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 JUNE 30, 1996
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 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
------ -----
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 August 12, 1996 31,391,324 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
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, the name of Chemex was changed to Access Pharmaceuticals,
Inc. ("Access" or the "Company").
Subsequent to the merger of API into 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 parenteral therapeutic and diagnostic
imaging agents through the utilization of its patented and proprietary
endothelial binding technology which selectively targets sites of disease. The
Company has a broad platform technology for enhancing the site targeting of
intravenous therapeutic drugs, MRI contrast agents and radiopharmaceutical
diagnostic and therapeutic agents. The Access technology is based on natural
carbohydrate carriers.
The technology development of the Company is currently focused on increasing
the therapeutic benefit of oncology agents and improving the 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 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.
As a result of the Merger and immediately after the Merger, the former API
stockholders owned approximately 60% of the issued and outstanding shares of
the Company. Generally accepted accounting principles require that a company
whose stockholders retain the controlling interest in a combined business be
treated as the acquiror for accounting purposes. As a consequence, the Merger
is being accounted for as a "reverse acquisition" for financial reporting
purposes and API has been deemed to have acquired an approximate 60% interest
in Chemex. Despite the financial reporting requirement to account for the
acquisition as a "reverse acquisition," Chemex (now called Access) remains
the continuing legal entity and registrant for Securities and Exchange
Commission reporting purposes.
The unaudited balance sheets, statements of operations and statements of cash
flows 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 flows
for the six months ended June 30, 1995 are the statements of API.
2
RECENT DEVELOPMENTS
On April 26, 1996, Access executed a letter of intent to acquire Tacora Corp.,
a privately-held pharmaceutical company based in Seattle. The transaction is
currently scheduled to close in the next 30-60 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 definitive documents and approval of the stockholders of
Tacora Corp.
Liquidity and Capital Resources
Working capital as of June 30, 1996 was $5,796,000, an increase of $6,311,000
as compared to the working capital as of December 31, 1995 of $(515,000). The
ncrease in working capital was principally due to $6 million in proceeds from
the private placement of 8.57 million shares of common stock in March 1996 and
the addition of $1.69 million in working capital of Chemex resulting from the
Merger between Chemex and API, offset 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. The net
cash infusion from the private placement will be used to continue the
development of the Access technology. The shares issued in the private
placement have been registered and the investors have agreed not to sell any of
the shares purchased in the offering until 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 products 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.
Second Quarter 1996
Compared to
Second Quarter 1995
The Company had no revenue in the second quarter 1996 as compared to $395,000
in 1995. Second quarter 1995 revenues were comprised of sponsored research and
development revenues from an agreement that was terminated in June 1995.
Total research spending for the second quarter of 1996 was $243,000 as compared
to $204,000 for the same period in 1995, an increase of $39,000. The increase
in expenses was the result of the increase staffing for the projects. 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.
Total general and administrative expenses were $388,000 for the second quarter
of 1996, an increase of $255,000 as compared to the same period in 1995. The
increase in spending was due primarily to the following: increased
professional expenses due to the Merger, Private Placement offering and public
company reporting and compliance requirements $79,000; salaries and moving
expenses of recently hired employees $53,000; patent expenses of $37,000;
director fees and director and officer insurance- $31,000; general business
consulting fees and expenses- $20,000; and other increases 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 in the first quarter due to the merger between API and Chemex.
Accordingly, total expenses were $9,561,000, including $8,314,000 of excess
purchase price written off in the first quarter, which resulted in a loss for
the six months ended June 30, 1996 of $9,316,000, or $.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 report on Form
10-K for the year ended December 31, 1995.
PART II -- OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
None
ITEM 2 CHANGES IN SECURITIES
None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
4
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders was held on June 21,1996 in New
York, NY. At that meeting the following matters were submitted to a
vote of the stockholders of record. All such proposals were approved
by the stockholders, as follows:
* Dr. Max Link was elected as a Director for a three year term. The
votes were 24,761,046 for and 69,310 against.
* A proposal to amend the Company's certificate of incorporation to
increase the number of authorized shares of Common Stock of the
Company from 40,000,0000 to 60,000,000 shares was approved with
24,528,599 for, 245,155 against, 29,452 abstained and 27,150 did
not vote.
* An amendment to the Company's 1995 Stock Option Plan that provides
that for each year that a non-employee director serves as a
director of the Company, the director would receive a non-
statutory option to purchase 6,667 shares of Common Stock, but
would no longer receive a non-statutory option to purchase 20,000
shares of Common Stock upon any re-election to the Board of
Directors of the 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 KPMG Peat Marwick LLP as
independent certified public accountants for the Company for
fiscal year December 31, 1996 was approved with 24,705,988 for,
104,613 against and 19,755 abstained.
ITEM 5 OTHER INFORMATION
On April 26, 1996, Access executed a letter of intent to acquire
Tacora Corp., a privately-held pharmaceutical company based in
Seattle. The transaction is currently scheduled to close in the next
30-60 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 definitive documents and approval of
the stockholders of Tacora Corp.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
Exhibits: 2.1 - Amended and Resulted Bylaws
10.18 - Amended Stock Option Plan
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: August 12, 1996 By: /s/ Kerry P. Gray
--------------- -----------------------------
Kerry P. Gray
President and Chief Executive Officer
Date: August 12, 1996 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
Assets June 30, 1996 December 31, 1995
- ------ ------------- -----------------
Current Assets
Cash and cash equivalents $5,980,000 $ 30,000
Accounts receivable - 3,000
Prepaid expenses and other current assets 146,000 4,000
---------- ----------
Total current assets 6,126,000 37,000
---------- ----------
Property and Equipment, at cost 559,000 558,000
Less accumulated depreciation (245,000) (173,000)
---------- ----------
314,000 385,000
---------- ----------
Other Assets 2,000 2,000
---------- ----------
Total Assets $6,442,000 $424,000
========== ==========
Liabilities and Stockholders' Equity (Deficit)
- ----------------------------------------------
Current Liabilities
Accounts payable and accrued expenses $184,000 $169,000
Unearned revenue - 150,000
Note payable due to Chemex
Pharmaceuticals, Inc. - 100,000
Current portion of obligations under
capital leases 146,000 133,000
--------- ---------
Total current liabilities 330,000 552,000
--------- ---------
Obligations under capital leases,
net of current portion 151,000 220,000
Note payable 110,000 -
--------- ---------
Total liabilities 591,000 772,000
--------- ---------
Stockholders' Equity (Deficit)
Preferred stock, at 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 June 30, 1996 $.04
par value, authorized 60,000,000 shares,
issued and outstanding 31,377,610 shares;
at December 31, 1995 $.01 par value,
and outstanding 3,639,928 shares 1,255,000 36,000
Additional paid-in capital 17,756,000 3,460,000
Deficit accumulated during the
development stage (13,160,000) (3,844,000)
---------- ---------
Total Stockholders' Equity (Deficit) 5,851,000 (348,000)
---------- ---------
Total Liabilities and Stockholder's
Equity (Deficit) $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 Conditions and Results of Operations
8
ACCESS PHARMACEUTICALS, INC.
a development stage company
Statements of Cash Flows
Six Months ended June 30, February 24, 1988
---------- ---------- (inception) to
1996 1995 June 30, 1996
---------- ---------- ---------------
Cash Flows form Operating Activities
Net loss $(9,316,000) $ (270,000) $(13,161,000)
Adjustments to reconcile net
loss to cash used in
operating activities:
Write off of excess
purchase price 8,314,000 - 8,314,000
Depreciation and amortization 72,000 62,000 843,000
Change in assets and liabilities:
Accounts receivable 3,000 - -
Prepaid expenses and other
current assets (142,000) 15,000 (147,000)
Accounts payable and accrued
expenses 15,000 (17,000) 137,000
Unearned revenue (150,000) (135,000) -
---------- ---------- ----------
Net Cash Used in
Operating Activities (1,204,000) (345,000) (4,014,000)
---------- ---------- ----------
Capitalized expenditures (1,000) - (1,111,000)
---------- ---------- ----------
Net Cash Used in
Investing Activities (1,000) - (1,111,000)
---------- ---------- ----------
Cash Flows From Financing Activities
Payments on obligations under
capital leases (56,000) (67,000) (205,000)
Proceeds from notes payable 110,000 - 712,000
Proceeds from Merger with
Chemex Pharmaceuticals 1,587,000 - 1,587,000
Proceeds from stock issuances,
net 5,514,000 - 9,011,000
---------- ---------- ----------
Net Cash Provided By (Used in)
Financing Activities 7,155,000 (67,000) 11,105,000
---------- ---------- ----------
Net Increase (Decrease) in Cash and
Cash Equivalents 5,950,000 (412,000) 5,980,000
Cash and Cash Equivalents at
Beginning of Year 30,000 533,000 -
---------- ---------- ----------
Cash and Cash Equivalents at
End of Period $5,980,000 $121,000 $5,980,000
========== ========== ==========
Supplemental disclosure of
non cash transactions:
eliminations of note payable
to Chemex Pharmaceutical
due to Merger 100,000
- ----------------------------------------------
See accompanying notes to financial statements and Managements Discussion and
Analysis of Financial Conditions and Results of Operations
9
ACCESS PHARMACEUTICALS, INC.
a development stage company
Notes to Financial Statements
Six Months Ended June 30, 1996 and 1995
(1) Interim Financial Statements
The balance sheet as of June 30, 1996 and the statements of operations and
cash flows for the six months ended 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 on
Form 10-K for the year ended December 31, 1995. The results of operations
for the period ended 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 of Access 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
changed to Access Pharmaceuticals, Inc. ("Access" or the "Company"). The
Company acquired all of the outstanding shares of API in exchange for
13,919,979 shares of its registered common 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 Access 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 Access Pharmaceuticals, Inc. ("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 financial 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 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 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 for the six months ended June 30, 1995 are the
statements of API.
Proforma condensed results of operations "as if" the acquisition had been
made on January 1, 1996 and 1995, respectively, are as follows:
Six months ended June 30
------------------------
1996 1995
--------- ---------
Revenues $245,000 $876,000
Expenses 1,228,000 2,280,000
--------- ---------
Net (loss) (983,000) (1,404,000)
========= =========
Lossper share $(0.03) $(0.06)
========= =========
(2) 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 Access technology which focuses on
increasing the therapeutic benefit and improving the efficacy of oncology
therapeutics and diagnostic agents by selectively targeting sites of
disease and accelerating drug clearance.
(3) SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed 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 statements of the 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", 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 earnings per share in the Company's
year ending December 31, 1996 financial statements.
(5) On April 26, 1996, Access executed a letter of intent to acquire Tacora
Corp., a privately-held pharmaceutical company based in Seattle. The
transaction is currently scheduled to close in the next 30-60 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 ofdefinitive
documents and approval of the stockholders of Tacora Corp.
12