Sunshine Biopharma, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2014; filed March 9, 2015. This is an annual report, not a quarterly filing. Sunshine Biopharma is a development-stage pharmaceutical company pursuing cancer treatments, principally its preclinical candidate Adva-27a. It reported no revenue.
Financial results and position
| Metric | 2014 | 2013 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $1,755,114 | $1,936,077 |
| Net loss | $1,934,210 | $2,491,483 |
| Basic and diluted loss per share | $0.03 | $0.04 |
| Cash used in operating activities | $538,595 | $564,398 |
| Cash and cash equivalents at year-end | $143,423 | $31,240 |
| Total liabilities | $531,003 | $38,950 |
| Shareholders’ equity (deficit) | $(387,580) | $(7,710) |
Gross margin and operating margin are not meaningful because the company had no revenue. All reported debt was current; notes payable totaled $480,124 at year-end, in addition to $34,766 of accounts payable and $16,113 of interest payable. The balance sheet implies a working-capital deficit of $387,580. The going-concern note cites a different deficit of approximately $416,355, and also reports net loss and accumulated-deficit figures that differ from the primary statements; the filing text does not reconcile these differences.
Changes and notable transactions
- Expenses fell by $180,963 year over year, primarily as financial consulting costs declined by $486,110 and licensing fees declined by $211,667. R&D rose to $327,000 from $137,400; legal expense increased to $268,335 from $88,381, and the company recorded $105,000 of public-relations expense.
- Net loss improved by $557,273. The 2013 loss included a $548,951 beneficial-conversion-feature charge; 2014 did not. In 2014, interest expense was $179,096 and a $38,180 loss on note conversion was recorded.
- Cash increased by $112,183, supported by $650,778 of financing cash flow, including note proceeds and stock sales. Operating cash use remained substantial.
- The company issued 9,655,080 shares for services valued at $1,258,006 and sold 1,196,900 shares for $153,334 during 2014. Shares outstanding rose to 73,551,041 at year-end; 77,051,041 were reported as outstanding on March 9, 2015.
Outlook, risks and unusual items
- Funding and going concern: The auditor’s report and management’s disclosures raise substantial doubt about the company’s ability to continue as a going concern. Management estimated it would need approximately $5 million to implement its plans and said available cash was insufficient for anticipated needs. The auditor did not modify its opinion, but the financial statements include no adjustments that might be required if the company cannot continue.
- Development plans: The company expected Adva-27a Phase I trials for pancreatic cancer and multidrug-resistant breast cancer to begin in mid-to-late 2016, subject to financing, manufacturing and regulatory progress. No FDA or other regulatory filings had been made as of the report. Trial timing, fast-track status, compassionate-use access and commercial outcomes were uncertain.
- Manufacturing commitment: Under a five-year agreement effective November 2014, Lonza was engaged to manufacture Adva-27a. A $385,000 initial purchase-order amount was deferred until process-validation samples were delivered, expected in Q3 2015.
- Financing facility and dilution: The Dutchess agreement permits up to $2.5 million of stock sales over three years, generally at 90% of the lowest daily VWAP in the preceding five trading days. A first $100,000 draw was completed in August 2014. Each draw is limited to $100,000, and the company may issue a put only when its stock price is at least $0.10. The filing reported a March 9, 2015 closing bid of $0.02; access to further funding was therefore uncertain. The agreement registered 13 million additional shares for potential issuance.
- Subsequent events: In January and February 2015, $30,090 of a convertible note was converted into 3.5 million shares, leaving a reported balance of $64,534. The company also reported a February 2015 action against JMJ Financial concerning a convertible note, alleging, among other matters, usury and breach of contract; the claims were unresolved as of the report.
- Related-party and governance considerations: Advanomics, the licensor, is led in part by the company’s CEO, who is also its principal shareholder. The company reported licensing fees of $263,333 in 2014. It had three employees, no independent directors, no board committees or code of ethics, and the auditor was not engaged to attest to internal-control effectiveness. Management stated disclosure controls and internal control over financial reporting were effective.
- Trading and liquidity: The stock traded over the counter with very limited volume and was classified as a penny stock, increasing volatility and potentially making shares difficult to sell. No dividends were paid or anticipated.
Most important facts for investors to verify
- Reconcile the going-concern note’s working-capital, net-loss and accumulated-deficit figures with the audited balance sheet and statements.
- Confirm the current debt balances, maturity terms, conversion prices and potential dilution, including post-year-end conversions and the Dutchess facility’s practical availability.
- Verify the status, timing and full funding needs for Lonza manufacturing, IND-enabling studies, regulatory filings and Phase I trials.
- Review the terms and status of the JMJ Financial litigation and assess any related liabilities or effects on financing.
- Check the accuracy of the reported quarterly stock-price table: its December 2014 figures show a high of $0.08 and a low of $0.161, which appear inconsistent.