ABEONA THERAPEUTICS INC. - Quarter Report: 2007 November (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-QSB
(Mark
One)
x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the
quarterly period ended September 30, 2007
¨
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF
1934
For
the
transition period from ____ to ____
Commission
file number 0-9314
ACCESS
PHARMACEUTICALS, INC.
(Exact
Name of Small Business Issuer as Specified in Its Charter)
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Delaware
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83-0221517
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(State
or Other Jurisdiction
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(I.R.S. Employer
Identification No.)
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of
Incorporation or Organization)
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2600 Stemmons Frwy, Suite 176, Dallas, TX 75207
(Address
of Principal Executive Offices)
(214)
905-5100
Issuer’s
Telephone Number, Including Area Code
Check
whether the issuer (1) filed all reports required to be filed by Section 13
or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes
X
No
___
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes ___ No
X
State
the
number of shares outstanding of each the issuer's classes of common equity
as of
the latest practicable date. As of November 13, 2007 there were 3,575,114 shares
of common stock issued and outstanding.
Transitional
Small Business Disclosure Format (Check One): Yes
No
X
Total
No. of Pages 19
ACCESS
PHARMACEUTICALS, INC.
INDEX
Page No.
PART
I -
FINANCIAL INFORMATION
| Item 1. | Condensed Consolidated Financial Statements: |
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|
| Condensed Consolidated Balance Sheets at | |||
| September 30, 2007 (unaudited) and December 31, 2006 (audited) |
13
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| Condensed Consolidated Statements of Operations (unaudited) for the | |||
| three and nine months ended September 30, 2007 and September 30, 2006 |
14
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| Condensed Consolidated Statements of Cash Flows (unaudited) for the | |||
| nine months ended September 30, 2007 and September 30, 2006 |
15
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| Notes to Unaudited Condensed Consolidated Financial Statements |
16
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| Item 2. | Management's Discussion and Analysis or Plan of Operation |
2
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| Item 3. | Controls and Procedures |
8
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| Risk Factors |
9
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PART
II -
OTHER INFORMATION
|
Item
1.
|
Legal Proceedings |
10
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| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
10
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| Item 3. | Defaults Upon Senior Securities |
10
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| Item 4. | Submission of Matters to a Vote of Security Holders |
10
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| Item 5. | Other Information |
10
|
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| Item 6. | Exhibits |
10
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| SIGNATURES |
12
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1
PART
I -FINANCIAL INFORMATION
This
Quarterly Report (including the information incorporated by reference) contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934,
as amended, that involve risks and uncertainties including, but not limited
to
the uncertainties associated with research and development activities, clinical
trials, our ability to raise capital, the timing of and our ability to achieve
regulatory approvals, dependence on others to market our licensed products,
collaborations, future cash flow, the timing and receipt of licensing and
milestone revenues, the future success of our marketed products and products
in
development, our sales projections, our ability to close the Somanta merger
and,
if it closes, our ability to integrate Somanta’s business with ours, the sales
projections of our licensing partners, our ability to achieve licensing
milestones and other risks described below as well as those discussed elsewhere
in this Quarterly Report, documents incorporated by reference and other
documents and reports that we file periodically with the Securities and Exchange
Commission. These statements include, without limitation, statements relating
to
our ability to continue as a going concern, anticipated product approvals
and
timing thereof, product opportunities, clinical trials and U.S. Food and
Drug
Administration (“FDA”) applications, as well as our drug development strategy,
our clinical development organization, expectations regarding our rate of
technological developments and competition, the terms of future licensing
arrangements, our ability to secure additional financing for our operations
and
our expected cash burn rate. These statements relate to future events or
our
future financial performance. In some cases, you can identify forward-looking
statements by terminology such as “may,” “will,” “should,” “expects,” “plans,”
“could,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or
“continue” or the negative of such terms or other comparable terminology. These
statements are only predictions and involve known and unknown risks,
uncertainties and other factors, including the risks outlined under “Risk
Factors,” that may cause our or our industry’s actual results, levels of
activity, performance or achievements to be materially different from any
future
results, levels or activity, performance or achievements expressed or implied
by
such forward-looking statements.
Although
we believe that the expectations reflected in the forward-looking statements
are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. We are under no duty to update any of the forward-looking
statements after the date of filing this Form 10-QSB to conform such statements
to actual results.
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 OR PLAN OF OPERATION
OVERVIEW
Access
Pharmaceuticals, Inc. (“Access” or the “Company”) is a Delaware corporation. We
are an emerging biopharmaceutical company developing products for use in
the
treatment of cancer, the supportive care of cancer, and other disease states.
Our product for the management of oral mucositis, MuGard™, has received
marketing clearance by the FDA as a device. Our lead clinical development
program for the drug candidate ProLindac™ (formerly known as AP5346) is in Phase
II clinical testing. Access also has advanced drug delivery technologies
including Cobalamin™-mediated oral drug delivery and targeted
delivery.
2
Together
with our subsidiaries, we have proprietary patents or rights to one technology
approved for marketing and three drug delivery technology
platforms:
• MuGard
(mucoadhesive liquid technology),
•
synthetic polymer targeted delivery,
•
Cobalamin-mediated oral delivery,
•
Cobalamin-mediated targeted delivery.
Products
We
have
used our drug delivery technologies to develop the following products and
product candidates:
ACCESS
PRODUCT PORTFOLIO
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Compound
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Originator
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Technology
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Indication
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FDA
Filing
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Clinical
Stage
(1)
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MuGard™
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Access
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Mucoadhesive
Liquid
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Mucositis
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510(k)
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Marketing
clearance
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ProLindacTM
(Polymer
Platinate,
AP5346) (2)
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Access
- U London
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Synthetic
polymer
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Cancer
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Clinical
Development(3)
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Phase
II
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Oral
Insulin
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Access
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Cobalamin
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Diabetes
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Research
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Pre-Clinical
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Oral
Delivery System
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Access
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Cobalamin
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Various
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Research
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Pre-Clinical
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Cobalamin-Targeted
Therapeutics
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Access
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Cobalamin
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Anti-tumor
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Research
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Pre-Clinical
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(1)
For more information, see “Form 10-KSB, Government Regulation” for description
of clinical stages.
(2)
Licensed from the School of Pharmacy, The University of London. Subject to
a 1%
royalty and milestone payments on sales.
(3)
Clinical study being conducted in Europe.
Approved
Products
MuGard™
- Mucoadhesive Liquid Technology (MLT)
Access’
MuGard is a viscous polymer solution which provides a coating for the oral
cavity. MuGard is dispensed in a ready to use form. A multi-site, randomized
clinical study was performed in the United States testing MuGard and MuGard
containing an anti-inflammatory drug to determine the effect of these products
on the prevention and treatment of mucositis. The data from this trial indicated
that the patients using MuGard displayed a lower incidence of mucositis than
is
typically seen in the studied population with no additional benefit from
the
drug.
Access
is
currently seeking marketing partners to market MuGard™ in the United States and
in other territories worldwide.
In
August
2007, we signed a definitive licensing agreement with SpePharm Holding, B.V.
under which SpePharm will market Access’ product MuGard in Europe.
3
Products
in Development Status
ProLindac™
(Polymer Platinate, AP5346) DACH Platinum
We
have
commenced a European Phase 2 ProLindac trial in ovarian cancer patients who
have
relapsed after first line platinum therapy. The primary aim of the study
is to
determine the response rate of ProLindac monotherapy in this patient population.
The response rates for other platinum compounds in this indication are well
known, and will be used for comparison.
We
have
submitted an IND application to the US Food and Drug Administration, and
have
received clearance from the agency to proceed with a Phase 2 clinical study
of
ProLindac in combination with fluorouracil and leucovorin. The study is designed
to evaluate the safety of ProLindac in combination with two standard drugs
used
to treat colorectal cancer and to establish a safe dose for further clinical
studies of this combination in colorectal cancer. We are currently evaluating
whether clinical development of ProLindac in this indication might proceed
more
rapidly by utilizing an alternative clinical strategy and/or conducting studies
in the US and/or elsewhere in the world.
RECENT
EVENTS
On
November 7, 2007, we entered into securities purchase agreements (the “Purchase
Agreements”) with accredited investors whereby we agreed to sell 954.0001 shares
of a newly created series of our preferred stock, designated “Series A
Cumulative Convertible Preferred Stock”, par value $0.01 per share, for an issue
price of $10,000 per share, (the “Series A Preferred Stock”) and agreed to issue
warrants to purchase 1,589,999 shares of our common stock at an exercise
price
of $3.50 per share, for an aggregate purchase price of $9,540,001.
As
a
condition to closing, SCO Capital Partners, LLC and affiliates, along with
the
other holders of an aggregate of $6,000,000 Secured Convertible Notes, also
exchanged their notes and accrued interest for an additional 1,836.0512 shares
of Series A Preferred Stock and were issued warrants to purchase 1,122,031
shares of our common stock at an exercise price of $3.50 per share, and Oracle
Partners LP and affiliates, along with the other holders of an aggregate
of
$4,015,000 Convertible Notes also exchanged their notes and accrued interest
for
437.3104 shares of the Series A Preferred Stock and were issued warrants
to
purchase 728,850 shares of our common stock at an exercise price of $3.50
per
share. SCO Capital Partner, LLC currently has a designee serving on our Board
of
Directors. In connection with the exchange of the notes, all security interests
and liens relating thereto were terminated.
On
October 24, 2007, Access and SCO Capital Partners LLC and affiliates (“SCO”)
agreed to extend the maturity date of an aggregate principal amount of
$6,000,000 of 7.5% convertible notes to November 15, 2007 from October 25,
2007.
On
October 24, 2007, Access and Oracle Partners LP and affiliates (“Oracle”) agreed
to extend the maturity date of an aggregate principal amount of $4,015,000
of
7.7% convertible notes to November 16, 2007 from October 26, 2007.
On
August
27, 2007, we signed a definitive licensing agreement with SpePharm Holding,
B.V.
under which SpePharm will market Access’ product MuGard in Europe.
On
August
1, 2007, we announced that Esteban Cvitkovic, a member of our board of directors
as Vice Chairman Europe, agreed to an expanded role as Senior Director, Oncology
Clinical R&D.
4
On
April
19, 2007, we announced we had entered into an agreement to acquire Somanta
Pharmaceuticals, Inc. Pursuant to the terms of the merger agreement, upon
consummation of the acquisition, Somanta’s preferred and common shareholders
would receive an aggregate of 1.5 million shares of Access’ common stock which
would represent approximately 9.5% of the combined company assuming the
conversion of Access’ existing convertible debt and preferred stock under
existing terms of conversion. The Somanta stockholders approved the proposed
transaction at the stockholders’ meeting on August 17, 2007. The closing of the
transaction is subject to numerous conditions including receipt of necessary
approvals. There can be no assurance that the transaction will be consummated
or
if consummated that it will be on the terms described herein.
On
April
26, 2007, we entered into a Note Purchase Agreement with Somanta
Pharmaceuticals, Inc. in order for Access to loan Somanta amounts to keep
certain of their licenses and vendors current. As of September 30, 2007 we
have
loaned Somanta $859,000.
LIQUIDITY
AND CAPITAL RESOURCES
We
have
funded our operations primarily through private sales of common stock and
convertible notes and our principal source of liquidity is cash and cash
equivalents. Licensing fees provided minimal funding for operations during
the
quarter ended September 30, 2007. As
of
November 13, 2007, our cash and cash equivalents and short-term investments
were
$9,761,000 and our net cash burn rate for the nine months ending September
30,
2007 was approximately $430,000 per month. As of September 30, 2007 our working
capital deficit was $12,624,000. Our working capital at September 30, 2007
represented a decrease of $6,842,000 as compared to our working capital deficit
as of December 31, 2006 of $5,782,000. Our working capital is negative
reflecting approximately $11.4 million of debt that is a current liability
at
September 30, 2007 and $1.0 million of accrued interest payments accrued
at
September 30, 2007. As of November 13, 2007 we have convertible notes
outstanding due of $6.89 million, in the principle amount of $5.5
million.
As
of
September 30, 2007, the Company did not have enough capital to achieve its
long-term goals. If we raise additional funds by selling equity securities,
the
relative equity ownership of our existing investors would be diluted and
the new
investors could obtain terms more favorable than previous investors. A failure
to restructure our convertible notes or obtain additional funding to repay
the
convertible notes and support our working capital and operating requirements,
could cause us to be in default of our convertible notes and prevent us from
making expenditures that are needed to allow us to maintain our operations.
A
failure to restructure our existing convertible notes or obtain necessary
additional capital in the future could jeopardize our operations.
We
have
generally 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. Since inception, our expenses
have significantly exceeded revenues, resulting in an accumulated deficit
as of
September 30, 2007 of $85,865,000. We expect that our capital resources will
be
adequate to fund our current level of operations through December 2008. However,
our ability to fund operations over this time could change significantly
depending upon changes to future operational funding obligations or capital
expenditures. As a result we may be required to seek additional financing
sources within the next twelve months. We cannot assure you that we will
ever be
able to generate significant product revenue or achieve or sustain
profitability. We plan to satisfy our obligations under the notes either
through
conversion of the notes into equity or through the sale of equity.
5
All
shares and per share information reflect a one for five reverse stock split
effected June 5, 2006.
Currently,
one noteholder holding $5.5 million worth of 7.7% convertible notes has amended
their note to a new maturity date, September 13, 2011, and the 2005, 2006
and
2007 capitalized interest of $1,348,000 is currently payable.
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.
THIRD
QUARTER 2007 COMPARED TO THIRD QUARTER 2006
Our
licensing revenue in the third quarter of 2007 was $6,000. We recognize
licensing revenue over the period of the performance obligation under our
licensing agreement. We received a $1.0 million upfront licensing payment
in
August 2007 from SpePharm Holding, B.V. for marketing MuGard in Europe. We
will
recognize the upfront licensing fee over 14 ¾ years, the license
term.
Total
research spending for the third quarter of 2007 was $596,000, as compared
to
$379,000 for the same period in 2006, an increase of $217,000. The increase
in
expenses was primarily due to:
| · |
costs
for product manufacturing for a new ProLindac clinical trial expected
to
start in 2008 ($214,000);
|
| · |
higher
salary and related cost due to the hiring of additional scientific
staff
($30,000); and
|
| · |
other
net increases ($25,000).
|
The
increase in research spending is partially offset by lower clinical development
costs ($52,000). We incurred start-up costs for the clinical trial in early
2006.
Total
general and administrative expenses were $1,000,000 for the third quarter
of
2007, an increase of $200,000 as compared to the same period in 2006. The
increase in spending was due primarily to the following:
| · |
higher
investor relations expenses ($149,000) due to our increased investor
relations efforts;
|
| · |
higher
salary related expenses due to stock option expenses ($156,000);
and
|
| · |
higher
salary expenses ($65,000).
|
The
increase in general and administrative spending is partially offset by:
| · |
lower
patent expenses ($90,000);
|
| · |
lower
professional fees ($59,000); and
|
| · |
other
net decreases ($21,000).
|
Depreciation
and amortization was $61,000 for the third quarter of 2007 as compared to
$77,000 for the same period in 2006 reflecting a decrease of $16,000. The
decrease in depreciation and amortization was due to assets becoming fully
depreciated.
Total
operating expenses in the third quarter of 2007 were $1,657,000 as compared
to
total operating expenses of $1,256,000 for the same period in 2006, an increase
of $401,000.
Interest
and miscellaneous income was $12,000 for the third quarter of 2007 as compared
to $86,000 for the same period in 2006, a decrease of $74,000. The decrease
in
interest income was due to accretion of the receivable due from Uluru that
was
recorded in 2006.
6
Interest
and other expense was $318,000 for the third quarter of 2007 as compared
to
$1,976,000 the same period in 2006, a decrease of $1,658,000. The decrease
in
interest and other expense was due to amortization of the discount on the
Oracle
convertible notes and the amortization of the SCO notes recognized in
2006.
In
2006,
there was an unrealized loss on fair value of warrants of $1,131,000 due
to the
warrants issued to SCO and affiliates. We changed our accounting for the
warrants in the fourth quarter of 2006 and there are no unrealized losses
or
gains in 2007.
Net
loss
in the third quarter of 2007 was $1,957,000, or a $0.55 basic and diluted
loss
per common share, compared with a loss of $2,015,000, or a $0.57 basic and
diluted loss per common share for the same period in 2006, a decreased loss
of
$58,000.
NINE
MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2006
Our
licensing revenue in the first nine months of 2007 was $6,000. We recognize
licensing revenue over the period of the performance obligation under our
licensing agreement. We received a $1.0 million upfront licensing payment
in
August 2007 from SpePharm Holding, B.V. for marketing MuGard in Europe. We
will
recognize the upfront licensing fee over 14 ¾ years, the license
term.
Total
research spending for the first nine months of 2007, was $1,532,000, as compared
to $1,769,000 for the same period in 2006, a decrease of $237,000. The decrease
in expenses was primarily
due to
| · |
lower
costs for product manufacturing for ProLindac ($198,000). Product
manufacturing was completed early in 2006 which we believe is adequate
to
supply drug product for our current ovarian cancer
trial;
|
| · |
lower
costs of clinical trials for ProLindac
($170,000). We incurred start-up costs for the clinical trial in
early
2006; and
|
| · |
other
net decreases ($53,000).
|
The
decrease in research spending is partially offset by
| · |
higher
salary and related cost due to the hiring of additional scientific
staff
($121,000); and
|
| · |
higher
scientific consulting costs ($63,000).
|
Total
general and administrative expenses were $3,252,000 for the first nine months
of
2007, an increase of $1,123,000 as compared to the same period in 2006. The
increase in general and administrative expenses was due primarily to the
following:
| · |
higher
salary related expenses due mainly to stock option expenses
($580,000);
|
| · |
higher
investor relations expenses ($368,000) due to our increased investor
relations efforts;
|
| · |
higher
salary and related costs ($178,000); and
|
| · |
higher
travel costs ($58,000).
|
The
increase in general and administrative expenses is partially offset
by:
| · |
lower
patent expenses ($45,000); and
|
| · |
other
net decreases ($16,000).
|
Depreciation
and amortization was $210,000 for the first nine months of 2007 as compared
to
$231,000 for the same period in 2006 reflecting a decrease of $21,000.
The
decrease in depreciation and amortization was due to assets becoming fully
depreciated.
7
Interest
and miscellaneous income was $72,000 for the first nine months of 2007 as
compared to $278,000 for the same period in 2006, a decrease of $206,000.
The
decrease in interest income was due to accretion of the receivable due from
Uluru that was recorded in 2006.
Interest
and other expense was $3,277,000 for the first nine months of 2007 as compared
to $5,244,000 for the same period in 2006, a decrease of $1,967,000. The
decrease in interest and other expense was due to amortization of the discount
on the Oracle convertible notes and the amortization of the SCO notes recognized
in 2006.
In
2006
there was an unrealized loss on fair value of warrants of $1,107,000 due
to the
warrants issued to SCO and affiliates. We changed our accounting for the
warrants in the fourth quarter of 2006 and there is no unrealized losses
or
gains in 2007.
Net
loss
in the first nine months of 2007 was $8,193,000, or a $2.31 basic and diluted
loss per common share, compared with a loss of $10,202,000, or a $2.89 basic
and
diluted loss per common share for the same period in 2006, a decreased loss
of
$2,009,000.
Recent
Accounting Pronouncements
We
adopted FIN 48 as of the beginning of our 2007 fiscal year. See Notes to
Condensed Consolidated Financial Statements.
In
September 2006, the FASB issued SFAS 157, Fair
Value Measurements (SFAS
157),
which
defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. The provisions of SFAS
157
are effective as of the beginning of our 2008 fiscal year. We are currently
evaluating the impact of adopting SFAS 157 on our financial statements.
In
February 2007, the FASB issued SFAS 159, The
Fair Value Option for Financial Assets and Financial Liabilities Including
an
amendment of FASB Statement No. 115 (SFAS
159),
which
permits entities to choose to measure many financial instruments and certain
other items at fair value. The provisions of SFAS 159 are effective as of
the
beginning of our 2008 fiscal year. We are currently evaluating the impact
of
adopting SFAS 159 on our financial statements.
ITEM
3 CONTROLS
AND PROCEDURES
Evaluation
of disclosure controls and procedures.
Our
disclosure controls and procedures are designed to ensure that information
required to be disclosed by us in the reports we file or submit under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms. An evaluation was performed under the supervision
and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in
Rule 13a — 15(e) under the Securities Exchange Act of 1934) as of the
end of the period covered by this quarterly report. Based on this evaluation,
our management, including our Chief Executive Officer and our Chief Financial
Officer, concluded that, as of September 30, 2007 our disclosure controls
and
procedures were effective to ensure that information required to be disclosed
by
us in the reports we file or submit under the Securities Exchange Act of
1934,
as amended, is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission’s rules and
forms.
8
Changes
in Internal Control over Financial Reporting
For
the
quarter ended September 30, 2007, there have been no changes in our internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934) that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
RISK
FACTORS
Other
than the risk factors set forth below, there have not been any material changes
from the risk factors previously disclosed in our Form 10-KSB. These risk
factors are not the only ones facing the Company. Additional risks and
uncertainties not currently deemed to be material may also materially or
adversely affect our financial condition and/or operating results. Please
consult the Risk Factors set forth in our Form 10-KSB.
We
have limited liquid assets.
We
expect
that our capital resources will be adequate to fund our current level of
operations through December 2008. However, our ability to fund operations
over
this time could change significantly depending upon changes to future
operational funding obligations or capital expenditures. As a result we may
be
required to seek additional financing sources within the next twelve months.
We
cannot assure you that we will ever be able to generate significant product
revenue or achieve or sustain profitability. If we are unable to secure
financing prior to the exhaustion of our liquid assets we may be required
to
cease or curtail our operations.
The
proposed merger between Access and Somanta may not result in benefits to
the
combined company because of integration and other challenges.
Access’
ability to realize the anticipated benefits of the merger will depend, in
part,
on the ability of Access to integrate the business of Somanta with the business
of Access. The combination of two independent companies is a complex, costly
and
time-consuming process. This process may disrupt the business of either or
both
of the companies, and may not result in the full benefits expected by Access
and
Somanta. The difficulties of combining the operations of the companies include,
among others:
|
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•
|
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unanticipated
issues in integrating information, communications and other systems;
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•
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retaining
key employees;
|
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•
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consolidating
corporate and administrative infrastructures;
|
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•
|
|
the
diversion of management’s attention from ongoing business concerns; and
|
|
|
•
|
|
coordinating
geographically separate organizations.
|
We
cannot
assure you that the combination of Somanta with Access will result in the
realization of the full benefits anticipated from the merger. The closing
of the
Somanta acquisition is subject to numerous closing conditions. At this time,
either we or Somanta may terminate the Merger Agreement or the Merger Agreement
may be terminated if various closing conditions are not met.
9
PART
II -- OTHER INFORMATION
ITEM
1 LEGAL
PROCEEDINGS
None
ITEM
2 UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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
|
Exhibits:
| 2.2 |
Agreement
and Plan of Merger, by and among Access Pharmaceuticals, Inc.,
Somanta
Acquisition Corporation, Somanta Pharmaceuticals, Inc., Somanta
Incorporated and Somanta Limited, dated April 18, 2007. (Incorporated
by
reference to Exhibit 2.1 to our Form 8-K dated April 18,
2007)
|
| 3.0 |
Articles
of incorporation and bylaws:
|
| 3.1 |
Certificate
of Incorporation (Incorporated by Reference to Exhibit 3(a) of
our Form
8-B dated July 12, 1989, Commission File Number
9-9134)
|
| 3.2 |
Certificate
of Amendment of Certificate of Incorporation filed August 21,
1992
|
| 3.3 |
Certificate
of Merger filed January 25, 1996. (Incorporated by reference to
Exhibit E
of our Registration Statement on Form S-4 dated December 21, 1995,
Commission File No. 33-64031)
|
|
3.4
|
Certificate
of Amendment of Certificate of Incorporation filed January 25,
1996.
(Incorporated by reference to Exhibit E of our Registration Statement
on
Form S-4 dated December 21, 1995, Commission File No.
33-64031)
|
|
3.5
|
Certificate
of Amendment of Certificate of Incorporation filed July 18, 1996.
(Incorporated by reference to Exhibit 3.8 of our Form 10-K for
the year
ended December 31, 1996)
|
|
3.6
|
Certificate
of Amendment of Certificate of Incorporation filed June 18, 1998.
(Incorporated by reference to Exhibit 3.8 of our Form 10-Q for
the quarter
ended June 30, 1998)
|
| 3.7 |
Certificate
of Amendment of Certificate of Incorporation filed July 31, 2000.
(Incorporated by reference to Exhibit 3.8 of our Form 10-Q for
the quarter
ended March 31, 2001)
|
10
|
3.8
|
Certificate
of Designations of Series A Junior Participating Preferred Stock
filed
November 7, 2001 (Incorporated by reference to Exhibit 4.1.h of
our
Registration Statement on Form S-8, dated December 14, 2001, Commission
File No. 333-75136)
|
|
3.9
|
Amended
and Restated Bylaws (Incorporated by reference to Exhibit 3.1 of
our Form
10-Q for the quarter ended June 30,
1996)
|
|
10.43
|
Amendment
to 7.0% (Subject to Adjustment) Convertible Promissory Notes Due
November
16, 2007, dated October 24, 2007 by and between us and Oracle Partners
LP
and affiliates
|
|
10.44
|
Amendment
to Amended and Restated 7.5% Secured Convertible Promissory Notes
Due
November 15, 2007, dated October 24, 2007 by and between us and
SCO
Capital Partners LLC, Beach Capital LLC and Lake End Capital
LLC
|
|
31.1
|
Certification
of Chief Executive Officer of Access Pharmaceuticals, Inc. pursuant
to
Rule 13a-14(a)/15d-14(a)
|
|
31.2
|
Certification
of Chief Financial Officer of Access Pharmaceuticals, Inc. pursuant
to
Rule 13a-14(a)/15d-14(a)
|
|
32.1*
|
Certification
of Chief Executive Officer of Access Pharmaceuticals, Inc. pursuant
to 18
U.S.C. Section 1350
|
|
32.2*
|
Certification
of Chief Financial Officer of Access Pharmaceuticals, Inc. pursuant
to 18
U.S.C. Section 1350
|
______________
*This
exhibit shall not be deemed “filed for purposes of Section 18 of
the
Securities
Exchange Act of 1934 or otherwise subject to the liabilities of
that
Section,
nor shall it be deemed incorporated by reference in any filings under
the
Securities
Act of 1933 or the Securities and Exchange Act of 1934, whether
made
before
or
after the date hereof and irrespective of any general incorporation
language
in
any
filings.
11
SIGNATURES
In
accordance with the requirements of the Exchange Act of 1934, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly
authorized.
ACCESS
PHARMACEUTICALS, INC.
|
Date:
|
November
14, 2007
|
By:
|
/s/
Stephen R. Seiler
|
|
Stephen
R. Seiler
|
|||
|
President
and Chief Executive Officer
|
|||
|
(Principal
Executive Officer)
|
|||
|
Date:
|
November
14, 2007
|
By:
|
/s/
Stephen B. Thompson
|
|
Stephen
B. Thompson
|
|||
|
Vice
President and Chief Financial Officer
|
|||
|
(Principal
Financial and Accounting Officer)
|
|||
12
Access
Pharmaceuticals, Inc. and Subsidiaries
Condensed
Consolidated Balance Sheets
|
|
September
30, 2007
|
December
31, 2006
|
|||||
|
ASSETS
|
(unaudited)
|
(audited)
|
|||||
|
Current
assets
Cash
and cash equivalents
Short
term investments, at cost
Receivables
Prepaid
expenses and other current assets
|
$
|
661,000
515,000
861,000
530,000
|
$
|
1,194,000
3,195,000
359,000
283,000
|
|||
|
Total
current assets
|
2,567,000
|
5,031,000
|
|||||
|
Property
and equipment, net
|
156,000
|
212,000
|
|||||
|
Debt
issuance costs, net
|
-
|
158,000
|
|||||
|
Patents,
net
|
752,000
|
878,000
|
|||||
|
Licenses,
net
|
-
|
25,000
|
|||||
|
Other
assets
|
25,000
|
122,000
|
|||||
|
Total
assets
|
$
|
3,500,000
|
$
|
6,426,000
|
|||
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|||||||
|
Current
liabilities
Accounts
payable and accrued expenses
Accrued
interest payable
Deferred
revenues
Current
portion of long-term debt, net of discount $0 at
September
30, 2007 and $2,062,000 at December 31, 2006
|
$
|
1,595,000
1,023,000
1,167,000
11,406,000
|
$
|
1,226,000
581,000
173,000
8,833,000
|
|
||
|
Total
current liabilities
|
15,191,000
|
10,813,000
|
|||||
|
Long-term
debt
|
5,500,000
|
5,500,000
|
|||||
|
Total
liabilities
|
20,691,000
|
16,313,000
|
|||||
|
Commitments
and contingencies
|
-
|
-
|
|||||
|
Stockholders'
deficit
Preferred
stock - $.01 par value; authorized 2,000,000 shares;
none
issued or outstanding
Common
stock - $.01 par value; authorized 100,000,000 shares;
issued,
3,575,114 at September 30, 2007 and 3,535,108 at
December
31, 2006
Additional
paid-in capital
Notes
receivable from stockholders
Treasury
stock, at cost - 163 shares
Accumulated
deficit
|
-
36,000
69,687,000
(1,045,000
(4,000
(85,865,000
|
)
)
)
|
-
35,000
68,799,000
(1,045,000
(4,000
(77,672,000
|
)
)
)
|
|||
|
Total
stockholders' deficit
|
(17,191,000
|
)
|
(9,887,000
|
)
|
|||
|
Total
liabilities and stockholders' deficit
|
$
|
3,500,000
|
$
|
6,426,000
|
|||
The
accompanying notes are an integral part of these statements.
13
Access
Pharmaceuticals, Inc. and Subsidiaries
Condensed
Consolidated Statements of Operations
(unaudited)
|
Three
months ended
|
Nine
months ended
|
||||||||||||
|
September
30,
|
September
30
|
||||||||||||
|
2007
|
2006
|
2007
|
2006
|
||||||||||
|
Revenues
|
|||||||||||||
|
License
revenues
|
$
|
6,000
|
$
|
-
|
$ | 6,000 |
$
|
-
|
|||||
|
Expenses
|
|||||||||||||
|
Research
and development
|
596,000
|
379,000
|
1,532,000 |
1,769,000
|
|||||||||
|
General
and administrative
|
1,000,000
|
800,000
|
3,252,000 |
2,129,000
|
|||||||||
|
Depreciation
and amortization
|
61,000
|
77,000
|
210,000 |
231,000
|
|||||||||
|
Total
expenses
|
1,657,000
|
1,256,000
|
4,994,000 |
4,129,000
|
|||||||||
|
Loss
from operations
|
(1,651,000
|
)
|
(1,256,000
|
)
|
(4,988,000 | ) |
(4,129,000
|
)
|
|||||
|
Interest
and miscellaneous income
|
12,000
|
86,000
|
72,000 |
278,000
|
|||||||||
|
Interest
and other expense
|
(318,000
|
)
|
(1,976,000
|
)
|
(3,277,000 | ) |
(5,244,000
|
)
|
|
Unrealized
gain (loss) on fair value of
warrants
and conversion feature
|
-
|
|
1,131,000
|
|
-
|
|
(1,107,000
|
)
|
|||||
|
(306,000
|
) |
(759,000
|
) | (3,205,000 | ) |
(6,073,000
|
) | ||||||
|
Net
loss
|
$
|
(1,957,000
|
)
|
$
|
(2,015,000
|
)
|
$
|
(8,193,000
|
)
|
$
|
(10,202,000
|
)
|
|
|
Basic
and diluted loss per common share
Net
loss allocable to common
shareholders
|
$
|
(0.55
|
)
|
$
|
(0.57
|
)
|
|
|
|
$
|
(2.89
|
)
|
|
|
Weighted
average basic and diluted
common
shares outstanding
|
3,575,114
|
3,534,408
|
3,544,181
|
3,530,941
|
The
accompanying notes are an integral part of these statements.
14
Access
Pharmaceuticals, Inc. and Subsidiaries
Condensed
Consolidated Statements of Cash Flows
(unaudited)
|
Nine
months ended September 30,
|
|||||||
|
2007
|
2006
|
||||||
|
Cash
flows from operating activities:
|
|||||||
|
Net
loss
|
$
|
(8,193,000
|
)
|
$
|
(10,202,000
|
)
|
|
|
Adjustments
to reconcile net loss to cash used
in
operating activities:
|
|||||||
|
Depreciation
and amortization
|
210,000
|
230,000
|
|||||
|
Stock
option expense
|
810,000
|
171,000
|
|||||
|
Stock
compensation expense
|
-
|
69,000
|
|||||
|
Stock
issued for compensation
|
44,000
|
-
|
|||||
|
Amortization
of debt costs and discounts
|
2,316,000
|
4,192,000
|
|||||
|
Unrealized
loss on fair value of warrants and
conversion
feature
|
-
|
1,107,000
|
|||||
|
Loss on
sale of asset
|
2,000
|
|
-
|
||||
|
Change
in operating assets and liabilities:
|
|||||||
|
Receivables
|
(502,000
|
)
|
14,000
|
||||
|
Prepaid
expenses and other current assets
|
(247,000
|
)
|
143,000
|
||||
|
Other
assets
|
1,000
|
128,000
|
|||||
|
Accounts
payable and accrued expenses
|
369,000
|
(849,000
|
)
|
||||
|
Accrued
interest payable
|
953,000
|
805,000
|
|||||
|
Deferred
revenue
|
994,000
|
-
|
|||||
|
Net
cash used in operating activities
|
(3,243,000
|
)
|
(4,192,000
|
)
|
|||
|
Cash
flows from investing activities:
|
|||||||
|
Capital
expenditures
|
(18,000
|
)
|
(3,000
|
)
|
|||
|
Proceeds
from sale of asset
|
13,000
|
-
|
|||||
|
Redemptions
of short term investments and
certificates
of deposit, net
|
2,680,000
|
(98,000
|
)
|
||||
|
Net
cash provided by (used in) investing activities
|
2,675,000
|
(101,000
|
)
|
||||
|
Cash
flows from financing activities:
|
|||||||
|
Payments
of notes payable
|
-
|
(106,000
|
)
|
||||
|
Proceeds
from secured convertible notes payable
|
-
|
4,532,000
|
|||||
|
Exercise
of stock options
|
35,000
|
-
|
|||||
|
Net
cash provided by financing activities
|
35,000
|
4,426,000
|
|||||
|
Net
(decrease) increase in cash and cash equivalents
|
(533,000
|
)
|
133,000
|
||||
|
Cash
and cash equivalents at beginning of period
|
1,194,000
|
349,000
|
|||||
|
Cash
and cash equivalents at end of period
|
$
|
661,000
|
$
|
482,000
|
|||
|
Supplemental
cash flow information:
|
|||||||
|
Cash
paid for interest
|
$
|
5,000
|
$
|
5,000
|
|||
|
Accrued
interest capitalized
|
511,000 | - |
The
accompanying notes are an integral part of these statements
15
Access
Pharmaceuticals, Inc. and Subsidiaries
Notes
to
Condensed Consolidated Financial Statements
Nine
Months Ended September 30, 2007 and 2006
(unaudited)
| (1) |
Interim
Financial Statements
|
The
consolidated balance sheet as of September 30, 2007 and the consolidated
statements of operations and cash flows for the three and nine months ended
September 30, 2007 and 2006 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. All share and per share information
reflect a one for five reverse stock split effected on June 5,
2006.
Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted. It is suggested that
these interim financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in our Annual Report on Form
10-KSB for the year ended December 31, 2006. The results of operations for
the
period ended September 30, 2007 are not necessarily indicative of the operating
results which may be expected for a full year. The consolidated balance sheet
as
of December 31, 2006 contains financial information taken from the audited
financial statements as of that date.
The
report of our independent registered public accounting firm for the fiscal
year
ended December 31, 2006 contained a fourth explanatory paragraph to reflect
its
significant doubt about our ability to continue a going concern as a result
of
our history of losses and our liquidity position, as discussed herein and in
this Form 10-QSB. If we are unable to obtain adequate capital funding in the
future, we may not be able to continue as a going concern, which would have
an
adverse effect on our business and operations, and investors’ investment in us
may decline.
(2) Intangible
Assets
Intangible
assets consist of the following (in thousands):
16
|
September
30, 2007
|
December
31, 2006
|
||||||||||||
|
Gross
carrying
value
|
Accumulated
amortization
|
Gross
carrying
value
|
Accumulated
amortization
|
||||||||||
|
Amortizable
intangible assets
Patents
Licenses
|
$
|
1,680
-
|
$
|
928
-
|
$
|
1,680
500
|
$
|
802
475
|
|||||
|
Total
|
$ | $1,680 |
$
|
928
|
$
|
2,180
|
$
|
1,277
|
|||||
Amortization
expense related to intangible assets totaled $42,000 and $54,000 for each of
the
three months ended September 30, 2007 and 2006, respectively and totaled
$151,000 and $163,000 for each of the nine months ended September 30, 2007
and
2006. The aggregate estimated amortization expense for intangible assets
remaining as of September 30, 2007 is as follows (in
thousands):
| 2007 | $ | 42 | ||
| 2008 | 168 | |||
| 2009 | 168 | |||
| 2010 | 168 | |||
| 2011 | 168 | |||
| Thereafter | 38 | |||
| Total | $ | 752 |
(3) Liquidity
The
Company incurred significant losses from continuing operations of $2.0 million
for the quarter ended September 30, 2007, $8.2 million for the nine months
ended
September 30, 2007, $13.3 million for the year ended December 31, 2006 and
$7.6
million for the year ended December 31, 2005. Additionally, at September 30,
2007, our working capital deficit is $12.6 million. As of September 30, 2007,
we
did
not have
sufficient funds to repay our convertible notes at their maturity and support
our working capital and operating requirements. See Note (7) Subsequent
Events for the changes in our cash position and convertible notes. Our
funds at November 14, 2007 will allow us to support our working capital and
operating requirements through December 2008.
(4)
Stock
Based Compensation
For
the
third quarter, we recognized stock-based compensation expense of $207,000 in
2007 and $49,000 in 2006. For the nine months we recognized stock-based
compensation expense of $810,000 in 2007 and $171,000 in 2006. For the third
quarter of 2007, we granted 25,000 stock options under our 2005 Equity Incentive
Plan at a weighted average exercise price of $3.03.
17
Our
weighted average Black-Scholes fair value assumptions are as follows:
|
|
|
9/30/07
|
|
|||
|
Expected
life
|
|
2.0
yrs.
|
|
|||
|
Risk
free interest rate
|
|
4.63
|
%
|
|||
|
Expected
volatility(a)
|
|
141
|
%
|
|||
|
Expected
dividend yield
|
|
0.0
|
%
|
|||
|
(a)
|
Reflects
movements in our stock price over the most recent historical period
equivalent to the expected life.
|
(5)
Income
Taxes
In
2006,
the Financial Accounting Standards Board issued FASB Interpretation No. 48
(FIN 48),
which
clarifies the accounting for uncertainty in tax positions. FIN 48 requires
that
we recognize in our financial statements the impact of a tax position, if that
position is more likely than not of being sustained on audit, based on the
technical merits of the position. We adopted the provisions of FIN 48 as of
the
beginning of our 2007 fiscal year. There was no effect as a result of our
adoption of FIN 48.
As
of the
beginning of our 2007 fiscal year, due to our cumulative net losses we do not
have any reserves for income taxes because no taxes are due.
We
file
income tax returns in the U.S. federal jurisdiction and various state
jurisdictions. A number of years may elapse before an uncertain tax position
is
audited and finally resolved. While it is often difficult to predict the final
outcome or the timing of resolution of any particular uncertain tax position,
we
believe that our reserves for income taxes reflect the most probable outcome.
We
adjust these reserves, as well as the related interest, in light of changing
facts and circumstances. Settlement of any particular position would usually
require the use of cash. The resolution of a matter would be recognized as
an
adjustment to our provision for income taxes and our effective tax rate in
the
period of resolution.
(6)
Debt
|
September
30,
2007
|
December
31,
2006
|
||||||
|
Convertible
note - Oracle and affiliates
|
$
|
4,015,000
|
$
|
4,015,000
|
|||
|
Convertible
note
|
5,500,000
|
5,500,000
|
|||||
|
Convertible
note
|
1,391,000
|
880,000
|
|||||
|
10,906,000
|
10,395,000
|
||||||
|
Discount
|
-
|
(456,000
|
)
|
||||
|
10,906,000
|
9,939,000
|
||||||
|
Convertible
note - SCO and affiliates
|
6,000,000
|
6,000,000
|
|||||
|
Discount
|
-
|
(1,606,000
|
)
|
||||
|
6,000,000
|
4,394,000
|
||||||
|
Total
|
$
|
16,906,000
|
$
|
14,333,000
|
|||
|
Short
term
|
$
|
11,406,000
|
$
|
8,833,000
|
|||
|
Long
term
|
5,500,000
|
5,500,000
|
|||||
|
Total
|
$
|
16,906,000
|
$
|
14,333,000
|
|||
18
(7)
Subsequent
Events
On
October 24, 2007, Access and SCO Capital Partners LLC and affiliates (“SCO”)
agreed to extend the maturity date of an aggregate principal amount of
$6,000,000 of 7.5% convertible notes to November 15, 2007 from October 25,
2007.
On
October 24, 2007, Access and Oracle Partners LP and affiliates (“Oracle”) agreed
to extend the maturity date of an aggregate principal amount of $4,015,000
of
7.7% convertible notes to November 16, 2007 from October 26, 2007.
On
November 7, 2007, we entered into securities purchase agreements (the “Purchase
Agreements”) with accredited investors whereby we agreed to sell 954.0001 shares
of a newly created series of our preferred stock, designated “Series A
Cumulative Convertible Preferred Stock”, par value $0.01 per share, for an issue
price of $10,000 per share, (the “Series A Preferred Stock”) and agreed to issue
warrants to purchase 1,589,999 shares of our common stock at an exercise
price
of $3.50 per share, for an aggregate purchase price of $9,540,001.
As
a
condition to closing, SCO Capital Partners, LLC and affiliates, along with
the
other holders of an aggregate of $6,000,000 Secured Convertible Notes, also
exchanged their notes and accrued interest for an additional 1,836.0512 shares
of Series A Preferred Stock and were issued warrants to purchase 1,122,031
shares of our common stock at an exercise price of $3.50 per share, and Oracle
Partners LP and affiliates, along with the other holders of an aggregate
of
$4,015,000 Convertible Notes also exchanged their notes and accrued interest
for
437.3104 shares of the Series A Preferred Stock and were issued warrants
to
purchase 728,850 shares of our common stock at an exercise price of $3.50
per
share. SCO capital Partner, LLC currently has a designee serving on our Board
of
Directors. In connection with the exchange of the notes, all security interests
and liens relating thereto were terminated.
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