Sunshine Biopharma Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. The financial statements are unaudited. Sunshine Biopharma is a development-stage pharmaceutical company focused on cancer therapies, principally Adva-27a; it reported no revenue.
Financial results and position
| Metric | Q1 2015 | Q1 2014 / comparison |
|---|---|---|
| Revenue | $0 | $0 |
| General and administrative expenses | $124,825 | $405,873; down $281,048 |
| Research and development expense | $0 | $96,000 |
| Interest expense | $169,542 | $95,382; increased $74,160 |
| Net loss | $294,367 | $501,255 |
| Basic loss per share | $0.00 (rounded) | $0.01 |
| Operating cash flow | $(112,996) | $(90,780) |
| Financing cash flow | $118,275 | $130,000 |
| Cash at period end | $148,702 | $70,460 at March 31, 2014 |
At March 31, 2015, total assets were $148,702, total liabilities were $379,231, and shareholders’ deficit was $230,529. Current liabilities included $313,134 of current note payable, $46,596 of accounts payable, and $19,501 of interest payable. Cash was the only reported current asset, leaving a working-capital deficit of $230,529. The filing reports no investing cash flows and no cash paid for interest or income taxes. Gross margin is not applicable because the company had no revenue.
Changes and unusual items
- Net loss narrowed by $206,888 year over year, mainly as general and administrative costs fell. Management attributed the lower expense to no R&D spending while it focused on fundraising, and reduced financial consulting fees. Interest expense rose amid increased borrowings.
- The company issued 28,895,296 common shares during the quarter. The filing says 18,895,296 shares were valued at $333,144 and describes debt reduction and a $166,154 loss on conversion; the detailed note separately describes conversion activity. The share issuance increased dilution.
- The balance-sheet common shares outstanding rose from 73,551,041 at December 31, 2014 to 102,446,337 at March 31, 2015. The cover reports 117,496,337 shares outstanding as of May 7, 2015.
- Management reported a Canadian Regulation S offering of up to 60 million shares at C$0.015 each, for up to C$900,000. It disclosed accepted subscriptions totaling 20 million shares and C$300,000 (approximately US$236,550); an April 2 subsequent event reports a sale of 10 million shares for C$150,000.
- For the quarter, financing provided $118,275, principally from common-stock sales. Cash increased by $5,279 after operating cash use.
Outlook, funding and risks
- Management estimated it would need approximately $5 million in debt and/or equity financing to implement its business plan. It said no party had agreed to provide the required capital and that it lacked sufficient funds for planned increases in operating costs and development activities. The filing identifies failure to obtain financing as a material risk.
- The company planned GMP manufacturing of 2 kilograms of Adva-27a, IND-enabling studies, regulatory filings and Phase I trials. Management anticipated Phase I trials in mid-to-late 2016, subject to financing and other conditions; no assurance was given. The company had not filed with the FDA or other regulators.
- Under a November 2014 agreement, Lonza was engaged to manufacture Adva-27a. A $385,000 initial payment was deferred until process-validation samples were delivered, expected in Q3 2015. The filing says clinical-trial manufacturing would follow successful validation.
- Management also described plans for the Canadian subsidiary to pursue generic-pharmaceutical business and potential near- to mid-term revenue, subject to licensing, contracts, financing and execution. No revenue had been generated.
- Subsequent events: on April 1, a noteholder converted $27,588 into 3.8 million shares, leaving $13,546 outstanding; on April 8, the company issued 1.25 million shares for professional services valued at $50,000.
- The company sued JMJ Financial in February 2015 over a convertible note, alleging, among other things, usury and breach of contract; it reported a default and awaited a hearing date. It also disclosed being a defendant in one other matter, which it did not believe presented material potential liability.
- Management concluded disclosure controls were effective at the reasonable-assurance level and reported no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Available financing, cash runway, and the terms and completion status of the Canadian offering and Dutchess equity facility.
- Note balances, maturities, accrued interest, conversion discounts, and the accounting for conversion-related losses; the filing’s share-issuance and conversion descriptions should be reconciled.
- Adva-27a manufacturing milestones, the deferred Lonza payment, clinical-trial timing, and required regulatory approvals.
- Subsequent share issuances and the resulting diluted share count, including the difference between March 31 and May 7 outstanding shares.
- Status and potential financial impact of the JMJ Financial litigation and the other disclosed legal matter.