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 MARCH 31, 1997
Commission File Number 0-9314
ACCESS PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 83-0221517
- ------------------------- --------------------------
(State of Incorporation) (I.R.S. Employer I.D. No.)
2600 Stemmons Frwy, Suite 176, Dallas, TX 75207
------------------------------------------------
(Address of principal executive offices)
Telephone Number (214) 905-5100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirement for the past 90 days.
Yes X No
-------- ---------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock outstanding as
of May 14, 1997 31,391,324 shares, $0.04 par value
------------ ----------
Total No. of Pages 11
<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
RECENT DEVELOPMENTS
On April 25, 1997, the Company filed a Definitive Proxy Statement with the
Securities and Exchange Commission requesting shareholder approval to amend
Access' Certificate of Incorporation, as amended, to effect a
recapitalization of the Company through a one for four reverse stock split
of Access common stock (the "Common Stock") and decrease the number of
authorized shares of Common Stock from 60.0 million to 25.0 million.
This proposal, if approved, would decrease the number of outstanding shares
of Common Stock from approximately 31.4 million to 7.9 million.
If the proposal is approved by shareholders, the Company intends to submit
an application for listing on the NASDAQ SmallCap Market or an exchange if
it meets all qualifications for such listing. The Company believes
that securing a NASDAQ or an exchange listing along with the reverse split
would improve Access' ability to finance the Company's research activities
under more favorable terms since institutional investors and
investment community members which generally have restrictions on investing
in unlisted companies. There can be no assurances the market price
immediately after the implementation of the proposed reverse stock split
will increase, and if it does increase, there can be no assurance that such
increase can be maintained for any period of time, or that such market price
will approximate four times the market price before the proposed reverse
stock split. There can be no assurances that the Company will be listed
on the NASDAQ SmallCap Market or an exchange.
On February 5, 1997 the Company announced the signing of a letter of intent
to enter into collaboration with The Dow Chemical Company ("Dow") for the
development of products incorporating Dow's chelation technology and
Access' bioresponsive polymer systems. The closing of the agreement is
subject to negotiation of definitive documents and final approval by both
parties. The collaboration will focus on the development of MRI
contrast agents and radiopharmaceutical diagnostics and therapeutics. The
advancement of the Access developments in these areas are dependent on
securing chelation technology, which encapsulates metals to avoid adverse
effects on the body.
On April 26, 1996, Access Pharmaceuticals, Inc. ("Access" or "the Company")
executed a letter of intent to acquire Tacora Corp., a privately-held
pharmaceutical company based in Seattle. The transaction is expected to
close shortly. Under the terms of the letter of intent, the purchase price
is contingent upon the achievement of certain milestones. In addition to cash
of $250,000 and $100,000 in common stock paid at closing, stock up to a
maximum value of $14,000,000 could be payable to Tacora's shareholders over
a 30 month period on an escalating value over the milestone period. The
consummation of the transaction is subject to customary conditions
2
<PAGE>
to closing and approval of the stockholders of Tacora Corp.
Liquidity and Capital Resources
Working capital as of March 31, 1997 was $3,175,000, a decrease of $769,000
as compared to the working capital as of December 31, 1996 of $3,944,000.
The decrease in working capital was anticipated and was due to operating
expenses for research and development and general and administrative
expenses offset by licensing revenue and interest income.
Royalty revenues and other significant revenues are not expected during
the remainder of 1997. Research and development expenditures to advance
products into human testing will remain high for several years and will
require the Company to enter into collaborations with partners and/or to
raise additional funds through equity financing. There can be no assurance
that the Company will be successful in attaining a partner or future
equity financing on acceptable terms to complete the testing of its products.
With the Company's current budget and it's anticipated option and licensing
revenues, management believes working capital will cover planned operations
through the end of 1998. If the anticipated revenues are delayed or
do not occur or the Company is unsuccessful in raising additional capital
on acceptable terms, research and development and general and
administrative expenditures would be curtailed so that working capital
would cover operations through approximately the end of 1998.
First Quarter 1997
Compared to
First Quarter 1996
The Company had $138,000 in licensing revenue in the first quarter 1997 as
compared to $165,000 in option income in 1996. First quarter 1997
revenues were comprised of licensing income from an ongoing agreement
while 1996 option revenues were from an option agreement for rights to
certain of the Company's technology that terminated in April 1996.
Total research spending for the first quarter of 1997 was $504,000 as
compared to $208,000 for the same period in 1996, an increase of $296,000.
The increase in expenses was the result of the increase in staffing for
projects and external contract research costs. Research spending
is expected to increase in future quarters as the Company has hired
additional scientific management and staff and is accelerating activities
to develop the Company's product candidates.
Total general and administrative expenses were $405,000 for the first quarter
of 1997, an increase of $96,000 as compared to the same period in 1996.
The increase in spending was due primarily to the following: salaries
and salary related expenses of recently hired employees-$60,000; increased
general business consulting fees-$34,000; director fees and director and
officer insurance- $17,000; offset by other net miscellaneous
decreases- $15,000.
Excess purchase price over the fair value of Chemex Pharmaceuticals, Inc.'s
("Chemex") net assets of $8,314,000 was recorded and written off in the
first quarter of 1996 due to an immediate impairment of the excess purchase
price.
3
<PAGE>
Interest and miscellaneous income was $47,000 for the first quarter of 1997
as compared to $30,000 for the same period in 1996, an increase of $17,000.
The increase was due to interest income from higher cash balance due to $6
million in gross proceeds from a private placement of 8.57 million shares
of common stock in March 1996.
Total expenses in the first quarter of 1997 were $941,000, with licensing
income and interest income of $185,000, resulting in a loss for the quarter
of $764,000, or $.02 per share.
Certain statements in this Form 10-Q including Management's Discussion and
Analysis of Financial Condition and Results of Operations, are forward-
looking statements that involve risks and uncertainties. In addition to
the risks and uncertainties set forth in this Form 10-Q, other factors could
cause actual results to differ materially, including but not limited to the
Company's research and development focus, uncertainties associated with
research and development activities, future capital requirements,
anticipated option and licensing revenues, dependence on others, and other
risks detailed in the Company's reports filed under the Securities Exchange
Act, including but not limited to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996.
PART II -- OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
None
ITEM 2 CHANGES IN SECURITIES
None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None
ITEM 5 OTHER INFORMATION
On April 25, 1997, the Company filed a Definitive Proxy Statement with
the Securities and Exchange Commission requesting shareholder approval
to amend Access' Certificate of Incorporation, as amended,
to effect a recapitalization of the Company through a one for four
reverse stock split of Access common stock (the "Common Stock") and
decrease the number of authorized shares of Common Stock from 60.0
million to 25.0 million. This proposal, if approved, would decrease
the number of outstanding shares of Common Stock from approximately
31.4 million to 7.9 million.
If the proposal is approved by shareholders, the Company intends to
submit an application for listing on the NASDAQ SmallCap Market or an
exchange if it meets all qualifications
4
<PAGE>
for such listing. The Company believes that securing a NASDAQ or an
exchange listing along with the reverse split would improve Access'
ability to finance the Company's research activities under more
favorable terms since institutional investors and investment community
members which generally have restrictions on investing in unlisted
companies. There can be no assurances the market price immediately
after the implementation of the proposed reverse stock split will
increase, and if it does increase, there can be no assurance that
such increase can be maintained for any period of time, or that such
market price will approximate four times the market price before the
proposed reverse stock split. There can be no assurances that the
Company will be listed on the NASDAQ SmallCap Market or any exchange.
On February 5, 1997 the Company announced the signing of a letter of
intent to enter into collaboration with The Dow Chemical Company
("Dow") for the development of products incorporating Dow's chelation
technology and Access' bioresponsive polymer systems. The closing of
the agreement is subject to negotiation of definitive documents and
final approval by both parties. The collaboration will focus on the
development of MRI contrast agents and radiopharmaceutical diagnostics
and therapeutics. The advancement of the Access developments in these
areas are dependent on securing chelation technology, which encapsulates
metals to avoid adverse effects on the body.
On April 26, 1996, Access Pharmaceuticals, Inc. ("Access" or "the
Company") executed a letter of intent to acquire Tacora Corp., a
privately-held pharmaceutical company based in Seattle. The
transaction is expected to close shortly. Under the terms of the
letter of intent, the purchase price is contingent upon the achievement
of certain milestones. In addition to cash of $250,000 and $100,000
in common stock paid at closing, stock up to a maximum value of
$14,000,000 could be payable to Tacora's shareholders over a 30 month
period on an escalating value over the milestone period. The
consummation of the transaction is subject to customary conditions to
closing and approval of the stockholders of Tacora Corp.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
Exhibits: None
Reports on Form 8-K: None
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 14, 1997 By: /s/ Kerry P. Gray
------------ -------------------
Kerry P. Gray
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 1997 By: /s/ Stephen B. Thompson
------------ ------------------------
Stephen B. Thompson
Chief Financial Officer
(Principal Financial and Accounting Officer)
6
<PAGE>
ACCESS PHARMACEUTICALS, INC.
a development stage company
Balance Sheets
<TABLE>
<CAPTION>
Assets March 31, 1997 December 31, 1996
----------- -----------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 3,485,000 $ 4,428,000
Accounts receivable 2,000 1,000
Prepaid expenses and other current assets 171,000 190,000
----------- -----------
Total current assets 3,658,000 4,619,000
----------- -----------
Property and Equipment, at cost 590,000 585,000
Less accumulated depreciation (317,000) (285,000)
----------- -----------
273,000 300,000
----------- -----------
Other Assets 9,000 9,000
----------- -----------
Total Assets $ 3,940,000 $ 4,928,000
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses $ 282,000 $ 449,000
Accrued insurance premium 55,000 74,000
Current portion of obligations under
capital leases 146,000 152,000
----------- -----------
Total current liabilities 483,000 675,000
----------- -----------
Obligations under capital leases,
net of current portion 51,000 83,000
Note payable 110,000 110,000
----------- -----------
Total liabilities 644,000 868,000
----------- -----------
Stockholders' Equity
Preferred stock, at March 31, 1997
and December 31, 1996, $.01 par value,
authorized 10,000,000 shares, none
issued or outstanding - -
Common stock, at March 31, 1997
and December 31, 1996 $.04 par value,
authorized 60,000,000 shares, issued
and outstanding 31,391,324 shares 1,256,000 1,256,000
Additional paid-in capital 18,111,000 18,111,000
Deficit accumulated during the
development stage (16,071,000) (15,307,000)
----------- -----------
Total Stockholders' Equity 3,296,000 4,060,000
----------- -----------
Total Liabilities and Stockholders' Equity $ 3,940,000 $ 4,928,000
=========== ===========
</TABLE>
- ----------------------------------------------
See accompanying notes to financial statements
7
<PAGE>
ACCESS PHARMACEUTICALS, INC.
a development stage company
Statements of Operations
<TABLE>
<CAPTION>
Three Months ended March 31, February 24, 1988
--------------------------- (inception) to
1997 1996 March 31, 1997
------------- ------------- -------------
<S> <C> <C> <C>
Revenues
Sponsored research and
development $ - $ - $ 2,711,000
Licensing revenue 138,000 - 138,000
Option income - 165,000 2,039,000
------------- ------------- -------------
Total Revenues 138,000 165,000 4,888,000
------------- ------------- -------------
Expenses
Research and development 504,000 208,000 6,680,000
General and administrative 405,000 309,000 5,484,000
Depreciation and amortization 32,000 36,000 926,000
Write-off of excess purchase
price - 8,314,000 8,314,000
------------- ------------- -------------
Total Expenses 941,000 8,867,000 21,404,000
------------- ------------- -------------
Loss from operations (803,000) (8,702,000) (16,516,000)
------------- ------------- -------------
Other Income (Expense)
Interest and miscellaneous
income 47,000 30,000 702,000
Interest expense (8,000) (13,000) (130,000)
------------- ------------- -------------
Loss before income taxes (764,000) (8,685,000) (15,944,000)
Provision for income taxes - - 127,000
------------- ------------- -------------
Net Loss $ (764,000) $ (8,685,000) $(16,071,000)
============= ============= =============
Loss per share ($0.02) ($0.34)
============= =============
Average number of common
and equivalent common
shares outstanding 31,391,324 25,535,239
============= =============
</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 1997 March 31, 1997
------------- ------------- -------------
<S> <C> <C> <C>
Cash Flows form Operating Activities
Net loss $ (764,000) $(8,685,000) $(16,071,000)
Adjustments to reconcile net
loss to cash used in
operating activities:
Write-off of excess purchase price - 8,314,000 8,314,000
Consulting expense related
to warrants granted - - 344,000
Depreciation and amortization 32,000 36,000 926,000
Change in assets and liabilities:
Accounts receivable (1,000) 3,000 (2,000)
Prepaid expenses and other
current assets 19,000 (61,000) (172,000)
Other assets - - (7,000)
Accounts payable and
accrued expenses (186,000) 148,000 290,000
Unearned revenue - (150,000) -
------------- ------------- -------------
Net Cash Used in
Operating Activities (900,000) (395,000) (6,378,000)
------------- ------------- -------------
Cash Flows From Investing Activities
Capital expenditures (5,000) (1,000) (1,153,000)
------------- ------------- -------------
Net Cash Used in
Investing Activities (5,000) (1,000) (1,153,000)
------------- ------------- -------------
Cash Flows From Financing Activities
Payments of principal on obligations
under capital leases (38,000) (21,000) (314,000)
Proceeds from notes payable - 110,000 721,000
Proceeds from merger with Chemex
Pharmaceuticals - 1,587,000 1,587,000
Proceeds from stock
issuances, net - 5,503,000 9,022,000
------------- ------------- -------------
Net Cash Provided By (used in)
Financing Activities (38,000) 7,179,000 11,016,000
------------- ------------- -------------
Net Increase (Decrease) in Cash and
Cash Equivalents (943,000) 6,783,000 3,485,000
Cash and Cash Equivalents
at Beginning of Period 4,428,000 30,000 -
------------- ------------- ------------
Cash and Cash Equivalents
at End of Period $ 3,485,000 $ 6,813,000 $ 3,485,000
============= ============= =============
Supplemental disclosure of non cash transactions:
eliminations of note payable to Chemex
Pharmaceutical due
to merger $ - $ 100,000
</TABLE>
- ----------------------------------------------
See accompanying notes to financial statements
9
<PAGE>
ACCESS PHARMACEUTICALS, INC.
a development stage company
Notes to Financial Statements
Three Months Ended March 31, 1997 and 1996
(1) Interim Financial Statements
The balance sheet as of March 31, 1997 and the
statements of operations and cash flows for the
three months ended March 31, 1997 and 1996 were
prepared by management without audit. In the
opinion of management, all adjustments, including
only normal recurring adjustments necessary for
the fair presentation of the financial position,
results of operations, and changes in financial
position for such periods, have been made.
Certain reclassifications have been made to
prior year financial statements to conform with
the March 31, 1997 presentation.
Certain information and footnote disclosures
normally included in financial statements
prepared in accordance with generally accepted
accounting principles have been condensed or
omitted. It is suggested that these financial
statements be read in conjunction with the
financial statements and notes thereto included
in the Company's Annual Report to the SEC on Form
10-K for the year ended December 31, 1996. The
results of operations for the period ended March
31, 1997 are not necessarily indicative of the
operating results which may be expected for a
full year. The balance sheet as of December 31,
1996 contains financial information taken from
the audited financial statements as of that date.
(2) With the Company's current budget and it's
anticipated option and licensing revenues,
management believes working capital will cover
planned operations through the end of 1998. If
the anticipated revenues are delayed or do not
occur or the Company is unsuccessful in raising
additional capital on acceptable terms, research
and development and general and administrative
expenditures would be curtailed so that working
capital would cover operations through
approximately the end of 1998.
(3) SFAS No. 125. "Accounting For Transfers and
Servicing of Financial Assets and Extinguishments
of Liabilities", effective for transfers and
servicing of financial assets and extinguishments
of liabilities occurring after December 31, 1996
was adopted by the Company and does not have a
material impact on the Company's financial
position, results of operations, or liquidity.
This Statement provides accounting and reporting
standards for transfers and servicing of
financial assets and extinguishments of
liabilities based on consistent application of a
financial-components approach that focuses on
control. It distinguishes transfers of financial
assets that are sales from transfers that are
secured borrowings.
(4) On April 25, 1997, the Company filed a Definitive
Proxy Statement with the Securities and
Exchange Commission requesting shareholder
approval to amend Access' Certificate of
Incorporation, as amended, to effect a
recapitalization of the Company through a one for
four reverse stock split of Access common stock
(the "Common Stock") and decrease the number of
authorized shares of Common Stock from 60.0
million to 25.0 million. This proposal, if
approved, would decrease the number of
outstanding shares of Common Stock from
approximately 31.4 million to 7.9 million.
10
<PAGE>
If the proposal is approved by shareholders, the
Company intends to submit an application for
listing on the NASDAQ SmallCap Market or an
exchange if it meets all qualifications for such
listing. The Company believes that securing a
NASDAQ or an exchange listing along with the
reverse split would improve Access' ability to
finance the Company's research activities under
more favorable terms since institutional
investors and investment community members which
generally have restrictions on investing in
unlisted companies. There can be no assurances
the market price immediately after the
implementation of the proposed reverse stock
split will increase, and if it does increase,
there can be no assurance that such increase can
be maintained for any period of time, or that
such market price will approximate four times the
market price before the proposed reverse stock
split. There can be no assurances that the
Company will be listed on NASDAQ SmallCap Market
or an exchange.
(5) On February 5, 1997 the Company announced the
signing of a letter of intent to enter into
collaboration with The Dow Chemical Company
("Dow") for the development of products
incorporating Dow's chelation technology and
Access' bioresponsive polymer systems. The
closing of the agreement is subject to
negotiation of definitive documents and final
approval by both parties. The collaboration will
focus on the development of MRI contrast agents
and radiopharmaceutical diagnostics and
therapeutics. The advancement of the Access
developments in these areas are dependent on
securing chelation technology, which encapsulates
metals to avoid adverse effects on the body.
(6) On April 26, 1996, Access executed a letter of
intent to acquire Tacora Corp., a privately-held
pharmaceutical company based in Seattle. The
transaction is expected to close shortly. Under
the terms of the letter of intent, the purchase
price is contingent upon the achievement of
certain milestones. In addition to cash of
$250,000 and $100,000 in common stock paid at
closing, stock up to a maximum value of
$14,000,000 could be payable to Tacora's
shareholders over a 30 month period on an
escalating value over the milestone period. The
consummation of the transaction is subject to
customary conditions to closing and approval of
the stockholders of Tacora Corp.
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 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,485
<SECURITIES> 0
<RECEIVABLES> 2
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,658
<PP&E> 590
<DEPRECIATION> 317
<TOTAL-ASSETS> 3,940
<CURRENT-LIABILITIES> 483
<BONDS> 0
0
0
<COMMON> 1,256
<OTHER-SE> 2,040
<TOTAL-LIABILITY-AND-EQUITY> 3,940
<SALES> 0
<TOTAL-REVENUES> 138
<CGS> 0
<TOTAL-COSTS> 941
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> (764)
<INCOME-TAX> 0
<INCOME-CONTINUING> (764)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (764)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
