Sunshine Biopharma, Inc. — Q2 2016 Form 10-Q
Reporting period: Three and six months ended June 30, 2016; filed August 15, 2016. Financial statements are unaudited. The company is a development-stage pharmaceutical business pursuing generic drug commercialization and development of its proprietary cancer compound, Adva-27a.
Financial results and condition
| Metric | Q2 2016 | Six months 2016 | Comparable 2015 period |
|---|---|---|---|
| Revenue | $0 | $0 | $1,708 in each period |
| General and administrative expenses | $471,313 | $540,995 | $369,865 Q2; $494,690 six months |
| Net loss | $481,310 | $786,604 | $517,512 Q2; $811,879 six months |
| Operating cash flow | $(219,995) for six months | $(422,243) for six months |
- At June 30, cash was $73,922, versus $50,798 at December 31, 2015. Current assets were $73,922 and current liabilities were $1,213,784, a working-capital deficit of approximately $1.14 million.
- Total liabilities were $1,213,784, including $324,142 of current notes payable and $835,394 of related-party notes payable. Shareholders’ deficit was $548,373.
- Six-month financing cash inflows were $244,128; investing cash outflows were $2,343. Cash increased by $21,790 before the $1,334 foreign-currency translation adjustment.
- Margins are not meaningful because the company reported no revenue. Six-month net loss per share was reported as $0.00, versus $(0.01) in 2015, reflecting the much larger weighted-average share count.
Changes and notable items
- Six-month net loss improved by $25,275 year over year. Lower interest expense, reduced debt-conversion losses, and $25,000 of litigation settlement proceeds partly offset higher G&A and new amortization, depreciation, and R&D costs. In Q2, net loss improved by $36,202, with no debt-conversion loss recorded in that quarter.
- G&A increased $46,305 for the first half. Management cited a $205,343 increase in executive compensation associated with stock issued to officers and directors, partly offset by lower licensing, legal/accounting, and consulting costs.
- During the first half, the company issued 76.2 million common shares, including 36 million shares for directors’ services valued at $252,000 and 10 million shares for services valued at $100,000. It also issued shares for debt conversions and raised approximately $104,128 from stock sales.
- After quarter-end, the company increased authorized common shares to 3 billion and issued 321,305,416 shares to related party Advanomics to cancel $835,394 of patent-related notes. Common shares outstanding were 601,487,325 as of August 15, versus 274,431,909 at June 30.
- A $165,000 note due June 30, plus $9,852 accrued interest, was replaced July 1 with a $174,852 note due March 31, 2017. The notes disclosed carry conversion discounts of 35% or 40% to market and interest rates of 8%–12%.
Outlook, risks, and contingencies
- Management states that recurring losses and negative operating cash flows raise substantial doubt about the company’s ability to continue as a going concern. It says approximately $5 million of debt and/or equity financing is needed to implement its plan, with no committed funding identified; additional financing may dilute shareholders or impose restrictive terms and high interest costs.
- Generic products require Health Canada Drug Identification Numbers and a Drug Establishment License before sales can begin. Timing and commercial success are uncertain.
- Adva-27a remains preclinical. Management said funding constraints delayed clinical development and anticipated Phase I trials in mid-to-late 2017, subject to financing and other prerequisites. The filing provides no assurance of funding, trial success, regulatory approval, or commercial revenue.
- The company reported that a Lonza pilot manufacturing run produced materially lower yield than anticipated and that it was working on solutions. It also identified significant risks and uncertainties in estimates and financing.
- Management reported disclosure controls effective at June 30, 2016; no material change in internal control over financial reporting was identified. The company reported no material legal proceedings.
Important facts for investors to verify
- Whether the company secured sufficient financing and met the regulatory and facility requirements to launch its generic products.
- The status, cost, timing, and funding for Adva-27a manufacturing, IND-enabling studies, and planned clinical trials.
- The post-quarter share issuance, resulting dilution, and any further convertible debt or equity financing.
- The balance-sheet presentation: total assets are shown as $665,441, while total liabilities plus shareholders’ deficit are shown as $665,411, a $30 discrepancy in the filing text.
- The related-party patent-note cancellation and share issuance, given management’s overlapping roles at Sunshine Biopharma and Advanomics.