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, 1997
Commission File Number 0-9314
ACCESS PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 83-0221517
- ------------------------ --------------------------
(State of Incorporation) (I.R.S. Employer I.D. No.)
2600 Stemmons Frwy, Suite 176, Dallas, TX 75207
--------------------------------------------------
(Address of principal executive offices)
Telephone Number (214) 905-5100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirement for the past 90 days.
Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock outstanding as
of August 14, 1997 31,991,324 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
OVERVIEW
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 Access
Pharmaceuticals Inc.'s ("Access" or the "Company") research and development
focus, uncertainties associated with research and development activities,
future capital requirements, anticipated option and licensing revenues,
dependence on others, and other risks detailed in the Company's reports
filed under the Securities Exchange Act, including but not limited to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
Since its inception in February 1988, Access has devoted its resources
primarily to fund its research and development programs. The Company has
been unprofitable since inception and to date has not received any revenues
from the sale of products. No assurance can be given that the Company will
be able to generate sufficient product revenues to attain profitability on
a sustained basis or at all. The Company expects to incur losses for the
next several years as it continues to invest in product research and
development, preclinical studies, clinical trials and regulatory compliance.
At June 30, 1997, the Company's accumulated deficit was approximately
$17.0 million.
RECENT DEVELOPMENTS
On August 1, 1997, the Company announced that it had signed an agreement
to enter into collaboration with The Dow Chemical Company ("Dow") for the
development of products incorporating Dow's chelation technology and Access'
bioresponsive polymer systems. The collaboration will focus on the
development of MRI contrast agents and radiopharmaceutical diagnostics and
therapeutics. The advancement of the Access developments in these areas
are dependent on securing chelation technology, which encapsulates metals
to avoid adverse effects on the body.
On May 29, 1997, the Company's Shareholders gave their approval to amend
Access' Certificate of Incorporation, as amended, to effect a
recapitalization (the "Recapitalization") of the Company through a
one-for-four reverse stock split of Access common stock (the "Common Stock")
and decrease the number of authorized shares of Common Stock from 60.0
million shares, par value $.04 per share to 25.0 million shares, par value
$.01 per share. The reduction in authorized shares of Common Stock would
in fact proportionately increase the number of authorized but unissued shares
when compared with the number of issued and outstanding shares before and
after the Recapitalization. This proposal, when effective, would decrease
the number of outstanding shares of Common Stock from approximately 31.4
million to 7.9 million. As of August 14, 1997 the
2
Recapitalization is not effective.
The Company intends to submit an application for listing on the NASDAQ
SmallCap Market or an exchange when it meets all qualifications for such
listing and the reverse stock split becomes effective. The Company
believes that securing a NASDAQ or an exchange listing together with the
Recapitalization would improve Access' ability to finance the Company's
research activities under more favorable terms since institutional
investors and investment community members generally have restrictions on
investing in unlisted companies. There can be no assurances that the
market price immediately after the implementation of the proposed
Recapitalization will increase, and if it does increase, there can be no
assurance that such increase can be maintained for any period of time, or
that such market price will approximate four times the market price before
the proposed reverse stock split. There can be no assurances that the
Company will be listed on the NASDAQ SmallCap Market or any exchange.
On April 26, 1996, Access executed a letter of intent to acquire Tacora
Corp., a privately-held pharmaceutical Company based in Seattle. The
transaction is expected to close shortly. Under the terms of the letter
of intent, the purchase price is contingent upon the achievement of certain
milestones. In addition to cash of $250,000 and $100,000 in Common Stock
paid at closing, stock up to a maximum value of $14,000,000 could be
payable to Tacora's shareholders over a 30 month period on an escalating
value over the milestone period. The consummation of the transaction is
subject to customary conditions to closing and approval of the stockholders
of Tacora Corp.
Liquidity and Capital Resources
Since its inception, the Company has financed its operations primarily
through private sales of its equity securities, contract research payments
from corporate alliances and the merger with Chemex Pharmaceuticals, Inc.
At June 30, 1997, the Company had working capital of $2.2 million and cash,
cash equivalents and short-term investments of $2.5 million.
The Company expects its cash requirements to increase in future periods.
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 will depend
on many factors, including 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 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 and the ability
to establish and maintain effective commercialization activities
and arrangements. Based on its current plans, the Company believes
that its available cash, including proceeds from projected interest
income, will be sufficient to meet the Company's operating expenses
and capital requirements into the second half of 1998. There can be
no assurance, however, that changes in the Company's operating expenses
will not result in the expenditure of such resources before such time.
The Company intends to seek additional funding through research and
development arrangements with potential corporate partners, public or
private financing, or from other sources. 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
3
product candidates at an earlier stage of development or on less favorable
terms than the Company 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.
The Company's business is subject to significant risks, including, without
limitation, uncertainties associated with the length and expense of the
regulatory approval process, uncertainty associated with obtaining and
enforcing patents and risks associated with dependence on corporate partners.
Although certain of the Company's products may appear promising at an early
stage of development, they may not be successfully commercialized for a
number of reasons, such as the possibility that the potential products
will be determined to be ineffective during clinical trials, fail to
receive necessary approvals, or be precluded from commercialization
by proprietary rights of third parties. Further, there can be no
assurance that any collaborations will be initiated, continued or result in
successfully commercialized products.
Second Quarter 1997 Compared to Second Quarter 1996
The Company had $50,000 in licensing revenue in the second quarter 1997 as
compared to no revenues in 1996. Second quarter 1997 revenues were
comprised of licensing income from an ongoing agreement.
Total research spending for the second quarter of 1997 was $538,000 as
compared to $268,000 for the same period in 1996, an increase of $270,000.
The increase in expenses was the result of the increase in external contract
research costs- $136,000; additional staffing for projects- $92,000;
increased equipment lease costs- $21,000; and other costs- $21,000. Research
spending is expected to increase in future quarters as the Company has
hired additional scientific management and staff and is accelerating
activities to develop the Company's product candidates.
Total general and administrative expenses were $424,000 for the second
quarter of 1997, an increase of $61,000 as compared to the same period in
1996. The increase in spending was due primarily to the following:
increased general business consulting fees- $78,000; salaries and salary
related expenses of recently hired employees- $35,000; and other costs-
$2,000; offset by decreases in patent costs- $54,000.
Interest and miscellaneous income was $37,000 for the second quarter of
1997 as compared to $50,000 for the same period in 1996, a decrease of
$13,000. The decrease was due to interest income from higher cash balances
in 1996 due to $6 million in gross proceeds from a private placement of 8.57
million shares of common stock in March 1996.
Accordingly, total expenses exceeded revenues, resulting in a loss for the
second quarter of $912,000, or $.03 per share.
4
Six Months ended June 30, 1997 Compared to Six Months ended June 30, 1996
Net revenues for the six months ended June 30, 1997 were $188,000 as
compared to $165,000 in the same period in 1996, an increase of $23,000.
1997 revenues were comprised of licensing income from an ongoing agreement
where 1996 revenues were from an option agreement for rights to certain of
the Company's technology that terminated in April 1996.
Research spending for the six months ended June 30, 1997 was $1,042,000 as
compared to $476,000 for the same period in 1996, an increase of $566,000.
The increase in expenses was due to: increased external research spending-
$247,000; additional scientific staff- $233,000; increased equipment lease
costs- $45,000; additional travel expenses- $38,000; and other increases of
$3,000. 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 $829,000 for the six months ended
June 30, 1997, an increase of $157,000 as compared to the same period in
1996. The increase was due to the following: general business consulting
fees and expenses- $117,000; salaries and moving expenses of newly hired
employees $90,000, director fees and director and officer insurance-
$33,000; offset by lower patent expenses- $67,000; and other decreases-
$16,000.
Excess purchase price over the fair value of Chemex Pharmaceuticals,
Inc.'s ("Chemex") net assets of $8,314,000 was recorded and written off in
the first quarter of 1996, due to an immediate impairment of the excess
purchase price.
Accordingly, total expenses exceeded revenues which resulted in a loss for
the six months ended June 30, 1997 of $1,676,000, or $.05 per share.
PART II -- OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
None
ITEM 2 CHANGES IN SECURITIES
None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders was held on May 28, 1997 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:
* Elizabeth M. Greetham and Stephen B. Howell were elected
Directors for three year
5
terms. The votes were Greetham 18,932,986 -
For and 5,534,068 - Withheld Authority; and, Howell, 18,951,297 -
For and 5,515,756 - Withheld Authority.
* A proposal to amend the Company's Certificate Incorporation to
effect the recapitalization was approved with 18,107,276 - For,
5,598,034 - Against, 6,233 - Abstain and 0 - Non-votes.
* A proposal to ratify the appointment of KPMG Peat Marwick LLP
as independent certified public accountants for the Company for
fiscal year December 31, 1997 was approved with 24,425,863 - For,
18,689 - Against and 22,501 - Abstain.
ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
Exhibits: None
Reports on Form 8-K: None
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: August 14, 1997 By: /s/ Kerry P. Gray
--------------- -----------------------------
Kerry P. Gray
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 1997 By: /s/ Stephen B. Thompson
--------------- -----------------------------
Stephen B. Thompson
Chief Financial Officer
(Principal Financial and
Accounting Officer)
7
ACCESS PHARMACEUTICALS, INC.
a development stage company
Balance Sheets
Assets June 30, 1997 December 31, 1996
- ------ ------------------ -----------------
Current Assets
Cash and cash equivalents $ 2,462,000 $ 4,428,000
Accounts receivable 10,000 1,000
Prepaid expenses and other current assets 144,000 190,000
------------- -------------
Total current assets 2,616,000 4,619,000
------------- -------------
Property and Equipment, at cost 681,000 585,000
Less accumulated depreciation (347,000) (285,000)
------------- -------------
334,000 300,000
------------- -------------
Other Assets 9,000 9,000
------------- -------------
Total Assets $ 2,959,000 $ 4,928,000
============= =============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses $ 209,000 $ 449,000
Accrued insurance premium 26,000 74,000
Current portion of obligations under
capital leases 176,000 152,000
------------- -------------
Total current liabilities 411,000 675,000
------------- -------------
Obligations under capital leases,
net of current portion 54,000 83,000
Note payable 110,000 110,000
------------- -------------
Total liabilities 575,000 868,000
------------- -------------
Stockholders' Equity
Preferred stock, at June 30, 1997 and
December 31, 1996 $.01 par value,
authorized 10,000,000 shares,
none issued or outstanding - -
Common stock, at June 30, 1997 and
December 31, 1996 $.04 par value,
authorized 60,000,000 shares, issued
and outstanding 31,391,324 shares 1,256,000 1,256,000
Additional paid-in capital 18,111,000 18,111,000
Deficit accumulated during the
development stage (16,983,000) (15,307,000)
------------- -------------
Total Stockholders' Equity 2,384,000 4,060,000
------------- -------------
Total Liabilities and Stockholder's
Equity $ 2,959,000 $ 4,928,000
============= =============
- ---------------------------------------------
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 Operations
Three Months ended Six Months ended
June 30 June 30, February 24, 1988
---------------------- ---------------------- (inception) to
1997 1996 1997 1996 June 30, 1997
---------- ---------- ---------- ---------- -------------
Revenues
Sponsored Research and
development $ - $ - $ - $ - $ 2,711,000
Licensing revenue 50,000 - 188,000 - 188,000
Option income - - - 165,000 2,039,000
---------- ---------- ---------- ---------- -----------
Total Revenues 50,000 - 188,000 165,000 4,938,000
---------- ---------- ---------- ---------- -----------
Expenses
Research and development 538,000 268,000 1,042,000 476,000 7,218,000
General and administrative 424,000 363,000 829,000 672,000 5,908,000
Depreciation and amortization 30,000 36,000 62,000 72,000 956,000
Write off of excess purchase price - - - 8,314,000 8,314,000
---------- ---------- ---------- ---------- -----------
Total Expenses 992,000 667,000 1,933,000 9,534,000 22,396,000
---------- ---------- ---------- ---------- -----------
Loss from operations (942,000) (667,000) (1,745,000) (9,369,000) (17,458,000)
---------- ---------- ---------- ---------- -----------
Other Income (Expense)
Interest and miscellaneous income 37,000 50,000 84,000 80,000 739,000
Interest expense (7,000) (14,000) (15,000) (27,000) (137,000)
---------- ---------- --------- ---------- ----------
30,000 36,000 69,000 53,000 602,000
---------- ---------- --------- ---------- -----------
Loss before income taxes (912,000) (631,000) (1,676,000) (9,316,000) (16,856,000)
Provision for income taxes - - - - 127,000
---------- ---------- ---------- ---------- -----------
Net loss $ (912,000) $(631,000)$ (1,676,000)$(9,316,000) $(16,983,000)
========== ========== =========== ========== ===========
Loss per share $(0.03) $(0.02) $(0.05) $(0.33)
========== ========== ========== ==========
Average number of common and equivalent
common shares outstanding 31,391,324 31,346,866 31,391,324 28,285,296
========== ========== ========== ==========
- ----------------------------------------------
See accompanying notes to financial statements and Management's Discussion and
Analysis of Financial Conditions and Results of Operations
9
ACCESS PHARMACEUTICALS, INC.
a development stage company
Statements of Cash Flows
Six Months ended June 30, February 24, 1988
------------------------------ (inception) to
1997 1996 June 30, 1997
------------ ------------ ---------------
Cash Flows form Operating Activities
Net loss $(1,676,000) $ (9,316,000) $(16,983,000)
Adjustments to reconcile
net loss to cash used in
operating activities:
Write off of excess
purchase price - 8,314,000 8,314,000
Consulting expense related
to warrants granted - - 344,000
Depreciation and amortization 62,000 72,000 956,000
Change in assets and liabilities:
Accounts receivable (9,000) 3,000 (10,000)
Prepaid expenses and other
current assets 46,000 (142,000) (145,000)
Other assets - - (7,000)
Accounts payable and accrued
expenses (288,000) 15,000 188,000
Unearned revenue - (150,000) -
---------- --------- ---------
Net Cash Used in
Operating Activities (1,865,000) (1,204,000) (7,343,000)
----------- --------- ---------
Cash Flows From Investing Activities
Capitalized expenditures (96,000) (1,000) (1,244,000)
----------- --------- ---------
Net Cash Used in
Investing Activities (96,000) (1,000) (1,244,000)
----------- --------- ---------
Cash Flows From Financing Activities
Payments of principal on obligations
under capital leases (77,000) (56,000) (353,000)
Proceeds from notes payable
and capital leases 72,000 110,000 793,000
Proceeds from merger with
Chemex Pharmaceuticals - 1,587,000 1,587,000
Proceeds from stock issuances,
net - 5,514,000 9,022,000
---------- --------- ---------
Net Cash Provided By (Used in)
Financing Activities (5,000) 7,155,000 11,049,000
---------- --------- ----------
Net Increase (Decrease) in Cash
and Cash Equivalents (1,966,000) 5,950,000 2,462,000
Cash and Cash Equivalents at
Beginning of Period 4,428,000 30,000 -
---------- --------- ----------
Cash and Cash Equivalents at
End of Period $2,462,000 $5,980,000 $2,462,000
========== ========= ==========
Supplemental disclosure of
non cash transactions:
eliminations of note payable
to Chemex Pharmaceutical
due to merger $ - $ 100,000 $ 100,000
- ----------------------------------------------
See accompanying notes to financial statements and Management's Discussion and
Analysis of Financial Conditions and Results
10
ACCESS PHARMACEUTICALS, INC.
a development stage company
Notes to Financial Statements
Six Months Ended June 30, 1997 and 1996
(1) Interim Financial Statements
The balance sheet as of June 30, 1997 and the statements of operations and
cash flows for the six months ended June 30, 1997 and 1996 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 June 30, 1997 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 to the SEC on
Form 10-K for the year ended December 31, 1996. The results of operations
for the period ended June 30, 1997 are not necessarily indicative of the
operating results, which may be expected for a full year. The balance sheet
as of December 31, 1996 contains financial information taken from the
audited financial statements as of that date.
(2) With the Company's current budget and it's anticipated option and
licensing revenues, management believes working capital will cover planned
operations into the second half of 1998. If the anticipated revenues are
delayed or do not occur or the Company is unsuccessful in raising additional
capital on acceptable terms, research and development and general and
administrative expenditures would be curtailed so that working capital
would cover operations through approximately the end of 1998.
(3) SFAS No. 125. "Accounting For Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities", effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring
after December 31, 1996 was adopted by the Company and does not have a
material impact on the Company's financial position, results of operations,
or liquidity. This Statement provides accounting and reporting standards
for transfers and servicing of financial assets and extinguishments of
liabilities based on consistent application of financial-components
approach that focuses on control. It distinguishes transfers of financial
assets that are sales from transfers that are secured borrowings.
(4) SFAS No. 128. "Earnings Per Share", which is required to be adopted for
financial statements issued for periods ending after December 15, 1997. This
statement establishes new, simplified standards for computing and presenting
earnings per share. It replaces the traditional presentations of primary
earnings per share and fully diluted earnings per share with presentations
of basic earnings per share and diluted earnings per share, respectively.
When adopted by the Company, during the quarter ending December 31, 1997,
basic earnings per share is expected to increase slightly from primary
earnings per share and diluted earnings per share is expected to
approximate fully diluted earnings per share.
11
(5) On May 29, 1997, the Company's Shareholders gave their approval to
amend Access' Certificate of Incorporation, as amended, to effect a
recapitalization (the "Recapitalization") of the Company through a
one-for-four reverse stock split of Access common stock (the "Common
Stock") and decrease the number of authorized shares of Common Stock from
60.0 million shares, par value $.04 per share to 25.0 million shares, par
value $.01 per share. The reduction in authorized shares of Common Stock
would in fact proportionately increase the number of authorized but
unissued shares when compared with the number of issued and outstanding
shares before and after the Recapitalization. This proposal, when effective,
would decrease the number of outstanding shares of Common Stock from
approximately 31.4 million to 7.9 million. As of August 14, 1997 the
Recapitalization is not effective.
The Company intends to submit an application for listing on the NASDAQ
SmallCap Market or an exchange when it meets all qualifications for such
listing and the reverse stock split becomes effective. The Company
believes that securing a NASDAQ or an exchange listing together with the
Recapitalization would improve Access' ability to finance the Company's
research activities under more favorable terms since institutional
investors and investment community members generally have restrictions on
investing in unlisted companies. There can be no assurances that the market
price immediately after the implementation of the proposed Recapitalization
will increase, and if it does increase, there can be no assurance that such
increase can be maintained for any period of time, or that such market price
will approximate four times the market price before the proposed reverse
stock split. There can be no assurances that the Company will be listed on
the NASDAQ SmallCap Market or any exchange.
(6) On August 1, 1997, the Company announced that it had signed an
agreement to enter into collaboration with The Dow Chemical Company ("Dow")
for the development of products incorporating Dow's chelation technology
and Access' bioresponsive polymer systems. The collaboration will focus on
the development of MRI contrast agents and radiopharmaceutical diagnostics
and therapeutics. The advancement of the Access developments in these
areas are dependent on securing chelation technology, which encapsulates
metals to avoid adverse effects on the body.
(7) 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 expected to close shortly. Under the terms of the letter of
intent, the purchase price is contingent upon the achievement of certain
milestones. In addition to cash of $250,000 and $100,000 in common stock
paid at closing, stock up to a maximum value of $14,000,000 could be
payable to Tacora's shareholders over a 30 month period on an escalating
value over milestone period. The consummation of the transaction is
subject to customary conditions to closing and approval of the
stockholders of Tacora Corp.
12