Sunshine Biopharma, Inc. — Q3 2012 Form 10-Q
Business context and period. This unaudited quarterly report covers the three and nine months ended September 30, 2012. Sunshine Biopharma is a development-stage pharmaceutical company with no revenue to date. It is advancing Adva-27a, a preclinical anticancer candidate, toward manufacturing, IND-enabling studies, regulatory filing, and Phase I trials.
Financial performance and position
- Revenue: $0 for both the three- and nine-month periods, as well as the comparable 2011 periods. Gross margin and operating margin are not meaningful because there was no revenue.
- Net loss: Q3 2012 loss was $376,781, compared with $116,441 in Q3 2011. Nine-month loss was $519,189, compared with $184,146 in 2011. Nine-month basic loss per share was $0.01; weighted-average shares were 49,229,536.
- Expenses: Nine-month general and administrative expenses rose to $518,423 from $184,146. Financial consulting fees were $307,375, versus none in 2011; legal expense also increased. Research and development expense was $1,829, down from $17,650.
- Cash flow: Nine-month operating cash used was $220,277, versus $179,518 in the cash-flow statement for 2011. Financing provided $415,000, including $402,500 from common-stock sales and $12,500 from a note. Investing cash flow was $0. Cash increased from $60,692 at year-end 2011 to $255,415.
- Balance sheet and liquidity: At September 30, cash was $255,415, prepaid expenses $12,630, and current assets $268,045. Current liabilities were $14,856, including accounts payable of $1,590, a $12,500 note, and $766 interest payable. Total liabilities were $14,856; shareholders’ equity was $253,189.
- Capitalization: Common shares outstanding were 51,391,092 at September 30, up from 48,728,842 at December 31, 2011. The filing reports 51,391,092 shares outstanding as of November 7, 2012.
Changes versus comparable periods
- Q3 general and administrative expense increased $259,965 year over year, principally due to $209,375 of financial consulting and approximately $51,114 of additional legal costs.
- Nine-month general and administrative expense increased $334,277 year over year, chiefly due to $307,375 in financial consulting and approximately $65,143 in additional legal fees; lower R&D expense partly offset the increase.
- Nine-month net loss increased by $335,043 from 2011. The company continued to have no revenue.
Outlook, risks, and notable items
- Management estimated that approximately $5 million in debt and/or equity capital would be needed to implement its business plan. It had not secured a financing commitment and stated that failure to obtain sufficient external funding could materially adversely affect operations and financial condition.
- The company was seeking to raise up to $5 million through a common-stock private placement at $0.25 per share. As of September 30, it reported sales of 1,610,000 shares for $402,500. Management also cited short-term borrowing and potential grants as funding sources.
- A $12,500 loan bears 12% interest. It was originally due August 31, 2012, and was extended to February 28, 2013; $766 interest was accrued at quarter-end.
- Management said Adva-27a preclinical studies were completed in late 2011 and planned Phase I trials for multidrug-resistant breast cancer. Trial timing and any marketing approval were contingent on financing and successful development; the filing gives no assurance of either. It anticipated Phase I trials in late 2013 or early 2014 and completion by late 2014.
- The company reported issuing shares for services valued at $266,875 during the first nine months, a noncash item. It also reported using private-placement proceeds for working capital and R&D, including scale-up manufacturing.
- Management assessed disclosure controls as effective at a reasonable-assurance level and reported no material changes in internal control over financial reporting. No legal proceedings or defaults upon senior securities were reported.
Important facts for investors to verify
- Reconcile the nine-month net loss: the financial statements show $519,189, while MD&A describes $518,423 as net loss; $518,423 is also the reported operating loss before $766 interest expense.
- Reconcile operating cash used for the nine months: the cash-flow statement reports $179,518 for 2011, while MD&A reports $179,318.
- Confirm private-placement proceeds and share counts across the filing: it reports 1,610,000 shares and $402,500 raised by September 30, while the Part II disclosure reports 1,410,000 shares and $352,500 issued during Q3.
- Assess the company’s ability to fund operations and planned clinical development given its stated $5 million capital need, lack of committed financing, and absence of revenue.
- Verify progress, costs, regulatory requirements, and timelines for Adva-27a development; clinical-trial and marketing expectations are forward-looking and conditional.