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, 2001 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 ----- ----- The number of shares outstanding of each of the issuer's classes of common stock, as of May 11, 2001 was 12,850,478 shares of common stock, $0.01 par value per share. Total No. of Pages 9 -----
PART I -- FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS The response to this Item is submitted as a separate section of this report. ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Access Pharmaceuticals, Inc. is a Delaware corporation in the development stage. We are an emerging pharmaceutical company focused on developing both novel low development risk product candidates and technologies with longer-term major product opportunities. Together with our subsidiaries, we have proprietary patents or rights to five technology platforms: synthetic polymers, bioerodible hydrogels, Residerm TM, carbohydrate targeting technology and agents for the prevention and treatment of viral disease, including HIV. In addition, our partner, GlaxoSmithKline, formally Block Drug Company, is marketing in the United States, a product named Aphthasol R, a drug jointly developed, the first U.S. Food and Drug Administration, or FDA, approved product for the treatment of canker sores. We are developing new formulations and delivery forms to evaluate this product in additional clinical indications. We have licensed certain of the rights for amlexanox from GlaxoSmithKline for certain countries excluding the U. S. and the worldwide rights for certain additional indications including mucositis and oral diseases in other territories. Except for the historical information contained herein, the following discussions and certain statements in this Form 10-Q are forward-looking statements that involve risks and uncertainties. In addition to the risks and uncertainties set forth in this Form 10-Q, other factors could cause actual results to differ materially, including but not limited to our research and development focus, uncertainties associated with research and development activities, clinical trials, uncertainty associated with preclinical and clinical testing, the timing of regulatory approvals, future cash flow, timing and receipt of licensing revenues, collaborations, dependence on others, and other risks detailed in our reports filed under the Securities Exchange Act of 1934, as amended, including but not limited to our Annual Report on Form 10-K for the year ended December 31, 2000. Since our inception, we have devoted our resources primarily to fund our research and development programs. We have been unprofitable since inception and to date have received limited revenues from the sale of products. We cannot assure you that we will be able to generate sufficient product revenues to attain profitability on a sustained basis or at all. We expect to incur losses for the next several years as we continue to invest in product research and development, preclinical studies, clinical trials and regulatory compliance. As of March 31, 2001, our accumulated deficit was $33,052,000 of which $8,894,000 was the result of the write-off of excess purchase price of mergers. LIQUIDITY AND CAPITAL RESOURCES Working capital as of March 31, 2001 was $23,424,000 representing a decrease in working capital of $973,000 as compared to the working capital as of December 31, 2000 of $24,397,000. 2
The decrease in working capital was due to the loss from operations for the first quarter of 2001. Since inception, our expenses have significantly exceeded revenues, resulting in an accumulated deficit as of March 31, 2001 of $33,052,000. We have funded our operations primarily through private sales of common stock and convertible notes. Contract research payments from corporate alliances and mergers have also provided funding for operations. We have incurred negative cash flows from operations since inception, and have expended, and expect to continue to expend in the future, substantial funds to complete our planned product development efforts. We expect that our existing capital resources will be adequate to fund our current level of operations through the year 2002. We will require substantial funds to conduct research and development programs, preclinical studies and clinical trials of potential products. Our future capital requirements and adequacy of available funds will depend on many factors, including: * the successful commercialization of amlexanox; * the ability to establish and maintain collaborative arrangements with corporate partners for the research, development and commercialization of products; * continued scientific progress in our research and development programs; * the magnitude, scope and results of preclinical testing and clinical trials; * the costs involved in filing, prosecuting and enforcing patent claims; * competing technological developments; * the cost of manufacturing and scale-up; * the ability to establish and maintain effective commercialization arrangements and activities; and * successful regulatory filings. FIRST QUARTER 2001 COMPARED TO FIRST QUARTER 2000 Revenue in the first quarter of 2001 was $211,000, as compared to no revenue in the same period of 2000. Revenue recognized in the first quarter is from several licensing agreements, including various amlexanox projects and ResiDerm TM. Total research spending for the first quarter of 2001 was $1,003,000, as compared to $603,000 for the same period in 2000, an increase of $400,000. The increase in expenses was the result of: * higher clinical development costs ($225,000) for amlexanox product development projects for OraRinse TM and OraDisc TM and the polymer platinate clinical development project. The OraRinse TM Phase II trial is ongoing and we anticipate that this study will be completed and the results published in the second quarter. The first Phase III study evaluating OraDisc TM was completed and another Phase III study has started. The Phase I polymer platinate study is ongoing; * higher scientific consulting costs ($112,000); * higher scientific salary costs ($63,000) due to additional employees; and, 3
* higher scientific consulting costs ($41,000) as the results of warrants granted to consultants in 2001. The increase in expenses was partially offset by: * lower moving expenses for scientific personal ($34,000); and * other net decreases ($7,000). We expect research spending to increase in future quarters and remain higher than in prior quarters as we intend to hire additional scientific and clinical staff, commence additional clinical trials and accelerate preclinical development activities as we continue to develop our product candidates. Total general and administrative expenses were $436,000 for the first quarter of 2001, an increase of $7,000 as compared to the same period in 2000. The increase in spending was due primarily to the following: * higher shareholder expenses ($35,000); * higher patent costs ($20,000); and * higher salary expenses ($17,000). These general and administrative expenses increases were partially offset by: * lower professional fees ($28,000); * lower license fees ($16,000); * lower travel and entertainments costs ($12,000); and * other net decreases ($9,000). Depreciation and amortization was $102,000 for the first quarter of 2001 as compared to $111,000 for the same period in 2000 reflecting a decrease of $9,000. The decrease in amortization is due to lower depreciation reflecting that some major assets have been fully depreciated. Total operating expenses in the first quarter of 2001 was $1,541,000 as compared to total operating expenses of $1,143,000 for the same period in 2000. Loss from operations in the first quarter of 2001 was $1,330,000 as compared to a loss of $1,143,000 for the same period in 2000. Interest and miscellaneous income was $442,000 for the first quarter of 2001 as compared to $65,000 for the same period in 2000, an increase $377,000. The increase in interest income was due to higher cash balances in 2001 resulting from our private placements of common stock and convertible note offering in 2000. Interest expense was $283,000 for the first quarter of 2001 as compared to $2,000 for the same period in 2000, an increase of $281,000. The increase is interest expense is due to interest accrued on the $13.5 million convertible notes interest in September 2000 and amortization of debt issuance costs. Net loss in the first quarter of 2001 was $1,171,000, or a $0.09 basic and diluted loss per common share, compared with a loss of $1,080,000, or a $0.14 basic and diluted loss per common share for the same period in 2000. 4
PART II -- OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS The Company is not a party to any material legal proceedings. 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 None ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K Exhibits: 3.8 Certificate of Amendment of Certificate of Incorporation filed July 31, 2000. Reports on Form 8-K: None 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, 2001 By:/s/ Kerry P. Gray ------------- ------------------------ Kerry P. Gray President and Chief Executive Officer (Principal Executive Officer) Date: May 14, 2001 By:/s/ Stephen B. Thompson ------------- ------------------------ Stephen B. Thompson Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 5
Access Pharmaceuticals, Inc. and Subsidiaries (a development stage company) Condensed Consolidated Balance Sheets <TABLE> <CAPTION> March 31, 2001 December 31, 2000 -------------- -------------- Assets (unaudited) <S> <C> <C> Current assets Cash and cash equivalents $ 4,869,000 $ 8,415,000 Short term investments, at cost 20,155,000 17,394,000 Accounts receivable 7,000 251,000 Accrued interest receivable 135,000 196,000 Prepaid expenses and other current assets 114,000 133,000 -------------- -------------- Total current assets 25,280,000 26,389,000 Property and equipment, net 109,000 116,000 Debt issuance costs 816,000 861,000 Licenses, net 859,000 887,000 Goodwill, net 2,053,000 2,115,000 Other assets 158,000 158,000 -------------- -------------- Total assets $ 29,275,000 $ 30,526,000 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and accrued expenses $ 796,000 1,158,000 Accrued interest payable 520,000 283,000 Deferred revenues 540,000 551,000 -------------- -------------- Total current liabilities 1,856,000 1,992,000 Convertible notes 13,530,000 13,530,000 -------------- -------------- Total liabilities 15,386,000 15,522,000 -------------- -------------- Commitments and contingencies - - Stockholders' equity Preferred stock - $.01 par value; authorized 2,000,000 shares; none issued or outstanding - - Common stock - $.01 par value; authorized 50,000,000 shares; issued, 12,850,478 at March 31, 2001 and 12,844,699 at December 31, 2000 133,000 132,000 Additional paid-in capital 47,857,000 47,802,000 Notes receivable from stockholders (1,045,000) (1,045,000) Treasury stock, at cost - 819 shares (4,000) (4,000) Deficit accumulated during the development stage (33,052,000) (31,881,000) -------------- -------------- Total stockholders' equity 13,889,000 15,004,000 -------------- -------------- Total liabilities and stockholders' equity $ 29,275,000 $ 30,526,000 ============== ============== </TABLE> The accompanying notes are an integral part of these statements. 6
Access Pharmaceuticals, Inc. and Subsidiaries (a development stage company) Condensed Consolidated Statements of Operations (unaudited) <TABLE> <CAPTION> February 24, Three Months ended March 31, 1988 ---------------------------- (inception) to 2001 2000 March 31, 2001 ------------- ------------- ------------- <S> <C> <C> <C> Revenues Research and development $ - $ - $ 2,711,000 Option income - - 2,164,000 Licensing revenues 211,000 - 643,000 ------------- ------------- ------------- Total revenues 211,000 - 5,518,000 Expenses Research and development 1,003,000 603,000 16,983,000 General and administrative 436,000 429,000 12,097,000 Depreciation and amortization 102,000 111,000 2,078,000 Write-off of excess purchase price - - 8,894,000 ------------- ------------- ------------- Total expenses 1,541,000 1,143,000 40,052,000 ------------- ------------- ------------- Loss from operations (1,330,000) (1,143,000) (34,534,000) ------------- ------------- ------------- Other income (expense) Interest and miscellaneous income 442,000 65,000 2,299,000 Interest expense (283,000) (52,000) (817,000) ------------- ------------- ------------- 159,000 63,000 1,482,000 ------------- ------------- ------------- Net loss $(1,171,000) $(1,080,000) $(33,052,000) ============= ============= ============= Basic and diluted loss per common share $(0.09) $(0.14) ============= ============= Weighted average basic and diluted common shares outstanding 12,848,344 7,753,514 ============= ============= </TABLE> The accompanying notes are an integral part of these statements. 7
Access Pharmaceuticals, Inc. and Subsidiaries (a development stage company) Condensed Consolidated Statements of Cash Flows (unaudited) <TABLE> <CAPTION> February 24, Three Months ended March 31, 1988 ---------------------------- (inception) to 2001 2000 March 31, 2001 ------------- ------------- -------------- <S> <C> <C> <C> Cash flows form operating activities: Net loss $(1,171,000) $(1,080,000) $(33,052,000) Adjustments to reconcile net loss to cash used in operating activities: Write-off of excess purchase price - - 8,894,000 Warrants issued in payment of consulting expenses 41,000 - 970,000 Research expenses related to common stock granted - - 100,000 Depreciation and amortization 102,000 111,000 2,078,000 Amortization of debt costs 45,000 - 99,000 Deferred revenue (11,000) 428,000 430,000 Change in operating assets and liabilities: Accounts receivable 244,000 (124,000) (8,000) Accrued interest receivable 61,000 - (135,000) Prepaid expenses and other current assets 19,000 32,000 (115,000) Licenses - (100,000) (525,000) Other assets - - (6,000) Accounts payable and accrued expenses (362,000) 48,000 34,000 Accrued interest payable 237,000 - 520,000 ------------- ------------- -------------- Net cash used in operating activities (795,000) (685,000) (20,716,000) ------------- ------------- -------------- Cash flows from investing activities: Capital expenditures (5,000) (38,000) (1,250,000) Sales of capital equipment - - 15,000 Purchase of short term investments and certificates of deposit (2,761,000) (10,960,000) (20,155,000) Purchase of business, net of cash acquired - - (226,000) Other investing activities - - (150,000) ------------- ------------- -------------- Net cash used in investing activities (2,766,000) (10,998,000) (21,766,000) ------------- ------------- -------------- Cash flows from financing activities: Proceeds from notes payable - - 721,000 Payments of principal on obligations under capital leases - (20,000) (750,000) Purchase of treasury stock - (750,000) (754,000) Cash acquired in merger with Chemex - - 1,587,000 Notes receivable from shareholders - - (1,045,000) Deposits received for private placement - 2,967,000 - Proceeds from convertible note, net - - 12,615,000 Proceeds from stock issuances, net 15,000 12,036,000 34,977,000 ------------- ------------- -------------- Net cash provided by financing activities 15,000 14,233,000 47,351,000 ------------- ------------- -------------- Net increase (decrease) in cash and cash equivalents (3,546,000) 2,550,000 4,869,000 Cash and cash equivalents at beginning of period 8,415,000 869,000 - ------------- ------------- -------------- Cash and cash equivalents at end of period $ 4,869,000 $ 3,419,000 $ 4,869,000 ============= ============= ============== Cash paid for interest $ - $ 2,000 $ 239,000 Cash paid for income taxes - - - Supplemental disclosure of noncash transactions Payable accrued for fixed asset purchase $ - $ - $ 47,000 Elimination of note payable to Chemex Pharmaceuticals due to merger - - 100,000 Stock issued for license on patents - - 500,000 Equipment purchases financed through capital leases - - 82,000 Net liabilities assumed in acquisition of Tacora Corporation - - 455,000 Acquisition of Virologix Corporation Assets acquired including goodwill - - 2,571,000 Liability assumed - - (469,000) Stock issued - - (2,000,000) </TABLE> The accompanying notes are an integral part of these statements. 8
Access Pharmaceuticals, Inc. and Subsidiaries (a development stage company) Notes to Condensed Consolidated Financial Statements Three Months Ended March 31, 2001 and 2000 (unaudited) (1) Interim Financial Statements The consolidated balance sheet as of March 31, 2001 and the consolidated statements of operations and cash flows for the three months ended March 31, 2001 and 2000 were prepared by management without audit. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, except as otherwise disclosed, necessary for the fair presentation of the financial position, results of operations, and changes in financial position for such periods, have been made. Certain amounts have been reclassified to conform with current period classification. 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 our Annual Report on Form 10-K for the year ended December 31, 2000. The results of operations for the period ended March 31, 2001 are not necessarily indicative of the operating results which may be expected for a full year. The consolidated balance sheet as of December 31, 2000 contains financial information taken from the audited financial statements as of that date.