Sunshine Biopharma, Inc. — Q2 2013 Form 10-Q
Reporting period: Quarter ended June 30, 2013. The financial statements are unaudited; the company describes itself as a development-stage pharmaceutical business focused on cancer drug research and development.
Financial results and position
| Metric | Six months ended June 30, 2013 | Comparable 2012 period |
|---|---|---|
| Revenue | $0 | $0 |
| General and administrative expenses | $1,072,984 | $142,017 |
| Operating loss | $1,072,984 | $142,017 |
| Other expense | $554,656 | $391 |
| Net loss | $1,627,640 | $142,408 |
| Basic loss per share | $0.03 | $0.00 |
| Net cash used in operating activities | $439,006 | $59,949 |
At June 30, 2013, cash and cash equivalents were $156,632, current assets were $160,817, and current liabilities totaled $14,684. The balance sheet reports a $12,500 current note payable and $1,891 accrued interest; the note is described as bearing 12% interest. No long-term liabilities or investing cash flows were reported. Total shareholders’ equity was $146,133, including an accumulated deficit of $4,630,306.
Changes and notable items
- Six-month G&A expense increased by $930,967 year over year. Management attributed the increase mainly to consulting expense ($684,610 versus $98,000), licensing fees ($325,000 versus none), and higher research and development expense ($23,400 versus $1,829).
- Other expense included a $548,951 beneficial conversion feature charge related to convertible notes; interest expense was $5,705. The notes were converted into common shares in March 2013.
- Financing activities provided $463,000 in cash, while operating activities used $439,006. Cash increased by $23,994 during the six-month period.
- The company issued 5,022,969 common shares during the period for services and note conversion. Shares outstanding were 56,439,061 at June 30 and August 5, 2013.
Outlook, risks, and other disclosures
- The company reported no revenue and stated that continued operations and its development plans depend on obtaining external financing. It estimated that approximately $5 million of debt and/or equity capital would be needed to fully implement its business plan; it had no financing commitment in place as of the report date and warned that inability to raise funds could materially adversely affect operations and financial condition.
- Adva-27a remained in preclinical development. The company said Phase I trials for multidrug-resistant breast cancer could begin in mid-to-late 2014 if financing is secured, and anticipated completion by late 2015. These are conditional expectations, not assured outcomes.
- Management described possible future compassionate-use access and potential licensing or sale interest as possibilities, while noting that funding, trial success, regulatory approval, and acceptable commercial offers are uncertain. No formal financial guidance was provided.
- Management concluded disclosure controls were effective at the reasonable-assurance level and reported no material change in internal control over financial reporting. The filing reported no legal proceedings or defaults upon senior securities.
Important facts to verify
- Resolve apparent reporting inconsistencies: the cash-flow statement heading refers to comparative periods ending in 2013 and 2011, while the table and MD&A use 2013 and 2012.
- Check the three-month results in MD&A: the text appears to mislabel year references and reports expense and loss figures that are not consistently stated.
- Confirm the note-conversion share count: the filing gives 2,590,428 shares in one disclosure and 2,590,426 elsewhere.
- Assess financing runway against the reported $156,632 cash balance, ongoing operating cash use, and stated need for approximately $5 million in capital.
- Review the terms and valuation supporting the beneficial conversion feature and stock issued for services, and monitor dilution and progress toward GMP manufacturing, IND-enabling studies, and clinical trials.