UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997 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 14, 1997 31,391,324 shares, $0.04 par value ------------ ---------- Total No. of Pages 11 PART I -- FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS The response to this Item is submitted as a separate section of this report. ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RECENT DEVELOPMENTS On April 25, 1997, the Company filed a Definitive Proxy Statement with the Securities and Exchange Commission requesting shareholder approval to amend Access' Certificate of Incorporation, as amended, to effect a recapitalization of the Company through a one for four reverse stock split of Access common stock (the "Common Stock") and decrease the number of authorized shares of Common Stock from 60.0 million to 25.0 million. This proposal, if approved, would decrease the number of outstanding shares of Common Stock from approximately 31.4 million to 7.9 million. If the proposal is approved by shareholders, the Company intends to submit an application for listing on the NASDAQ SmallCap Market or an exchange if it meets all qualifications for such listing. The Company believes that securing a NASDAQ or an exchange listing along with the reverse split would improve Access' ability to finance the Company's research activities under more favorable terms since institutional investors and investment community members which generally have restrictions on investing in unlisted companies. There can be no assurances the market price immediately after the implementation of the proposed reverse stock split will increase, and if it does increase, there can be no assurance that such increase can be maintained for any period of time, or that such market price will approximate four times the market price before the proposed reverse stock split. There can be no assurances that the Company will be listed on the NASDAQ SmallCap Market or an exchange. On February 5, 1997 the Company announced the signing of a letter of intent to enter into collaboration with The Dow Chemical Company ("Dow") for the development of products incorporating Dow's chelation technology and Access' bioresponsive polymer systems. The closing of the agreement is subject to negotiation of definitive documents and final approval by both parties. The collaboration will focus on the development of MRI contrast agents and radiopharmaceutical diagnostics and therapeutics. The advancement of the Access developments in these areas are dependent on securing chelation technology, which encapsulates metals to avoid adverse effects on the body. On April 26, 1996, Access Pharmaceuticals, Inc. ("Access" or "the Company") executed a letter of intent to acquire Tacora Corp., a privately-held pharmaceutical company based in Seattle. The transaction is expected to close shortly. Under the terms of the letter of intent, the purchase price is contingent upon the achievement of certain milestones. In addition to cash of $250,000 and $100,000 in common stock paid at closing, stock up to a maximum value of $14,000,000 could be payable to Tacora's shareholders over a 30 month period on an escalating value over the milestone period. The consummation of the transaction is subject to customary conditions 2 to closing and approval of the stockholders of Tacora Corp. Liquidity and Capital Resources Working capital as of March 31, 1997 was $3,175,000, a decrease of $769,000 as compared to the working capital as of December 31, 1996 of $3,944,000. The decrease in working capital was anticipated and was due to operating expenses for research and development and general and administrative expenses offset by licensing revenue and interest income. Royalty revenues and other significant revenues are not expected during the remainder of 1997. Research and development expenditures to advance products into human testing will remain high for several years and will require the Company to enter into collaborations with partners and/or to raise additional funds through equity financing. There can be no assurance that the Company will be successful in attaining a partner or future equity financing on acceptable terms to complete the testing of its products. With the Company's current budget and it's anticipated option and licensing revenues, management believes working capital will cover planned operations through the end of 1998. If the anticipated revenues are delayed or do not occur or the Company is unsuccessful in raising additional capital on acceptable terms, research and development and general and administrative expenditures would be curtailed so that working capital would cover operations through approximately the end of 1998. First Quarter 1997 Compared to First Quarter 1996 The Company had $138,000 in licensing revenue in the first quarter 1997 as compared to $165,000 in option income in 1996. First quarter 1997 revenues were comprised of licensing income from an ongoing agreement while 1996 option revenues were from an option agreement for rights to certain of the Company's technology that terminated in April 1996. Total research spending for the first quarter of 1997 was $504,000 as compared to $208,000 for the same period in 1996, an increase of $296,000. The increase in expenses was the result of the increase in staffing for projects and external contract research costs. Research spending is expected to increase in future quarters as the Company has hired additional scientific management and staff and is accelerating activities to develop the Company's product candidates. Total general and administrative expenses were $405,000 for the first quarter of 1997, an increase of $96,000 as compared to the same period in 1996. The increase in spending was due primarily to the following: salaries and salary related expenses of recently hired employees-$60,000; increased general business consulting fees-$34,000; director fees and director and officer insurance- $17,000; offset by other net miscellaneous decreases- $15,000. Excess purchase price over the fair value of Chemex Pharmaceuticals, Inc.'s ("Chemex") net assets of $8,314,000 was recorded and written off in the first quarter of 1996 due to an immediate impairment of the excess purchase price. 3 Interest and miscellaneous income was $47,000 for the first quarter of 1997 as compared to $30,000 for the same period in 1996, an increase of $17,000. The increase was due to interest income from higher cash balance due to $6 million in gross proceeds from a private placement of 8.57 million shares of common stock in March 1996. Total expenses in the first quarter of 1997 were $941,000, with licensing income and interest income of $185,000, resulting in a loss for the quarter of $764,000, or $.02 per share. Certain statements in this Form 10-Q including Management's Discussion and Analysis of Financial Condition and Results of Operations, are forward- looking statements that involve risks and uncertainties. In addition to the risks and uncertainties set forth in this Form 10-Q, other factors could cause actual results to differ materially, including but not limited to the Company's research and development focus, uncertainties associated with research and development activities, future capital requirements, anticipated option and licensing revenues, dependence on others, and other risks detailed in the Company's reports filed under the Securities Exchange Act, including but not limited to the Company's Annual Report on Form 10-K for the year ended December 31, 1996. PART II -- OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS None ITEM 2 CHANGES IN SECURITIES None ITEM 3 DEFAULTS UPON SENIOR SECURITIES None ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5 OTHER INFORMATION On April 25, 1997, the Company filed a Definitive Proxy Statement with the Securities and Exchange Commission requesting shareholder approval to amend Access' Certificate of Incorporation, as amended, to effect a recapitalization of the Company through a one for four reverse stock split of Access common stock (the "Common Stock") and decrease the number of authorized shares of Common Stock from 60.0 million to 25.0 million. This proposal, if approved, would decrease the number of outstanding shares of Common Stock from approximately 31.4 million to 7.9 million. If the proposal is approved by shareholders, the Company intends to submit an application for listing on the NASDAQ SmallCap Market or an exchange if it meets all qualifications 4 for such listing. The Company believes that securing a NASDAQ or an exchange listing along with the reverse split would improve Access' ability to finance the Company's research activities under more favorable terms since institutional investors and investment community members which generally have restrictions on investing in unlisted companies. There can be no assurances the market price immediately after the implementation of the proposed reverse stock split will increase, and if it does increase, there can be no assurance that such increase can be maintained for any period of time, or that such market price will approximate four times the market price before the proposed reverse stock split. There can be no assurances that the Company will be listed on the NASDAQ SmallCap Market or any exchange. On February 5, 1997 the Company announced the signing of a letter of intent to enter into collaboration with The Dow Chemical Company ("Dow") for the development of products incorporating Dow's chelation technology and Access' bioresponsive polymer systems. The closing of the agreement is subject to negotiation of definitive documents and final approval by both parties. The collaboration will focus on the development of MRI contrast agents and radiopharmaceutical diagnostics and therapeutics. The advancement of the Access developments in these areas are dependent on securing chelation technology, which encapsulates metals to avoid adverse effects on the body. On April 26, 1996, Access Pharmaceuticals, Inc. ("Access" or "the Company") executed a letter of intent to acquire Tacora Corp., a privately-held pharmaceutical company based in Seattle. The transaction is expected to close shortly. Under the terms of the letter of intent, the purchase price is contingent upon the achievement of certain milestones. In addition to cash of $250,000 and $100,000 in common stock paid at closing, stock up to a maximum value of $14,000,000 could be payable to Tacora's shareholders over a 30 month period on an escalating value over the milestone period. The consummation of the transaction is subject to customary conditions to closing and approval of the stockholders of Tacora Corp. ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K Exhibits: None Reports on Form 8-K: None 5 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. ACCESS PHARMACEUTICALS, INC. Date: May 14, 1997 By: /s/ Kerry P. Gray ------------ ------------------- Kerry P. Gray President and Chief Executive Officer (Principal Executive Officer) Date: May 14, 1997 By: /s/ Stephen B. Thompson ------------ ------------------------ Stephen B. Thompson Chief Financial Officer (Principal Financial and Accounting Officer) 6 ACCESS PHARMACEUTICALS, INC. a development stage company Balance Sheets