Sunshine Biopharma, Inc. — Q3 2016 Form 10-Q
Reporting period: Three and nine months ended September 30, 2016; filed November 14, 2016. Amounts are U.S. dollars unless stated otherwise. The company is a development-stage pharmaceutical business focused on generic drugs and its proprietary cancer candidate, Adva-27a.
Financial results and position
| Metric | Q3 2016 | Nine months 2016 | Comparable 2015 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 for Q3; $1,708 for nine months |
| General and administrative expense | $116,016 | $657,011 | $113,053 for Q3; $607,743 for nine months |
| Loss from operations | $(116,016) | $(657,011) | $(113,053) for Q3; $(606,035) for nine months |
| Net loss | $(1,585,620) | $(2,372,224) | $(202,815) for Q3; $(1,005,229) for nine months |
| Operating cash used | Not separately provided | $(282,988) | $(524,851) for nine months |
Q3 and nine-month losses were driven chiefly by losses on debt conversions: $1,465,646 and $1,719,304, respectively. The filing reports basic loss per share of $0.00 for Q3 and $(0.01) for the nine-month period. With no meaningful sales, a revenue margin comparison is not meaningful.
- Liquidity: Cash was $21,789 at September 30, down from $50,798 at December 31, 2015. Current assets were $22,795 and current liabilities $276,680, implying a working-capital deficit of approximately $253,885.
- Debt: Current notes payable were $248,994, with $8,406 of interest payable; related-party notes payable were reduced to zero from $835,394. Total liabilities were $276,680, versus $1,270,306 at year-end 2015.
- Cash flows: Financing provided $255,293 and investing used $2,343 during the first nine months. Cash declined by $30,038 before a $1,029 foreign-currency translation adjustment.
- Equity and dilution: Common shares outstanding rose to 636,025,383 from 198,265,118 at year-end 2015. The company issued 437,760,265 shares during the nine-month period, including shares for debt conversions and services. It reported shareholders’ equity of $322,642, versus a deficit of $597,045 at year-end.
Changes, plans, and material risks
- Nine-month G&A increased $49,268 year over year. Increased stock-based executive compensation, consulting, R&D, license costs, and depreciation/amortization were partly offset by lower legal and former patent-license fees. Interest expense fell to $29,080 from $49,186.
- The company entered licensing agreements for four generic drugs—anastrozole, letrozole, bicalutamide, and finasteride—but still needed Health Canada product identification numbers (DINs) and a Drug Establishment License (DEL) before marketing. No significant revenue had been generated.
- Management estimated approximately $5 million in debt and/or equity capital would be needed to implement its plan and said no funding agreement had been secured. The filing states that recurring losses and negative operating cash flows raise substantial doubt about the company’s ability to continue as a going concern; additional financing is not assured and could materially dilute shareholders.
- Adva-27a clinical development had been delayed by lack of funding. Subject to financing, the company anticipated Phase I trials for pancreatic cancer and multidrug-resistant breast cancer in mid-to-late 2017; this was a forward-looking target, not a commitment or assurance of approval.
- A pilot manufacturing run for Adva-27a yielded substantially less material than expected. Lonza required $687,818 before proceeding, while the company said it needed a clear resolution of the yield problem first; the parties remained at an impasse at the filing date.
- Related-party Adva-27a patent purchase notes were converted into 321,305,416 shares, producing a reported $1,381,613 conversion loss within total nine-month conversion losses of $1,719,304. Stock-based services and debt conversions were also significant noncash items.
- After quarter-end, 10,000,000 shares were issued for financial consulting services. On October 18, the holder of a $174,852 note converted $74,852 into 40,374,475 shares, leaving $100,000 principal outstanding.
Management concluded disclosure controls were effective at the reasonable-assurance level and reported no material change in internal control over financial reporting during the period.
Important facts for investors to verify
- Whether the company obtained sufficient financing, and the terms and potential dilution of any subsequent funding.
- Whether DINs and a DEL were secured and whether the four generic products were launched or generated sales.
- Whether the Adva-27a manufacturing-yield dispute with Lonza was resolved, including the status of the $687,818 demand.
- The remaining convertible-note balance, subsequent share issuances, and the resulting fully diluted share count.
- The company’s going-concern disclosures and the extent to which reported losses reflect noncash debt-conversion charges versus ongoing operating costs.