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, 1998
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 11, 1998 41,514,581 shares, $0.04 par value
------------ ----------
Total No. of Pages 12
PART I -- FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
The response to this Item is submitted as a separate section of this report.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
The Company, assisted by an investment bank, raised an aggregate of $1,200,000
in gross proceeds ($725,000 received on March 20, 1998 and $475,000 received
on April 11, 1998), less cash issuance costs of $22,250, from the placement of
48 units, each unit consisting of 166,667 shares Common Stock and warrants to
purchase 166,667 shares of Common Stock at $0.15 per share. The placement
agent elected to receive 905,555 shares of Common Stock in lieu of certain sales
commissions and expenses and warrants to purchase 890,555 shares of Common
Stock at an exercise price of $0.15 per share, per the offering terms. The
proceeds of the offering will be used to fund the Company's activities until
further funds are raised. The investment bank has been engaged to assist the
Company in raising up to an additional $7,800,000 to fund the Company's
research and development activities.
On April 14, 1998 the Company's Shareholders gave their approval to amend
Access' Certificate of Incorporation, as amended, to effect a recapitalization
of the Company through a one-for-twenty reverse stock split of Access common
stock, $.04 par value per share (the "Common Stock"), decrease the number of
authorized shares of Common Stock from 60.0 million to 20.0 million shares, par
value $0.01 per share, and decrease the authorized shares of preferred stock of
the Company from 10.0 million to 2.0 million (the "Recapitalization"). This
proposal, if and when effected, will decrease the number of outstanding shares
of Common Stock from approximately 41.5 million to 2.1 million.
In addition, if and when the Recapitalization becomes effective and if the
Company satisfies all listing requirements, the Company intends to submit an
application for listing on NASDAQ or an alternate exchange. There can be no
assurances that the market price of the Common Stock 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
twenty times the market price before the proposed reverse stock split. There
can be no assurances that the Company will be listed on NASDAQ or an alternate
exchange.
On February 26, 1998, the Company entered into a license agreement with
Strakan Limited ("Strakan") relating to the Company's zinc technology. Strakan
has agreed to fund the development costs of Zinc Clindamycin, for the treatment
of acne, and any additional compounds developed utilizing the zinc patent, and
will share equally with the Company all milestone payments received from the
sublicensing of the compound. In addition, Access will receive a royalty on
sales of products based on this technology.
2
Liquidity and Capital Resources
As of April 30, 1998 the Company's principal source of liquidity is $295,000 of
cash and cash equivalents. Working capital deficit as of March 31, 1998 was
$(444,000), representing an increase in the deficit of $228,000 as compared to
the working capital deficit as of December 31, 1997 of $(216,000). The
decrease in working capital was due to the current year's operations, offset
partially by the $725,000 in gross proceeds received from the private
placement of units sold as of March 31, 1998.
Since its inception, the Company's expenses have significantly exceeded its
revenues, resulting in an accumulated deficit of $20,645,000 at March 31, 1998.
The Company has funded its operations primarily through private sales of its
equity securities, contract research payments from corporate alliances and the
merger of API and Chemex.
The Company has incurred negative cash flows from operations since its
inception, and has expended, and expects to continue to expend in the future,
substantial funds to complete its planned product development efforts. The
Company expects that its existing capital resources will be adequate to fund the
Company's operations through the next two to three months. The Company is
dependent on raising additional capital to fund its development of technology
and to implement its business plan. Such dependence will continue at least
until the Company begins marketing products from its new technologies.
If the anticipated revenues are delayed or do not occur or the Company is
unsuccessful in raising additional capital on acceptable terms, the Company
would be required to curtail research and development and general and
administrative expenditures.
The Company will require substantial funds to conduct research and development
programs, preclinical studies and clinical trials of its potential products. The
Company's future capital requirements and adequacy of available funds will
depend on many factors, including the successful commercialization of
amlexanox; the ability to establish and maintain collaborative arrangements for
research, development and commercialization of products with corporate partners;
continued scientific progress in the Company's research and development
programs; the magnitude, scope and results of preclinical testing and clinical
trials; the costs involved in filing, prosecuting and enforcing patent claims;
competing technological developments; and the cost of manufacturing and
scale-up.
The Company intends to seek additional funding through research and
development or licensing arrangements with potential corporate partners, public
or private financing, or from other sources. The Company does not have any
committed sources of additional financing and there can be no assurance that
additional financing will be available on favorable terms, if at all. In the
event that adequate funding is not available, the Company may be required to
delay, reduce or eliminate one or more of its research or development
programs or obtain funds through arrangements with corporate collaborators or
others that may require the Company to relinquish greater or all rights to
product candidates at an earlier stage of development or on less favorable
terms than the Company
3
would otherwise seek. Insufficient financing may also require the Company to
relinquish rights to certain of its technologies that the Company would
otherwise develop or commercialize itself. If adequate funds are not
available, the Company's business, financial condition and results of
operations will be materially and adversely affected.
First Quarter 1998
Compared to
First Quarter 1997
The Company had $138,000 in licensing revenue in 1997 as compared to no
revenue in the first quarter 1998. First quarter 1997 revenues were comprised of
licensing income from an ongoing agreement with an emerging pharmaceutical
company which made certain milestone payments and provides for royalty
payments if a product is developed from the technology.
Total research spending for the first quarter of 1998 was $435,000, as compared
to $504,000 for the same period in 1997, a decrease of $69,000. The decrease in
expenses was the result of lower salary and related costs- $57,000; lower
equipment rent- $17,000; lower other costs- $22,000; offset by higher external
contract research costs- $27,000. If the Company is successful in raising
additional capital, research spending is expected to increase in future
quarters as the Company intends to hire additional scientific management and
staff and will accelerate activities to develop the Company's product
candidates. If the Company is not successful in raising additional capital,
research spending will be curtailed.
Total general and administrative expenses were $391,000 for the first quarter of
1998, a decrease of $14,000 as compared to the same period in 1997. The
decrease in spending was due primarily to the following: decreased general
business consulting fees- $49,000; other decreases- $10,000; offset by increased
patent costs due to the filing of new patents- $45,000. If the Company is not
successful in raising additional capital, general and administrative spending
will be curtailed.
Depreciation and amortization was $64,000 for the first quarter 1998 as compared
to $32,000 for the same period in 1997 reflecting the additional depreciation of
the assets acquired in the Tacora merger.
Interest and miscellaneous income was $2,000 for the first quarter of 1998 as
compared to $47,000 for the same period in 1997, a decrease of $45,000. The
decrease in interest income was due to lower cash balances in 1998.
Total expenses in the first quarter of 1998 were $899,000 with interest income
of $2,000, resulting in a loss for the quarter of $897,000 or ($0.03) basic and
diluted loss 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, ability to raise capital, 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, 1997.
4
PART II -- OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
None
ITEM 2 CHANGES IN SECURITIES
On March 20 and April 1, 1998 the Company sold to several
individual investors an aggregate of 48 units, each unit
consisting of 166,667 shares of Common Stock and warrants to
purchase 166,667 shares of Common Stock at $0.15 per share.
The placement agent for
such offering was issued 905,555 shares of Common Stock and
warrants to purchase 890,555 shares of Common Stock at $0.15 per
share. The Company raised an aggregate of $1,200,000 in gross
proceeds. The shares issued in the Private Placement have not been
registered; however, the Company has agreed to file a registration
statement for the resale of such shares not later than August 30,
1998. The Company relied on Section 4(2) and or 3(b) of the 1933
Securities Act of 1933 and the provisions of Regulation D as
exemptions from the registration thereunder.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
A special meeting of stockholders was held on April 14, 1998 in
New York, NY. At that meeting the following matter was submitted
to a vote of the stockholders of record. The proposal was approved
by the stockholders, as follows:
A proposal to amend the Company's Certificate Incorporation to
effect the Recapitalization was approved with 22,481,235 -
For, 4,252,719 - Against and 42,230 - Abstain.
ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
Exhibits: 10.12 License Agreement between Strakan Limited and
the Company dated February 26, 1998
(Confidential Treatment Requested)
27.1 Financial Data Schedule
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 15, 1998 By: /s/ Kerry P. Gray
------------ --------------------
Kerry P. Gray
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 1998 By: /s/ Stephen B. Thompson
------------ -----------------------
Stephen B. Thompson
Chief Financial Officer
(Principal Financial and Accounting Officer)
6
ACCESS PHARMACEUTICALS, INC. AND SUBSIDIARY
a development stage company
Condensed Consolidated Balance Sheets
Assets March 31, 1998 December 31, 1997
- ------- --------------- ---------------
Current Assets
Cash and cash equivalents $ 105,000 $ 438,000
Accounts receivable 12,000 1,000
Prepaid expenses and other current assets 45,000 51,000
--------------- ---------------
Total Current Assets 162,000 490,000
Property and Equipment, at cost 1,047,000 1,047,000
Less accumulated depreciation (677,000) (625,000)
--------------- ---------------
370,000 422,000
Licenses, net 463,000 475,000
Other Assets 59,000 60,000
--------------- ---------------
Total Assets $ 1,054,000 $ 1,447,000
=============== ===============
Liabilities and Stockholders' Equity
- ------------------------------------
Current Liabilities
Accounts payable and accrued expenses $ 390,000 $ 434,000
Royalties payable 58,000 53,000
Accrued insurance premium 26,000 38,000
Current portion of obligations under
capital leases 132,000 181,000
--------------- ---------------
Total Current Liabilities 606,000 706,000
--------------- ---------------
Obligations under capital leases,
net of current portion 116,000 142,000
--------------- ---------------
Total Liabilities 722,000 848,000
--------------- ---------------
Stockholders' Equity
Preferred stock, $.01 par value,
authorized 10,000,000 shares, none
issued or outstanding - -
Common stock, $.04 par value,
authorized 60,000,000 shares,
37,442,353 and 32,609,010, issued and
outstanding at March 31, 1998 and
December 31,1997, respectively 1,498,000 1,304,000
Additional paid-in capital 19,479,000 19,043,000
Deficit accumulated during the
development stage (20,645,000) (19,748,000)
--------------- ---------------
Total Stockholders' Equity 332,000 599,000
--------------- ---------------
Total Liabilities and Stockholders' Equity $ 1,054,000 $ 1,447,000
=============== ===============
- --------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements
7
ACCESS PHARMACEUTICALS, INC. AND SUBSIDIARY
a development stage company
Condensed Consolidated Statements of Operations
(unaudited)
Three Months ended March 31, February 24, 1988
---------------------------- (inception) to
1998 1997 March 31, 1998
------------ ------------ -------------
Revenues
Research and development $ - $ - $ 2,711,000
Option income - - 2,149,000
Licensing revenues - 138,000 325,000
------------ ------------ -------------
Total Revenues - 138,000 5,185,000
------------ ------------ -------------
Expenses
Research and development 435,000 504,000 9,044,000
General and administrative 391,000 405,000 7,254,000
Depreciation and amortization 64,000 32,000 1,120,000
Write-off of excess purchase price - - 8,894,000
------------ ------------ -------------
Total Expenses 890,000 941,000 26,312,000
------------ ------------ -------------
Loss From Operations (890,000) (803,000) (21,127,000)
------------ ------------ -------------
Other Income (Expense)
Interest and miscellaneous income 2,000 47,000 776,000
Interest expense (9,000) (8,000) (167,000)
------------ ------------ -------------
(7,000) 39,000 609,000
------------ ------------ -------------
Loss Before Income Taxes (897,000) (764,000) (20,518,000)
Provision for Income Taxes - - 127,000
------------ ------------ -------------
Net Loss $ (897,000) $ (764,000) $(20,645,000)
============ ============ =============
Basic and Diluted Loss Per
Common Share $ (0.03) $ (0.02)
============ ============
Weighted Average Basic and Diluted
Common Shares Outstanding 32,562,805 31,391,324
============ ============
- ---------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements
8
ACCESS PHARMACEUTICALS, INC. AND SUBSIDIARY
a development stage company
Condensed Consolidated Statements of Cash Flows
(unaudited)
Three Months ended March 31, February 24, 1988
--------------------------- (inception) to
1998 1997 March 31, 1998
------------ ------------ -------------
Cash Flows form Operating Activities
Net Loss $ (897,000) $ (764,000) $(20,645,000)
Adjustments to reconcile net loss to
cash used in operating activities:
Write-off of excess purchase price - - 8,894,000
Consulting expense related to
warrants granted - - 532,000
Research expenses related to
common stock granted - - 100,000
Depreciation and amortization 64,000 32,000 1,120,000
Unearned revenue - - (110,000)
Change in operating assets
and liabilities:
Accounts receivable (11,000) (1,000) (13,000)
Prepaid expenses and other
current assets 6,000 19,000 (46,000)
Other assets 1,000 - (7,000)
Accounts payable and accrued
expenses (51,000) (186,000) 181,000
----------- ------------ -------------
Net Cash Used In Operating Activities (888,000) (900,000) (9,994,000)
----------- ------------ -------------
Cash Flows From Investing Activities
Capital expenditures - (5,000) (1,164,000)
Sales of capital equipment - - 6,000
Purchase of Tacora, net of cash acquire - - (124,000)
Other investing activities - - (50,000)
----------- ------------ -------------
Net Cash Used In Investing Activities - (5,000) (1,332,000)
----------- ------------ -------------
Cash Flows From Financing Activities
Proceeds from notes payable - - 721,000
Payments of principal on obligations under
capital leases (75,000) (38,000) (529,000)
Cash acquired in merger with Chemex - - 1,587,000
Proceeds from stock issuances, net 630,000 - 9,652,000
------------ ------------ -------------
Net Cash Provided By (Used In)
Financing Activities 555,000 (38,000) 11,431,000
------------ ------------ -------------
Net Increase (Decrease) in Cash and
Cash Equivalents (333,000) (943,000) 105,000
Cash and Cash Equivalents at
Beginning of Period 438,000 4,428,000 -
------------ ------------ -------------
Cash and Cash Equivalents at
End of Period $ 105,000 $ 3,485,000 $ 105,000
============ ============= =============
Cash paid for interest $ 9,000 $ 8,000 $ 164,000
Cash paid for income taxes - - 127,000
Supplemental disclosure of
noncash transactions
Payable accrued for fixed
asset purchase $ - $ - $ 47.000
Elimination of note payable
to Chemex Pharmaceuticals
due to merger - - 100,000
Stock issued for License on patents - - 500,000
Equipment purchases financed
through capital leases - - 82,000
Net liabilities assumed in
acquisition of Tacora Corporation - - 455,000
- ---------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements
9
ACCESS PHARMACEUTICALS, INC. AND SUBSIDIARY
a development stage company
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 1998 and 1997
(unaudited)
(1) Interim Financial Statements
The consolidated balance sheet as of March 31, 1998 and the consolidated
statements of operations and cash flows for the three months ended March 31,
1998 and 1997 were prepared by management without audit. In the opinion of
management, all adjustments, including only normal recurring adjustments
necessary for the fair presentation of the financial position, results of
operations, and changes in financial position for such periods, have been
made. Certain reclassifications have been made to prior year
financial statements to conform with the March 31, 1998 presentation.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
financial statements be read in conjunction with the financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997. The results of operations for the period ended
March 31, 1998 are not necessarily indicative of the operating
results which may be expected for a full year. The consolidated balance sheet
as of December 31, 1997 contains financial information taken from the audited
financial statements as of that date.
In 1997, the Company adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share." In accordance with SFAS No. 128, the Company has
presented basic loss per share, computed on the basis of the weighted average
number of common shares outstanding during the period, and diluted
loss per share, computed on the basis of the weighted average number of
common shares and all dilutive potential common shares outstanding during the
period. The adoption of this new accounting standard, which required the
restatement of all presented periods' earnings per share data, did not have
a material impact on previously reported earnings per share. Potentially
dilutive effect of the Company's outstanding options and common stock warrants
has not been considered in the computation of diluted net loss per
common share since their inclusion would be anti-dilutive.
Effective with fiscal years beginning after December 15, 1997, companies are
required to adopt Statement of Financial Accounting Standards ("SFAS") No.
130 "Reporting Comprehensive Income." The Statement establishes standards for
the reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. Comprehensive income
includes net income and other comprehensive income, which comprises certain
specific items previously reported directly in stockholders' equity. Other
comprehensive income comprises items such as unrealized gains and losses
on debt and equity securities classified as available-for-sale securities,
minimum pension liability adjustments, and foreign currency translation
adjustments. Since the Company does not currently have any of these other
comprehensive income items, SFAS No. 130 has no impact on the way the Company
reports or has reported its financial statements.
10
(2) Liquidity
The Company has incurred negative cash flows from operations since its
inception, and has expended, and expects to continue to expend in the future,
substantial funds to complete its planned product development efforts. The
Company expects that its existing capital resources will be adequate to fund
the Company's operations through the next two to three months. The Company
is dependent on raising additional capital to fund its development of
technology and to implement its business plan. Such dependence will continue
at least until the Company begins marketing products from its new technologies.
If the anticipated revenues are delayed or do not occur or the Company is
unsuccessful in raising additional capital on acceptable terms, the Company
would be required to curtail research and development and general and
administrative expenditures.
The Independent Auditor's Report on the Company's 1997 consolidated financial
statements included an emphasis paragraph regarding the uncertainty of the
Company's ability to continue as a going concern.
(3) Private Placement
The Company, assisted by an investment bank, raised an aggregate of $1,200,000
in gross proceeds ($725,000 received on March 20, 1998 and $475,000 received
on April 1, 1998), less cash issuance costs of $22,250, from the placement of
48 units, each unit consists of 166,667 shares Common Stock and warrants to
purchase 166,667 shares of Common Stock at $0.15 per share. The placement
agent elected to receive 905,555 shares of Common Stock in lieu of certain sales
commissions and expenses and warrants to purchase 890,555 shares of Common
Stock at an exercise price of $0.15 per share, per the offering terms. The
proceeds of the offering will be used to fund the Company's activities until
further funds are raised. The investment bank has been engaged to assist the
Company in raising up to an additional $7,800,000 to fund the Company's
research and development activities.
(4) Recapitalization
On April 14, 1998 the Company's Shareholders gave their approval to amend
Access' Certificate of Incorporation, as amended, to effect a
recapitalization of the Company through a one-for-twenty reverse
stock split of Access common stock, $.04 par value per share (the "Common
Stock"), decrease the number of authorized shares of Common Stock from 60.0
million to 20.0 million shares, par value $0.01 per share, and decrease the
authorized shares of preferred stock of the Company from 10.0 million to
2.0 million (the Recapitalization"). This proposal, when effective, will
decrease the number of outstanding shares of Common Stock from approximately
41.5 million to 2.1 million.
In addition, if and when the Recapitalization becomes effective and if the
Company satisfies all listing
11
requirements, the Company intends to submit an application for listing on
NASDAQ or an alternate exchange. There can be no assurances that the market
price of the Common Stock 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 twenty times the market
price before the proposed reverse stock split. There can be no assurances
that the Company will be listed on NASDAQ or an alternate exchange.
12