Sunshine Biopharma, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. The company develops pharmaceutical candidates and sells nutritional supplements; Q1 revenue came entirely from nutritional supplements. The financial statements are unaudited.
Key financial results
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $122,645 | $40,058 |
| Gross profit / gross margin | $62,800 / 51.2% | $21,538 / 53.8% |
| General and administrative expenses | $1,286,164 | $1,297,184 |
| Operating loss | $1,223,364 | $1,275,646 |
| Net loss | $1,236,234 | $6,185,126 |
| Basic loss per share | $0.23 | $2.82 |
| Net cash used in operations | $1,304,208 | $297,355 |
Cash and cash equivalents were $13,177,625 at March 31, up from $2,045,167 at year-end 2021. Current assets were $13,405,367 and current liabilities $95,234. The company reported no outstanding notes payable at quarter-end; total liabilities were $95,234. Financing activities provided $12,437,673, including net proceeds from the February public offering and March private placement. No investing cash flows were reported.
Changes versus the prior-year quarter
- Revenue increased $82,587, or approximately 206%, which management attributed to a somewhat expanded advertising program. Cost of sales rose to 48.8% of revenue from 46.2%, reducing gross margin.
- Net loss narrowed substantially, mainly because Q1 2021 included a $4.9 million loss on debt conversions and $918,000 of stock-based service expense; neither was recorded in Q1 2022. Operating loss improved only modestly.
- Operating cash use increased by about $1.0 million. Management attributed the increase to higher business activity, including costs related to the quarter’s financing transactions.
- During Q1, the company raised net proceeds of $6.8 million in a public offering and $6.8 million in a private placement, repaid $1.9 million of note principal, and redeemed 990,000 Series B preferred shares for $99,000.
Business outlook, risks and notable items
- Management said existing cash was expected to fund operations, expanded research and development, and the supplement business for the next 24 months, while cautioning that the estimate may not be accurate. The company is not generating enough operating revenue to fully implement its business plan, has no committed capital sources, and expects it may need to raise additional funds.
- After quarter-end, an April 28 private placement generated $16,752,917 in net proceeds. April warrant exercises generated a further $12,368,385 in net proceeds, according to the filing.
- Research priorities include SBFM-PL4 and other coronavirus protease inhibitors, Adva-27a cancer-drug development, and mRNA cancer research. The University of Arizona agreement covers studies of three PLpro inhibitors and gives the company a first option to negotiate a commercial license for resulting intellectual property. Adva-27a still requires manufacturing, IND-enabling work, regulatory filing and clinical trials; management noted no assurance of success or a licensing transaction.
- Management described COVID-19-related uncertainty and potential adverse effects on business activity and fundraising. No financial-statement adjustments were made for the pandemic.
- Management concluded disclosure controls and procedures were ineffective as of March 31, citing staffing and SEC-reporting experience gaps, period-end reporting and accounting-policy deficiencies, and weaknesses in transaction controls, revenue recognition, inventory tracking and accruals. Remediation efforts included adding independent directors, establishing an independent Audit Committee and planning to hire additional personnel.
- Potential dilution is significant: the company had 7,149,778 common shares outstanding at March 31, and reported 16,495,607 as of May 6. It also had substantial pre-funded, tradeable and investor warrants outstanding; the April financing and warrant exercises further changed the capital structure.
- The filing reported no material legal proceedings, no off-balance-sheet arrangements and no dividends through March 31.
Important facts for investors to verify
- Reconcile the reported common-share counts—7,149,778 at March 31 versus 16,495,607 at May 6—with warrant exercises, pre-funded warrants and other issuances.
- Review the terms, remaining balances and potential dilution from outstanding warrants, including the effect of the April financing and exercises.
- Assess whether cash, including the post-quarter financing proceeds, is sufficient for planned R&D and whether further capital raises will be needed.
- Track research milestones, licensing rights and costs for SBFM-PL4, Adva-27a and the mRNA program; the filing provides no assurance of clinical or commercial success.
- Monitor remediation of the disclosed ineffective controls and the company’s ability to improve reporting, revenue-recognition, inventory and accounting processes.