Sunshine Biopharma, Inc. — FY2015 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2015, with comparison to FY2014. Sunshine Biopharma is a development-stage pharmaceutical company focused on cancer treatments. Its lead candidate, Adva-27a, had completed early preclinical work but had not entered clinical trials; the company also planned generic-pharmaceutical activities through its Canadian subsidiary.
Key financial metrics
| Metric | FY2015 / Dec. 31, 2015 | FY2014 / Dec. 31, 2014 |
|---|---|---|
| Revenue | $1,708 | $0 |
| Total operating expenses | $781,985 | $1,755,114 |
| Operating loss | $780,277 | $1,755,114 |
| Net loss | $1,652,908; $0.01 per share | $1,934,210; $0.03 per share |
| Interest expense | $307,211 | $140,916 |
| Loss on conversion of notes | $575,144 | $38,180 |
| Cash and cash equivalents | $50,798 | $143,423 |
| Net cash used in operating activities | $867,644 | $538,595 |
| Net cash used in investing activities | $623,603 | $0 |
| Net cash provided by financing activities | $1,398,622 | $650,778 |
| Total assets | $673,261 | $143,423 |
| Total liabilities | $1,270,306 | $531,003 |
| Shareholders’ equity (deficit) | $(597,045) | $(387,580) |
Gross margin is not meaningful because reported revenue was nominal and the company had no commercial product sales. At year-end, current assets were $53,909 versus current liabilities of $1,270,306, indicating a working-capital deficit of approximately $1.22 million. The filing reports no long-term liabilities on the balance sheet, while related-party patent notes are shown as current liabilities there; the notes’ presentation of their maturity classification is not fully consistent.
Material changes versus FY2014
- Revenue rose from zero to $1,708, but remained immaterial. Operating expenses fell by $973,129, mainly due to lower R&D, consulting and legal costs; management attributed lower R&D spending to its focus on fundraising.
- Net loss narrowed by $281,302, but interest expense and conversion losses increased substantially and together weighed heavily on results.
- Operating cash use increased by $329,049. Financing proceeds rose, while cash still declined by $92,625 during FY2015.
- Common shares outstanding increased from 73.6 million to 198.3 million at year-end, primarily reflecting debt conversions and equity issuances.
Outlook, risks and unusual items
- Funding and going concern: The auditor and management identify substantial doubt about the company’s ability to continue as a going concern. The company had recurring losses, negative operating cash flow, an accumulated deficit of approximately $9.08 million and negative equity. Management said it needed additional equity or debt financing and estimated approximately $5 million would be required to implement its plan; as of year-end, it had no binding financing commitment.
- Development plans: Subject to funding and manufacturing timelines, management expected Adva-27a Phase I trials for pancreatic cancer and multidrug-resistant breast cancer in late 2016 or early 2017. The planned steps included GMP production, IND-enabling studies and regulatory filings. No FDA or other regulatory filing had been made as of the report, and clinical timing and any approval or revenue remain uncertain.
- Patent acquisition and dilution: The company acquired worldwide Adva-27a patent rights from Advanomics, a related party with management ties. Amendments reduced the original stated purchase obligations of $17.14 million to convertible notes totaling $835,394, which would automatically convert into 321,305,415 common shares once authorized share capital is increased. The notes are secured by the patents pending conversion. The contemplated share issuance is highly dilutive; the company planned to increase authorized common shares to 3 billion.
- Related-party governance: CEO Steve Slilaty and CFO Camille Sebaaly also held positions with Advanomics. The CEO received 500,000 Series B preferred shares for services; each carries 1,000 votes. The board had no independent directors or committees, and had not adopted a code of ethics.
- Convertible financing and dilution: Certain notes carried 35% discounts to market price on conversion. FY2015 included $575,144 of conversion losses, and the company issued 102.9 million shares to convert debt and interest. Subsequent conversions and share sales were also reported in early 2016.
- Other items: A lawsuit against JMJ Financial was settled in the first quarter of 2016, with a one-time payment to the company; the amount is not stated in the provided filing text. On February 24, 2016, the company sold 7 million shares for approximately $76,104 in U.S. dollars. Management cited competition from better-funded pharmaceutical companies, regulatory uncertainty and the need for substantial additional capital. The stock traded on OTCQB and was classified as a penny stock, with liquidity and price-volatility risks.
Management reported effective disclosure controls and internal control over financial reporting as of December 31, 2015; the independent auditor did not provide an internal-control attestation. The filing provides no formal earnings or revenue guidance.
Most important facts for investors to verify
- Current cash, operating cash burn, near-term obligations and whether financing sufficient to fund operations and clinical development has been secured.
- The status and terms of the planned 321.3 million-share patent-note conversion, the required authorized-share increase, and resulting dilution and control effects.
- The actual amount and accounting treatment of the JMJ Financial settlement payment, and any remaining obligations or contingencies.
- Whether GMP manufacturing, IND-enabling studies and regulatory submissions have progressed, and whether trial timing or proposed indications have changed.
- The classification and maturity of related-party notes, given differences between the balance-sheet presentation and note disclosures.
- Subsequent share issuances, note conversions, and changes in authorized and outstanding shares.