Sunshine Biopharma Inc. — Q1 2014 Form 10-Q
Business context and period: Development-stage pharmaceutical company focused on oncology drug research and development. This unaudited report covers the three months ended March 31, 2014; balance-sheet comparisons are with December 31, 2013. The company reported no revenue.
Financial results and liquidity
| Metric | Q1 2014 | Q1 2013 / prior balance-sheet date |
|---|---|---|
| Revenue | $0 | $0 |
| General and administrative expenses | $405,873 | $922,891 |
| Interest expense | $95,382 | $5,330 |
| Net loss | $501,255 | $1,477,172 |
| Basic loss per share | $0.01 | $0.03 |
| Cash used in operating activities | $90,780 | $339,721 |
| Cash and cash equivalents | $70,460 | $31,240 at Dec. 31, 2013 |
| Total current liabilities | $185,037 | $38,950 at Dec. 31, 2013 |
| Total assets | $71,805 | $31,240 at Dec. 31, 2013 |
| Shareholders’ equity | $(113,232) | $(7,710) at Dec. 31, 2013 |
Operating margin is not meaningful because the company had no revenue. The company reported total liabilities of $185,037, including a $132,500 current portion of note payable, $49,514 of accounts payable and $3,023 of interest payable. The filing’s note disclosure describes outstanding loans of $12,500 and $100,000; the relationship between those amounts and the $132,500 balance-sheet amount is not clearly explained in the supplied text. No cash interest or income taxes were paid in the quarter.
Material changes and financing
- Net loss improved by $975,917 year over year, mainly as consulting expense fell to $170,000 from $622,610 and the prior-year $548,951 beneficial-conversion-feature charge did not recur. Interest expense rose to $95,382 from $5,330.
- Research and development expense increased to $96,000 from $23,400. Legal expense rose to $45,372 from $19,034, principally related to a proposed Canadian re-domiciliation that the company later decided not to pursue. License fees were $83,333, versus $250,000 in the prior-year quarter.
- Financing activities provided $130,000 in cash. The company reported a $100,000 convertible note issued March 27, bearing 10% interest and convertible at the holder’s option at $0.20 per share through September 27, 2014. The filing also describes a $20,000 unpaid origination fee and 500,000 shares issued as an origination fee.
- The company sold 266,667 shares for approximately $53,333 during the quarter. It reported 62,675,728 shares outstanding at March 31 and 65,275,728 at May 8, 2014.
Outlook, risks and other notable items
- Management said the company is not generating operating revenue, lacks sufficient funds for planned operations and expects to need approximately $5 million in debt or equity capital to implement its business plan. It had no agreement in place for that financing as of the report date and warned that failure to obtain funds would materially adversely affect operations and financial condition.
- Adva-27a remained preclinical. Planned next steps included GMP manufacturing, IND-enabling studies, regulatory filings and Phase I trials. Management anticipated trials in mid-to-late 2015 and completion by mid-2016, subject to financing and other uncertainties. The filing states that no FDA or other regulatory filings had been made.
- As a subsequent event, on April 23, 2014 the company entered into a three-year agreement allowing it, at its discretion, to sell up to $2.5 million of stock to Dutchess Opportunity Fund. Pricing is 90% of the lowest daily VWAP over the preceding five trading days; each put is capped at $100,000. The company also issued 400,000 restricted shares as an engagement fee. There is no minimum funding commitment.
- The company disclosed one outstanding lawsuit and said it did not believe it presented material potential liability. Management concluded disclosure controls were effective as of March 31, 2014; no material change in internal control was reported.
- Forward-looking development and commercialization plans depend on financing, successful clinical and regulatory progress, and potential partners or licensees; the filing cautions that outcomes are uncertain. The interim results are unaudited and not necessarily indicative of full-year results.
Important facts for investors to verify
- Whether the company can raise sufficient capital, including whether and on what terms it uses the Dutchess equity facility.
- The composition and repayment terms of the reported $132,500 current note payable, given the different loan amounts in the note disclosure.
- Potential dilution from outstanding and convertible securities, the Dutchess facility, and the increase in shares outstanding after quarter-end.
- Actual progress, funding and timing for Adva-27a manufacturing, IND-enabling work, regulatory filings and clinical trials.
- The status and potential exposure of the outstanding litigation and the terms and economics of the Advanomics license.