UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT UNDERPURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter EndedFOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
Commission File
March 31, 1996 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 N Stemmons Frwy, Suite 210, 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___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,August 12, 1996 31,377,61031,391,324 shares, $0.04 par value
----------------------------------- ----------
Total No. of Pages 1312
PART I -- FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
The response to this Item is submitted as a separate section of this report.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In connection with the merger of ACCESSAccess Pharmaceuticals, Inc., a Texas
corporation ("API") with and into the Chemex Pharmaceuticals, Inc. ("Chemex")
on January 25, 1996, the name of Chemex was changed to ACCESSAccess Pharmaceuticals,
Inc. ("ACCESS"Access" or the "Company").
Until the sale of its results 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 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 of 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 Mergermerger of API into ACCESS,Access (the "Merger"), the Company has
been managed by the former management of API and the focus of the Company has
changed to the development of enhanced delivery of parentalparenteral 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 ACCESSAccess technology is based on natural
carbohydrate carriers.
The technology development of the Company is currently focused on increasing
the therapeutic benefit of oncology agents and improving the efficiency of
oncology diagnosis by selectively targeting sites of disease and accelerating
drug clearance.
The Company has developed four possible product candidates, two of which are
anticipated to be ready to be advanced into human testing in the first half of
1997.next twelve
months. These product candidates are new formulations of existing compounds
which increase therapeutic efficacy and reduce toxicity, designed to address
the clinical shortfalls of available treatments.
2
As a result of the mergerMerger and immediately after the merger,Merger, the former API
Stockholdersstockholders 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 mergerMerger
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 (now called Access) remains
the continuing legal entity and registrant for Securities and Exchange
Commission reporting purposes.
The unaudited balance sheet, statementsheets, statements of operations and statementstatements of cash
flowflows have been prepared using "purchase" accounting for the Merger, with API
as the acquirer. The values used in the preparation of the financial
statements were determined based on negotiations between Chemex and API and
comparable values for companies at API's stage of development. As a result,
common stock and paid in capital of API was recorded at a $10.0 million
valuation. The excess purchase price over the fair value of Chemex's assets
was written off in the first quarter of 1996. The accompanying balance sheet
at December 31, 1995 and the related statements of operations and cash flowflows
for the threesix months ended March 31,June 30, 1995 are the financial statements of API.
2
RECENT DEVELOPMENTS
On April 26, 1996, ACCESSAccess executed a letter of intent to acquire Tacora Corp.,
a privately-held pharmaceutical company based in Seattle. The transaction is
expectedcurrently scheduled to close in the next 60-9030-60 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 value of $14,000,000 could be
payable to Tacora's shareholders over a 30 month period on an escalating value
over the milestone period. The consummation of the transaction is subject to
customary conditions to closing including completion of due diligence,
negotiation of definitive documents and approval of the stockholders of
Tacora Corp.
Liquidity and Capital Resources
Working capital as of March 31,June 30, 1996 was $6,309,000,$5,796,000, an increase of $6,824,000$6,311,000
as compared to the working capital as of December 31, 1995 of $(515,000). The
increasencrease in working capital was principally due to the $6 million in proceeds from
the private placement of 8.57 million shares of common stock in March 1996 and
the addition of $1.84$1.69 million in working capital of Chemex resulting from the
Merger between Chemex and API, net. Based onoffset by payments for 1996 operating expenses,
$56,000 for 1996 capital lease payments and $480,000 for payment to a
consultant as a result of the completion of the private placement,
$480,000 was paid to a consultant.placement. 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 development benefit and improving
the efficiency of oncology therapeutics and diagnostic agents by selectively
targeting sites of disease and accelerating drug clearance.Access technology. The shares issued in the private
placement have not been registered; however,registered and 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
placementoffering until 180 days after the closing.September 5, 1996.
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 capabilities toproducts into human testing will remain
high for several years and there can be no assurance that the Company will be
successful in attaining a partner or future equity financing to complete the
testing of its products.
3
FirstSecond Quarter 1996
Compared to
FirstSecond Quarter 1995
FirstThe Company had no revenue in the second 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 received as income$395,000
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. First1995. Second quarter 1995 revenues were comprised of sponsored research and
development revenues.revenues from an agreement that was terminated in June 1995.
Total research spending for the firstsecond quarter of 1996 was $181,000$243,000 as compared
to $215,000$204,000 for the same period in 1995, a decreasean increase of $34,000.$39,000. The decreaseincrease
in expenses was the result of a decrease in external research expenditures.the increase staffing for the projects. Research
spending will increase in the future quarters as the Company has initiated the hiring ofhired additional
scientific management and staff and is accelerating activities to develop the
Company's product candidates.
Total general and administrative expenses were $336,000$388,000 for the firstsecond quarter
of 1996, an increase of $182,000$255,000 as compared to the same period in 1995. The
increase in spending was due primarily to the following: legalincreased
professional expenses due to the Merger, Private Placement offering costs and legal costspublic
company reporting and compliance requirements $79,000; salaries and moving
expenses of being a public company-
$100,000;recently hired employees $53,000; patent expenses of $37,000;
director fees and director and officer insurance- $39,000;$31,000; general business
consulting fees and expenses- $15,000;$20,000; and other increases totalling
$28,000.of $35,000.
3
Accordingly, total expenses were $681,000, with interest income of $50,000
resulting in a loss for the quarter of $631,000, or $.02 per share.
Six Months ended June 30, 1996
Compared to
Six Months ended June 30, 1995
Net revenues for the six months ended June 30, 1996 were $165,000 as compared
to the same period in 1995 of $530,000 a decrease of $365,000. 1996 revenues
related entirely to an option agreement for rights to certain of the Company's
technology that terminated in April 1996. 1995 revenues were entirely
comprised of sponsored research and development revenues from an agreement that
was terminated in June 1995.
Research spending for the six months ended June 30, 1996 was $424,000 as
compared to $419,000 for the same period in 1995, an increase of $5,000.
Research spending will increase in future quarters as the Company has hired
additional scientific management and staff and is accelerating activities to
develop the Company's product candidates.
General and administrative expenses were $724,000 for the six months ended June
30, 1996, an increase of $437,000 as compared to the same period in 1995. The
increase was due to the following: increased professional expenses due to the
Merger, Private Placement offering and public company reporting and compliance
requirements - $188,000; director fees and director and officer insurance-
$72,000; salaries and moving expenses of newly hired employees $71,000; general
business consulting fees and expenses -$35,000; patent expenses of $27,000;
and other increases of $44,000.
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,$9,561,000, including $8,314,000 of excess
purchase price written off in the first quarter, which resulted in a loss for
the quartersix months ended June 30, 1996 of $8,685,000,$9,316,000, or $.34$.33 per share.
Certain statements in this Form 10-Q including Management's Discussion and
Analysis of Financial Condition and Results of Operations, are forward-looking
statements that involve risks and uncertainties. In addition to the risks and
uncertainties set forth in this Form 10-Q, other factors could cause actual
results to differ materially, including but not limited to the Company's
research and development focus, uncertainties associated with research and
development activities, future capital requirements and dependence on others,
and other risks detailed in the Company's reports filed under the Securities
Exchange Act, but not limited to including the Company's Annual Reportreport on Form
10-K for the year ended December 31, 1995.
4
PART II -- OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
None
ITEM 2 CHANGES IN SECURITIES
In connection with the merger of ACCESS Pharmaceuticals, Inc. a Texas
corporation ("API") with and into the 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."
In connection with a $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 of
issuance. The investors have agreed not to sell any of the shares
purchased in the offering until 180 days after the closing.None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
4
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A Special MeetingThe annual meeting of stockholders was held on June 21,1996 in lieuNew
York, NY. At that meeting the following matters were submitted to a
vote of the 1995 Annual Meetingstockholders of Stockholders ofrecord. All such proposals were approved
by the Companystockholders, as follows:
* Dr. Max Link was held at 10:00 a.m., January 25, 1996elected as a Director for a three year term. The
votes were 24,761,046 for and 69,310 against.
* A proposal 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 ofamend the Company's common stock, $.04 par value per share
("the Company Common Stock") (subjectcertificate of incorporation to
adjustment as provided in the
Merger Agreement); (ii) approve an amendment to the Certificate of
Incorporation of the Company increasingincrease 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.40,000,0000 to "ACCESS
Pharmaceuticals, Inc."; (iv) approve60,000,000 shares was approved with
24,528,599 for, 245,155 against, 29,452 abstained and 27,150 did
not vote.
* An amendment to the establishment of the ACCESSCompany's 1995 Stock Option Plan (the "1995 Stock Option Plan"), under which an
aggregatethat provides
that for each year that a non-employee director serves as a
director of 2,000,000the Company, the director would receive a non-
statutory option to purchase 6,667 shares of ACCESS Common Stock, will be issuable
pursuantbut
would no longer receive a non-statutory option to the termspurchase 20,000
shares of such plan; (v) ratify the selection byCommon Stock upon any re-election to the Board of
Directors of ACCESSthe Company was approved with 23,454,779 for, 316,287
against, 59,440 abstained and 999,850 did not vote.
* A proposal to ratify the appointment of ACCESS'KPMG Peat Marwick LLP as
independent auditors; (vi)
elect three directors;certified public accountants for the Company for
fiscal year December 31, 1996 was approved with 24,705,988 for,
104,613 against and (vii) approve an 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 above 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 65,15619,755 abstained.
ITEM 5 OTHER INFORMATION
On April 26, 1996, ACCESSAccess executed a letter of intent to acquire
Tacora Corp., a privately-held pharmaceutical company based in
Seattle. The transaction is expectedcurrently scheduled to close in the next
60-9030-60 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 value of $14,000,000 could be payable to
Tacora's shareholders over a 30 month period on an escalating value
over the milestone period. The consummation of the transaction is
subject to customary conditions to closing including completion of
due diligence, negotiation of definitive documents and approval of
the stockholders of Tacora Corp.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
Exhibits: (27) Financial Data Schedule.2.1 - Amended and Resulted Bylaws
10.18 - Amended Stock Option Plan
Reports on Form 8-K: 8-K filed on January 25, 1996 reporting information under Item 2 and
4.
8-K filed on MarchNone
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: May 15,August 12, 1996 By: /s/ Kerry P. Gray
-------------------------- -------------------------------- -----------------------------
Kerry P. Gray
(PresidentPresident and Chief Executive Officer
Date: August 12, 1996 By: /s/ Stephen B. Thompson
--------------- -----------------------------
Stephen B. Thompson
Chief Financial Officer
(Principal Financial and
Accounting Officer)
76
ACCESS PHARMACEUTICALS, INC.
a development stage company
Balance Sheets
Assets March 31,June 30, 1996 December 31, 1995
- ------ --------------------------- -----------------
Current Assets
Cash and cash equivalents $6,813,000$5,980,000 $ 30,000
Accounts receivable - 3,000
Prepaid expenses and other current assets 65,000146,000 4,000
---------- ----------
Total current assets 6,878,0006,126,000 37,000
---------- ----------
Property and Equipment, at cost 559,000 558,000
Less accumulated depreciation (209,000)(245,000) (173,000)
----------- ---------- 350,000----------
314,000 385,000
--------------------- ----------
Other Assets 2,000 2,000
--------------------- ----------
Total Assets $7,230,000 $ 424,000
===========$6,442,000 $424,000
========== ==========
Liabilities and Stockholders' Equity (Deficit)
- ----------------------------------------------
Current Liabilities
Accounts payable and accrued expenses $317,000$184,000 $169,000
Unearned revenue - 150,000
Note payable due to Chemex
Pharmaceuticals, Inc. - 100,000
Current portion of obligations under
capital leases 142,000146,000 133,000
------------- -------------------- ---------
Total current liabilities 569,000330,000 552,000
------------- -------------------- ---------
Obligations under capital leases,
190,000 220,000
net of current portion ------------- -----------151,000 220,000
Note payable 110,000 -
--------- ---------
Total liabilities 759,000591,000 772,000
------------- -----------
Commitments and Contingencies--------- ---------
Stockholders' Equity (Deficit)
Preferred stock, at March 31,June 30, 1996 $.01
par value, authorized 10,000,000 shares,
none issued or outstanding; at
December 31, 1995, $.10 par value,
authorized - -
1,000,000 shares, none
issued or outstanding - -
Common stock, at March 31,June 30, 1996 $.04
par value, authorized 40,000,00060,000,000 shares,
issued and outstanding 31,290,18231,377,610 shares;
at December 31, 1995 $.01 par value,
authorized 10,000,000 shares, issued and outstanding 3,639,928 shares 1,252,0001,255,000 36,000
Additional paid-in capital 17,748,00017,756,000 3,460,000
Deficit accumulated during the
development stage (12,529,000)(13,160,000) (3,844,000)
------------ --------------------- ---------
Total Stockholders' Equity (Deficit) 6,471,0005,851,000 (348,000)
------------ --------------------- ---------
Total Liabilities and Stockholders'Stockholder's
Equity (Deficit) $7,230,000$6,442,000 $424,000
========= =========
- ----------------------------------------------
See accompanying notes to financial statements and Management's Discussion and
Analysis of Financial Conditions and Results of Operations.
7
ACCESS PHARMACEUTICALS, INC.
a development stage company
Statements of Operations
Three Months ended June 30, Six Months ended June 30, February 24, 1988
--------------------------- ------------------------- (inception) to
1996 1995 1996 1995 June 30, 1996
----------- ----------- ----------- ----------- -----------------
Revenues
Research and development $ - $ 395,000 $ - $ 530,000 $ 2,711,000
Option income - - 165,000 - 2,037,000
----------- ----------- ----------- ----------- ------------
Total Revenues - 395,000 165,000 530,000 4,748,000
----------- ----------- ----------- ----------- ------------
Research and development 243,000 204,000 424,000 ============419,000 4,950,000
General and administrative 388,000 133,000 724,000 287,000 4,111,000
Interest 14,000 15,000 27,000 36,000 103,000
Depreciation and amortization 36,000 31,000 72,000 62,000 843,000
Writeoff of excess purchase price - - 8,314,000 - 8,314,000
----------- ----------- ----------- ----------- ----------
Total Expenses 681,000 383,000 9,561,000 804,000 18,321,000
----------- ----------- ----------- ----------- ----------
Net income (loss) from operations (681,000) 12,000 (9,396,000) (274,000) (13,573,000)
----------- ----------- ----------- ----------- ----------
Other Income
Interest and miscellaneous income 50,000 1,000 80,000 4,000 539,000
----------- ----------- ----------- ----------- ----------
Net income (loss) before income taxes (631,000) 13,000 (9,316,000) (270,000) (13,034,000)
Provision for income taxes - - - - 127,000
----------- ----------- ----------- ----------- ----------
Net income (loss) after income taxes $(631,000) $13,000 $(9,316,000) $(270,000) $(13,161,000)
=========== =========== =========== =========== ==========
Net income (loss) per common share $(0.02) $0.00 $(0.33) $(0.09)
=========== =========== =========== ===========
Average number of common and equivalent
common shares outstanding 31,346,866 2,918,328 28,285,296 2,918,328
=========== =========== =========== ===========
- ----------------------------------------------
See accompanying notes to financial statements and Management's Discussion and
Analysis of Financial ConditionConditions and Results of Operations.Operations
8
ACCESS PHARMACEUTICALS, INC.
a development stage company
Statements of Operations
Three months ended March 31, February 24, 1988
----------------------------- (Inception) to
1996 1995 March 31, 1996
----------------------------- ------------------
Revenues
Sponsored research and development $ - $ 135,000 $2,711,000
Option income 165,000 - 2,037,000
------------ ---------- ----------
Total Revenues 165,000 135,000 4,748,000
------------ ---------- ----------
Expenses
Sponsored research and development - 187,000 2,172,000
Proprietary research and development 181,000 28,000 2,535,000
General and administrative 336,000 154,000 3,772,000
Interest 13,000 21,000 89,000
Depreciation and amortization 36,000 31,000 807,000
------------ ---------- ----------
Write-off of Total Expenses 8,880,000 421,000 17,640,000
------------ ---------- ----------
Net loss from operations 8,765,000 (286,000) (12,892,000)
------------ ---------- ----------
Other Income
Interest and miscellaneous income 30,000 3,000 489,000
Excess purchase price 8,314,000 - 8,314,000
------------ ----------- ----------
Net loss (8,685,000) (283,000) (12,403,000)
Provision for income taxes - - 127,000
----------- ----------- ----------
Net loss after income taxes ($8,685,000) ($283,000) ($12,530,000)
=========== =========== ==========
Net loss per common share ($0.34) ($0.10)
============ ===========
Average number of common and equivalent
common shares outstanding 25,535,239 2,918,328
============ ===========
See accompanying notes to financial statements
9
ACCESS PHARMACEUTICALS, INC.
a development stage company
Statements of Cash Flows
Three monthsSix Months ended March 31,June 30, February 24, 1988
--------------------------- (Inception)---------- ---------- (inception) to
1996 1995 March 31,June 30, 1996
--------------------------- --------------------------- ---------- ---------------
Cash Flows fromform Operating Activities
Net loss $(8,685,000)$(9,316,000) $ (283,000) ($12,530,000)(270,000) $(13,161,000)
Adjustments to reconcile net
loss to cash used in
operating activities:
Write-offWrite off of Excessexcess
purchase price 8,314,000 - 8,314,000
Depreciation and amortization 36,000 31,000 817,00072,000 62,000 843,000
Change in assets and liabilities:
Accounts receivable 3,000 - -
Prepaid expenses and other
current assets (61,000)(142,000) 15,000 (67,000)(147,000)
Accounts payable and accrued
expenses (4,000) 11,000 118,00015,000 (17,000) 137,000
Unearned revenue (150,000) (135,000) -
-------- ---------- ---------------------- ----------
Net Cash Used in
Operating Activities (547,000) (361,000) (3,348,000)
--------(1,204,000) (345,000) (4,014,000)
---------- -------------
Cash Flows From Investing Activities
Capital---------- ----------
Capitalized expenditures (1,000) - (1,120,000)
--------(1,111,000)
---------- ----------------------- ----------
Net Cash Used Inin
Investing Activities (1,000) - (1,120,000)
--------(1,111,000)
---------- ----------------------- ----------
Cash Flows From Financing Activities
Repayment of notes payable (21,000) (38,000) (170,000)Payments on obligations under
capital leases (56,000) (67,000) (205,000)
Proceeds from notes payable 10,000 612,000
Cash acquired in110,000 - 712,000
Proceeds from Merger 1,839,000with
Chemex Pharmaceuticals 1,587,000 - 1,839,0001,587,000
Proceeds from stock issuances,
net 5,503,0005,514,000 - 9,000,000
--------- ----------- -----------9,011,000
---------- ---------- ----------
Net Cash Provided By (Used In)in)
Financing Activities 7,533,000 (38,000) 11,281,000
--------- ------------ -----------7,155,000 (67,000) 11,105,000
---------- ---------- ----------
Net Increase (Decrease) in Cash and
Cash Equivalents 6,783,000 (399,000) 6,813,0005,950,000 (412,000) 5,980,000
Cash and Cash Equivalents at
Beginning of PeriodYear 30,000 533,000 -
---------- ----------- --------------------- ----------
Cash and Cash Equivalents at
End of Period $6,813,000 $134,000 #6,813,000$5,980,000 $121,000 $5,980,000
========== =========== ===================== ==========
Supplemental disclosure of
non cash transaction:
Eliminationtransactions:
eliminations of note payable
to Chemex PharmaceuticalsPharmaceutical
due to Merger $100,000100,000
- ----------------------------------------------
See accompanying notes to financial statements 10and Managements Discussion and
Analysis of Financial Conditions and Results of Operations
9
ACCESS PHARMACEUTICALS, INC.
a development stage company
Notes to Financial Statements
ThreeSix Months Ended March 31,June 30, 1996 and 1995
(1) Interim Financial Statements
The balance sheet as of March 31,June 30, 1996 and the statements of operations and
cash flows for the threesix months ended March 31,June 30, 1996 and 1995 were prepared
by management without audit. In the opinion of management, all
adjustments, including only normal recurring adjustments necessary for the
fair presentation of the financial position, results of operations, and
changes in financial position for such periods, have been made, except for
the merger accounting discussed below.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report to
the Securities and Exchange Commission on
Form 10-K for the year ended December 31, 1995. The results of operations
for the period ended March
31,June 30, 1996 are not necessarily indicative of the
operating results which may be expected for a full year. The balance
sheet as of December 31, 1995 contains financial information taken from
the audited financial statements as of that date.
ACCESSAccess Pharmaceuticals, Inc., a Texas
corporation, ("API") as of that date.
API merged with and into Chemex Pharmaceuticals, Inc. ("Chemex") on
January 25, 1996. Under the terms of the agreement, API was merged into
Chemex with Chemex as the surviving legal entity. The name of
Chemex was changed to ACCESSAccess Pharmaceuticals, Inc. ("ACCESS"Access" or the "Company"). ChemexThe
Company acquired all of the outstanding shares of API in exchange for
13,919,979 shares of its registered common stock of Chemex.stock.
The Company is engaged in research and development activities with a broad
platform technology for enhancing the site targeting of intravenous
therapeutic drugs, MRI contrast agents and radiopharmaceutical diagnostic
and therapeutic agents. The ACCESSAccess technology is based on natural
carbohydrate carriers.
As a result of the merger and immediately after the merger, the former API
stockholders owned approximately 60% of the issued and outstanding shares
of the Company. Generally accepted accounting principles require that a
company whose stockholders retain the controlling interest in a combined
business be treated as the acquiror for accounting purposes. As a
consequence, the merger was accounted for as a "reverse acquisition" for
financial reporting purposes and API has been deemed to have acquired an
approximate 60% interest in Chemex. Despite the financial reporting
requirement to account for the acquisition as a "reverse acquisition,"
Chemex remains the continuing legal entity and registrant for Securities
and Exchange Commission reporting purposes. However, the name of Chemex
was changed to ACCESSAccess Pharmaceuticals, Inc. ("ACCESS"Access" or the "Company").
10
ACCESS PHARMACEUTICALS, INC.
a development stage company
Notes to Financial Statements
Six Months Ended June 30, 1996 and 1995
The unaudited balance sheet, statement of operations and statement of
cash flowfinancial statements at June 30, 1996 have been prepared
using "purchase" accounting for the merger with API as the acquirer. The
values used in the preparation of the financial statements were
determined based on negotiations between companiesChemex and API and comparable
values for companies at API's stage of development. As a result, common
stock and paid in capital of API was recorded at a $10.0 million
valuation. The excess purchase price over the fair value of Chemex's
assets of $8,314,000 was written off in the first quarter of 1996. The
balance sheet at December 31, 1995 and the related statements of
operations and cash flows at March 31,for the six months ended June 30, 1995 are the
statements of API.
Proforma condensed results of operations "as of"if" the acquisition had been
made on January 1, 1996 and 1995, respectively, are as follows:
ThreeSix months ended March 31
---------------------------June 30
------------------------
1996 1995
---- ------------- ---------
Revenues $ 195,000 $ 388,000$245,000 $876,000
Expenses 566,000 1,268,0001,228,000 2,280,000
--------- -------------------
Net income (loss) (371,000) (880,000)(983,000) (1,404,000)
========= ==========
Earnings per=========
Lossper share ($0.01) ($0.04)$(0.03) $(0.06)
========= ==========
11
ACCESS PHARMACEUTICALS, INC.
Notes to Financial Statements
Three Months Ended March 31, 1996 and 1995=========
(2) The Company
On January 25, 1996, the Company's Shareholders, at a Special
Shareholders Meeting, approved the merger with API. Under the terms of
the agreement, API was merged into Chemex with Chemex as the surviving
legal entity. Chemex acquired all of the outstanding shares of API in
exchange for 13,919,979 shares of registered common stock of Chemex.
Chemex also changed its name to ACCESS Pharmaceuticals, Inc. and the
operations of the consolidated company are now based in Dallas, Texas.
ACCESS is engaged in research and development activities with a broad
platform technology for enhancing the site targeting of intravenous
therapeutic drugs, MRI contrast agents and radiopharmaceutical diagnostic
and therapeutic agents. The ACCESS technology is based on natural
carbohydrate carriers. In March 1996 the Company concluded a $6 million Private Placement of
8.57 million shares of common stock. The cash infusion will be used to
continue the advancement of the ACCESSAccess technology which focuses on
increasing the therapeutic benefit and improving the efficiencyefficacy 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 issuance
covering such shares. The investors have agreed not to sell any of the
shares purchased in the offering until 180 days after the closing.
(3) SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of,of," effective for fiscal years
beginning after December 15, 1995, requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. In addition,
this statement requires that long-lived assets and certain identifiable
intangibles to be disposed of be reported at the lower of carrying amount
or fair value less cost to sell. The Company adopted this statement
January 1, 1996, and the adoption of SFAS No. 121 did not have material
impact on the financial conditionstatements of the Company for the quarter ended
March 31, 1996.Company.
11
ACCESS PHARMACEUTICALS, INC.
a development stage company
Notes to Financial Statements
Six Months Ended June 30, 1996 and 1995
(4) SFAS No. 123, "Accounting for Stock Based Compensation,"Compensation", effective for
fiscal years beginning after December 15, 1995 established financial,
accounting and reporting standards for stock-based employee compensation
plans. These plans include all arrangements by which employees receive
shares of stock or other equity investments of the employer or the
employer incurs liabilities to employees in amounts based on the price of
the employer's stock. This statement also applies to transactions in
which an entity issues its equity instruments to acquire goods or
services from non-employees. The Company has elected to account for
employee stock compensation plans under APB 25 will disclose the required
pro forma effect on net income and accordingly only
selectedearnings per share in the disclosure requirements of FASB 123. Such additional
disclosure requirements will be presented by the Company in itsCompany's
year ending December 31, 1996 Form
10-K.financial statements.
(5) On April 26, 1996, ACCESSAccess executed a letter of intent to acquire Tacora
Corp., a privately-held pharmaceutical company based in Seattle. The
transaction is expectedcurrently scheduled to close in the next 60-9030-60 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 value
of $14,000,000 could be payable to Tacora's shareholders over a 30 month
period on an escalating value over the milestone period. The
consummation of the transaction is subject to customary conditions to
closing including completion of due diligence, negotiation of definitiveofdefinitive
documents and approval of the stockholders of Tacora Corp.
12