Sunshine Biopharma, Inc. — Q2 2014 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2014. Financial statements are unaudited. Sunshine is a pre-revenue oncology drug developer focused on Adva-27a and reported as a smaller reporting company.
Key financial results
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating expenses | $765,513 | $152,593 | $1,171,387 | $1,072,984 |
| Interest expense | $52,875 | $375 | $148,257 | $5,705 |
| Net loss | $818,388 | $152,968 | $1,319,644 | $1,627,640 |
| Loss per share | $0.01 | Less than $0.01 | $0.02 | $0.03 |
| Operating cash used | Not separately provided | Not separately provided | $272,829 | $439,006 |
Gross margin is not meaningful because the company had no revenue. Six-month operating expenses increased $98,403 year over year. Lower consulting and license costs were offset by higher R&D, legal, and public-relations expenses. The six-month net loss narrowed primarily because 2013 included a $548,951 beneficial-conversion-feature charge; Q2 net loss rose substantially year over year.
At June 30, cash was $38,411 and current assets were $44,051, including $5,640 of prepaid expenses. Current liabilities and total liabilities were $382,272, including $282,500 of current note payable, $93,874 of accounts payable, and $5,898 of interest payable. The resulting working-capital deficit was $338,221; shareholders’ equity was negative $338,221. No noncurrent assets or liabilities were reported. The filing identifies notes at 10% and 12%; the full composition and repayment terms of the reported $282,500 current note balance are not clearly reconciled in the supplied filing text.
Cash increased $7,171 during the six months, from $31,240 to $38,411. Financing provided $280,000, principally from note proceeds and stock sales; investing cash flow was zero. The company also issued shares for services, licenses, interest, and expenses. Common shares outstanding were 65,965,728 at June 30 and 68,270,961 as of August 12, 2014.
Funding, outlook, and risks
- Management estimated that approximately $5 million of debt and/or equity capital would be needed to fully implement its plan. It warned that it lacked sufficient funds for anticipated increases in operations and clinical-development costs and that additional financing was not assured.
- A Dutchess investment agreement provides for up to $2.5 million of share sales over three years, at a price tied to 90% of the lowest daily VWAP in the preceding five trading days. The company is not required to draw the full amount. Its registration statement became effective July 23, 2014.
- On August 7, 2014, the company issued its first put notice, requesting $100,000 in exchange for 930,233 shares; proceeds were intended for debt repayment. Further draws were intended to support IND studies. These were subsequent events, not June 30 cash.
- Management anticipated Adva-27a Phase I trials in mid-to-late 2015, subject to funding and completion of GMP manufacturing, IND-enabling studies, and regulatory steps. The company had made no FDA or other regulatory filings as of the report date. Trial timing, regulatory progress, compassionate-use access, and commercial success were uncertain.
- On July 25, 2014, the company formed a wholly owned Canadian subsidiary and described plans to pursue generic pharmaceutical exports as a potential near- to mid-term revenue source; no revenue from this initiative was reported in the period.
- The company disclosed one outstanding lawsuit and said it believed a settlement had been reached requiring delivery of 650,000 common shares.
- Management cited the risk of failing to secure funds to advance its technology before competing technologies or drugs are developed. It also cautioned that interim results are not necessarily indicative of full-year results.
Most important facts for investors to verify
- Whether the Dutchess share-sale facility can provide usable funding, at what effective dilution, and whether the requested $100,000 was completed.
- The composition, maturity, conversion terms, and repayment obligations underlying the $282,500 current note balance, and the company’s ability to meet near-term liabilities.
- Actual cash needs and milestones for GMP production, IND-enabling work, regulatory filings, and the proposed Phase I program.
- Whether the Canadian subsidiary’s planned generic-drug business obtains required licenses and generates revenue.
- The status and share-delivery consequences of the litigation settlement and the subsequent increase in shares outstanding.