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, 1998
Commission File Number 0-9314
ACCESS PHARMACEUTICALS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 83-0221517
- ------------------------ --------------------------
(State of Incorporation) (I.R.S. Employer I.D. No.)
2600 Stemmons Frwy, Suite 176, Dallas, TX 75207
-----------------------------------------------
(Address of principal executive offices)
Telephone Number (214) 905-5100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirement for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock outstanding as
of August 14, 1998 3,426,695 shares, $0.01 par value
--------------- ---------
Total No. of Pages 14
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. ("Access" or the "Company") is a Delaware
corporation in the development stage. The Company is a site-directed drug
targeting company using bioresponsive carriers to target and control the release
of therapeutic agents into sites of disease activity and significantly improve
the side effect profile of the agents. The Company has proprietary patents or
rights to four technology platforms: synthetic polymers, Residerm(TM),
carbohydrate targeting technology and selective muscle and nerve delivery
systems. In addition, Access' partner Block Drug Company is marketing
Aphthasol(TM) in the United States, the first FDA approved product for the
treatment of canker sores. Access is currently licensing this product in
international markets and developing new delivery forms.
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' research and
development focus, uncertainties associated with research and development
activities, future capital requirements, anticipated option and licensing
revenues, dependence on others, ability to raise capital, the year 2000 issue,
and other risks detailed in the Company's reports filed under the Securities
Exchange Act, including but not limited to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
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,
1998, the Company's accumulated deficit was approximately $21.6 million.
RECENT DEVELOPMENTS
On June 18, 1998, in conjunction with the first closing of a private placement,
the Company effected a recapitalization of the Company through a one-for-
twenty reverse stock split of its common stock, $0.04 par value per share (the
"Common Stock"), which decreased the number of authorized shares of
Common Stock from 60.0 million, at $0.04 par value per share, to 20.0
million shares, $0.01 par value per share, and decreased the authorized shares
of preferred stock
2
of the Company from 10.0 million to 2.0 million (the
"Recapitalization"). The Recapitalization decreased the number of outstanding
shares of Common Stock from approximately 41.5 million to 2.1 million.
An investment bank has been engaged to assist the Company in raising funds
to support the Company's research and development activities. As discussed
below, from March to July 1998, the Company raised an aggregate of $5.0
million. Up to an additional $4.0 million may be raised. There can be no
assurances that any additional closings of the private placement will take
place.
The Company raised $1,200,000 in gross proceeds ($725,000 received on
March 20, 1998 and $475,000 received on April 11, 1998) less cash issuance
costs of $33,750, from the placement of 48 units, each unit consisting of 8,333
shares of Common Stock and warrants to purchase 8,333 shares of Common
Stock at an exercise price of $3.00 per share. The placement agent received
warrants to purchase 44,527 shares of Common Stock at $3.00 per share, in
accordance with the offering terms and elected to receive 45,277 shares of
Common Stock in lieu of certain sales commissions and expenses.
On June 18, 1998, the Company, assisted by an investment bank, raised an
aggregate of $2.9 million in gross proceeds, less cash issuance costs of
$202,000, from the first closing of a private placement of 953,573 shares of
Common Stock at $3.00 per share. The placement agent for such offering
received warrants to purchase 101,653 shares of Common Stock at $3.00 per
share, in accordance with the offering terms and elected to receive 62,949
shares of Common Stock in lieu of certain sales commissions and expenses.
Legal fees and other issuance costs were $122,000 through June 30, 1998.
The proceeds of the offering will be used to fund research and development,
working capital, acquisitions of complementary companies or technologies and
general corporate purposes.
On July 30, 1998, the Company raised an aggregate of $900,000 in gross
proceeds, less cash issuance costs of $24,000, from the second closing of a
private placement of 300,000 shares Common Stock at $3.00 per share. The
placement agent for such offering received warrants to purchase 33,445 shares
of Common Stock at $3.00 per share, in accordance with the offering terms
and elected to receive 34,450 shares of Common Stock in lieu of certain sales
commissions and expenses.
If and when the Company satisfies all listing requirements, the Company
intends to submit an application for listing on NASDAQ or an alternate
exchange. There can be no assurances that the Company will be listed on
NASDAQ or an alternate exchange.
All share numbers and prices referenced herein have been adjusted to reflect
the Recapitalization.
On June 8, 1998, the Company entered into an agreement to license from
Block Drug Company the rights to amlexanox oral paste 5% for certain
international markets. Amlexanox oral paste 5% was jointly developed by the
Company and Block Drug Company, and was subsequently purchased by
Block Drug Company with the Company receiving an up front fee and future
royalty payments. Amlexanox oral paste 5% is currently marketed in the
United States by Block Drug under the trademark Aphthasol TM. Aphthasol
TM was launched to the dental market in December 1997 and was launched
to the general practice physician market in June 1998. On July
3
28, 1998, the Company announced that it signed a binding Letter of Intent with
Strakan Limited to license amlexanox 5% paste for the treatment of canker sores
for the United Kingdom and Ireland. Under the terms of the agreement, Strakan
Limited will be responsible for and bear all costs associated with the
regulatory approval process in the United Kingdom and European Community,
will pay milestones based on cumulative sales revenue and will pay a royalty
on sales.
Liquidity and Capital Resources
As of July 30, 1998 the Company's principal source of liquidity is $2,850,000
of cash and cash equivalents. Working capital as of June 30, 1998 was
$1,712,000, representing an increase in working capital of $1,928,000 as
compared to the working capital deficit as of December 31, 1997 of $216,000.
The increase in working capital at June 30, 1998 was due to $4.1 million in
gross proceeds received from the private placement of the Company's
Common Stock sold on June 18, 1998 and the private placement of units on
March 20 and April 11, 1998.
Since its inception, the Company's expenses have significantly exceeded its
revenues, resulting in an accumulated deficit of $21,570,000 at June 30, 1998.
The Company has funded its operations primarily through private sales of its
equity securities, contract research payments from corporate alliances and the
January 1996 merger.
The Company has incurred negative cash flows from operations since its
inception, and has expended, and expects to continue to expend in the future,
substantial funds to complete its planned product development efforts. The
Company expects that its existing capital resources will be adequate to fund the
Company's operations through the second quarter of 1999. The Company is
dependent on raising additional capital to fund its development of technology
and to implement its business plan. Such dependence will continue at least
until the Company begins marketing its new technologies.
If anticipated revenues are delayed or do not occur or the Company is
unsuccessful in raising additional capital on acceptable terms, the Company
would be required to curtail research and development and general and
administrative expenditures so that working capital would cover reduced
operations into the third quarter of 1999. 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 will require substantial funds to conduct research and
development programs, preclinical studies and clinical trials of its potential
products. The Company's future capital requirements and adequacy of
available funds will depend on many factors, including the successful
commercialization of amlexanox; the ability to establish and maintain
collaborative arrangements for research, development and commercialization
of products with corporate partners; continued scientific progress in the
Company's research and development programs; the magnitude, scope and
results of preclinical testing and clinical trials; the costs involved in
filing, prosecuting and enforcing patent claims; competing technological
developments; the cost of manufacturing and scale-up; and the ability to
establish and maintain effective commercialization activities and arrangements.
The Company intends to seek additional funding through research and
development or licensing
4
arrangements with potential corporate partners,
public or private financing, or from other sources. The Company does not
have any committed sources of additional financing and there can be no
assurance that additional financing will be available on favorable terms, if at
all. In the event that adequate funding is not available, the Company may be
required to delay, reduce or eliminate one or more of its research or
development programs or obtain funds through arrangements with corporate
collaborators or others that may require the Company to relinquish greater or
all rights to product candidates at an earlier stage of development or on less
favorable terms than the Company would otherwise seek. Insufficient financing
may also require the Company to relinquish rights to certain of its technologies
that the Company would otherwise develop or commercialize itself. If adequate
funds are not available, the Company's business, financial condition and
results of operations will be materially and adversely affected.
Second Quarter 1998
Compared to
Second Quarter 1997
The Company had $50,000 in licensing revenue in the second quarter of 1997
as compared to no revenues in the second quarter 1998. Second quarter 1997
revenues were comprised of licensing income from an ongoing agreement with
an emerging pharmaceutical company which made certain milestone payments
and will make royalty payments in the future if a product is developed from
the technology.
Total research spending for the second quarter of 1998 was $501,000, as
compared to $538,000 for the same period in 1997, a decrease of $37,000.
The decrease in expenses was the result of lower salary and related costs-
$55,000; lower equipment rent- $26,000; and lower other net costs totaling-
$35,000; offset by higher internal lab costs- $57,000; higher external contract
research costs- $22,000. If the Company is successful in raising additional
capital, research spending is expected to increase in future quarters as the
Company intends to hire additional scientific management and staff and will
accelerate activities to develop the Company's product candidates. If the
Company is not successful in raising additional capital, research spending will
be curtailed.
Total general and administrative expenses were $359,000 for the second
quarter of 1998, a decrease of $65,000 as compared to the same period in
1997. The decrease in spending was primarily due to the following:
decreased general business consulting fees- $107,000; and lower director and
officer insurance costs- $51,000; offset by increased patent costs due to
the filing of new patents- $90,000; and other net increases totalling-
$3,000. If the Company is not successful in raising additional
capital, general and administrative spending will be curtailed.
Depreciation and amortization was $66,000 for the second quarter 1998 as
compared to $30,000 for the same period in 1997 reflecting the additional
depreciation of the assets acquired in the Tacora merger and amortization of
licenses.
Interest and miscellaneous income was $6,000 for the second quarter of 1998
as compared to $37,000 for the same period in 1997, a decrease of $31,000.
The decrease was due to lower interest income from lower cash balances in
1998.
Total operating expenses in the second quarter of 1998 were $926,000 with
interest income of $6,000, and interest expense of $5,000 resulting in a loss
for the quarter of $926,000 or a $0.42 basic and diluted loss per common
share.
5
Six Months ended June 30, 1998
Compared to
Six Months ended June 30, 1997
Net revenues for the six months ended June 30, 1997 were $188,000 as
compared to no revenues for the same period in 1998. 1997 revenues were
comprised of licensing income from an ongoing agreement with an emerging
pharmaceutical company which made certain milestone payments and will
make royalty payments in the future if a product is developed from the
technology.
Research spending for the six months ended June 30, 1998 was $936,000 as
compared to $1,042,000 for the same period in 1997, a decrease of $106,000.
The decrease in expenses was due to: lower salary and related costs-
$113,000; lower equipment rent- $55,000; lower travel expenses- $26,000;
and other net decreases totaling- $21,000; offset by higher internal lab costs-
$72,000; and higher external lab costs- $37,000. If the Company is successful
in raising additional capital, research spending is expected to increase in
future quarters as the Company intends to hire additional scientific management
and staff and will accelerate activities to develop the Company's product
candidates. If the Company is not successful in raising additional capital,
research spending will be curtailed.
General and administrative expenses were $750,000 for the six months ended
June 30, 1998, a decrease of $79,000 as compared to the same period in
1997. The decrease was primarily due to the following: lower general business
consulting fees and expenses- $159,000; and lower director and officer
insurance costs- $58,000; offset by higher patent expenses- $130,000; and
other net increases totalling- $8,000.
Depreciation and amortization was $130,000 for the six months ended June 30,
1998 as compared to $62,000 for the same period in 1997 reflecting the
additional depreciation of the assets acquired in the Tacora merger and
amortization of licenses.
Interest and miscellaneous income was $8,000 for the six months ended June
30, 1998 as compared to $84,000 for the same period in 1997, a decrease of
$76,000. The decrease was due to lower interest income from lower cash
balances in 1998.
Accordingly, this resulted in a loss for the six months ended June 30, 1998 of
$1,822,000, or a $0.95 basic and diluted loss per common share.
Year 2000 Issue
The Company relies on PC-based systems and does not expect to incur
material costs to transition to Year 2000 compliant systems in its internal
operations. However, even if the internal systems of the Company are not
materially affected by the Year 2000 Issue, the Company could be affected
through disruptions in the operations of enterprises with which the Company
interacts. As such, there can be no assurance that the Year 2000 Issue will not
have a material adverse effect on the Company's business, financial condition
or results of operations.
6
PART II -- OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
None
ITEM 2 CHANGES IN SECURITIES
On June 18, 1998, in conjunction with the first closing of a private placement,
the Company effected a recapitalization of the Company through a one-for-
twenty reverse stock split of its common stock, $0.04 par value per share (the
"Common Stock"), decreased the number of authorized shares of Common
Stock from 60.0 million shares, $0.04 par value per share, to 20.0 million
shares, par value $0.01 per share, and decreased the authorized shares of
preferred stock of the Company from 10.0 million to 2.0 million (the
"Recapitalization"). The Recapitalization decreased the number of outstanding
shares of Common Stock from approximately 41.5 million to 2.1 million.
On June 18, 1998 the Company sold to 25 individual accredited investors an
aggregate of 953,573 shares of Common Stock at $3.00 per share. The
placement agent for such offering received warrants to purchase 101,650
shares of Common Stock at $3.00 per share in accordance with the offering
terms and elected to receive 62,949 shares of Common Stock in lieu of certain
sales commissions and expenses. The Company raised an aggregate of
$2,900,000 in gross proceeds. The shares issued in the Private Placement have
not been registered; however, the Company has agreed to file a registration
statement for the resale of such shares no later than August 30, 1998. The
Company relied on Section 4(2) and/or 3(b) of the 1933 Securities Act of 1933
and the provisions of Regulation D as exemptions from the registration
thereunder. The proceeds of the offering will be used to fund research and
development, working capital, acquisitions of complementary companies or
technologies and general corporate purposes.
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 June 12, 1998 in Tarrytown,
NY. At that meeting the following matters were submitted to a vote of the
stockholders of record. The proposals were approved by the stockholders, as
follows:
* Herbert H McDade, Jr., Kerry P. Gray and J. Michael Flinn were
reelected Directors for three year terms. The votes were: McDade 25,075,818
- - For and 196,290 - Withheld Authority; Gray 25,099,746 - For and 172,362 -
Withheld Authority; and, Flinn 25,230,408 - For and 41,700 - Withheld
Authority.
7
* A proposal to amend the Company's 1995 stock option plan, as amended,
was approved with 19,175,592 - For, 499,504 - Against, and 48,636 -
Abstain.
* A proposal to ratify the appointment of KPMG Peat Marwick LLP as
independent certified public accountants for the Company for the fiscal year
ending December 31, 1998 was approved with 25,176,882 - For 38,773 - Against
and 56,453 - Abstain.
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 June 18, 1998
10.13 Agreement between Access Pharmaceuticals, Inc. and
Block Drug Company, Inc.
10.14 Sales Agency Agreement
10.15 Registration Rights Agreement
27.1 Financial Data Schedule
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: August 14, 1998 By: /s/ Kerry P. Gray
--------------- ------------------
Kerry P. Gray
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 1998 By: /s/ Stephen B. Thompson
--------------- ------------------------
Stephen B. Thompson
Chief Financial Officer
(Principal Financial and Accounting Officer)
8
ACCESS PHARMACEUTICALS, INC. AND SUBSIDIARY
a development stage company
Condensed Consolidated Balance Sheets
June 30, 1998 December 31, 1997
------------- -------------
Assets (unaudited)
- ------
Current Assets
Cash and cash equivalents $ 2,174,000 $ 438,000
Accounts receivable 2,000 1,000
Prepaid expenses and other current assets 27,000 51,000
------------- -------------
Total Current Assets 2,203,000 490,000
------------- -------------
Property and Equipment, at cost 1,007,000 1,047,000
Less accumulated depreciation and amortization (722,000) (625,000)
------------- -------------
285,000 422,000
------------- -------------
Licenses, net of accumulated amortization
of $50,000 and $25,000 at June 30, 1998
and December 31, 1997, respectively 450,000 475,000
Other Assets 108,000 60,000
------------- -------------
Total Assets $ 3,046,000 $ 1,447,000
============= =============
Liabilities and Stockholders' Equity
- ------------------------------------
Current Liabilities
Accounts payable and accrued expenses $ 390,000 $ 434,000
Royalties payable - 53,000
Accrued insurance premium 13,000 38,000
Current portion of obligations under
capital leases 88,000 181,000
------------- -------------
Total Current Liabilities 491,000 706,000
------------- -------------
Obligations under capital leases,
net of current portion 75,000 142,000
------------- -------------
Total Liabilities 566,000 848,000
------------- -------------
Stockholders' Equity
Preferred stock, $.01 par value, authorized
2,000,000 Shares, none issued or outstanding
at June 30, 1998; $.01 par value, authorized
10,000,000 shares, none issued or
outstanding at December 31, 1997 - -
Common stock, $.01 par value, authorized
20,000,000 Shares, 3,092,245, issued and
outstanding at June 30, 1998; Authorized
3,000,000 shares, 1,630,450 issued and
outstanding at December 31,1997 31,000 16,000
Additional paid-in capital 24,019,000 20,331,000
Deficit accumulated during the
development stage (21,570,000) (19,748,000)
------------- -------------
Total Stockholders' Equity 2,480,000 599,000
------------- -------------
Total Liabilities and Stockholders' Equity $ 3,046,000 $ 1,447,000
============= =============
- ---------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements
9
ACCESS PHARMACEUTICALS, INC. AND SUBSIDIARY
a development stage company
Condensed Consolidated Statements of Operations
(unaudited)
Three Months ended Six Months ended
June 30, June 30, February 24, 1988
--------------------------- ---------------------------- (inception) to
1998 1997 1998 1997 June 30, 1998
------------ ------------ ------------ ------------ ---------------
Revenues
Research and development $ - $ - $ - $ - $ 2,711,000
Option income - - - - 2,149,000
Licensing revenues - 50,000 - 188,000 325,000
------------ ------------ ------------ ------------ ------------
Total Revenues - 50,000 - 188,000 5,185,000
------------ ------------ ------------ ------------ -------------
Expenses
Research and development 501,000 538,000 936,000 1,042,000 9,545,000
General and administrative 359,000 424,000 750,000 829,000 7,613,000
Depreciation and amortization 66,000 30,000 130,000 62,000 1,186,000
Write-offexcess purchase price - - - - 8,894,000
------------ ------------ ------------ ------------ -------------
Total Expenses 926,000 992,000 1,816,000 1,933,000 27,238,000
------------ ------------ ------------ ------------ -------------
Loss From Operations (926,000) (942,000) (1,816,000) (1,745,000) (22,053,000)
------------ ------------ ------------ ------------ -------------
Other Income (Expense)
Interest and miscellaneous income 6,000 37,000 8,000 84,000 782,000
Interest expense (5,000) (7,000) (14,000) (15,000) (172,000)
------------ ------------ ------------ ------------ -------------
1,000 30,000 (6,000) 69,000 610,000
------------ ------------ ------------ ------------ -------------
Loss Before Income Taxes (925,000) (912,000) (1,822,000) (1,676,000) (21,443,000)
Provision for Income Taxes - - - - 127,000
------------ ------------ ------------ ------------ -------------
Net Loss $ (925,000) $ (912,000) $(1,822,000) $(1,676,000) $(21,570,000)
============ ============ ============ ============ =============
Basic and Diluted Loss Per
Common Share $ (0.42) $ (0.58) $ (0.95) $ (1.07)
============ ============ ============ ============
Weighted Average Basic and Diluted
Common Shares Outstanding 2,209,775 1,569,566 1,920,564 1,569,566
============ ============ ============ ============
- ---------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements
10
ACCESS PHARMACEUTICALS, INC. AND SUBSIDIARY
a development stage company
Condensed Consolidated Statements of Cash Flows
(unaudited)
Six Months ended June 30, February 24, 1988
-------------------------- (inception) to
1998 1997 June 30, 1998
------------ ------------ -------------
Cash Flows From Operating Activities
Net Loss $(1,822,000) $(1,676,000) $(21,570,000)
Adjustments to reconcile net loss to
cash used in operating activities:
Write-off of excess purchase price - - 8,894,000
Consulting expense related to
warrants granted - - 532,000
Research expenses related to common
stock granted and donated equipment 8,000 - 108,000
Depreciation and amortization 130,000 62,000 1,186,000
Unearned revenue - - (110,000)
Change in operating assets
and liabilities:
Accounts receivable (1,000) (9,000) (3,000)
Prepaid expenses and other
current assets 24,000 46,000 (28,000)
Other assets 2,000 - (6,000)
Accounts payable and accrued
expenses (122,000) (288,000) 110,000
------------ ------------ --------------
Net Cash Used In Operating Activities (1,781,000) (1,865,000) (10,887,000)
------------ ------------ --------------
Cash Flows From Investing Activities
Capital expenditures (3,000) (24,000) (1,167,000)
Sales of capital equipment - - 6,000
Purchase of Tacora, net of cash acquired - - (124,000)
Other assets (50,000) - (100,000)
------------ ------------ --------------
Net Cash Used In Investing Activities (53,000) (24,000) (1,385,000)
------------ ------------ --------------
Cash Flows From Financing Activities
Proceeds from notes payable - - 721,000
Payments of principal on obligations under
capital leases (133,000) (77,000) (587,000)
Cash acquired in merger with Chemex - - 1,587,000
Proceeds from stock issuances, net 3,703,000 - 12,725,000
------------ ------------ --------------
Net Cash Provided By (Used In)
Financing Activities 3,570,000 (77,000) 14,446,000
------------ ------------ --------------
Net Increase (Decrease) in Cash and
Cash Equivalents 1,736,000 (1,966,000) 2,174,000
Cash and Cash Equivalents at
Beginning of Period 438,000 4,428,000 -
------------ ------------ --------------
Cash and Cash Equivalents at
End of Period $ 2,174,000 $ 2,462,000 $ 2,174,000
============ ============ ==============
Cash paid for interest $ 14,000 $ 15,000 $ 164,000
Cash paid for income taxes - - 127,000
Supplemental disclosure of
noncash transactions
Payable accrued for fixed
asset purchase $ - $ - $ 47,000
Elimination of note payable
to Chemex Pharmaceuticals
due to merger - - 100,000
Stock issued for License on patents - - 500,000
Equipment purchases financed
through capital leases - - 82,000
Net liabilities assumed in
acquisition of Tacora Corporation - - 455,000
- ---------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements
11
ACCESS PHARMACEUTICALS, INC. AND SUBSIDIARY
a development stage company
Notes to Condensed Consolidated Financial Statements
Six Months Ended June 30, 1998 and 1997
(unaudited)
(1) Interim Financial Statements
The consolidated balance sheet as of June 30, 1998 and the consolidated
statements of operations for the three and six months ended and cash flows
for the six months ended June 30, 1998 and 1997 were prepared by management
without audit. In the opinion of management, all adjustments, including only
normal recurring adjustments necessary for the fair presentation of the
financial position, results of operations, and changes in financial position
for such periods, have been made. Certain reclassifications have been made to
prior year financial statements to conform with the June 30, 1998 presentation.
The accompanying Consolidated Balance Sheets and Statements of Operations have
been retroactively restated to reflect the Recapitalization including the
one-for-twenty reverse stock split.
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 audited consolidated financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997. The results of operations for
the period ended June 30, 1998 are not necessarily indicative of the operating
results which may be expected for a full year. The consolidated balance sheet
as of December 31, 1997 contains financial information taken from the audited
financial statements as of that date.
In 1997, the Company adopted Statement of Financial Accounting Standards
No. 128, "Earnings Per Share." In accordance with SFAS No. 128, the
Company has presented basic loss per share, computed on the basis of the
weighted average number of common shares outstanding during the period,
and diluted loss per share, computed on the basis of the weighted average
number of common shares and all dilutive potential common shares
outstanding during the period. The adoption of this new accounting standard,
which required the restatement of all presented periods' earnings per share
data, did not have a material impact on previously reported earnings per share.
Potentially dilutive effect of the Company's outstanding options and common
stock warrants has not been considered in the computation of diluted net loss
per common share since their inclusion would be anti-dilutive.
Effective with fiscal years beginning after December 15, 1997, companies are
required to adopt Statement of Financial Accounting Standards ("SFAS") No.
130 "Reporting Comprehensive Income." The Statement establishes standards
for the reporting and display of comprehensive income and its components in
a full set of general-purpose financial statements. Comprehensive income
includes net income and other comprehensive income, which comprises certain
specific items previously reported directly in stockholders' equity. Other
comprehensive income comprises items such as unrealized gains and losses on
debt and equity securities classified as available-for-sale securities, minimum
pension liability adjustments, and foreign currency translation adjustments.
12
Since the Company does not currently have any of these other comprehensive
income items, SFAS No. 130 has no impact on the way the Company reports
or has reported its financial statements.
(2) Liquidity
The Company has incurred negative cash flows from operations since its
inception, and has expended, and expects to continue to expend in the future,
substantial funds to complete its planned product development efforts. The
Company expects that its existing capital resources will be adequate to fund the
Company's operations through the second quarter of 1999. The Company is
dependent on raising additional capital to fund its development of technology
and to implement its business plan. Such dependence will continue at least
until the Company begins marketing its new technologies.
If the anticipated revenues are delayed or do not occur or the Company is
unsuccessful in raising additional capital on acceptable terms, the Company
would be required to curtail research and development and general and
administrative expenditures so that working capital would cover reduced
operations into the third quarter of 1999. 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 Independent Auditor's Report on the Company's 1997 consolidated
financial statements included an emphasis paragraph regarding the uncertainty
of the Company's ability to continue as a going concern.
(3) Recapitalization
On June 18, 1998, in conjunction with the first closing of a private placement,
the Company effected a recapitalization of the Company through a one-for-
twenty reverse stock split of Access common stock, $.04 par value per share
(the "Common Stock"), which decreased the number of authorized shares of
Common Stock from 60.0 million shares, at $0.04 par value per share, to 20.0
million shares, par value $0.01 per share, and decreased the authorized shares
of preferred stock of the Company from 10.0 million to 2.0 million (the
"Recapitalization"). The Recapitalization decreased the number of outstanding
shares of Common Stock from approximately 41.5 million to 2.1 million.
If and when the Company satisfies all listing requirements, the Company
intends to submit an application for listing on NASDAQ or an alternate
exchange. There can be no assurances that the Company will be listed on
NASDAQ or an alternate exchange.
(4) Private Placement
The Company raised $1,200,000 in gross proceeds ($725,000 received on
March 20, 1998 and $475,000 received on April 11, 1998) less cash issuance
costs of $33,750, from the placement of 48 units, each unit consisting of 8,333
shares of Common Stock and warrants to purchase 8,333 shares of Common
Stock at an exercise price of $3.00 per share. The placement agent received
warrants to purchase 44,527 shares of Common Stock at $3.00 per share, in
accordance with the offering terms and elected to receive 45,277 shares of
Common Stock in lieu of certain sales commissions and expenses.
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On June 18, 1998, the Company, assisted by an investment bank, raised an
aggregate of $2.9 million in gross proceeds, less cash issuance costs of
$202,000, from the first closing of a private placement of 953,573 shares
Common Stock at $3.00 per share. The placement agent for such offering
received warrants to purchase 101,653 shares of Common Stock at $3.00 per
share, in accordance with the offering terms and elected to receive 62,949
shares of Common Stock in lieu of certain sales commissions and expenses.
Legal fees and other issuance costs were $122,000 through June 30, 1998.
The proceeds of the offering will be used to fund research and development,
working capital, acquisitions of complementary companies or technologies and
general corporate purposes.
On July 30, 1998, the Company raised an aggregate of $900,000 in gross
proceeds, less cash issuance costs of $24,000, from the second closing of a
private placement of 300,000 shares Common Stock at $3.00 per share. The
placement agent for such offering received warrants to purchase 33,445 shares
of Common Stock at $3.00 per share, in accordance with the offering terms
and elected to receive 34,450 shares of Common Stock in lieu of certain sales
commissions and expenses. The proceeds of the offering will be used to fund
research and development, working capital, acquisitions of complementary
companies or technologies and general corporate purposes.
The investment bank has been engaged to assist the Company in raising up to
an additional $4.0 million to fund research and development, working capital,
acquisitions of complementary companies or technologies and general
corporate purposes. There can be no assurances that any additional closings of
the private placement will take place.
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