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, 2001
Commission File Number 0-9314
ACCESS PHARMACEUTICALS, INC.
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(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
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(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
----- -----
The number of shares outstanding of each of the issuer's
classes of common stock, as of May 11, 2001 was 12,850,478
shares of common stock, $0.01 par value per share.
Total No. of Pages 9
-----
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
OVERVIEW
Access Pharmaceuticals, Inc. is a Delaware corporation in the
development stage. We are an emerging pharmaceutical company
focused on developing both novel low development risk product
candidates and technologies with longer-term major product
opportunities. Together with our subsidiaries, we have
proprietary patents or rights to five technology platforms:
synthetic polymers, bioerodible hydrogels, Residerm TM,
carbohydrate targeting technology and agents for the prevention
and treatment of viral disease, including HIV. In addition, our
partner, GlaxoSmithKline, formally Block Drug Company, is
marketing in the United States, a product named Aphthasol R, a
drug jointly developed, the first U.S. Food and Drug
Administration, or FDA, approved product for the treatment of
canker sores. We are developing new formulations and delivery
forms to evaluate this product in additional clinical
indications. We have licensed certain of the rights for
amlexanox from GlaxoSmithKline for certain countries excluding
the U. S. and the worldwide rights for certain additional
indications including mucositis and oral diseases in other
territories.
Except for the historical information contained herein, the
following discussions and certain statements in this Form 10-Q
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 our
research and development focus, uncertainties associated with
research and development activities, clinical trials,
uncertainty associated with preclinical and clinical testing,
the timing of regulatory approvals, future cash flow, timing
and receipt of licensing revenues, collaborations, dependence
on others, and other risks detailed in our reports filed under
the Securities Exchange Act of 1934, as amended, including but
not limited to our Annual Report on Form 10-K for the year
ended December 31, 2000.
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, 2001, our accumulated deficit was $33,052,000 of which
$8,894,000 was the result of the write-off of excess purchase price
of mergers.
LIQUIDITY AND CAPITAL RESOURCES
Working capital as of March 31, 2001 was $23,424,000
representing a decrease in working capital of $973,000 as
compared to the working capital as of December 31, 2000 of
$24,397,000.
2
The decrease in working capital was due to the loss from
operations for the first quarter of 2001.
Since inception, our expenses have significantly exceeded
revenues, resulting in an accumulated deficit as of March 31,
2001 of $33,052,000. We have funded our operations primarily
through private sales of common stock and convertible notes.
Contract research payments from corporate alliances and mergers
have also provided funding for operations.
We have 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. We expect that our existing
capital resources will be adequate to fund our current level of
operations through the year 2002.
We will require substantial funds to conduct research and
development programs, preclinical studies and clinical trials
of potential products. Our 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 with corporate partners for the research,
development and commercialization of products;
* continued scientific progress in our 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;
* the cost of manufacturing and scale-up;
* the ability to establish and maintain effective
commercialization arrangements and activities; and
* successful regulatory filings.
FIRST QUARTER 2001 COMPARED TO FIRST QUARTER 2000
Revenue in the first quarter of 2001 was $211,000, as compared
to no revenue in the same period of 2000. Revenue recognized in
the first quarter is from several licensing agreements,
including various amlexanox projects and ResiDerm TM.
Total research spending for the first quarter of 2001 was
$1,003,000, as compared to $603,000 for the same period in
2000, an increase of $400,000. The increase in expenses was the
result of:
* higher clinical development costs ($225,000) for amlexanox
product development projects for OraRinse TM and OraDisc TM and
the polymer platinate clinical development project. The
OraRinse TM Phase II trial is ongoing and we anticipate that
this study will be completed and the results published in the
second quarter. The first Phase III study evaluating OraDisc TM
was completed and another Phase III study has started. The
Phase I polymer platinate study is ongoing;
* higher scientific consulting costs ($112,000);
* higher scientific salary costs ($63,000) due to additional
employees; and,
3
* higher scientific consulting costs ($41,000) as the results
of warrants granted to consultants in 2001.
The increase in expenses was partially offset by:
* lower moving expenses for scientific personal ($34,000); and
* other net decreases ($7,000).
We expect research spending to increase in future quarters and
remain higher than in prior quarters as we intend to hire
additional scientific and clinical staff, commence additional
clinical trials and accelerate preclinical development
activities as we continue to develop our product candidates.
Total general and administrative expenses were $436,000 for the
first quarter of 2001, an increase of $7,000 as compared to
the same period in 2000. The increase in spending was due
primarily to the following:
* higher shareholder expenses ($35,000);
* higher patent costs ($20,000); and
* higher salary expenses ($17,000).
These general and administrative expenses increases were
partially offset by:
* lower professional fees ($28,000);
* lower license fees ($16,000);
* lower travel and entertainments costs ($12,000); and
* other net decreases ($9,000).
Depreciation and amortization was $102,000 for the first
quarter of 2001 as compared to $111,000 for the same period in
2000 reflecting a decrease of $9,000. The decrease in
amortization is due to lower depreciation reflecting that some
major assets have been fully depreciated.
Total operating expenses in the first quarter of 2001 was
$1,541,000 as compared to total operating expenses of
$1,143,000 for the same period in 2000.
Loss from operations in the first quarter of 2001 was
$1,330,000 as compared to a loss of $1,143,000 for the same
period in 2000.
Interest and miscellaneous income was $442,000 for the first
quarter of 2001 as compared to $65,000 for the same period in
2000, an increase $377,000. The increase in interest income was
due to higher cash balances in 2001 resulting from our private
placements of common stock and convertible note offering in 2000.
Interest expense was $283,000 for the first quarter of 2001 as
compared to $2,000 for the same period in 2000, an increase of
$281,000. The increase is interest expense is due to interest
accrued on the $13.5 million convertible notes interest in
September 2000 and amortization of debt issuance costs.
Net loss in the first quarter of 2001 was $1,171,000, or a
$0.09 basic and diluted loss per common share, compared with a
loss of $1,080,000, or a $0.14 basic and diluted loss per
common share for the same period in 2000.
4
PART II -- OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
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
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
3.8 Certificate of Amendment of Certificate of Incorporation filed
July 31, 2000.
Reports on Form 8-K:
None
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, 2001 By:/s/ Kerry P. Gray
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Kerry P. Gray
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 2001 By:/s/ Stephen B. Thompson
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Stephen B. Thompson
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
5
Access Pharmaceuticals, Inc. and Subsidiaries
(a development stage company)
Condensed Consolidated Balance Sheets
March 31, 2001 December 31, 2000
-------------- --------------
Assets (unaudited)
Current assets
Cash and cash equivalents $ 4,869,000 $ 8,415,000
Short term investments, at cost 20,155,000 17,394,000
Accounts receivable 7,000 251,000
Accrued interest receivable 135,000 196,000
Prepaid expenses and other current assets 114,000 133,000
-------------- --------------
Total current assets 25,280,000 26,389,000
Property and equipment, net 109,000 116,000
Debt issuance costs 816,000 861,000
Licenses, net 859,000 887,000
Goodwill, net 2,053,000 2,115,000
Other assets 158,000 158,000
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Total assets $ 29,275,000 $ 30,526,000
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 796,000 1,158,000
Accrued interest payable 520,000 283,000
Deferred revenues 540,000 551,000
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Total current liabilities 1,856,000 1,992,000
Convertible notes 13,530,000 13,530,000
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Total liabilities 15,386,000 15,522,000
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Commitments and contingencies - -
Stockholders' equity
Preferred stock - $.01 par value;
authorized 2,000,000 shares;
none issued or outstanding - -
Common stock - $.01 par value;
authorized 50,000,000 shares;
issued, 12,850,478 at March 31, 2001 and
12,844,699 at December 31, 2000 133,000 132,000
Additional paid-in capital 47,857,000 47,802,000
Notes receivable from stockholders (1,045,000) (1,045,000)
Treasury stock, at cost - 819 shares (4,000) (4,000)
Deficit accumulated during the
development stage (33,052,000) (31,881,000)
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Total stockholders' equity 13,889,000 15,004,000
-------------- --------------
Total liabilities and stockholders' equity $ 29,275,000 $ 30,526,000
============== ==============
The accompanying notes are an integral part of these statements.
6
Access Pharmaceuticals, Inc. and Subsidiaries
(a development stage company)
Condensed Consolidated Statements of Operations
(unaudited)
February 24,
Three Months ended March 31, 1988
---------------------------- (inception) to
2001 2000 March 31, 2001
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Revenues
Research and development $ - $ - $ 2,711,000
Option income - - 2,164,000
Licensing revenues 211,000 - 643,000
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Total revenues 211,000 - 5,518,000
Expenses
Research and development 1,003,000 603,000 16,983,000
General and administrative 436,000 429,000 12,097,000
Depreciation and amortization 102,000 111,000 2,078,000
Write-off of excess purchase price - - 8,894,000
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Total expenses 1,541,000 1,143,000 40,052,000
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Loss from operations (1,330,000) (1,143,000) (34,534,000)
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Other income (expense)
Interest and miscellaneous income 442,000 65,000 2,299,000
Interest expense (283,000) (52,000) (817,000)
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159,000 63,000 1,482,000
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Net loss $(1,171,000) $(1,080,000) $(33,052,000)
============= ============= =============
Basic and diluted loss per
common share $(0.09) $(0.14)
============= =============
Weighted average basic and diluted
common shares outstanding 12,848,344 7,753,514
============= =============
The accompanying notes are an integral part of these statements.
7
Access Pharmaceuticals, Inc. and Subsidiaries
(a development stage company)
Condensed Consolidated Statements of Cash Flows
(unaudited)
February 24,
Three Months ended March 31, 1988
---------------------------- (inception) to
2001 2000 March 31, 2001
------------- ------------- --------------
Cash flows form operating activities:
Net loss $(1,171,000) $(1,080,000) $(33,052,000)
Adjustments to reconcile net loss
to cash used in operating activities:
Write-off of excess purchase price - - 8,894,000
Warrants issued in payment of
consulting expenses 41,000 - 970,000
Research expenses related to
common stock granted - - 100,000
Depreciation and amortization 102,000 111,000 2,078,000
Amortization of debt costs 45,000 - 99,000
Deferred revenue (11,000) 428,000 430,000
Change in operating assets and
liabilities:
Accounts receivable 244,000 (124,000) (8,000)
Accrued interest receivable 61,000 - (135,000)
Prepaid expenses and other
current assets 19,000 32,000 (115,000)
Licenses - (100,000) (525,000)
Other assets - - (6,000)
Accounts payable and
accrued expenses (362,000) 48,000 34,000
Accrued interest payable 237,000 - 520,000
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Net cash used in operating activities (795,000) (685,000) (20,716,000)
------------- ------------- --------------
Cash flows from investing activities:
Capital expenditures (5,000) (38,000) (1,250,000)
Sales of capital equipment - - 15,000
Purchase of short term investments
and certificates of deposit (2,761,000) (10,960,000) (20,155,000)
Purchase of business, net of
cash acquired - - (226,000)
Other investing activities - - (150,000)
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Net cash used in investing activities (2,766,000) (10,998,000) (21,766,000)
------------- ------------- --------------
Cash flows from financing activities:
Proceeds from notes payable - - 721,000
Payments of principal on
obligations under capital leases - (20,000) (750,000)
Purchase of treasury stock - (750,000) (754,000)
Cash acquired in merger with Chemex - - 1,587,000
Notes receivable from shareholders - - (1,045,000)
Deposits received for
private placement - 2,967,000 -
Proceeds from convertible note, net - - 12,615,000
Proceeds from stock issuances, net 15,000 12,036,000 34,977,000
------------- ------------- --------------
Net cash provided by
financing activities 15,000 14,233,000 47,351,000
------------- ------------- --------------
Net increase (decrease) in
cash and cash equivalents (3,546,000) 2,550,000 4,869,000
Cash and cash equivalents at
beginning of period 8,415,000 869,000 -
------------- ------------- --------------
Cash and cash equivalents at
end of period $ 4,869,000 $ 3,419,000 $ 4,869,000
============= ============= ==============
Cash paid for interest $ - $ 2,000 $ 239,000
Cash paid for income taxes - - -
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
Acquisition of Virologix Corporation
Assets acquired including goodwill - - 2,571,000
Liability assumed - - (469,000)
Stock issued - - (2,000,000)
The accompanying notes are an integral part of these statements.
8
Access Pharmaceuticals, Inc. and Subsidiaries
(a development stage company)
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2001 and 2000
(unaudited)
(1) Interim Financial Statements
The consolidated balance sheet as of March 31, 2001 and the consolidated
statements of operations and cash flows for the three months ended March 31,
2001 and 2000 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.
Certain amounts have been reclassified to conform with current period
classification.
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 our Annual Report on Form 10-K for the year
ended December 31, 2000. The results of operations for the period ended March
31, 2001 are not necessarily indicative of the operating results which may be
expected for a full year. The consolidated balance sheet as of December 31,
2000 contains financial information taken from the audited financial
statements as of that date.