996 was $6,419,000, an increase of $6,934,000 as compared to the working capital as of December 31, 1995 of $(515,000). The increase in working capital was principally due to the $6 million in proceeds from private placement of 8.57 million shares of common stock in March 1996 and the addition of $1.84 million in working capital of Chemex resulting from the Merger between Chemex and API. Based on completion of the private placement, $480,000 was paid to a consultant. The net cash infusion from the private placement will be used to continue the development 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. The shares issued in the private placement have not been registered; however, the Company has agreed to file a registration statement within 90 days of the date of issuance. The investors have agreed not to sell any of the shares purchased in the private placement until 180 days after the closing. Management believes its working capital will cover planned operations through December 1997. Currently royalty revenues are not expected during 1996. Research and development expenditures to advance product candidates to 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. 3 First Quarter 1996 Compared to First Quarter 1995 First quarter 1996 revenues were $165,000 as compared to $135,000 in 1995, an increase of $30,000. The increase in revenues for the first quarter of 1996 as compared to the comparable 1995 period was principally due to $165,000 of option payments recorded as income in the first quarter related to a third- party evaluation of certain of the Company's technology. The company performing the evaluation elected not to extend the option period beyond March 29, 1996. An additional $110,000 option payments was converted to a non-interest bearing loan due the pharmaceutical company. First quarter 1995 revenues were comprised of sponsored research and development revenues. Total research spending for the first quarter of 1996 was $181,000 as compares to $215,000 for the same period in 1995, a decrease of $34,000. The decrease in expenses was the result of a decrease in external research expenditures. Research spending will increase in the future quarters as the Company has initiated the hiring of additional scientific management and staff and is accelerating activities to develop the Company's product candidates. Total general and administrative expenses were $336,000 for the first quarter of 1996, an increase of $182,000 as compared to the same period in 1995. The increase in spending was due to the following: professional expenses due to the Merger, Private Placement offering costs and legal costs of being a public company-$100,000; director fees and director and officer insurance- $39,000; general business consulting fees and expenses- $15,000; and other increases totalling $28,000. Excess purchase price over the fair value of Chemex's assets of $8,314,000 was recorded and correspondingly written off in the first quarter due to the merger between API and Chemex. Accordingly, total expenses were $8,880,000, including $8,314,000 of excess purchase price written off, which resulted in a loss for the quarter of $8,686,000, or $.34 per share. Certain statements in this Form 10-Q are forward looking statements that involve risks and uncertainties, including but not limited to 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 the Company's Annual Report on Form 10-K for the year ended December 31, 1995. 4 PART II - OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS None ITEM 2 CHANGE IN SECURITIES In connection with the merger of Access Pharmaceuticals, Inc., a Texas corporation ("API") with and into Chemex Pharmaceuticals, Inc. ("Chemex") on January 25, 1996, API stock was exchanged for 13.92 million shares of Chemex common stock. In addition, Chemex changed its name to ACCESS Pharmaceuticals, Inc. and API was dissolved. In connection with the $6 million private placement, 8.57 million shares of common stock were issued in March 1996. The shares issued in the private placement have not been registered; however, the Company has agreed to file a registration statement within 90 days of the date issuance. The investors have agreed not to sell any of the shares purchased in the offering until 180 days after the closing. ITEM 3 DEFAULTS UPON SENIOR SECURITIES None ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS A Special Meeting in lieu of the 1995 Annual Meeting of Stockholders of the Company was held at 10:00 a.m., January 25, 1996 to consider and vote upon proposals to (i) approve and adopt that certain Agreement of Merger and Plan of Reorganization, dated as of October 3, 1995, as amended and restated as of October 31, 1995 (the "Merger Agreement") by and between the Company and API, pursuant to which, among other matters, API would be merged with and into the Company with the Company the surviving corporation (the "Merger") and each share of API's common stock, $.01 par value per share, would be converted into approximately 3.7744 shares of the Company's common stock, $.04 par value per share ("the Company Common Stock") (subject to adjustment as provided in the Merger Agreement); (ii) approve an amendment to the Certificate of Incorporation of the Company increasing the number of authorized shares of the Company Common Stock to 40,000,000 shares and the number of authorized shares of the preferred stock, $.01 par value per share, of the Company to 10,000,000 shares; (iii) approve an amendment to the Certificate of Incorporation of the Company to effect a change of the name of the Company from Chemex Pharmaceuticals, Inc. to "ACCESS Pharmaceuticals, Inc."; (iv) approve the establishment of the ACCESS 1995 Stock Option Plan (the "1995 Stock Option Plan"), under which an aggregate of 2,000,000 shares of ACCESS Common Stock will be issuable pursuant to the terms of such plan; (v) ratify the selection by the Board of Directors of ACCESS of ACCESS' independent auditors; (vi) elect three directors; and (vii) approve adjournment of the Special Meeting, if necessary, to permit further solicitation of proxies in the event that there are not sufficient votes at the Special Meeting to consider and approve any or all of the proposals. All proposals were approved by the stockholders. 5 The voting with respect to each of such matters was as follows: For Withhold --------- --------- Item 1 Greetham 7,587,633 232,047 Taylor 7,586,547 233,133 Woolard 7,587,633 232,047 For Against --------- --------- Item 2 5,146,576 49,075 Item 3 5,097,671 84,407 Item 4 7,708,188 62,635 Item 5 4,849,452 537,159 Item 6 7,717,348 65,156 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 expected to close in the next 60-90 days. Under the terms of the letter of intent, the purchase price is contingent upon the achievement of certain milestones. Stock up to a maximum of $14,000,000 could be payable 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: - (EX-18) Letter re change in accounting principles - (EX-27) Financial Data Schedule Reports on Form 8-K: - 8-K filed on January 25, 1996 reporting information under Item 2 and 4. - 8-K filed on March 5, 1996 reporting information under Item 2. 6 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: January 24, 1997 By: /s/ Kerry P. Gray ------------------------ Kerry P. Gray President and Chief Executive Officer (Principal Executive Officer) Date: January 24, 1997 By: /s/ Stephen B. Thompson ------------------------- Stephen B. Thompson Chief Financial Officer (Principal Financial and Accounting Officer) 7 ACCESS PHARMACEUTICALS, INC. a development stage company Balance Sheets