Sunshine Biopharma, Inc. — FY 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012; filed March 14, 2013. This is an annual report, not a standalone fourth-quarter report. Sunshine Biopharma is a development-stage cancer drug company with no product revenue.
Business context and development
The company’s lead candidate, Adva-27a, is a preclinical antitumor compound licensed exclusively from Advanomics Corporation. The planned initial indication is multidrug-resistant breast cancer. The company reported completion of early preclinical studies in 2011 and described GMP manufacturing, IND-enabling studies, regulatory filing and Phase I trials as next steps. No FDA or other regulatory filings had been made as of the report.
Financial results and liquidity
| Metric | FY 2012 / Dec. 31, 2012 | FY 2011 / Dec. 31, 2011 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $706,680 | $556,202 |
| Net loss | $707,952 | $556,202 |
| Basic loss per share | $0.01 | $0.02 |
| Net cash used in operating activities | $393,054 | $297,299 |
| Cash and cash equivalents | $132,638 | $60,692 |
| Total assets | $134,793 | $106,437 |
| Total liabilities | $64,367 | $3,434 |
There were no product sales, so revenue-based margins are not meaningful. FY 2012 expenses included $316,375 in financial consulting, $250,000 in licensing fees, and $101,907 in legal fees. The statement of operations reports $706,680 in operating expenses plus $1,272 of interest expense, producing the $707,952 net loss.
Financing activities provided $465,000 in 2012, including $402,500 from common-stock issuance and $62,500 from notes payable. At year-end, current notes payable were $62,500 and interest payable was $1,272. The company reported $132,638 of cash at year-end; it said cash was sufficient for existing commitments and operations through December 31, 2012, but warned funding might not cover anticipated 2013 activities. It estimated approximately $5 million of additional capital would be needed to implement its business plan.
Changes, outlook, risks and unusual items
- Net loss increased by $151,750 year over year; operating cash use increased by $95,755. Financial consulting and legal costs rose, while licensing fees increased from $200,000 to $250,000.
- The company had expected to begin Phase I trials in 2012 but was unable to secure sufficient funding. It then anticipated trials in 2014, with completion by late 2015, conditional on financing and successful development. These are projections, not assured milestones.
- In June and July–October 2012, private placements raised approximately $402,500. Two convertible notes totaling $50,000 were issued before year-end at 6% interest, convertible at the company’s option at $0.20 per share on or before March 31, 2013. After year-end, the company issued seven additional notes totaling $503,000.
- The independent auditor’s report expressed an unqualified opinion but included a going-concern paragraph stating that substantial doubt exists about the company’s ability to continue. The statements include no adjustments for the outcome of that uncertainty.
- Advanomics, the licensor, is affiliated with CEO and director Dr. Steve Slilaty. The amended license calls for a $360,000 annual fee plus reimbursement of certain R&D costs; the company reported advancing $250,000 under the agreement in 2012. The filing also reports prior license-related costs written off as impaired, but gives differing totals in different sections.
- The filing describes a working-capital deficit and substantial doubt about continuing as a going concern, although the year-end balance sheet shows current assets of $134,793 and current liabilities of $64,367. The apparent inconsistency should be reconciled against the full filing and underlying records.
- Adva-27a’s preclinical findings do not establish safety or efficacy in humans. The company faces clinical, regulatory, manufacturing, intellectual-property, competition and financing risks, and may need to issue additional equity, diluting shareholders.
- Management said disclosure controls and internal control over financial reporting were effective; the auditor did not attest to internal controls. The company had three employees, no independent directors, no board committees, and no adopted code of ethics.
Most important facts for investors to verify
- Available cash, near-term obligations, the status and terms of the post-year-end $503,000 notes, and whether additional financing was secured.
- The working-capital-deficit disclosure versus the balance-sheet figures, and the differing reported totals for impaired license-related costs.
- The related-party license terms, amounts paid or advanced to Advanomics, and the company’s ability to meet the $360,000 annual fee and R&D reimbursements.
- Current progress and funding for GMP manufacturing, IND-enabling studies, regulatory submissions and Phase I trials; the filing’s 2014–2015 timeline is conditional.
- Potential dilution and control: 51,416,092 common shares were outstanding at year-end; 51,766,092 were reported as of March 13, 2013. Dr. Slilaty beneficially controlled approximately 61.3% as reported.