Sunshine Biopharma, Inc. — Q3 2015 Form 10-Q
Business and period: The filing covers the unaudited quarter and nine months ended September 30, 2015. Sunshine Biopharma is a development-stage pharmaceutical company focused on oncology drug candidate Adva-27a; it also planned to pursue generic pharmaceutical sales through its Canadian subsidiary. The company reported three employees, all in management.
Financial results and position
| Metric | Q3 2015 / September 30, 2015 | Comparable period / December 31, 2014 |
|---|---|---|
| Revenue | Q3: $0; nine months: $1,708 | Q3 and nine months 2014: $0 |
| General and administrative expenses | Q3: $113,053; nine months: $607,743 | Q3 2014: $277,427; nine months 2014: $1,448,814 |
| Net loss | Q3 statement: $202,815; nine months: $1,005,229 | Q3 2014: $280,849; nine months 2014: $1,600,493 |
| Cash and cash equivalents | $125,225 | $143,423 |
| Total current liabilities / notes payable | $469,566 / $418,640 | $531,003 / $480,124 |
| Shareholders’ equity (deficit) | $(332,930) | $(387,580) |
For the nine months, operating cash use was $523,728, compared with $290,883 in 2014. Financing provided $505,530, mainly from note proceeds and stock sales; investing cash flow was zero. Cash declined by $18,198 during the period. No cash interest or income taxes were paid. The company had a working-capital deficit of $332,930. Debt accrued interest at 8% or 12%, with $16,288 of interest payable at quarter-end.
Gross profit and operating margins are not meaningful given minimal revenue and operating losses. Nine-month basic loss per share was approximately $0.01, versus $0.02 in 2014. Common shares outstanding increased from 73,551,041 at year-end 2014 to 134,392,097 at September 30, 2015; the filing reports 137,549,992 outstanding on November 4, 2015.
Changes and unusual items
- Nine-month G&A declined by $841,071 year over year, primarily due to lower R&D, consulting and professional fees and no public-relations expense; license fees increased. Management attributed low R&D spending to its focus on fundraising.
- Debt conversions generated substantial dilution and a reported loss on conversion. The statements report $359,677 of nine-month conversion losses; the notes and MD&A cite $350,212, so the filing is inconsistent.
- In March 2015 the company sold 20 million common shares for approximately $236,550 and terminated the offering in September. It also issued 500,000 Series B preferred shares to its CEO for services valued at $50,000; each share carries 1,000 votes.
- On October 8, 2015, after quarter-end, the company acquired the U.S. Adva-27a patent from Advanomics, replacing a license arrangement. The purchase calls for 12 annual payments of $360,000 beginning in 2016; Advanomics retains a security interest until paid. The CEO is also Advanomics’ principal officer and shareholder.
- On October 28, 2015, a noteholder converted $12,000 of principal into 3,157,895 shares, leaving $71,500 principal outstanding on that note.
Outlook, risks and contingencies
- Management states that recurring losses and negative operating cash flows raise substantial doubt about the company’s ability to continue as a going concern. It estimated approximately $5 million of additional debt or equity capital would be needed to implement its plan, but reported no financing commitment. Further financing could be dilutive or costly.
- Adva-27a development remains contingent on financing. Management anticipated Phase I trials in late 2016 or early 2017, following manufacturing, IND-enabling work and regulatory steps; no FDA filings had been made as of the report. Trial timing and any approval are uncertain.
- The company said it was pursuing a Health Canada Drug Establishment License and generic drug contracts, but gave no assurance these would be secured or generate revenue. It also expects increased costs if R&D and clinical work proceed.
- In litigation, the company’s February 2015 action against JMJ Financial over a convertible note had not settled at October 14 mediation and was expected to proceed to trial. The company also disclosed one other matter in which it was a defendant, which it said was not expected to present material potential liability.
- Management concluded disclosure controls were effective at the reasonable-assurance level and reported no material change in internal control over financial reporting.
Investor verification priorities
- Reconcile the Q3 net loss: the financial statement reports $202,815, while MD&A reports $193,350. The MD&A’s stated Q3 G&A decrease also does not match the displayed expense figures.
- Reconcile the reported debt-conversion loss ($359,677 in the statement versus $350,212 in notes and MD&A) and confirm the outstanding debt, maturities, interest and conversion terms.
- Assess near-term liquidity and the feasibility, terms and timing of the additional financing management says is required.
- Review the patent purchase payment schedule, security interest and related-party terms, and the company’s ability to meet the $360,000 annual payments.
- Check progress on GMP manufacturing, IND-enabling studies, regulatory filings, clinical-trial funding and the Canadian license and generic-business plans.
- Monitor dilution, voting control, and the outcome of the JMJ Financial litigation.