SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission File
March 31, 1996 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 N Stemmons Frwy, Suite 210, Dallas, TX 75207
-------------------------------------------------
(Address of principal executive offices)
Telephone Number (214) 905-5100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirement for the past 90 days.
Yes_X_ No___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock outstanding as
of May 10, 1996 31,377,610 shares, $0.04 par value
------------------- ----------
Total No. of Pages 13
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
The response to this Item is submitted as a separate section of this report.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In connection with the merger of ACCESS Pharmaceuticals, Inc., a Texas
corporation ("API") with and into the Chemex Pharmaceuticals, Inc. ("Chemex") on
January 25, 1996, the name of Chemex was changed to ACCESS Pharmaceuticals, Inc.
("ACCESS" or the "Company").
Until the sale of its rights to the drug Amlexanox in September 1995 to Block
Drug Company ("Block"), Chemex focused on the development of novel drugs for the
treatment of various skin diseases and had a diversified portfolio of drugs
under development.
As consideration for the sale of the Company's share of Amlexanox, Block (a)
made an initial non-refundable upfront royalty payment of $2.5 million; (b) is
obligated to pay the Company $1.5 million as a prepaid royalty at the end of the
calendar month during which Block together with any sublicensee has achieved
cumulative worldwide sales of Amlexanox oral products of $25 million; and (c)
after the payment of such $1.5 million royalty, is obligated to pay the Company
a royalty for all sales in excess of cumulative worldwide sales of Amlexanox
oral products of $45 million, as defined in the agreement.
ACCESS' obligations following such sale are limited to performing reasonable
activities in support of obtaining FDA approval of Amlexanox until the earlier
of (i) three years after FDA approval of Amlexanox, or (ii) the liquidation or
dissolution of ACCESS. An NDA for Amlexanox was filed in April 1995 and the
Company is awaiting approval of this product. As a result, there have been no
sales of Amlexanox to date.
Subsequent to the Merger of API into ACCESS, the Company has been managed by the
former management of API and the focus of the Company changed to the
development of enhanced delivery of parenteral therapeutic and diagnostic
imaging agents through the utilization of its patented and proprietary
endothelial binding technology which selectively targets sites of disease. The
Company has a broad platform technology for enhancing the site targeting of
intravenous therapeutic drugs, MRI contrast agents and radiopharmaceutical
diagnostic and therapeutic agents. The ACCESS technology is based on natural
carbohydrate carriers.
The technology development of the Company is currently focused on increasing the
therapeutic benefit of oncology agents and improving the efficiency of oncology
diagnosis by selectively targeting sites of disease and accelerating drug
clearance.
The Company has developed four possible product candidates, two of which are
anticipated to be ready to be advanced into human testing in the first half of
1997. These product candidates are new formulations of existing compounds which
increase therapeutic efficacy and reduce toxicity, designed to address the
clinical shortfalls of available treatments.
2
<PAGE>
As a result of the merger and immediately after the merger, the former API
Stockholders owned approximately 60% of the issued and outstanding shares of the
Company. Generally accepted accounting principles require that a company whose
stockholders retain the controlling interest in a combined business be treated
as the acquiror for accounting purposes. As a consequence, the merger is being
accounted for as a "reverse acquisition" for financial reporting purposes and
API has been deemed to have acquired an approximate 60% interest in Chemex.
Despite the financial reporting requirement to account for the acquisition as a
"reverse acquisition," Chemex remains the continuing legal entity and registrant
for Securities and Exchange Commission reporting purposes.
The unaudited balance sheet, statement of operations and statement of cash flow
have been prepared using "purchase" accounting with API as the acquirer. The
values used in the preparation of the financial statements were determined based
on negotiations between Chemex and API and comparable values for companies at
API's stage of development. As a result, common stock and paid in capital of API
was recorded at a $10.0 million valuation. The excess purchase price over the
fair value of Chemex's assets was written off in the first quarter of 1996. The
accompanying balance sheet at December 31, 1995 and the related statements of
operations and cash flow for the three months ended March 31, 1995 are the
financial statements of API.
RECENT DEVELOPMENTS
On April 26, 1996, ACCESS executed a letter of intent to acquire Tacora Corp., a
privately-held pharmaceutical company based in Seattle. The transaction is
expected to close in the next 60-90 days. Under the terms of the letter of
intent, the purchase price is contingent upon the achievement of certain
milestones. Stock valued at up to a maximum of $14,000,000 could be payable to
Tacora's shareholders over a 30 month period on an escalating value over the
milestone period. The consummation of the transaction is subject to customary
conditions to closing including completion of due diligence, negotiation of
definitive documents and approval of the stockholders of Tacora Corp.
Liquidity and Capital Resources
Working capital as of March 31, 1996 was $6,419,000, an increase of $6,934,000
as compared to the working capital as of December 31, 1995 of $(515,000). The
increase in working capital was principally due to the $6 million in proceeds
from private placement of 8.57 million shares of common stock in March 1996 and
the addition of $1.84 million in working capital of Chemex resulting from the
Merger between Chemex and API net. Based on completion of the private placement,
$480,000 in issuance costs was paid to a consultant. The net cash infusion from
the private placement will be used to continue the development of the ACCESS
technology which focuses on increasing the therapeutic benefit and improving
the efficiency of oncology therapeutics and diagnostic agents by selectively
targeting sites of disease and accelerating drug clearance. The shares issued in
the private placement have not been registered; however, the Company has agreed
to file a registration statement within 90 days of the date of issuance. The
investors have agreed not to sell any of the shares purchased in the private
placement until 180 days after the closing.
Management believes its working capital will cover planned operations through
December 1997.
Currently royalty revenues are not expected during 1996. Research and
development expenditures to advance product candidates to human testing will
remain high for several years and there can be no assurance that the Company
will be successful in attaining a partner or future equity financing to complete
the testing of its products.
3
<PAGE>
First Quarter 1996
Compared to
First Quarter 1995
First quarter 1996 revenues were $165,000 as compared to $135,000 in 1995, an
increase of $30,000. The increase in revenues for the first quarter of 1996 as
compared to the comparable 1995 period was principally due to $165,000 of option
payments recorded as income in the first quarter related to a third-party
evaluation of certain of the Company's technology. The company performing the
evaluation elected not to extend the option period beyond March 29, 1996. An
additional $110,000 option payments was converted to a non-interest bearing loan
due the pharmaceutical company. First quarter 1995 revenues were comprised of
sponsored research and development revenues.
Total research spending for the first quarter of 1996 was $181,000 as compared
to $215,000 for the same period in 1995, a decrease of $34,000. The decrease in
expenses was the result of a decrease in external research expenditures.
Research spending will increase in the future quarters as the Company has
initiated the hiring of additional scientific management and staff and is
accelerating activities to develop the Company's product candidates.
Total general and administrative expenses were $336,000 for the first quarter of
1996, an increase of $182,000 as compared to the same period in 1995. The
increase in spending was due to the following: professional expenses due to the
Merger, Private Placement offering costs and legal costs of being a public
company-$100,000; director fees and director and officer insurance- $39,000;
general business consulting fees and expenses- $15,000; and other increases
totalling $28,000.
Excess purchase price over the fair value of Chemex's assets of $8,314,000 was
recorded and correspondingly written off in the first quarter due to the merger
between API and Chemex.
Accordingly, total expenses were $8,880,000, including $8,314,000 of excess
purchase price written off, which resulted in a loss for the quarter of
$8,685,000, or $.34 per share.
Certain statements in this Form 10-Q are forward-looking statements that involve
risks and uncertainties, including but not limited to research and development
focus, uncertainties associated with research and development activities, future
capital requirements and dependence on others, and other risks detailed in the
Company's reports filed under the Securities Exchange Act, including the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
4
<PAGE>
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
Exhibits: (27) Financial Data Schedule.
Reports on Form 8-K:
8-K filed on January 25, 1996 reporting information under Item 2 and
4.
8-K filed on March 5, 1996 reporting information under Item 2.
5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ACCESS PHARMACEUTICALS, INC.
Date: May 17, 1996 By: /s/ Kerry P. Gray
-------------------------- -----------------
Kerry P. Gray
(President and Chief Executive
Officer)
6
<PAGE>
ACCESS PHARMACEUTICALS, INC.
a development stage company
Balance Sheets
<TABLE>
<CAPTION>
Assets March 31, 1996 December 31, 1995
- ------ -------------- -----------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $6,813,000 $ 30,000
Accounts receivable - 3,000
Prepaid expenses and other current assets 65,000 4,000
---------- ----------
Total current assets 6,878,000 37,000
---------- ----------
Property and Equipment, at cost 559,000 558,000
Less accumulated depreciation (209,000) (173,000)
----------- ----------
350,000 385,000
----------- ----------
Other Assets 2,000 2,000
----------- ----------
Total Assets $7,230,000 $ 424,000
=========== ==========
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities
Accounts payable and accrued expenses $317,000 $169,000
Unearned revenue - 150,000
Note payable due to Chemex Pharmaceuticals, Inc. - 100,000
Current portion of obligations under
capital leases 142,000 133,000
------------- -----------
Total current liabilities 459,000 552,000
------------- -----------
Obligations under capital leases,
net of current portion 190,000 220,000
Note payable 110,000 -
------------- ------------
Total liabilities 759,000 772,000
------------- -----------
Commitments and Contingencies
Stockholders' Equity (Deficit)
Preferred stock, at March 31, $.01 par value, authorized
10,000,000 shares, none issued or outstanding;
at December 31, 1995, $.10 par value, authorized - -
1,000,000 shares, none issued or outstanding
Common stock, at March 31, $.04 par value, authorized
40,000,000 shares, issued and outstanding 31,290,182
shares; at December 31, 1995 $.01 par value,
authorized 10,000,000 shares, issued and
outstanding 3,639,928 shares 1,252,000 36,000
Additional paid-in capital 17,748,000 3,460,000
Deficit accumulated during the development stage (12,529,000) (3,844,000)
------------ -----------
Total Stockholders' Equity (Deficit) 6,471,000 (348,000)
------------ -----------
Total Liabilities and Stockholders' Equity (Deficit) $7,230,000 $ 424,000
============ ===========
</TABLE>
- ----------------------------------------------
See accompanying notes to financial statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations.
7
<PAGE>
ACCESS PHARMACEUTICALS, INC.
a development stage company
Statements of Operations
<TABLE>
<CAPTION>
Three months ended March 31, February 24, 1988
----------------------------- (Inception) to
1996 1995 March 31, 1996
----------------------------- ------------------
<S> <C> <C> <C>
Revenues
Sponsored research and development $ - $ 135,000 $2,711,000
Option income 165,000 - 2,037,000
------------ ---------- ----------
Total Revenues 165,000 135,000 4,748,000
------------ ---------- ----------
Expenses
Sponsored research and development - 187,000 2,172,000
Proprietary research and development 181,000 28,000 2,535,000
General and administrative 336,000 154,000 3,723,000
Interest 13,000 21,000 89,000
Depreciation and amortization 36,000 31,000 807,000
Write off of excess purchase price 8,314,000 - 8,314,000
------------ ---------- ----------
Write-off of Total Expenses 8,880,000 421,000 17,640,000
------------ ---------- ----------
Net loss from operations (8,715,000) (286,000) (12,892,000)
------------ ---------- ----------
Other Income
Interest and miscellaneous income 30,000 3,000 489,000
------------ ----------- ----------
Net loss before income taxes (8,685,000) (283,000) (12,403,000)
Provision for income taxes - - 127,000
----------- ----------- ----------
Net loss after income taxes ($8,685,000) ($283,000) ($12,530,000)
=========== =========== ==========
Net loss per common share ($0.34) ($0.10)
============ ===========
Average number of common and equivalent
common shares outstanding 25,535,239 2,918,328
============ ===========
</TABLE>
See accompanying notes to financial statements
8
<PAGE>
ACCESS PHARMACEUTICALS, INC.
a development stage company
Statements of Cash Flows
<TABLE>
<CAPTION>
Three months ended March 31, February 24, 1988
--------------------------- (Inception) to
1996 1995 March 31, 1996
--------------------------- -----------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net loss $(8,685,000) $ (283,000) ($12,530,000)
Adjustments to reconcile net loss to
cash used in operating activities:
Write-off of Excess purchase price 8,314,000 - 8,314,000
Depreciation and amortization 36,000 31,000 817,000
Change in assets and liabilities:
Accounts receivable 3,000 - -
Prepaid expenses and other current assets (61,000) 15,000 (67,000)
Accounts payable and accrued expenses 148,000 11,000 270,000
Unearned revenue (150,000) (135,000) -
-------- ---------- ------------
Net Cash Used in Operating Activities (395,000) (361,000) (3,196,000)
-------- ---------- -------------
Cash Flows From Investing Activities
Capital expenditures (1,000) - (1,120,000)
-------- ---------- -------------
Net Cash Used In Investing Activities (1,000) - (1,120,000)
-------- ---------- -------------
Cash Flows From Financing Activities
Repayment of notes payable (21,000) (38,000) (170,000)
Proceeds from notes payable 110,000 612,000
Cash acquired in Merger 587,000 - 1,839,000
Proceeds from stock issuances, net 5,503,000 - 9,000,000
--------- ----------- -----------
Net Cash Provided By (Used In) Financing Activities 7,179,000 (38,000) 11,281,000
--------- ------------ -----------
Net Increase (Decrease) in Cash and
Cash Equivalents 6,783,000 (399,000) 6,813,000
Cash and Cash Equivalents at Beginning of Period 30,000 533,000 -
---------- ----------- -----------
Cash and Cash Equivalents at End of Period $6,813,000 $134,000 #6,813,000
========== =========== ===========
Supplemental disclosure of non cash transaction:
Elimination of note payable to Chemex
Pharmaceuticals due to Merger $100,000 -
</TABLE>
See accompanying notes to financial statements
9
<PAGE>
ACCESS PHARMACEUTICALS, INC.
Notes to Financial Statements
Three Months Ended March 31, 1996 and 1995
(1) Interim Financial Statements
The balance sheet as of March 31, 1996 and the statements of operations
and cash flows for the three months ended March 31, 1996 and 1995 were
prepared by management without audit. In the opinion of management, all
adjustments, including only normal recurring adjustments necessary for
the fair presentation of the financial position, results of operations,
and changes in financial position for such periods, have been made,
except for the merger accounting discussed below.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report to
the Securities and Exchange Commission on Form 10-K for the year ended
December 31, 1995. The results of operations for the period ended March
31, 1996 are not necessarily indicative of the operating results which
may be expected for a full year. The balance sheet as of December 31,
1995 contains financial information taken from the audited financial
statements as of that date.
ACCESS Pharmaceuticals, Inc., a Texas corporation ("API") merged with and
into Chemex Pharmaceuticals, Inc. ("Chemex") on January 25, 1996. Under
the terms of the agreement, API was merged into Chemex with Chemex as the
surviving legal entity. The name of Chemex was changed to ACCESS
Pharmaceuticals, Inc. ("ACCESS" or the "Company"). Chemex acquired all of
the outstanding shares of API in exchange for 13,919,979 shares of
registered common stock of Chemex.
The Company is engaged in research and development activities with a
broad platform technology for enhancing the site targeting of intravenous
therapeutic drugs, MRI contrast agents and radiopharmaceutical diagnostic
and therapeutic agents. The ACCESS technology is based on natural
carbohydrate carriers.
As a result of the merger and immediately after the merger, the former
API stockholders owned approximately 60% of the issued and outstanding
shares of the Company. Generally accepted accounting principles require
that a company whose stockholders retain the controlling interest in a
combined business be treated as the acquiror for accounting purposes. As
a consequence, the merger was accounted for as a "reverse acquisition"
for financial reporting purposes and API has been deemed to have acquired
an approximate 60% interest in Chemex. Despite the financial reporting
requirement to account for the acquisition as a "reverse acquisition,"
Chemex remains the continuing legal entity and registrant for Securities
and Exchange Commission reporting purposes. However, the name of Chemex
was changed to ACCESS Pharmaceuticals, Inc. ("ACCESS" or the "Company").
The unaudited balance sheet at March 31, 1996 and statement of
operations and statement of cash flow have been prepared using "purchase"
accounting with API as the acquirer. The values used in the preparation
of the financial statements were determined based on negotiations between
Chemex and API and comparable values for companies at API's stage of
development. As a result, common stock and paid in capital of API was
recorded at a $10.0 million valuation. The excess purchase price over the
fair value of Chemex's assets of $8,314,000 was written off in the first
quarter of 1996. The balance sheet at December 31, 1995 and the related
statements of operations and cash flows per the three months ended March
31, 1995 are the statements of API.
Proforma condensed results of operations "as if" the acquisition had been
made on January 1, 1996 and 1995, respectively, are as follows:
Three months ended March 31
---------------------------
1996 1995
---- ----
Revenues $ 195,000 $ 388,000
Expenses 566,000 1,268,000
--------- ----------
Net income (loss) (371,000) (880,000)
========= ==========
Earnings (loss) per share ($0.01) ($0.04)
========= ==========
10
<PAGE>
ACCESS PHARMACEUTICALS, INC.
Notes to Financial Statements
Three Months Ended March 31, 1996 and 1995
(2) In March 1996 the Company concluded a $6 million Private Placement of
8.57 million shares of common stock. The cash infusion will be used to
continue the advancement of the ACCESS technology which focuses on
increasing the therapeutic benefit and improving the efficiency of
oncology therapeutics and diagnostic agents by selectively targeting
sites of disease and accelerating drug clearance. The shares issued in
the private placement have not been registered, however the Company has
agreed to file a registration statement within 90 days of the issuance
covering such shares. The investors have agreed not to sell any of the
shares purchased in the offering until 180 days after the closing.
(3) SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," effective for fiscal years
beginning after December 15, 1995, requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. In addition,
this statement requires that long-lived assets and certain identifiable
intangibles to be disposed of be reported at the lower of carrying amount
or fair value less cost to sell. The Company adopted this statement
January 1, 1996, and the adoption of SFAS No. 121 did not have material
impact on the financial condition of the Company.
(4) SFAS No. 123, "Accounting for Stock Based Compensation," effective for
fiscal years beginning after December 15, 1995 established financial,
accounting and reporting standards for stock-based employee compensation
plans. These plans include all arrangements by which employees receive
shares of stock or other equity investments of the employer or the
employer incurs liabilities to employees in amounts based on the price of
the employer's stock. This statement also applies to transactions in
which an entity issues its equity instruments to acquire goods or
services from non-employees. The Company has elected to account for
employee stock compensation plans under APB 25 and accordingly only
selected the disclosure requirements of FASB 123. Such additional
disclosure requirements will be presented by the Company in its 1996 Form
10-K.
(5) On April 26, 1996, ACCESS executed a letter of intent to acquire Tacora
Corp., a privately-held pharmaceutical company based in Seattle. The
transaction is expected to close in the next 60-90 days. Under the terms
of the letter of intent, the purchase price is contingent upon the
achievement of certain milestones. Stock valued at up to a maximum of
$14,000,000 could be payable to Tacora's shareholders over a 30 month
period on an escalating value over the milestone period. The consummation
of the transaction is subject to customary conditions to closing
including completion of due diligence, negotiation of definitive
documents and approval of the stockholders of Tacora Corp.
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILED AS
PART OF THE QUARTERLY REPORT ON FORM 10-Q AS AMENDED BY AMENDMENT NO. 1 ON FORM
10-Q/A AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT
ON FORM 10-Q AS AMENDED BY AMENDMENT NO. 1 ON FORM 10-Q/A.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 6,813
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,878
<PP&E> 559
<DEPRECIATION> 209
<TOTAL-ASSETS> 7,230
<CURRENT-LIABILITIES> 459
<BONDS> 0
0
0
<COMMON> 1,252
<OTHER-SE> 5,219
<TOTAL-LIABILITY-AND-EQUITY> 7,230
<SALES> 0
<TOTAL-REVENUES> 165
<CGS> 0
<TOTAL-COSTS> 8,867
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13
<INCOME-PRETAX> (8,685)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,685)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,685)
<EPS-PRIMARY> (.34)
<EPS-DILUTED> (.34)
</TABLE>
