UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
July 20, 1999
ACCESS PHARMACEUTICALS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE
----------------------------------------------
(State of other jurisdiction of incorporation)
0-9314 83-0221517
- - ------------------------ ---------------------------------
(Commission File Number) (IRS Employer Identification No.)
2600 Stemmons Freeway, Suite 176, Dallas, Texas 75207
-------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(214) 905-5100
N/A
-------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Item 2. Acquisition Or Disposition Assets.
----------------------------------
On February 23, 1999, Access Pharmaceuticals, Inc., a Delaware
corporation (the "Registrant"), 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 Registrant (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 Registrant and
each outstanding share of Virologix common stock was converted into
0.231047 shares of the Registrant's common stock representing
1,000,000 shares of common stock of the Registrant. The transaction
will be accounted for as a purchase. This Form 8-K/A amends the
Form 8-K Current Report reporting such transaction filed on August
3, 1999.
Item 7. Financial Statements, Pro Forma Financial Information And Exhibits.
-------------------------------------------------------------------
(a) Financial Statements of Business Acquired.
Index to Financial Statements
Virologix Corporation
Independent Auditor's Report (a)1
Balance Sheets (a)2
Statements of Operations (a)3
Statement of Stockholders' Deficit (a)4
Statements of Cash Flows (a)5
Notes to Financial Statements (a)6
(b) Pro Forma Financial Information.
Unaudited Pro Forma Consolidated Financial Statements (b)1
Unaudited Pro Forma Consolidated Balance Sheet
as of June 30, 1999 (b)2
Unaudited Pro Forma Consolidated Statements of
Operations for the Six Months Ended June 30, 1999 (b)3
Unaudited Pro Forma Consolidated Statements of
Operations Year Ended December 31, 1998 (b)4
Notes to Unaudited Pro Forma Consolidated
Financial Statements (b)5
(c) Exhibits.
None.
<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.
By: /s/ Kerry P. Gray
-------------------------
Title: President and CEO
Dated: September 27, 1999
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
Virologix Corporation:
We have audited the accompanying balance sheet of Virologix
Corporation as of December 31, 1998, and the related statements of
operations, stockholders' deficit, and cash flows for each of the two
years in the period ended December 31, 1998, and for the period from
December 28, 1995 (inception) to December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Virologix
Corporation as of December 31, 1998, and the results of its operations
and cash flows for each of the two years in the period ended
December 31, 1998, and for the period from December 28, 1995 (inception)
to December 31, 1998 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 9 to the
financial statements, the Company has an excess of current liabilities over
current assets at December 31, 1998 and has suffered recurring losses
from operations and has incurred negative cash flows from operations
since inception. These matters raise substantial doubt about its ability to
continue as a going concern. Management's plan's in regard to these
matters are also described in Note 9. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/s/ Grant Thornton LLP
- - ----------------------
GRANT THORNTON LLP
Dallas, Texas
September 17, 1999
(a)1
<PAGE>
Virologix Corporation
(a development stage company)
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1999 1998
------------ ------------
(unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 1,000 $ 38,000
------------ ------------
Total current assets 1,000 38,000
Equipment, net 1,000 2,000
Licenses 105,000 -
------------ ------------
Total assets $ 107,000 $ 40,000
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Accounts payable and accrued expenses $ 389,000 $ 166,000
Notes payable 80,000 40,000
------------ ------------
Total liabilities 469,000 206,000
Commitments and contingencies - -
Stockholders' deficit
Preferred stock - $.0001 par value;
authorized, 10,000,000 shares;
Series B -
authorized 1,350,000 shares
issued and outstanding, 294,418 shares - -
Common stock - $.0001 par value;
authorized, 25,000,000 shares;
issued and outstanding, 3,739,288 shares - -
Additional paid-in capital 3,506,000 3,506,000
Deficit accumulated during the
development stage (3,868,000) (3,672,000)
------------ ------------
Total stockholders' deficit (362,000) (166,000)
------------ ------------
Total liabilities and stockholders' deficit $ 107,000 $ 40,000
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
(a)2
<PAGE>
Virologix Corporation
(a development stage company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
December 28,
Six Months Ended Year Ended 1995
June 30, December 31, (inception) to
---------------------- ------------------------ June 30,
1999 1998 1998 1997 1999
---------- ---------- ---------- ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Expenses
Research and development $ - $ 166,000 $ 203,000 $ 307,000 $ 857,000
General and administrative 195,000 159,000 434,000 856,000 2,428,000
Depreciation and amortization 1,000 1,000 2,000 - 3,000
---------- ---------- ---------- ------------ ------------
Total expenses 196,000 326,000 639,000 1,163,000 3,288,000
Loss from operations (196,000) (326,000) (639,000) (1,163,000) (3,288,000)
Other income (expense)
Interest and miscellaneous income - 1,000 2,000 3,000 13,000
Interest expense - - - (406,000) (593,000)
---------- ---------- ---------- ------------ ------------
- 1,000 2,000 (403,000) (580,000)
---------- ---------- ---------- ------------ ------------
Net Loss $(196,000) $(325,000) $(637,000) $(1,566,000) $(3,868,000)
========== ========== ========== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
(a)3
<PAGE>
Virologix Corporation
(a development stage company)
STATEMENT OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Deficit
Preferred Common Accumulated
Stock Stock Additional During the
---------- ---------- paid-in Development
Shares Shares Capital Stage
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Balance, December 28, 1995 - - $ - $ -
Common stock issued, $.001 per share - 1,800,000 1,000 -
Net loss for the year - - - (1,000)
---------- ---------- ------------ ------------
Balance, December 31, 1995 - 1,800,000 1,000 (1,000)
Common stock issued, net of expenses,
$1.667 per share - 450,000 748,000 -
Common stock, net of expenses, issued
in connection with debt financing,
valued at $3.75 per share - 135,000 419,000 -
Options issued for consulting services - - 47,000 -
Net loss for the year - - - (1,468,000)
---------- ---------- ------------ ------------
Balance, December 31, 1996 - 2,385,000 1,215,000 (1,469,000)
Series A preferred stock issued in
settlement of outstanding debt,
valued at $27,000 per share 11.3 - 305,000 -
Series A preferred stock issued,
$27,000 per share 32 - 864,000 -
43.3 shares of Series A preferred stock
converted to 779,000 shares
common, valued at $1.50 per share (43.3) 779,000 - -
Series B preferred stock issued,
net of expenses, $3.00 per share 189,000 - 540,000 -
Series B preferred stock issued,
net of expenses, in settlement of
outstanding debt, valued at
$3.00 per share 105,400 - 316,000 -
Net loss for the year - - - (1,566,000)
---------- ---------- ------------ -------------
Balance, December 31, 1997 294,400 3,164,000 3,240,000 (3,035,000)
Common stock issued in settlement
of employment and consulting
agreements and for other services
rendered, valued at $.4621 per share - 575,000 266,000 -
Net loss for the year - - - (637,000)
---------- ---------- ------------ ------------
Balance, December 31, 1998 294,400 3,739,000 3,506,000 (3,672,000)
Net loss for the period (unaudited) - - - (196,000)
---------- ---------- ------------ ------------
Balance, June 30, 1999 (unaudited) 294,400 3,739,000 $ 3,506,000 $(3,868,000)
========== ========== ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
(a)4
<PAGE>
Virologix Corporation
(a development stage company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
December 28,
Six Months Ended Year Ended 1995
June 30, December 31, (inception) to
---------------------- ------------------------ June 30,
1999 1998 1998 1997 1999
---------- ---------- ---------- ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(196,000) $(325,000) $(637,000) $(1,566,000) $(3,868,000)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 1,000 1,000 2,000 324,000 491,000
Stock and warrants issued for services - - 266,000 - 313,000
Change in operating assets and liabilites:
Licenses (105,000) - - - (105,000)
Accounts payable 223,000 183,000 153,000 (98,000) 391,000
---------- ---------- ---------- ------------ ------------
Net cash used in operating activities (77,000) (141,000) (216,000) (1,340,000) (2,778,000)
Cash flows from investing activities:
Purchase of equipment - - - (4,000) (4,000)
Cash flows from financing activities
Proceeds from notes payable 40,000 - 40,000 - 80,000
Proceeds from stock issuances - - - 1,404,000 2,153,000
Proceeds from debt issuance - - - 300,000 983,000
Repayment of debt - - - (433,000) (433,000)
---------- ---------- ---------- ------------ ------------
Net cash provided by financing activities 40,000 - 40,000 1,271,000 2,783,000
Net decrease in cash and cash equivalents (37,000) (141,000) (176,000) (73,000) 1,000
Cash and cash equivalents,
beginning of period 38,000 214,000 214,000 287,000 -
---------- ---------- ---------- ------------ ------------
Cash and cash equivalents,
end of period $ 1,000 $ 73,000 $ 38,000 $ 214,000 $ 1,000
========== ========== ========== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
(a)5
<PAGE>
Virologix Corporation
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
- - --------------------
Virologix Corporation (the "Company") was incorporated in the State
of Delaware on December 28, 1995. The Company is engaged in the
research and development of vaccines and therapeutics for viral
diseases and the development of animal models of human viral
diseases for use in pharmaceutical discovery. The Company's
technologies are licensed from third parties and the Company depends
on third parties to conduct research on its behalf pursuant to research
and consulting agreements.
A summary of the significant accounting policies applied in the
preparation of the accompanying financial statements follows.
Cash and Cash equivalents
- - -------------------------
The Company considers all highly liquid instruments with an original
maturity of three months or less to be cash equivalents for purposes
of the statements of cash flows. Cash and cash equivalents consist
primarily of cash in banks and money market funds.
Patents and Applications
- - ------------------------
The Company expenses patent and application costs 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.
Licenses
- - --------
The Company capitalizes the purchase value of licenses and amortizes
them over their estimated useful lives.
Research and development
- - ------------------------
Research and development costs are expensed as incurred.
(a)6
<PAGE>
Virologix Corporation
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 1 - Nature of Operations and Summary of Significant Accounting Policies -
Continued
Income Taxes
- - ------------
Income taxes are accounted for
under the asset and liability method. Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Use of Estimates
- - ----------------
Management of the Company has made a number of estimates and
assumptions relative to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
Fair Value of Financial Instruments
- - -----------------------------------
The carrying value of cash and cash equivalents, and accounts
and notes payable approximate fair value due to the
relatively short maturity of these instruments.
Interim Financial Statements (unaudited)
- - ----------------------------------------
The balance sheet as of June 30, 1999 and the statements of
operations and cash flows for the six months ended June 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. The results of operations for the six
month period ended June 30, 1999 and 1998 are not necessarily
indicative of the operating results which may be expected for a full
year.
(a)7
<PAGE>
Virologix Corporation
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 1 - Nature of Operations and Summary of Significant Accounting Policies -
Continued
Stock Option Plan
- - -----------------
The Company adopted Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation, which
permits entities to recognize as expense over the vesting period the
fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply
the provisions of APB Opinion No. 25 and provide pro forma net
earnings (loss) disclosures for employee stock option grants made in 1995
and future years as if the fair-value-based method defined in SFAS No. 123
had been applied. The Company has elected to apply the provisions of ABP
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
NOTE 2 - Preferred Stock
The Company is authorized to issue 10,000,000 shares of preferred stock with
a par value of $0.0001. Of the authorized preferred stock, 120 shares were
designated as Series A convertible preferred stock, which was automatically
convertible into 9,000 shares of common stock on the later of 1) the
closing date of an initial public offering of the common stock by the
Company, or 2) six months following the final closing date on which a
share of the Series A convertible preferred stock was sold, but not later
than December 31, 1997. The Company issued 11.3 shares of Series A convertible
preferred stock in settlement of a note and accrued interest in the
amount of $305,000 in April 1997. In June 1997, the Company issued 32
shares of Series A convertible preferred stock in the amount of $864,000. The
Series A convertible preferred stock shares totalling 43.3 were converted
into 779,000 shares of common stock at $1.50 per share.
Preferred stock shares totalling 1,350,000 were designated as Series B
convertible preferred stock. The Series B is convertible into common stock
upon the completion of an initial public offering (IPO) of the
Company's common stock at a conversion price equal to the lesser of 1) $3.00
or 2) a price that will generate an annualized rate of return of 40.0%
from the closing date of the Series B offering to the IPO date,
but not less than $1.50.
(a)8
<PAGE>
Virologix Corporation
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 3 -Stockholders' Deficit
In December 1998, the Company issued 575,000 shares of its
common stock to employees, consultants and a shareholder for termination
of employment contracts, consulting agreements, and other services.
The common stock was valued at $266,000 ($.4621 per share), the value
received for the Company's stock in the July 20, 1999 merger
(See Note 10.)
In connection with the repayment of a $750,000 note in October 1997, certain
noteholders converted their notes to 105,418 shares of preferred stock at $3.00
per share. As an incentive to convert their notes to preferred stock,
the investors received five-year warrants to purchase an aggregate of 57,500
shares of the Company's common stock at an exercise price of $3.00.
NOTE 4 -Stock Option Plan
In January 1996, the Company implemented its 1996 Incentive and
Non-Qualified Stock Option Plan (the "Plan") whereby options to
purchase up to 375,000 shares of the Company's common stock may
be granted to employees, consultants and outside directors of the
Company. The exercise period for options granted under the Plan,
except those granted to outside directors, is determined by a
committee of the Board of Directors. Stock options granted to outside
directors pursuant to the Plan must have an exercise price equal to or
in excess of the fair market value of the Company's common stock
at the date of grant and become exercisable over three years.
The fair value of the Company's common stock is determined by a
committee of the Board of Directors. The committee was comprised
entirely of employees who receive stock options under the Plan.
(a)9
<PAGE>
Virologix Corporation
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Note 4 - Stock Option Plan - Continued
Transactions under the Plan are summarized as follows:
<TABLE>
<CAPTION>
Weighted
Number of Average
Shares Exercise Price
------------ ------------
<S> <C> <C>
Outstanding at December 31, 1996 30,000 $1.67
Forfeited (15,000) 6.00
Granted 70,000 6.00
----------- ------------
Outstanding at December 31, 1997 85,000 $4.47
=========== ============
Outstanding at December 31, 1998 85,000 $4.00
=========== ============
Options available for future grant 290,000
===========
Weighted average fair value of options
granted during 1997 $ 0.00
===========
</TABLE>
The following table summarizes information about options outstanding
at December 31, 1998:
Options Outstanding Options Exercisable
---------------------------------- ---------------------
Weighted
Average Weighted
Range Remaining Average Weighted
of Contractual Exercise Average
Exercise Life Exercise
Prices Shares (Years) Price Shares Price
- - ---------- ---------- ---------- ---------- ---------- ----------
$1.67-$6.00 85,000 8.00 $4.47 45,000 $4.47
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related
interpretations in accounting for options and warrants issued to
employees and stock options granted under the
(a)10
<PAGE>
Virologix Corporation
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 4 - Stock Option Plan - Continued
Plan. During the years ended December 31, 1998 and 1997, no compensation
expense has been recognized. Had compensation cost for stock options granted
been determined based upon the fair value at the grant date for
awards consistent with the methodology prescribed under SFAS No.
123, there would be no effect on the Company's net loss
for the years ended December 31, 1998 and 1997.
NOTE 5 - Income Taxes
The Company has incurred losses since inception which have
generated net operating loss carryforwards of approximately $880,000
and $789,000 respectively, at December 31, 1998 and 1997 for
federal and state income tax purposes. These carryforwards are
available to offset future taxable income and expire in 2011 and 2013
for federal income tax purposes.
The net operating loss carryforwards and temporary differences,
arising primarily from deferred research and development expenses,
result in a noncurrent deferred tax asset at December 31, 1998 and
December 31, 1997 of approximately $1,100,000 and $1,000,000 respectively.
In consideration of the Company's accumulated losses and the uncertainty of
its ability to utilize this deferred tax asset in the future, the Company
has recorded a valuation allowance of an equal amount on such date to
fully offset the deferred tax asset.
For the year ended December 31, 1998 and December 31, 1997, the
Company's effective tax rate differs from the federal statutory rate
principally due to net operating losses and other temporary differences
for which no benefit was recorded.
NOTE 6 - Related Party Transactions
Consulting agreements
- - ---------------------
The Company had a consulting agreement, with CSO Ventures LLC ("CSO")
under which CSO provided the Company with business development, operations
and other advisory services. The agreement terminated on December 31, 1997.
Two former executives of the Company were also principals of CSO.
For the year ended December 31, 1997 the Company incurred expense of
$120,000 pursuant to the agreement.
(a)11
<PAGE>
Virologix Corporation
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 6 - Related Party Transactions - Continued
The Company entered into a consulting agreement with Prism Ventures LLC
(Prism) for business development, operations and other advisory services
dated January 1, 1998, which was terminated August 2, 1998. Two former
executives of the Company were also principals of Prism. Expenses related to
this agreement totalled $70,000 for the six months ended June 30, 1999.
Additionally, the consulting firm was issued 50,000 shares of the
Company's common stock valued at approximately $23,000 (see Note 3).
In connection with the development of its licensed technologies, the
Company has entered into a consulting agreement with the scientist
who developed such technologies. The scientist, who is also a
stockholder, received $75,000 for services pursuant to this agreement
for each of the years ended December 31, 1998 and 1997, respectively.
Employment agreements
- - ---------------------
The Company had employment agreements with the former executives
of the Company who are also principal shareholders of the Company, CSO and
Prism. The employment agreements were cancelled in December 1998
and the executives received 300,000 shares of common stock of the
Company. Approximately $146,000 of salary expense was recognized in
conjunction with the stock issuance (see Note 3).
Notes payable
- - -------------
The Company borrowed $40,000 from two shareholders in November 1998.
The notes are payable upon the earlier of one year from the date of the
notes or the consummation of a financing or merger transaction by the Company.
The notes bear interest at a rate equal to the minimum applicable rate
as announced by the Treasury Department in effect as of November 1, 1998.
The Company borrowed an additional $40,000 from two shareholders during 1999.
The notes terms are the same as those entered into in November 1998.
The loans will be repaid upon consummation of the merger with Access
Pharmaceuticals, Inc. (see Note 10.)
(a)12
<PAGE>
Virologix Corporation
(a development stage company)
NOTES TO THE FINANCIAL STATEMENTS - CONTINUED
NOTE 7 - License and Research Support Agreements
In February 1996, the Company entered into a research collaboration
and license agreement with a third party. Under the terms of the
agreement, the Company has all rights in inventions, discoveries,
biological material or software created in the course of the research.
The Company incurred sponsored research expense of approximately
$54,000 and $161,000 during the years ended December 31, 1998
and 1997, respectively.
NOTE 8 - Commitments and Contingencies
The Company's products will require clinical trials, U.S. Food and
Drug Administration approval, or approval of similar authorities
internationally and acceptance in the marketplace prior to
commercialization. Although the Company believes its patents and
patent applications are valid, the invalidation of its major patents
would have a material adverse effect upon its business. The Company
competes with specialized biotechnology companies and major
pharmaceutical companies. Many of these competitors have
substantially greater resources than the Company.
NOTE 9 - Liquidity
The Company's activities since inception have consisted primarily of
sponsoring research and development, performing business and
financial planning, preparing and filing patent applications, and
raising capital. Accordingly, the Company will require additional
financing to achieve commercialization of its technologies.
The accompanying financial statements have been prepared assuming
the Company will continue as a going concern. Since inception, the
Company has incurred cumulative net operating losses of $3,868,000
and expects to incur substantial additional losses in completing the
commercialization of its technologies. At December 31, 1998, the Company
had an excess of current liabilities over current assets of $468,000.
These conditions raise substantial doubt about the Company's ability
to continue as a going concern. The Company's ability to continue as a
going concern is dependent upon its ability to generate sufficient cash
flow to meet its obligations as they come due. Management is actively
pursuing various options, which include a merger with a subsidiary of Access
Pharmaceuticals, Inc. (see Note 10). The financial statements do not
include any adjustments relating to the recoverability of the carrying
amount of recorded assets or the amount of liabilities that might result
from the outcome of these uncertainties.
(a)13
<PAGE>
Virologix Corporation
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 10 - Subsequent Event
On March 1, 1999, the Company entered into a merger agreement with a
wholly owned subsidiary of Access Pharmaceuticals, Inc. ("Access")
whereby the Company will become a wholly owned subsidiary of Access.
Access is publically held and is a site-directed drug targeting company
using bioresponsive carriers to target and control the release of
therapeutic agents into sites of disease activity and clear the
non-targeted drug-fraction. The closing took place on July 20, 1999.
Under the terms of the agreement, the Virologix shareholders received
1,000,000 shares of common stock of Access.
(a)14
<PAGE>
(b) Pro Forma Financial Information.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited Pro Forma consolidated financial statements
give effect to the merger, which occurred on July 20, 1999, using the
purchase method of accounting. The unaudited Pro Forma consolidated
balance sheet gives effect to the merger as if it had occurred on
June 30, 1999. The unaudited Pro Forma consolidated statements of
operations for the year ended December 31, 1998 give effect to the
merger as if it had occurred on January 1, 1998. The unaudited Pro Forma
consolidated statement of operations for the six
months ended June 30, 1999 give effect to the merger as if it had
occurred on January 1, 1999. The Unaudited Pro Forma consolidated
Financial Statements do not purport to represent what Access'
financial position or results of operations would actually have been if
the merger or acquisition had in fact occurred on such dates or to
project Access' financial position or results of operations as of any
future date or for any future period.
For Pro Forma purposes:
- - - Access' unaudited consolidated balance sheet as of June 30, 1999 has
been combined with the Virologix unaudited balance sheet as of June
30, 1999.
- - - Access' unaudited Pro Forma combined statements of operations for
the six months ended June 30, 1999 and year ended December 31,
1998 have been combined with the Virologix unaudited statement of
operations for the six months ended June 30, 1999 and the audited
statement of operations for the year ended December 31, 1998.
The unaudited Pro Forma consolidated financial information has been
prepared based on the assumptions described in the notes thereto and
includes assumptions relating to the allocation of the consideration
paid for the assets and liabilities of Virologix based on preliminary
estimates of their fair value. In the opinion of Access, all adjustments
necessary to present fairly such unaudited Pro Forma consolidated
financial information have been made based on the proposed terms
and structure of the merger.
These unaudited Pro Forma consolidated financial statements and
accompanying notes should be read in conjunction with the historical
financial statements and the related notes thereto of Access and
Virologix, and other financial information pertaining to Access and
Virologix, including Access' "Management's Discussion and Analysis
of Financial Condition and Results of Operations" contained in the
Annual Report on Form 10-K and the Quarterly Report's on Form
10-Q filed with the Securities and Exchange Commission.
(b)1
<PAGE>
UNAUDITED PRO FORMA
CONSOLIDATED BALANCE SHEET
June 30, 1999
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Access Virologix Adjustments Notes Combined
---------- ---------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 258,000 $ 1,000 2,748,000 b $ 3,007,000
Accounts receivable 32,000 - 32,000
Prepaid expenses and other
current assets 128,000 - 128,000
---------- ---------- ------------
Total current assets 418,000 1,000 3,167,000
---------- ---------- ------------
Property and equipment, at cost 1,007,000 4,000 1,011,000
Less accumulated depreciation
and amortization (848,000) (3,000) (851,000)
---------- ---------- ------------
159,000 1,000 160,000
Licenses, net 400,000 105,000 10,000 c 495,000
Investments 150,000 - 150,000
Goodwill - - 2,095,000 a,c 2,095,000
Other assets 8,000 - 8,000
---------- ---------- ------------
Total assets $1,135,000 $ 107,000 $ 6,075,000
========== ========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and
accrued expenses $ 558,000 $ 389,000 $ 947,000
Accrued insurance premiums 9,000 - 9,000
Deferred revenues 88,000 - 88,000
Current portion of obligations
under capital leases 73,000 - 73,000
Notes payable - 80,000 80,000
---------- ---------- ------------
Total current liabilities 728,000 469,000 1,197,000
Obligations under capital leases,
net of current portion 3,000 - 3,000
---------- ---------- ------------
Total liabilities 731,000 469,000 1,200,000
---------- ---------- ------------
Commitments and contingencies - - -
Stockholders' equity
Preferred stock - - -
Common stock 34,000 - 26,000 a,b 60,000
Additional paid-in capital 25,202,000 3,506,000 939,000 a,b 29,647,000
Accumulated deficit (24,832,000) (3,868,000) (3,868,000) a,b,c(24,832,000)
----------- ----------- ------------
Total stockholders' equity 404,000 (362,000) 4,875,000
---------- ---------- ------------
Total liabilities and
stockholders' equity $ 1,135,000 $ 107,000 $ 6,075,000
=========== ========== ============
</TABLE>
(b)2
<PAGE>
UNAUDITED PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Six Months Ended June 30, 1999
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Access Virologix Adjustments Combined
----------- ----------- ------------ ----------
<C> <C> <C> <C>
Revenues $ - $ - $ -
Expenses
Research and development 693,000 - 693,000
General and administrative 912,000 195,000 1,107,000
Depreciation and amortization 93,000 1,000 126,000 (c) 220,000
----------- ----------- ----------
Total expenses 1,698,000 196,000 2,020,000
----------- ----------- ----------
Loss from operations (1,698,000) (196,000) (2,020,000)
Other income (expense)
Interest and miscellaneous income 19,000 - 19,000
Interest expense (8,000) - (8,000)
----------- ----------- ----------
11,000 - 11,000
Loss before income taxes (1,687,000) (196,000) (2,009,000)
Provision for income taxes - - -
----------- ----------- ----------
Net loss $(1,687,000) $ (196,000) $(2,009,000)
=========== =========== ==========
Basic and diluted loss per common share $ (0.49) $ (0.33)
=========== ==========
Weighted average basic and diluted
common shares outstanding 3,429,402 6,036,619
=========== ==========
</TABLE>
(b)3
<PAGE>
UNAUDITED PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Access Virologix Adjustments Combined
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ - $ - $ -
Expenses
Research and development 1,756,000 203,000 1,959,000
General and administrative 1,464,000 434,000 1,898,000
Depreciation and amortization 213,000 2,000 253,000 (c) 468,000
----------- ----------- -----------
Total expenses 3,433,000 639,000 4,325,000
----------- ----------- -----------
Loss from operations (3,433,000) (639,000) (4,325,000)
----------- ----------- -----------
Other income (expense)
Interest and miscellaneous income 58,000 2,000 60,000
Interest expense (22,000) - (22,000)
----------- ----------- -----------
36,000 2,000 38,000
----------- ----------- -----------
Loss before income taxes (3,397,000) (637,000) (4,287,000)
Provision for income taxes - - -
----------- ----------- -----------
Net loss $(3,397,000) $ (637,000) $(4,287,000)
=========== =========== ===========
Basic and diluted loss per common share $ (1.28) $ (0.82)
=========== ===========
Weighted average basic and diluted
common shares outstanding 2,650,168 5,257,385
=========== ===========
</TABLE>
(b)4
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The following unaudited Pro Forma consolidated financial statements give
effect to the merger using the purchase method of accounting. The unaudited
Pro Forma consolidated balance sheet gives effect to the merger as if
it had occurred on June 30, 1999. The unaudited Pro Forma consolidated
statements of operations for the year ended December 31, 1998 give effect
to the merger as if it had occurred on January 1, 1998 and the unaudited Pro
Forma consolidated statement of operations for the six months ended June 30,
1999 give effect to the merger as if it had occurred on January 1, 1999.
The unaudited pro forma consolidated financial statements do not purport to
represent what Access' financial position or results of
operations would actually have been if the merger or acquisition had in fact
occurred on such dates or to project Access' financial position or results of
operations as of any future date or for any future period.
2. UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL ADJUSTMENTS
(a) To record the shares of Access common stock exchanged for Virologix
common stock and eliminate the capital accounts of Virologix.
All of the outstanding Virologix common shares were converted into
Access common shares using an exchange ratio of .231047. Virologix
shareholders received an aggregate of 1,000,000 shares of Access common
stock pursuant to the merger agreement. All of the outstanding options and
warrants to purchase Virologix common stock were cancelled before the
merger. The total consideration recorded consists of Access common
stock valued at $2.0 million and transaction costs of approximately
$102,000. Resulting goodwill amounted to $2,464,000.
(b) To record the Access private offering.
Before the merger was completed, Access was required to complete a private
offering of $3,000,000, pursuant to merger agreement. The Company,
assisted by an investment bank, raised on July 20, 1999, $3,002,000
in gross proceeds less cash issuance costs of $252,000 from the
placement of 1,501,000 shares of common stock at $2.00 per share.
The placement agent 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 106,271 shares of common
stock in lieu of certain sales commissions and expenses.
(c) To record goodwill and license amortization expense.
Goodwill pro forma amortization was $123,000 and $246,000 for 1999
and 1998, respectively. License pro forma amortization was $3,000 and
$7,000 for 1999 and 1998, respectively.
(b)5
