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 SEPTEMBER 30, 1999
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 November 10, 1999 6,036,582 shares, $0.01 par value
----------------- ---------
Total No. of Pages 15
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. (together with its subsidiaries, "Access" or the
"Company") is a Delaware corporation in the development stage. The Company
is an emerging pharmaceutical company focused on developing both novel low
development risk product candidates and technologies with longer-term major
product opportunities. The Company has proprietary patents or rights to five
technology platforms: synthetic polymers, bioerodible hydrogels, Residerm TM,
carbohydrate targeting technology and prevention and
treatment of viral disease, including HIV. In addition, Access' partner Block
Drug Company ("Block") is marketing in the United States Aphthasol TM, the
first FDA approved product for the treatment of canker sores. New formulations
and delivery forms are being developed to evaluate this product in additional
clinical indications. Access has licensed from Block the rights to this product
for additional indications including mucositis and oral diseases.
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, uncertainty associated with preclinical and clinical testing,
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, 1998.
Since its inception, Access has devoted its resources primarily to fund its
research and development programs. The Company has been unprofitable since
inception and to date has received limited 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. As of September 30, 1999, the Company's
accumulated deficit was $25,543,000 of which $8,894,000 was the result of the
write-off of purchased research.
2
RECENT DEVELOPMENTS
The Company has engaged an investment bank to assist the Company in raising
funds to support the Company's research and development activities, working
capital requirements, acquisitions of complementary companies or technologies
and general corporate purposes. On July 20, 1999, with the assistance of an
investment bank, the Company completed the first closing of an offering of up
to $8 million of common stock at a per share price of $2.00 (the offering),
receiving gross proceeds of $3.0 million in such first closing, less issuance
costs of $213,000, from the private placement of 1,501,000 shares of Common
Stock. The placement agent for such offering received warrants to purchase
160,721 shares of Common Stock at $2.00 per share, in accordance with the
offering terms and elected to receive 106,217 shares of Common Stock in lieu
of certain sales commissions and expenses. There can be no assurances that any
additional closings of the private placement will take place.
On July 20, 1999, and simultaneously with the first closing of the offering,
Access Holdings, Inc., a Delaware corporation and a wholly-owned subsidiary
of the Company (the "Merger Sub") merged with and into Virologix
Corporation, a Delaware corporation ("Virologix"), the separate existence of the
Merger Sub ceased, and Virologix became a wholly-owned subsidiary of the
Company and each outstanding share of Virologix' common stock was converted
into 0.231047 shares of the Company's common stock, representing 999,963
shares of common stock of the Company. The transaction has been accounted
for as a purchase.
If and when the Company satisfies all listing requirements, including minimum
share price and net equity 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.
Liquidity and Capital Resources
As of October 31, 1999 the Company's principal source of liquidity is
$1,449,000 of cash and cash equivalents. Working capital as of September 30,
1999 was $1,130,000, representing an increase in working capital of $121,000
as compared to the working capital as of December 31, 1998 of $1,009,000.
The increase in working capital at September 30, 1999 was due to first closing
of the offering offset by losses from operations in the first three quarters of
1999.
Since its inception, the Company's expenses have significantly exceeded its
revenues, resulting in an accumulated deficit of $25,543,000 at September 30,
1999. The Company has funded its operations primarily through private sales
of its equity securities, contract research payments from corporate alliances
and the 1996 merger of Access Pharmaceuticals, Inc., a private Texas
corporation and Chemex Pharmaceuticals, Inc.
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 first quarter of 2000. The Company is
3
dependent on raising additional capital to fund the development of its
technology and to implement its business plan. Such dependence will continue
at least until the Company begins marketing products resulting from its
technologies.
If prior to the end of January 2000, 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 second quarter
of 2000. 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. If the Company is unable to raise additional capital in the near
term, it may be forced to suspend operations.
The Company will require substantial funds to conduct research and
development programs, preclinical studies and clinical trials of its potential
products, including research and development with respect to the newly acquired
technology resulting from the acquisition of Virologix. 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 arrangements with potential corporate partners, public
or private financing, including the sale of up to an additional $5 million of
common stock at a price of $2 per share in the Company's current equity
offering, 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 or that any additional
closings of its current equity offering will occur. 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.
Third Quarter 1999
Compared to
Third Quarter 1998
Total research spending for the third quarter of 1999 was $349,000, as
compared to $481,000 for the same period in 1998, a decrease of $132,000. The
decrease in expenses was the result of lower external contract research costs
due to the completion of research contracts- $103,000; lower
4
external development costs- $61,000; and lower salary and related costs-
$42,000; offset by higher scientific consulting costs- $67,000; and higher
other net costs totaling- $7,000. If the Company is successful in raising
additional capital, research spending is expected to increase in future
quarters as the Company intends to commence additional clinical trials, 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 $293,000 for the second quarter
of 1999, a decrease of $26,000 as compared to the same period in 1998. The
decrease in spending was primarily due to the following: lower salary and
related costs- $20,000; lower professional business expenses- $20,000; and
other net decreases totaling- $20,000; offset by higher patent costs mainly
due to the filing of a new patent- $34,000. If the Company is not successful
in raising additional capital, general and administrative spending will be
curtailed.
Depreciation and amortization was $84,000 for the second quarter 1999 as
compared to $39,000 for the same period in 1998 an increase of $45,000. The
increase in amortization is due to amortization of goodwill of $41,000
recorded due to the purchase of Virologix Corporation.
Total operating expenses in the third quarter of 1999 were $726,000 with
interest income of 8,000, and interest expense of $3,000 resulting in a loss for
the quarter of $771,000 or a $0.13 basic and diluted loss per common share.
Nine Months ended September 30, 1999
Compared to
Nine Months ended September 30, 1998
Research spending for the nine months ended September 30, 1999 was
$1,042,000 as compared to $1,417,000 for the same period in 1998, a decrease
of $375,000. The decrease in expenses was due to: lower external lab costs due
to the completion of research contracts- $412,000; lower external development
costs- $62,000; offset by higher scientific consulting costs- $82,000; and other
net increases totaling- $17,000. If the Company is successful in raising
additional capital, research spending is expected to increase in future quarters
as the Company intends to commence additional clinical trials, 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 $1,205,000 for the nine months ended
September 30, 1999, an increase of $136,000 as compared to the same period
in 1998. The increase was primarily due to the following: increased business
consulting expense primarily due to the issuance of warrants issued in
connection with consulting agreements- $249,000; and higher shareholder
expenses- $80,000; offset by lower salary and related expenses- $82,000; lower
patent expenses- $64,000; lower travel and entertainment expenses- $28,000;
and other net decreases totaling- $19,000.
Depreciation and amortization was $177,000 for the nine months ended
September 30, 1999 as compared to $169,000 for the same period in 1998, an
increase of $8,000. The increase in amortization is due to amortization of
goodwill of $41,000 recorded due to the purchase of Virologix Corporation
offset by lower depreciation reflecting that some major assets have been
fully depreciated.
5
Accordingly, this resulted in a loss for the nine months ended September 30,
1999 of $2,398,000, or a $0.58 basic and diluted loss per common share.
Year 2000 Issue
The Year 2000 ("Y2K") issue is the result of computer programs using two
instead of four digits to represent the year. These computer programs may
erroneously interpret dates beyond the year 1999, which could cause system
failures or other computer errors, leading to disruptions in operations.
The Company has developed a three-phase program to limit or eliminate Y2K
exposures. Phase I involved the identification of those systems, applications
and third-party relationships from which the Company has exposure to Y2K
disruptions in operations. Phase II is the development and implementation of
action plans to achieve Y2K compliance in all areas prior to the end of the
third quarter of 1999. Also included in Phase II is the development of
contingency plans which would be implemented should Y2K compliance not be
achieved in order to minimize disruptions in operations. Phase III is the
final testing or equivalent certification of testing of each major area of
exposure to ensure compliance. The Company has completed its Y2K program
with the exception of the implementation of one new computer program
expected to be operational in December 1999.
The Company identified three major areas determined to be critical for
successful Y2K compliance: Area 1 includes financial, research and development
and administrative informational systems applications reliant on system
software; Area 2 includes research, development and quality applications
reliant on computer programs embedded in microprocessors; and Area 3
includes third-party relationships which may be affected by Area 1 and 2
exposures which exist in other companies.
With respect to Area 1, the Company completed an internal review and
contacted all software suppliers to determine major areas of Y2K exposure. In
research, development and quality applications (Area 2), the Company worked
with equipment manufactures to identify our exposures. With respect to Area 3,
the Company evaluated our reliance on third parties in order to determine
whether their Y2K compliance will adequately assure our uninterrupted
operations.
The Company has completed Phase I of our Y2K program with respect to all
three of the major areas. The Company relies on PC-based systems and does not
expect to incur material costs to transition to Y2K compliant systems in its
internal operations. However, even if the internal systems of the Company are
not materially affected by the Y2K Issue, the Company could be affected by
third-party relationships which, if not Y2K compliant prior to the end of 1999,
could have a material adverse impact on our operations. The Company has
completed Phase II contingency planning and continues to monitor its third party
relationships. Most if not all of the third parties have informed the Company
that they will be in compliance by the end of the year. Contingency plans for
the Company will be continually refined, as additional information becomes
available.
As of September 30, 1999, we have identified costs related to replacement or
remediation and
6
testing of our Area 1 computer information systems. Having
completed the Phase I and Phase II evaluation, total costs to date are $6,000.
We estimate the potential future cost of our internal Y2K compliance programs
to be $3,000. The funds for these costs will be part of our current working
capital requirements. These costs will be expensed as incurred except for
equipment related costs.
PART II -- OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
None
ITEM 2 CHANGES IN SECURITIES
On July 20, 1999 the Company sold to 20 individual accredited investors
an aggregate of 1,501,000 shares of Common Stock at $2.00 per
share. The placement agent for such offering received warrants to
purchase 160,721 shares of Common Stock at $2.00 per share in
accordance with the offering terms and elected to receive 106,217
shares of Common Stock in lieu of certain sales commissions and
expenses. The Company raised an aggregate of $3,002,000 in
gross proceeds. The shares issued in the Private Placement have
not been registered; however, a registration statement for the
resale of such shares is planned to be filed 30 days after the final
closing of the Private Placement. 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.
Also on July 20, 1999 and simultaneously with the first closing of
the private placement, Access Holdings, Inc., a Delaware
corporation and a wholly-owned subsidiary of the Company (the
"Merger Sub") merged with and into Virologix Corporation, a
Delaware corporation ("Virologix"), the separate existence of the
Merger Sub ceased, and Virologix became a wholly-owned
subsidiary of the Company and each outstanding share of
Virologix' common stock was converted into 0.231047 shares of
the Company's common stock, representing 999,963 shares of
common stock of the Company. Certain of the shareholders of
Virologix signed a six month lockup agreement and others signed
a one year lockup. The shares issued in conjunction with the
merger have not been registered; however, a registration statement
for the resale of such shares is required to be effective on or
before January 20, 2000. 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.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
7
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:
2.2 Agreement of Merger and Plan of Reorganization, dated as
of February 23, 1999 among the Company, Access Holdings,
Inc. and Virologix Corporation (Incorporated by reference to
Exhibit 2.2 of the Company's Form 8-K filed on August 3,
1999)
10.18 Sales Agency Agreement
10.19 Registration Rights Agreement
27.1 Financial Data Schedule
Reports on Form 8-K:
On October 4, 1999, the Company filed a Current Report on Form
8-K/A related to Acquisition or Disposition of Assets, amending
the Form 8-K reporting such transaction filed August 3, 1999. On
February 23, 1999, the Company entered into an Agreement of
Merger and Plan of Reorganization, as amended (the "Agreement")
with Virologix Corporation, a Delaware corporation ("Virologix"),
and Access Holdings, Inc., a Delaware corporation and a wholly-
owned subsidiary of the Company (the "Merger Sub"). Pursuant
to the terms of the Agreement, on July 20, 1999 the Merger Sub
merged with and into Virologix, the separate existence of the
Merger Sub ceased, and Virologix became a wholly-owned
subsidiary of the Company and each outstanding share of
Virologix' common stock was converted into 0.231047 shares of
the Company's common stock, representing 999,963 shares of
common stock of the Company. The transaction has been
accounted for as a purchase.
8
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: November 15, 1999 By: /s/ Kerry P. Gray
------------------- -------------------
Kerry P. Gray
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 15, 1999 By: /s/ Stephen B. Thompson
------------------- -------------------------
Stephen B. Thompson
Chief Financial Officer
(Principal Financial and Accounting
Officer)
9
Access Pharmaceuticals, Inc. and Subsidiaries
(a development stage company)
Condensed Consolidated Balance Sheets
September 30, 1999 December 31, 1998
------------- -------------
ASSETS (unaudited)
Current assets
Cash and cash equivalents $ 2,026,000 $ 1,487,000
Accounts receivable 3,000 -
Prepaid expenses and other current assets 31,000 54,000
------------- -------------
Total current assets 2,060,000 1,541,000
------------- -------------
Property and equipment, at cost 1,016,000 1,007,000
Less accumulated depreciation
and amortization (880,000) (780,000)
------------- -------------
136,000 227,000
------------- -------------
Licenses, net 590,000 425,000
Investments 150,000 150,000
Goodwill 2,423,000 -
Other assets 8,000 8,000
------------- -------------
Total assets $ 5,367,000 $ 2,351,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 721,000 $ 395,000
Accrued insurance premiums 4,000 38,000
Deferred revenues 155,000 -
Current portion of obligations under
capital leases 50,000 99,000
------------- -------------
Total current liabilities 930,000 532,000
------------- -------------
Obligations under capital leases, net
of current portion - 24,000
------------- -------------
Total liabilities 930,000 556,000
------------- -------------
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 20,000,000 shares;
issued and outstanding, 6,036,582
at September 30, 1999 and
3,429,402 at December 31, 1998 60,000 34,000
Additional paid-in capital 29,920,000 24,906,000
Deficit accumulated during the
development stage (25,543,000) (23,145,000)
------------- -------------
Total stockholders' equity 4,437,000 1,795,000
------------- -------------
Total liabilities and
stockholders' equity $ 5,367,000 $ 2,351,000
============= =============
The accompanying notes are an integral part of these statements.
10
Access Pharmaceuticals, Inc. and Subsidiaries
(a development stage company)
Condensed Consolidated Statements of Operations
(unaudited)
Three Months ended Nine Months ended
September 30, September 30, February 24, 1988
-------------------------- -------------------------- (inception) to
1999 1998 1999 1998 Sept 30, 1999
------------ ------------ ------------ ------------ -------------
Revenues
Research and development $ - $ - $ - $ - $ 2,711,000
Option income - - - - 2,149,000
Licensing revenues - - - - 325,000
------------ ------------ ------------ ------------ -------------
Total revenues - - - - 5,185,000
------------ ------------ ------------ ------------ -------------
Expenses
Research and development 349,000 481,000 1,042,000 1,417,000 11,407,000
General and administrative 293,000 319,000 1,205,000 1,069,000 9,532,000
Depreciation and amortization 84,000 39,000 177,000 169,000 1,446,000
Write-off of excess purchase price - - - - 8,894,000
------------ ------------ ------------ ------------ -------------
Total expenses 726,000 839,000 2,424,000 2,655,000 31,279,000
------------ ------------ ------------ ------------ -------------
Loss from operations (726,000) (839,000) (2,424,000) (2,655,000) (26,094,000)
------------ ------------ ------------ ------------ -------------
Other income (expense)
Interest and miscellaneous income 18,000 29,000 37,000 37,000 869,000
Interest expense (3,000) (4,000) (11,000) (18,000) (191,000)
------------ ------------ ------------ ------------ -------------
15,000 25,000 26,000 19,000 678,000
------------ ------------ ------------ ------------ -------------
Loss before income taxes (711,000) (814,000) (2,398,000) (2,636,000) (25,416,000)
Provision for income taxes - - - - 127,000
------------ ------------ ------------ ------------ -------------
Net loss $ (711,000) $ (814,000) $(2,398,000) $(2,636,000) $(25,543,000)
============ ============ ============ ============ =============
Basic and diluted loss per
common share $ (0.13) $ (0.24) $ (0.58) $ (1.10)
============ ============ ============ ============
Weighted average basic and diluted
common shares outstanding 5,469,021 3,322,668 4,116,746 2,393,068
============ ============ ============ ============
The accompanying notes are an integral part of these statements.
11
Access Pharmaceuticals, Inc. and Subsidiaries
(a development stage company)
Condensed Consolidated Statements of Cash Flows
(unaudited)
Nine Months ended September 30, February 24, 1988
---------------------------- (inception) to
1999 1998 September 30, 1999
------------ ------------ -------------
Cash flows form operating activities:
Net loss $(2,398,000) $(2,636,000) $(25,543,000)
Adjustments to reconcile net loss
to net cash used in operating activities:
Write-off of excess purchase price - - 8,894,000
Warrants issued in payment of
consulting expense 296,000 - 865,000
Research expenses related to
common stock granted - 9,000 100,000
Depreciation and amortization 177,000 169,000 1,446,000
Deferred revenue 155,000 - 45,000
Licenses (100,000) - (100,000)
Change in operating assets and
liabilities:
Accounts receivable (3,000) 1,000 (4,000)
Prepaid expenses and other
current assets 23,000 39,000 (32,000)
Other assets - 2,000 (6,000)
Accounts payable and
accrued expenses (142,000) (145,000) (2,000)
------------ ------------ -------------
Net cash used in operating activities (1,992,000) (2,561,000) (14,337,000)
------------ ------------ -------------
Cash flows from investing activities:
Capital expenditures (3,000) (4,000) (1,171,000)
Sales of capital equipment - - 15,000
Purchase of Virologix (102,000) - (102,000)
Purchase of Tacora, net of cash acquired - - (124,000)
Other investing activities - (50,000) (150,000)
------------ ------------ -------------
Net cash used in investing activities (105,000) (54,000) (1,532,000)
------------ ------------ -------------
Cash flows from financing activities:
Proceeds from notes payable (80,000) - 641,000
Payments of principal on obligations
under capital leases (73,000) (149,000) (700,000)
Cash acquired in merger with Chemex - - 1,587,000
Proceeds from stock issuances, net 2,789,000 4,556,000 16,367,000
------------ ------------ -------------
Net cash provided by
financing activities 2,636,000 4,407,000 17,895,000
------------ ------------ -------------
Net increase in cash and cash
equivalents 539,000 1,792,000 2,026,000
Cash and cash equivalents at
beginning of period 1,487,000 438,000 -
------------ ------------ -------------
Cash and cash equivalents at
end of period $ 2,026,000 $ 2,230,000 $ 2,026,000
============ ============ =============
Cash paid for interest $ 11,000 $ 18,000 $ 188,000
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
Net liabilities assumed in acquisition
of Virologix Corporation 362,000 - 362,000
The accompanying notes are an integral part of these statements.
12
Access Pharmaceuticals, Inc. and Subsidiaries
(a development stage company)
Notes to Condensed Consolidated Financial Statements
Nine Months Ended September 30, 1999 and 1998
(unaudited)
(1) Interim Financial Statements
The consolidated balance sheet as of September 30, 1999 and the
consolidated statements of operations for the three and nine months
ended and cash flows for the nine months ended September 30,
1999 and 1998 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 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, 1998. The results of operations for the
period ended September 30, 1999 are not necessarily indicative of
the operating results which may be expected for a full year. The
consolidated balance sheet as of December 31, 1998 contains
financial information taken from the audited financial statements
as of that date.
(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 first quarter of 2000. The Company is
dependent on raising additional capital to fund the development of
its technology and to implement its business plan. Such dependence
will continue at least until the Company begins marketing products
resulting from its technologies.
If prior to the end of January 2000 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 second quarter of 2000.
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. If the Company is unable to raise
additional capital in the near term, it may be forced to suspend
operations.
The Company will require substantial funds to conduct research
and development programs, preclinical studies and clinical trials of
its potential products, including research and development with
respect to the newly acquired technology resulting from the
acquisition of
13
Virologix. 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 arrangements with potential
corporate partners, public or private financing, including the sale
of up to an additional $5 million of common stock at a price of $2
per share in the Company's current equity offering, 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 or that any
additional closings of its current equity offering will occur. 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.
The Independent Auditor's Report on the Company's 1998
consolidated financial statements included an emphasis paragraph
regarding the uncertainty of the Company's ability to continue as
a going concern.
(3) Private Placement
The Company has engaged an investment bank to assist the
Company in raising funds to support the Company's research and
development activities, working capital requirements, acquisitions
of complementary companies or technologies and general corporate
purposes. On July 20, 1999, with the assistance of the investment
bank, the Company completed the first closing of an offering of up
to $8 million of common stock at a per share price of $2.00 (the
offering), receiving gross proceeds of $3.0 million in such first closing,
less issuance costs of $213,000, from the private placement of
1,500,000 shares of Common Stock. The placement agent for such
offering received warrants to purchase 160,721 shares of Common
Stock at $2.00 per share, in accordance with the offering terms
and elected to receive 106,217 shares of Common Stock in lieu of
certain sales commissions and expenses. There can be no
assurances that any additional closings of the private placement
will take place.
If and when the Company satisfies all listing requirements, including
minimum share price and net equity equirements, 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.
14
(4) Merger
On July 20, 1999 and simultaneously with the first closing of the
offering, Access Holdings, Inc., a Delaware corporation and a
wholly-owned subsidiary of the Company (the "Merger Sub")
merged with and into Virologix Corporation, a Delaware
corporation ("Virologix"), the separate existence of the Merger
Sub ceased, and Virologix became a wholly-owned subsidiary of
the Company and each outstanding share of Virologix' common
stock was converted into 0.231047 shares of the Company's
common stock, representing 999,963 shares of common stock of
the Company. The transaction has been accounted for as a
purchase.
The following table reflects unaudited consolidated pro forma
results of operations of Access and Virologix on the basis that the
acquisition had taken place at the beginning of each period
presented. Such pro forma amounts are not necessarily indicative
of what the actual consolidated results of operations might have
been if the acquisition had been effective at the beginning of the
respective periods.
Three months ended Nine months ended
September 30, September 30,
------------------------- ------------------------
1999 1998 1999 1998
----------- ----------- ----------- ----------
Revenue $ - $ - $ - $ -
Net loss (731) (1,032) (2,738) (3,302)
Basic and diluted
net loss per share $ (0.12) $ (0.17) $ (0.45) $ (0.66)
15