UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT No. 2
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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 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 MANAGEMENTS 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 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 a 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 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 efficacy 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. Based on completion of the private placement,
$480,000 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
efficacy 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 compares
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
$8,686,000, 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>
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
None
ITEM 2 CHANGE IN SECURITIES
In connection with the merger of Access Pharmaceuticals, Inc., a
Texas corporation ("API") with and into Chemex Pharmaceuticals,
Inc. ("Chemex") on January 25, 1996, API stock was exchanged for
13.92 million shares of Chemex common stock. In addition, Chemex
changed its name to ACCESS Pharmaceuticals, Inc. and API was
dissolved.
In connection with the $6 million private placement, 8.57 million
shares of common stock were issued in March 1996. 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 issuance. The investors have agreed not to sell
any of the shares purchased in the offering until 180 days after
the closing.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A Special Meeting in lieu of the 1995 Annual Meeting of Stockholders
of the Company was held at 10:00 a.m., January 25, 1996 to consider
and vote upon proposals to (i) approve and adopt that certain
Agreement of Merger and Plan of Reorganization, dated as of October
3, 1995, as amended and restated as of October 31, 1995 (the "Merger
Agreement") by and between the Company and API, pursuant to which,
among other matters, API would be merged with and into the Company
with the Company the surviving corporation (the "Merger") and each
share of API's common stock, $.01 par value per share, would be
converted into approximately 3.7744 shares of the Company's common
stock, $.04 par value per share ("the Company Common Stock") (subject
to adjustment as provided in the Merger Agreement); (ii) approve an
amendment to the Certificate of Incorporation of the Company
increasing the number of authorized shares of the Company Common
Stock to 40,000,000 shares and the number of authorized shares of the
preferred stock, $.01 par value per share, of the Company to
10,000,000 shares; (iii) approve an amendment to the Certificate of
Incorporation of the Company to effect a change of the name of the
Company from Chemex Pharmaceuticals, Inc. to "ACCESS Pharmaceuticals,
Inc."; (iv) approve the establishment of the ACCESS 1995 Stock Option
Plan (the "1995 Stock Option Plan"), under which an aggregate of
2,000,000 shares of ACCESS Common Stock will be issuable pursuant to
the terms of such plan; (v) ratify the selection by the Board of
Directors of ACCESS of ACCESS' independent auditors; (vi) elect three
directors; and (vii) approve adjournment of the Special Meeting, if
necessary, to permit further solicitation of proxies in the event
that there are not sufficient votes at the Special Meeting to
consider and approve any or all of the proposals. All proposals were
approved by the stockholders.
5
<PAGE>
The voting with respect to each of such matters was as follows:
For Withhold
--------- ---------
Item 1
Greetham 7,587,633 232,047
Taylor 7,586,547 233,133
Woolard 7,587,633 232,047
For Against
--------- ---------
Item 2 5,146,576 49,075
Item 3 5,097,671 84,407
Item 4 7,708,188 62,635
Item 5 4,849,452 537,159
Item 6 7,717,348 65,156
ITEM 5 OTHER INFORMATION
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 up
to a maximum of $14,000,000 could be payable 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.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
Exhibits: - (EX-18) Letter re change in accounting principles
- (EX-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.
6
<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: January 24, 1997 By: /s/ Kerry P. Gray
------------------------
Kerry P. Gray
President and Chief
Executive Officer
(Principal Executive
Officer)
Date: January 24, 1997 By: /s/ Stephen B. Thompson
-------------------------
Stephen B. Thompson
Chief Financial Officer
(Principal Financial
and Accounting Officer)
7
<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
------------- -------------
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 Stockholder's
Equity (Deficit) $ 7,230,000 $ 424,000
============= =============
</TABLE>
- ---------------------------------------------
See accompanying notes to financial statements and Management's
Discussion and Analysis of Financial Conditions 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)
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
----------- ----------- ----------
Total Expenses 8,880,000 421,000 17,640,000
----------- ----------- ----------
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 form 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
Capitalized 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 - 712,000
Proceeds from Merger with
Chemex Pharmaceuticals 1,587,000 - 1,587,000
Proceeds from stock
issuances, net 5,503,000 - 9,000,000
------------- ------------ ------------
Net Cash Provided By (Used in)
Financing Activities 7,179,000 (38,000) 11,129,000
------------- ------------ ------------
Net Increase (Decrease) in Cash
and Cash Equivalents 6,783,000 (399,000) 6,813,000
Cash and Cash Equivalents at
Beginning of Year 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 transactions:
Elimination 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, 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 of Access Pharmaceuticals, Inc.,
a Texas corporation, ("API") as of that date.
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").
The Company acquired all of the outstanding shares of API in exchange
for 13,919,979 shares of its registered common stock.
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").
10
<PAGE>
ACCESS PHARMACEUTICALS, INC.
a development stage company
Notes to Financial Statements
Three Months Ended March 31, 1996 and 1995
The unaudited financial statements at March 31, 1996 have been
prepared using "purchase" accounting for the merger 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 for 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
============ ============
(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 efficacy 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 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 statements of the Company.
11
<PAGE>
ACCESS PHARMACEUTICALS, INC.
a development stage company
Notes to Financial Statements
Three Months Ended March 31, 1996 and 1995
(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.
(6) During the first quarter of 1996, the Company changed from
deferring and amortizing patent and application costs to recording
them as expenses as incurred because, even though the Company
believes the patents and underlying processes have continuing
value, the amount of future benefits to be derived therefrom are
uncertain. Accordingly, the new accounting method has been adopted
in recognition of a possible change in estimated future benefits.
Since the effect of this change in accounting principle is
inseparable from the effect of the change in accounting estimate,
such change has been accounted for as a change in estimate in
accordance with Opinion No. 20 of the Accounting Principles Board.
Future patent and application costs are expected to be expensed
since the benefits to be derived therefrom are likely to be
uncertain.
12
December 11, 1996
Access Pharmaceuticals, Inc.
Ladies and Gentlemen:
As stated in Note 6 of the Notes to the financial statements of
Access Pharmaceuticals, Inc. included in its Form 10-Q/A for the
three months ended March 31, 1996, the Company changed its method
of accounting for patent an application costs. Previously, the
Company had been capitalizing legal fees and other direct costs
incurred in obtaining patents. Such costs were amortized on a
straight-line basis over the lives of the patents. In the first
quarter of 1996, the Company adopted its policy of expensing all
costs incurred in obtaining patents as a period cost. You have
advised us that, even though the Company believes the patents and
the underlying processes have continuing value, the amount of
future benefits to be derived therefrom is uncertain, accordingly,
the new accounting method has been adopted in recognition of a
possible change in estimated future benefits. Since the effect of
this change in accounting principle is inseparable from the effect
of the change in accounting estimate, such change has been
accounted for as a change in accounting estimate in accordance with
Opinion No. 20 of the Accounting Principles Board. Therefore, you
believe that the change is a preferable method in your
circumstances. In accordance with your request, we have reviewed
and discussed with Company officials the circumstances and business
judgement and planning upon which the decision to make this change
in the method of accounting was based.
With regard to the aforementioned accounting change, authoritative
criteria have not been established for evaluating the preferability
of one acceptable method of accounting over another acceptable
method. However, for purposes of Access Pharmaceuticals, Inc.'s
compliance with the requirements of the Securities and Exchange
Commission, we are furnishing this letter. We have not conducted
an audit in accordance with generally accepted standards of any
financial statements of the Company as of for any period subsequent
to December 31, 1995, and therefore we do not express any opinion
on any financial statements of Access Pharmaceuticals, Inc.
subsequent to that date.
Based on our reading and discussion, with reliance on management's
business judgement and planning, we concur that the newly adopted
method of accounting is preferable in the Company's circumstances.
Very truly yours,
/s/ KPMG Peat Marwick LLP
- -------------------------
KPMG Peat Marwick LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE CONSOLIDATED
BALANCE SHEET AND THE CONSOLIDATED INCOME FILED AS PART OF THE QUARTERLY
REPORT ON FORM 10-Q AS AMENDED BY AMENDMENT NO. 2 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 N0.2 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>
