SUNSHINE BIOPHARMA, INC
10-Ks and 10-Qs
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
Quarterly
Report Under
the
Securities Exchange Act of 1934
For Quarter Ended:
June
30, 2017
Commission File Number:
000-52898
SUNSHINE BIOPHARMA INC.
(Exact
name of small business issuer as specified in its
charter)
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Colorado
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20-5566275
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(State
of other jurisdiction of incorporation)
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(IRS
Employer ID No.)
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6500 Trans-Canada Highway
4th Floor
Pointe-Claire, Quebec, Canada H9R 0A5
(Address
of principal executive offices)
469 Jean-Talon West
3rd Floor
Montreal, Quebec, Canada H3N 1R4
(Former
Address)
(514) 426-6161
(Issuer’s
Telephone Number)
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes
☑
No
☐
Indicate by check mark whether the registrant has
submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files). Yes
☑
No
☐
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated
filer”, “smaller reporting company”, and
“emerging growth company” in Rule 12b-2 of the Exchange
Act. (Check one)
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Large
accelerated filer ☐
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Accelerated
filer ☐
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Non-accelerated
filer ☐
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Smaller
reporting company x
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Emerging growth
company x
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If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange
Act).
☐
Yes
☑
No
The
number of shares of the registrant’s only class of common
stock issued and outstanding as of August 11, 2017, was 917,649,541
shares.
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
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Page
No.
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Item
1.
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Financial
Statements
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3
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Unaudited
Consolidated Balance Sheet as of June 30, 2017
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3
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Unaudited
Consolidated Statement of Operations for the Three and Six month
Periods Ended June 30, 2017 and 2016
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4
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Unaudited
Consolidated Statement of Cash Flows for the for the Six month
Periods Ended June 30, 2017 and 2016
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5
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Notes
to Consolidated Financial Statements
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6
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Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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13
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Item
3.
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Quantitative and
Qualitative Disclosures About Market Risk.
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20
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Item
4.
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Controls and
Procedures.
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20
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PART II
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OTHER INFORMATION
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Item
1.
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Legal
Proceedings
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21
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Item 1A.
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Risk
Factors
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22
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Item
2.
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Unregistered Sales
of Equity Securities and Use of Proceeds
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22
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Item
3.
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Defaults Upon
Senior Securities
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22
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Item
4.
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Mine
Safety Disclosures
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23
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Item
5.
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Other
Information
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23
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Item
6.
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Exhibits
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23
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Signatures
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24
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2
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Sunshine
Biopharma, Inc.
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Consolidated
Balance Sheet
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Unaudited
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Audited
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June 30,
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December 31,
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2017
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2016
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ASSETS
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Current
Assets:
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Cash
and cash equivalents
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$
128,768
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$
57,453
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Prepaid
expenses
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8,537
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1,007
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Total
Current Assets
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137,305
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58,460
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| Equipment (net of $3,391 and $2,272 depreciation respectively) |
27,030
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5,944
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Patents
(net of $58,918 amortization and $556,120
impairment)
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-
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-
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TOTAL
ASSETS
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$
164,335
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$
64,404
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LIABILITIES
AND SHAREHOLDERS' EQUITY
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Current
liabilities:
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Notes
payable
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213,362
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69,939
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Notes
payable - related party
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191,129
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167,032
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Accounts
payable
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34,711
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28,122
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Accrued
compensation - related party
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336,000
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-
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Interest
payable
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5,422
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9,011
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Total
current liabilities
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780,624
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274,104
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TOTAL
LIABILITIES
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780,624
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274,104
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COMMITMENTS
AND CONTINGENCIES
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SHAREHOLDERS'
EQUITY (DEFICIT)
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Preferred stock, Series A $0.10 par value per share;
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Authorized
850,000 Shares; Issued
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and
outstanding -0- shares.
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-
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-
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Preferred stock, Series B $0.10 par value per share;
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Authorized
500,000 Shares; Issued
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and
outstanding 500,000 shares.
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50,000
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50,000
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Common
Stock, $0.001 par value per share;
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Authorized
3,000,000,000 Shares; Issued
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and
outstanding 868,594,650 and 769,399,858 at
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June
30, 2017 and December 31, 2016 respectively
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868,595
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769,400
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Reserved for
issuance 349,069,087 at June 30, 2017
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Capital
paid in excess of par value
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11,720,028
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11,548,460
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Accumulated
comprehensive income
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4,189
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394
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Accumulated
(Deficit)
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(13,259,101
)
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(12,577,954
)
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TOTAL
SHAREHOLDERS' EQUITY (DEFICIT)
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(616,289
)
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(209,700
)
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TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
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$
164,335
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$
64,404
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See
Accompanying Notes To These Financial
Statements.
3
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Sunshine
Biopharma, Inc.
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Unaudited
Consolidated Statement Of Operations and Comprehensive
Loss
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Unaudited
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Unaudited
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Unaudited
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Unaudited
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3 Months
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3 Months
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6 Months
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6 Months
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Ended
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Ended
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Ended
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Ended
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June 30,
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June 30,
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June 30,
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June 30,
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2017
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2016
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2017
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2016
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Revenue:
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$
-
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$
-
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$
-
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$
-
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General
& Administrative Expenses
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Accounting
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48,415
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6,169
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64,015
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12,969
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Amortization
& depreciation
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506
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14,962
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1,024
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30,206
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Consulting
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33,930
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118,239
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59,867
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132,423
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Legal
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27,920
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15,690
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42,824
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43,789
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Licenses
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-
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7,761
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-
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7,761
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Office
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9,747
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16,993
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17,148
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20,262
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Officer
& director renumeration
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348,415
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255,343
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391,380
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255,343
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Research
& development
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-
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32,793
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-
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32,793
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Stock
Transfer Fee
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3,285
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3,363
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4,950
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5,449
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Total
G & A
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472,218
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471,313
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581,208
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540,995
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(Loss)
from operations
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(472,218
)
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(471,313
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(581,208
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(540,995
)
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Other
Income (expense):
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Foreign
exchange (loss)
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(3,628
)
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-
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(4,267
)
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Interest
expense
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(9,598
)
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(9,997
)
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(18,742
)
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(16,951
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Litigation
settlement proceeds
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-
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-
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-
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25,000
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Loss
on debt conversions
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-
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-
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(76,929
)
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(253,658
)
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Total
Other (Expense)
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(13,226
)
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(9,997
)
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(99,938
)
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(245,609
)
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Net
(loss)
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$
(485,444
)
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$
(481,310
)
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$
(681,146
)
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$
(786,604
)
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Basic
(Loss) per common share
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$
0.00
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$
0.00
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$
0.00
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$
0.00
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Weighted
Average Common Shares Outstanding
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857,473,771
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262,370,859
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811,800,080
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238,983,449
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Net
Income (Loss)
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$
(485,444
)
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$
(481,310
)
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$
(681,146
)
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$
(786,604
)
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Other
comprehensive income:
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Gain
(Loss) from foreign exchange translation
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2,680
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11,325
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3,795
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(1,334
)
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Comprehensive
(Loss)
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(482,764
)
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(469,985
)
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(677,351
)
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(787,938
)
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Basic
(Loss) per common share
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$
0.00
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$
0.00
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$
0.00
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$
0.00
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Weighted
Average Common Shares Outstanding
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857,473,771
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262,370,859
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811,800,080
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238,983,449
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See
Accompanying Notes To These Financial Statements.
4
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Sunshine
Biopharma, Inc.
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Unaudited
Consolidated Statement Of Cash Flows
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Unaudited
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Unaudited
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6 Months
|
6 Months
|
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Ended
|
Ended
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June 30,
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June 30,
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2017
|
2016
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Cash
Flows From Operating Activities:
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Net
Income (Loss)
|
$
(681,146
)
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$
(786,604
)
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Depreciation
and amortization
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1,024
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30,206
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Foreign
exchange loss
|
4,267
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-
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Stock
issued for licenses, services, and other assets
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64,000
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352,000
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Stock
issued for payment interest
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3,022
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3,120
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Loss
on debt conversion
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76,929
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253,658
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Stock
issued for payment of expenses
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14,400
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-
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(Increase)
decrease in prepaid expenses
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(7,530
)
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3,111
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Increase
(decrease) in Accounts Payable & accrued expenses
|
342,773
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(89,317
)
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Increase
(decrease) in interest payable
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(3,589
)
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13,831
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Net Cash Flows (used) in operations
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(185,850
)
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(219,995
)
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Cash Flows From Investing Activities:
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Purchase
of equipment
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(22,295
)
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(2,343
)
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Net Cash Flows (used) in Investing activities
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(22,295
)
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(2,343
)
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Cash Flows From Financing Activities:
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Proceed
from note payable
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188,444
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131,150
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Note
payable used to pay expenses
|
13,962
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-
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Note
payable used to pay origionation fees & interest
|
9,347
|
8,850
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Sale
of common stock
|
63,912
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104,128
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Net Cash Flows provided by financing activities
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275,665
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244,128
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Net
Increase (Decrease) In Cash and cash equivalents
|
67,520
|
21,790
|
|
Foreign
currency translation adjustment
|
3,795
|
1,334
|
|
Cash
and cash equivalents at beginning of period
|
57,453
|
50,798
|
|
|
|
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Cash
and cash equivalents at end of period
|
$
128,768
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$
73,922
|
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|
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|
Supplementary
Disclosure Of Cash Flow Information:
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Stock
issued for services, licenses and other assets
|
$
78,400
|
$
100,000
|
|
Stock
issued for note conversions including interest
|
$
128,451
|
$
377,814
|
|
Cash
paid for interest
|
$
-
|
$
-
|
|
Cash
paid for income taxes
|
$
-
|
$
-
|
See
Accompanying Notes To These Financial Statements.
5
Sunshine Biopharma,
Inc.
Notes To Unaudited
Consolidated Financial Statements
For The
Three and Six Month Interim Period Ended June 30, 2017
Note 1 – Description of Business
Mountain West
Business Solutions, Inc. (“MWBS”) was incorporated on
August 31, 2006, in the State of Colorado. Sunshine Etopo, Inc.
(formerly Sunshine Biopharma, Inc.) was incorporated in the State
of Colorado on August 17, 2009. Effective October 15, 2009, MWBS
was acquired by Sunshine Etopo, Inc. in a transaction classified as
a reverse acquisition. MWBS concurrently changed its name to
Sunshine Biopharma, Inc. Sunshine Etopo, Inc. has been inactive and
was recently dissolved. In July 2014, the Company formed a wholly
owned Canadian subsidiary, Sunshine Biopharma Canada Inc. The
financial statements represent the consolidated activity of
Sunshine Biopharma, Inc. and Sunshine Biopharma Canada Inc.
(hereinafter together referred to as the "Company"). The Company
was formed for the purposes of conducting research, development and
commercialization of drugs for the treatment of various forms of
cancer. The Company may also engage in any other business that is
permitted by law, as designated by the Board of Directors of the
Company.
The
Company’s wholly owned Canadian subsidiary, Sunshine
Biopharma Canada Inc. (“Sunshine Canada”), was formed
for the purposes of offering generic pharmaceutical products in
Canada and elsewhere around the world. Sunshine Canada recently
signed licensing agreements to offer four (4) generic prescription
drugs for treatment of breast cancer, prostate cancer and BPH
(Benign Prostatic Hyperplasia). In addition, Sunshine Canada is
currently evaluating several other generic products for
in-licensing and is working on securing a Drug Establishment
License (“DEL”) and a Drug Identification Number
(“DIN”) per product from Health Canada. Once the DEL
and the DIN’s are secured, Sunshine Canada will begin its
generic pharmaceuticals marketing and sales program in Canada and
overseas.
In
addition, the Company has been and continues to work on the
development of its proprietary anticancer drug, Adva-27a. The next
series of steps in the development of Adva-27a include (i)
GMP-manufacturing of a 2-kilogram quantity of the drug, (ii)
completing requisite IND-enabling studies, and (iii) conducting
Phase I clinical trials. In the preclinical studies, Adva-27a was
shown to be effective at destroying multidrug resistant cancer
cells including Pancreatic Cancer, Breast Cancer, Lung Cancer and
Uterine Sarcoma, cells.
During
the last three month period the Company has continued to raise
money through stock sales and borrowings.
The
Company’s activities are subject to significant risks and
uncertainties, including failing to secure additional funding to
operationalize the Company’s generics business and
proprietary drug development program.
Note 2 – Summary of Significant Accounting
Policies
This
summary of significant accounting policies is presented to assist
the reader in understanding the Company's financial statements. The
consolidated financial statements and notes are representations of
the Company's management, which is responsible for their integrity
and objectivity. These accounting policies conform to generally
accepted accounting principles and have been consistently applied
in the preparation of the financial statements.
6
Sunshine Biopharma,
Inc.
Notes To Unaudited
Consolidated Financial Statements
For The
Three and Six Month Interim Period Ended June 30, 2017
PRINCIPLES OF CONSOLIDATION
The
accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries. All intercompany
accounts and transactions have been eliminated in
consolidation.
USE OF ESTIMATES
The
preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. The more significant estimates and assumptions made by
management are valuation of equity instruments, depreciation of
property and equipment, and deferred tax asset valuation. Actual
results could differ from those estimates as the current economic
environment has increased the degree of uncertainty inherent in
these estimates and assumptions.
CASH AND CASH EQUIVALENTS
For the
Balance Sheets and Statement of Cash Flows, all highly liquid
investments with maturity of 90 days or less are considered to be
cash equivalents. The Company had a cash balance of $128,768 and
$57,453 as of June 30, 2017 and December 31, 2016, respectively. At
times such cash balances may be in excess of the FDIC limit of
$250,000.
EARNINGS PER SHARE
The
Company has adopted the FASB ASC Topic 260 regarding earnings /
loss per share, which provides for calculation of
“basic” and “diluted” earnings / loss per
share. Basic earnings / loss per share includes no dilution and is
computed by dividing net income / loss available to common
shareholders by the weighted average common shares outstanding for
the period. Diluted earnings / loss per share reflect the potential
dilution of securities that could share in the earnings of an
entity similar to fully diluted earnings / loss per
share.
Other
than the Notes Payable specified under Note 4 and Note 5 below,
there were no potentially dilutive instruments outstanding during
the interim period ended June 30, 2017 or the year ended December
31, 2016.
INCOME TAXES
The
Company follows the asset and liability method of accounting for
deferred income taxes. The asset and liability method requires the
recognition of deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between financial
accounting and tax bases of assets and liabilities. The Company
accounts for income taxes pursuant to ASC 740. There was no
increase in liabilities for unrecognized tax benefits as a result
of this implementation. The Company recognizes accrued interest
related to unrecognized tax benefits in interest expense and
penalties in general and administrative expense.
7
Sunshine Biopharma,
Inc.
Notes To Unaudited
Consolidated Financial Statements
For The
Three and Six Month Interim Period Ended June 30, 2017
FUNCTIONAL CURRENCY
The
U.S. dollar is the functional currency of the Company which is
operating in the United States. The functional currency for the
Company's Canadian subsidiary is the Canadian dollar. The Company
translates its Canadian subsidiary's financial statements into U.S.
dollars as follows:
●
Assets and
liabilities are translated at the exchange rate in effect as of the
financial statement date.
●
Income statement
accounts are translated using the weighted average exchange rate
for the period.
The
Company includes translation adjustments from currency exchange and
the effect of exchange rate changes on intercompany transactions of
a long-term investment nature as a separate component of
shareholders’ equity. There are currently no transactions of
a long-term investment nature, nor any gains or losses from
non-U.S. currency transactions.
REVENUE RECOGNITION
Since
inception, the Company has been focused on the research,
development and commercialization of drugs for the treatment of
various forms of cancer. Following its recent entry into the
generic pharmaceuticals business, the Company has become a fully
integrated pharmaceutical company offering generic and proprietary
drugs for the treatment of cancer and other acute and chronic
indications. The Company intends to recognize revenues from the
sales of generic pharmaceuticals, if or when they occur, at the
time the products are sold and collectability is assured. In the
event the Company provides consulting services in the future,
revenues from such services will be recognized when the services
are rendered and invoiced.
GOING CONCERN
The
accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. Since
inception, the Company has had recurring operating losses and
negative operating cash flows. These factors raise substantial
doubt about the Company’s ability to continue as a going
concern.
The
Company’s continuation as a going concern is dependent on its
ability to obtain additional financing to fund operations,
implement its business model, and ultimately, attain profitable
operations. The Company will need to secure additional funds
through various means, including equity and debt financing or any
similar financing. There can be no assurance that the Company will
be able to obtain additional equity or debt financing, if and when
needed, on terms acceptable to the Company, or at all. Any
additional equity or debt financing may involve substantial
dilution to the Company’s stockholders, restrictive covenants
or high interest costs. The Company’s long-term liquidity
also depends upon its ability to generate revenues and achieve
profitability.
8
Sunshine Biopharma,
Inc.
Notes To Unaudited
Consolidated Financial Statements
For The
Three and Six Month Interim Period Ended June 30, 2017
The
accompanying financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might
be necessary should the Company be unable to continue as a going
concern.
See the
Notes in the 2016 Form 10-K consolidated financial statements for a
complete summary of the Company’s significant accounting
policies.
Note 3 – Unaudited Financial Information
The
unaudited financial information included for the three and six
month interim period ended June 30, 2017 was taken from the books
and records of the Company without audit. However, such information
reflects all adjustments, consisting only of normal recurring
adjustments, which in the opinion of management are necessary to
reflect properly the results of the interim periods presented. The
results of operations for the three and six month interim period
ended June 30, 2017 are not necessarily indicative of the results
expected for the fiscal year ending December 31, 2017.
Note 4 – Notes Payable
A Note
Payable having a face value of $21,439 and a maturity date of
December 31, 2017 was entered into on December 31, 2016. This Note
accrues interest at a rate of 12% per annum and is convertible
after December 31, 2016 into $0.001 par value Common Stock at a
price 35% below market value. The Company estimates that the fair
value of this convertible debt approximates the face value, so no
value has been assigned to the beneficial conversion
feature.
On
February 10, 2017, the Company received net proceeds of $48,000 in
exchange for a note payable having a face value of $50,000 and
accruing interest at the rate of 8% per annum. The note, due on
November 20, 2017, is convertible after 180 days from issuance into
$0.001 par value Common Stock at a price 39% below market value.
The Company estimates that the fair value of this convertible debt
approximates the face value, so no value has been assigned to the
beneficial conversion feature.
On
April 1, 2017, the Company received $100,000 Canadian ($76,923 US)
in exchange for a note payable having a face value of $100,000
Canadian accruing interest at the rate of 9% per annum. The note,
due on April 1, 2019, is convertible any time after April 1, 2017
into $0.001 par value Common Stock at a price of $0.015 Canadian
(approximately $0.012 US) per share. Payments on this note are
comprised of interest only amounts due and payable on the last day
of each calendar quarter. The Company estimates that the fair value
of this convertible debt approximates the face value, so no value
has been assigned to the beneficial conversion
feature.
9
Sunshine Biopharma,
Inc.
Notes To Unaudited
Consolidated Financial Statements
For The
Three and Six Month Interim Period Ended June 30, 2017
On
April 26, 2017, the Company received net proceeds of $63,000 in
exchange for a note payable having a face value of $65,000 and
accruing interest at the rate of 8% per annum. The note, due on
April 26, 2018, is convertible after 180 days from issuance into
$0.001 par value Common Stock at a price 35% below market value.
The Company estimates that the fair value of this convertible debt
approximates the face value, so no value has been assigned to the
beneficial conversion feature.
At June
30, 2017 and December 31, 2016, accrued interest on Notes Payable
was $5,422 and $9,011, respectively.
Note 5 – Notes Payable Related Party
In
December 2016, the Company received monies from its CEO in exchange
for a note payable having a principal amount of $90,000 Canadian
($67,032 US) with interest at 12% due March 31, 2017. The note when
issued, was convertible any time after the date of issuance into
$0.001 par value Common Stock at a price 35% below market value.
The Company estimated that the fair value of the convertible debt
approximates the face value, so no value has been assigned to the
beneficial conversion feature. Any gain or loss will be recognized
at conversion. This note is collateralized by all of the assets of
the Company. In the event of default, the interest rate will
increased to 18% per annum and a penalty of $1,000 Canadian ($752
US) per day will accrue. On March 31, 2017, the note, together with
accrued interest of $3,021 Canadian ($2,271 US) and an additional
principal amount of $3,000 Canadian ($2,247 US) paid to the Company
on March 28, 2017, was renewed for a 90-day period under the same
terms and conditions as the original note. The new note now having
a face value of $96,021 Canadian ($72,198 US) was due on June 30,
2017. On June 30, 2017, the note, together with accrued interest of
$2,873 Canadian ($2,005 US), was renewed for a 90-day period under
the same terms and conditions as the original note except that the
new note is non-convertible. The new note now having a face value
of $98,894 Canadian ($76,072 US) is due on September 30,
2017.
A note
payable held by a private individual who became a principal
shareholder of the Company having a principal balance of $100,000
at December 31, 2016 and a maturity date of March 31, 2017, accrues
interest at 12%. The Note is convertible any time from the date of
issuance into $0.001 par value Common Stock at a 35% discount from
market price. The Company estimates that the fair value of this
convertible debt approximates the face value, so no value has been
assigned to the beneficial conversion feature. On March 31, 2017,
the note’s principal balance of $100,000 plus accrued
interest of $11,715 was renewed for a period of 90-day under the
same terms and conditions as the original note. The new note now
having a face value of $111,715 matures on June 30, 2017. On June
30, 2017, the note’s principal balance of $111,715 plus
accrued interest of $3,342 was renewed for a period of 90-days
under the same terms and conditions as the original note. The new
note now having a face value of $115,057 matures on September 30,
2017.
10
Sunshine
Biopharma, Inc.
Notes
To Unaudited Consolidated Financial Statements
For The
Three and Six Month Interim Period Ended June 30, 2017
Note 6 – Issuance of Common Stock
During
the six months ended June 30, 2017, the Company issued a total of
99,194,792 shares of $0.001 par value Common Stock. Of these,
42,528,125 shares valued at $128,451 were issued upon conversion of
outstanding notes payable, reducing the debt by $48,500 and
interest payable by $3,022 and generating a loss on conversion of
$76,929. The remaining 56,666,667 shares were issued by the Company
as follows:
●
6,000,000 shares
for $15,000 Canadian ($11,278 US). The $15,000 Canadian was paid
directly to a firm which was engaged to conduct a valuation of the
Company’s assets.
●
34,000,000 shares
for cash of $85,000 Canadian ($63,912 US).
●
6,666,667 shares
purchase of laboratory equipment valued at $22,000.
●
10,000,000 shares
for services valued at $42,000.
In
events subsequent to the June 30, 2017 period end, the Company
issued 42,000,000 shares of Common Stock to its Directors for
services rendered to the Company, 4,337,500 shares for purchase of
laboratory equipment and 2,717,391 for consulting services. See
Note 13, below.
The
Company declared no dividends through June 30, 2017.
Note 7 – Earnings (Loss) Per Share
Earnings (loss) per
share is computed using the weighted average number of Common
Shares outstanding during the period. The Company has adopted ASC
260 (formerly SFAS128), “Earnings per
Share”.
Note 8 – Generic Drugs Licenses
In
2016, the Company entered into License Agreements for the following
four Generic Drugs:
●
Anastrozole
(brand name Arimidex® by AstraZenica) for treatment of Breast
Cancer
●
Letrozole
(brand name Femara® by Novartis) for treatment of Breast
Cancer
●
Bicalutamide
(brand name Casodex® by AstraZenica) for treatment of Prostate
Cancer
●
Finasteride
(brand name Propecia® by Merck) for treatment of Benign
Prostatic Hyperplasia
The
cost of these Licenses has been fully expensed.
Note 9 – Financial Statements
For a
complete set of footnotes, reference is made to the Company’s
Report on Form 10-K for the year ended December 31, 2016, as filed
with the Securities and Exchange Commission and the audited
financial statements and notes included therein.
11
Sunshine
Biopharma, Inc.
Notes
To Unaudited Consolidated Financial Statements
For The
Three and Six Month Interim Period Ended June 30, 2017
Note 10 – Income Taxes
Deferred income
taxes arise from the temporary differences between financial
statement and income tax recognition of net operating losses and
other items. Loss carryovers are limited under the Internal Revenue
Code should a significant change in ownership occur.
A
deferred tax asset at each date has been offset by a 100% valuation
allowance.
Note 11 – Royalties Payable
As part
of a subscription agreement entered into in 2016, the Company has
an obligation to pay a royalty of 5% of net sales on one of its
generic products (Anastrozole) for a period of three (3) years from
the date of the first sale of that product. To date, no sales have
been made and no royalty has been paid.
Note 12 – Related Party Transactions
In
addition to the related party transactions detailed in Note 5
above, during the six month period ended June 30, 2017, the Company
paid its Officers and Directors cash compensation totaling $49,465.
$8,019 was paid to the Company’s COO and $41,446 was paid to
the Company’s CEO.
During
the fiscal year ended December 31, 2016, Advanomics Corporation
paid on behalf of the Company $13,725 Canadian in patenting fees.
Advanomics was fully reimbursed by the Company in January 2017.
Certain members of the Company's management, including Dr. Steve N.
Slilaty, the Company's President, CEO and a Director and Camille
Sebaaly, the Company's CFO, Secretary and a Director, hold similar
positions with Advanomics Corporation.
At
June 30, 2017, the Company had accrued $336,000 in compensation to
the Company’s directors. This balance was subsequently
satisfied by the issuance of shares of the Company's Common Stock.
See Note 13, below.
Note 13 – Subsequent Events
On July
20, 2017, the Company issued the three members of its Board of
Directors 42,000,000 shares of $0.001 Common Stock valued at
$336,000 or $0.008 per share for services rendered to the Company
in 2017.
On July
20, 2017, the Company issued 4,337,500 shares of its $0.001 par
value Common Stock for the purchase of laboratory equipment valued
at $34,700.
On July
24, 2017, the Company issued 2,717,391 shares of its $0.001 Common
Stock valued at $21,739 or $0.008 per share for $25,000 consulting
services rendered to the Company in June 2017. The Company will
recognize a gain of $3,261 on the settlement of this obligation,
the difference between the value of the stock issued at July 20,
2017 and the amount of the invoice.
On
August 3, 2017, the Company received monies in exchange for a
convertible note payable having a face value of
$80,000.
On
August 4, 2017, the Company issued payment in the amount of $67,422
to pay off a note payable having a principal amount of $50,000,
accrued interest of $1,863 and prepayment penalty of $15,559. The
note had a maturity date of November 20, 2017.
12
The following discussion should be read in conjunction with our
consolidated financial statements and notes thereto included
herein. In connection with, and because we desire to take advantage
of, the “safe harbor” provisions of the Private
Securities Litigation Reform Act of 1995, we caution readers
regarding certain forward looking statements in the following
discussion and elsewhere in this report and in any other statement
made by, or on our behalf, whether or not in future filings with
the Securities and Exchange Commission. Forward looking statements
are statements not based on historical information and which relate
to future operations, strategies, financial results or other
developments. Forward looking statements are necessarily based upon
estimates and assumptions that are inherently subject to
significant business, economic and competitive uncertainties and
contingencies, many of which are beyond our control and many of
which, with respect to future business decisions, are subject to
change. These uncertainties and contingencies can affect actual
results and could cause actual results to differ materially from
those expressed in any forward looking statements made by, or on
our behalf. We disclaim any obligation to update forward looking
statements.
Overview and History
We
were incorporated in the State of Colorado on August 31, 2006 under
the name “Mountain West Business Solutions,
Inc.” Until October 2009, our business was to
provide management consulting with regard to accounting, computer
and general business issues for small and home-office based
companies. Effective October 15, 2009, we executed an agreement to
acquire Sunshine Biopharma, Inc., a Colorado corporation, in
exchange for the issuance of 21,962,000 shares of our Common Stock
and 850,000 shares of Convertible Preferred Stock, each convertible
into twenty (20) shares of our Common Stock. As a result of this
transaction we changed our name to “Sunshine Biopharma, Inc.
and our officers and directors resigned their positions with us and
were replaced by our current management. The majority of the Common
Shares and all of the Convertible Preferred Shares we issued for
this transaction were issued to Advanomics Corporation, a privately
held Canadian company (“Advanomics”). On December 21,
2011, Advanomics exercised its right to convert the 850,000 shares
of Series “A” Preferred Stock it held in our Company
into 17,000,000 shares of Common Stock.
Following the above
detailed transactions, we began to operate as a pharmaceutical
company focusing on development of the Adva-27a anticancer
compound. We operated under a the exclusive technology license
agreement with Advanomics until December 2015, at which time we
acquired all of the worldwide right to the technology and became
direct owner of all issued and pending patents pertaining to the
Adva-27a technology. Following acquisition of the Adva-27a patents,
the exclusive license agreement with Advanomics was terminated and
Sunshine Etopo, Inc., Sunshine Biopharma Inc.’s subsidiary
holding the exclusive license with Advanomics, was
dissolved.
In July
2014, we formed a wholly owned Canadian subsidiary, Sunshine
Biopharma Canada Inc. (“Sunshine Canada”), for the
purposes of offering generic pharmaceutical products in Canada and
elsewhere around the globe. Sunshine Canada has recently signed
licensing agreements for four (4) generic prescription drugs for
the treatment of cancer and BPH (Benign Prostatic
Hyperplasia).
With
our entry into the generic pharmaceuticals business, we have become
a fully integrated pharmaceutical company offering generic and
proprietary drugs for the treatment of cancer and other acute and
chronic indications.
Effective August 1, 2017 we moved our principal
place of business to 6500 Trans-Canada Highway, 4th Floor,
Pointe-Claire, Quebec, Canada H9R 0A5. Our new phone
number is (514) 426-6161 and our website address
is
www.sunshinebiopharma.com
.
We
have not been subject to any bankruptcy, receivership or similar
proceeding.
Results Of Operations
Comparison of Results of Operations for the three months ended June
30, 2017 and 2016
For
the three months ended June 30, 2017 and 2016, we did not generate
any revenues.
13
General
and administrative expenses during the three month period ended
June 30, 2017 remained relatively consistent with the prior period
in 2016. G&A expenses were $472,218, compared to general and
administrative expense of $471,313 incurred during the three month
period ended June 30, 2016, an increase of only $905. The various
components of our general and administrative expense varied
significantly from prior results of operations. Specifically,
consulting fees decreased by $84,309 during the three months ended
June 30, 2017, compared to the similar period in 2016 as a result
of shifting of the services rendered towards the less costly
development of our generic pharmaceuticals business. Also, as a
result of shifting our current efforts towards the development of
our Generic Pharmaceuticals operations, we incurred no research
& development expenses during the three months ended June 30,
2017, compared to an expenditure of $32,793 during the similar
period in 2016. See “Plan of Operation” below. In
addition, we saw a decrease of $14,456 in our amortization &
depreciation due to write-downs. The general and administrative
expense categories that saw an increase during the three months
ended June 30, 2017, compared to the similar period in 2016
included executive compensation, legal fees and accounting fees.
Executive compensation increased by $93,072, legal fees by $12,230
and accounting fees by $42,246. The increase in our accounting fees
was due to the fact that we paid for all of the bookkeeping
services required in 2017 in one lump-sum payment through stock
issuance in the second quarter of 2017. Our interest expense of
$9,598 during the three months ended June 30, 2017 was relatively
unchanged from the $9,997 incurred during the similar period in
2016. Finally, we incurred no losses arising from debt conversion
during the three months ended June 30, 2017 and 2016.
As
a result, we incurred a net loss of $485,444 ($0.00 per share) for
the three month period ended June 30, 2017, compared to a net loss
of $481,310 ($0.00 per share) during the three month period ended
June 30, 2016.
Comparison of Results of Operations for the six months ended June
30, 2017 and 2016
For
the six months ended June 30, 2017 and 2016, we did not generate
any revenues.
General
and administrative expenses during the six month period ended June
30, 2017 were also consistent to expenses incurred during the
similar period in 2016, as we incurred $581,208 in G&A expense,
compared to general and administrative expense of $540,995 incurred
during the six month period ended June 30, 2016, an increase of
$40,213. Some components of our general and administrative expense
increased while others decreased during the six month period ended
June 30, 2017, compared to the corresponding period of 2016. The
expense categories that saw an increase included accounting fees
and executive compensation. The increase of $51,046 in accounting
fees during the six months ended June 30, 2017, compared to the
similar period in 2016 was due to the fact that we paid for all of
the bookkeeping services required in 2017 in one lump-sum payment
through stock issuance in the second quarter of 2017. The
categories that saw a decrease during the six months ended June 30,
2017, compared to the similar period in 2016 were consulting fees
and research & development expenses. The decrease of $72,556 in
consulting fees and $32,793 in research & development expenses
were a result of the shifting of the services rendered to us
towards the development of the less costly Generic Pharmaceuticals
business. See “Plan of Operation” below. Most of our
other expenses remained relatively constant during the six month
period ended June 30, 2017 compared to the similar period in
2016. We incurred $18,742 in interest expense during the
six months ended June 30, 2017, compared to $16,951 in interest
expense during the similar period in 2016. However, we
incurred $76,929 in losses arising from debt conversion during the
six months ended June 30, 2017, compared to $253,658 in losses from
debt conversion during the similar period in 2016, a difference of
$176,729 as a result of a smaller amount of convertible notes
outstanding. We also received $25,000 from the settlement of
litigation in 2016 that we did not receive during the six months
ended June 30, 2017.
As
a result, we incurred a net loss of $681,146 ($0.00 per share) for
the six month period ended June 30, 2017, compared to a net loss of
$786,604 ($0.00 per share) during the six month period ended June
30, 2016.
Because
we did not generate any revenues during the six months ended June
30, 2017, following is our Plan of Operation.
Plan of Operation
Since
inception, we have been operating as a pharmaceutical company
focused on the research, development and commercialization of
proprietary drugs for the treatment of various forms of
cancer. In July 2014, we formed Sunshine Biopharma
Canada Inc., a Canadian wholly owned subsidiary, for the purposes
of conducting generic pharmaceuticals business in Canada and
elsewhere around the world. During 2016, we intensified our
activities in the generic pharmaceuticals area as we continued to
pursue our proprietary anticancer drug development efforts.
Accordingly, we have become a fully integrated pharmaceutical
company offering generic and proprietary drugs for the treatment of
cancer and other acute and chronic indications. Below we describe
our Generic Pharmaceuticals operations followed by our Proprietary
Drug Development Program.
Generic Pharmaceuticals Operations
In
2016, our Canadian wholly owned subsidiary, Sunshine Biopharma
Canada Inc. (“Sunshine Canada”), signed Cross
Referencing Agreements with a major pharmaceutical company for four
prescription generic drugs for the treatment of Breast Cancer,
Prostate Cancer and Enlarged Prostate. We will market and sell
these new pharmaceutical products under our own Sunshine Biopharma
label. These four generic products are as follows:
●
Anastrozole (brand
name Arimidex® by AstraZeneca) for treatment of Breast
Cancer;
●
Letrozole (brand
name Femara® by Novartis) for treatment of Breast
Cancer;
●
Bicalutamide (brand
name Casodex® by AstraZenica) for treatment of Prostate
Cancer;
●
Finasteride (brand
name Propecia® by Merck) for treatment of BPH (Benign
Prostatic Hyperplasia)
14
Worldwide sales of
the brand name version of these products as reported in the SEC
filing of the respective owner of the registered trademark are as
follows:
●
Arimidex®
$232M in 2016
●
Femara® $380M
in 2014
●
Casodex® $247M
in 2016
●
Propecia®
$183M in 2015
On June
12, 2017, Sunshine Canada submitted an application to Health Canada
for the procurement of a Drug Establishment License
(“DEL”), a requirement for the Company’s drug
handling and pharmaceutical operations. Health Canada has assigned
the Company DEL Application No. 3-002475 and File No. 17938.
Sunshine Canada is currently awaiting Health Canada to set a date
for physical inspection of our warehouse and drug management
operations which we have set up at the facility of our strategic
alliance partner, Atlas Pharma Inc. In addition, Sunshine Canada is
currently in the process of preparing the documentation for filing
applications for a Drug Identification Number (“DIN”)
for each of its four (4) generic products, SBI-Anastrozole,
SBI-Letrozole, SBI-Bicalutamide and SBI-Finasteride. We cannot
estimate the timing for our obtaining the DEL and the DIN’s
due to variables involved that are out of our control. The Figure
below shows our 30-Pill blister pack of Anastrozole.
We
currently have twenty three (23) additional Generic Pharmaceuticals
under review for in-licensing. While no assurances can be provided,
when completed, this will bring our Generic Products portfolio to a
total of twenty seven (27). We believe that a larger product
portfolio provides us with more opportunities and a greater reach
into the marketplace. We hope to further build our generics
portfolio of “SBI” label Generic Pharmaceuticals over
time.
Various
publicly available sources indicate that the worldwide sales of
generic pharmaceuticals are approximately $200 billion per year. In
the United States and Canada, the sales of generic pharmaceuticals
are approximately $50 billion and $5 billion, respectively. The
generic pharmaceuticals business is fairly competitive and there
are several multinational players in the field including Teva
(Israel), Novartis - Sandoz (Switzerland), Hospira (USA), Mylan
(Netherlands), Sanofi (France), Fresenius Kabi (Germany) and Apotex
(Canada). While no assurances can be provided, with our offering of
Canadian approved products we believe that we will be able to
access at least a small percentage of the generic pharmaceuticals
marketplace.
As part
of a subscription agreement, we have an obligation to pay a royalty
of 5% of net sales on one of our generic products (Anastrozole) for
a period of three (3) years from the date of the first sale of that
product.
While
no assurances can be provided and subject to the availability of
adequate financing, of which there is no assurance, we anticipate
that profits from the sales of Generic Products will be used to
finance our proprietary drug development program, including
Adva-27a, our flagship anticancer compound. In addition to
near-term revenue generation, building the generics business
infrastructure and securing the proper permits will render us
appropriately positioned for the marketing and distribution of our
proprietary Adva-27a drug candidate, provided that Adva-27a is
approved for such marketing and distribution, of which there can be
no assurance.
15
Proprietary Drug Development Operations
Our
proprietary drug development activities have been focused on the
development of a small molecule called Adva-27a for the treatment
of aggressive cancers. A Topoisomerase II inhibitor, Adva-27a has
been shown to be effective at destroying Multidrug Resistant cancer
cells including Pancreatic Cancer cells, Breast Cancer cells,
Small-Cell Lung Cancer cells and Uterine Sarcoma cells (Published
in ANTICANCER RESEARCH, Volume 32, Pages 4423-4432, October 2012).
Sunshine Biopharma is direct owner of all issued and pending
worldwide patents pertaining to Adva-27a including U.S. Patent
Number 8,236,935. See “Part I, Item 1 – Business -
Intellectual Property.”
Summary
of Adva-27a Preclinical Studies
Adva-27a is a
GEM-difluorinated C-glycoside derivative of Podophyllotoxin.
Another derivative of Podophyllotoxin called Etoposide is currently
on the market and is used to treat various types of cancer
including leukemia, lymphoma, testicular cancer, lung cancer, brain
cancer, prostate cancer, bladder cancer, colon cancer, ovarian
cancer, liver cancer and several other forms of cancer. Etoposide
is one of the most widely used anticancer drugs. Adva-27a and
Etoposide are similar in that they both attack the same target in
cancer cells, namely the DNA unwinding enzyme, Topoisomerase II.
Unlike Etoposide, and other anti-tumor drugs currently in use,
Adva-27a is able to destroy Multidrug Resistant Cancer cells.
Adva-27a is the only compound known today that is capable of
destroying Multidrug Resistant Cancer. In addition, Adva-27a has
been shown to have distinct and more desirable biological and
pharmacological properties compared to Etoposide. In side-by-side
studies using Multidrug Resistant Breast Cancer cells and Etoposide
as a reference, Adva-27a showed markedly improved cell killing
activity (see Figure below). Our preclinical studies to date have
shown that:
●
Adva-27a is
effective at killing different types of Multidrug Resistant cancer
cells, including Pancreatic Cancer Cells (Panc-1), Breast Cancer
Cells (MCF-7/MDR), Small-Cell Lung Cancer Cells (H69AR), and
Uterine Sarcoma Cells (MES-SA/Dx5).
●
Adva-27a is
unaffected by P-Glycoprotein, the enzyme responsible for making
cancer cells resistant to anti-tumor drugs.
●
Adva-27a has
excellent clearance time (half-life = 54 minutes) as indicated by
human microsomes stability studies and pharmacokinetics data in
rats.
●
Adva-27a clearance
is independent of Cytochrome P450, a mechanism that is less likely
to produce toxic intermediates.
●
Adva-27a is an
excellent inhibitor of Topoisomerase II with an IC50 of only 13.7
micromolar (this number has recently been reduce to 1.44 micromolar
as a result of resolving the two isomeric forms of
Adva-27a).
●
Adva-27a has shown
excellent pharmacokinetics profile as indicated by studies done in
rats.
●
Adva-27a does not
inhibit tubulin assembly.
These
and other preclinical data have been published in ANTICANCER
RESEARCH, a peer-reviewed International Journal of Cancer Research
and Treatment. The publication which is entitled “Adva-27a, a
Novel Podophyllotoxin Derivative Found to Be Effective Against
Multidrug Resistant Human Cancer Cells” [ANTICANCER RESEARCH
32: 4423-4432 (2012)] is available on our website at
www.sunshinebiopharma.com
.
16
Clinical
Development Path
The
early stage preclinical studies for our lead compound, Adva-27a,
were successfully completed and the results have been published in
ANTICANCER RESEARCH 32: 4423-4432 (2012). We have been delayed in
our implementation of our clinical development program due to lack
of funding. Our fund raising efforts are continuing and as soon as
adequate financing is in place we will continue our clinical
development program of Adva-27a by conducting the next sequence of
steps comprised of the following:
● GMP
Manufacturing of 2 kilogram for use in IND-Enabling Studies and
Phase I Clinical Trials
●
IND-Enabling Studies
●
Regulatory Filing (Fast-Track Status Anticipated)
● Phase
I Clinical Trials (Pancreatic Cancer and in parallel Multidrug
Resistant Breast Cancer)
GMP Manufacturing
In
November 2014, we entered into a Manufacturing Services Agreement
with Lonza Ltd. and Lonza Sales Ltd. (hereinafter jointly referred
to as “Lonza”), whereby we engaged Lonza to be the
manufacturer of our Adva-27a anticancer drug. In June 2015 we
received a sample of the pilot manufacturing run for evaluation.
Our laboratory analyses showed that, while the sample meets the
required biological specifications, the amount of material
generated (the “Yield”) by the pilot run was found to
be significantly lower than planned. During the course of our
discussions concerning the problem of the low Yield, Lonza informed
us that they required us to pay them $687,818 prior to moving
forward with any activity pertaining to the manufacturing agreement
we have with them. We have repeatedly indicated to Lonza that a
clear path defining exactly how the extremely low Yield issue would
be addressed is imperative prior to us making any payments. As of
the date of this report, neither party has changed its position.
See “Part I, Item 3 – Legal
Proceedings.”
Clinical
Trials
Adva-27a’s
initial indication will be pancreatic cancer for which there are
currently little or no treatment options available. We have
concluded an agreement with McGill University’s Jewish
General Hospital in Montreal, Canada to conduct Phase I clinical
trials for this indication. All aspects of the planned clinical
trials in Canada will employ FDA standards at all levels. Subject
to obtaining the necessary financing, we now anticipate that Phase
I clinical trials will commence in mid-2018 and we estimate that it
will take 18 months to complete, at which time we expect to receive
limited marketing approval for “compassionate-use”
under the FDA and similar guidelines in Canada. See
“Potential Near-Term Opportunities” below.
Potential
Near-Term Opportunities
According to the
American Cancer Society, nearly 1.5 million new cases of cancer are
diagnosed in the U.S. each year. Given the terminal and
limited treatment options available for the pancreatic cancer
indication we are planning to study, we anticipate being granted
limited marketing approval (“compassionate-use”) for
our Adva-27a following receipt of funding and a successful Phase I
clinical trial. There are no assurances that either will
occur. Such limited approval will allow us to make the
drug available to various hospitals and health care centers for
experimental therapy and/or “compassionate-use”,
thereby generating revenues in the near-term.
17
In
addition, we believe that upon successful completion of Phase I
Clinical Trials we may receive one or more offers from large
pharmaceutical companies to buyout or license our drug at a
significant premium. However, there are no assurances
that our Phase I Trials will be successful, or if successful, that
any pharmaceutical companies will make an acceptable offer to
us. In the event we do not consummate such a
transaction, we will require significant capital in order to
complete the requisite additional clinical trials towards a
potential full marketing approval, of which there can be no
assurance.
A Space-Filling Model of Our Anticancer Compound,
Adva-27a
Intellectual Property
Effective October
8, 2015, we executed a Patent Purchase Agreement (the
“October Purchase Agreement”), with Advanomics, a
related party, pursuant to which we acquired all of the right,
title and interest in and to U.S. Patent Number 8,236,935 (the
“US Patent”) for our anticancer compound,
Adva-27a. On December 28, 2015, we executed a second
Patent Purchase Agreement (the “December Purchase
Agreement”), with Advanomics, pursuant to which we acquired
all of the right, title and interest in and to all of the remaining
worldwide rights covered by issued and pending patents under
PCT/FR2007/000697 and PCT/CA2014/000029 (the “Worldwide
Patents”) for our anticancer compound, Adva-27a.
Effective December
28, 2015, we entered into amendments (the “Amendments”)
of these Purchase Agreements pursuant to which the total purchase
price was reduced from $17,142,499 to $618,810, the book value of
this intellectual property on the financial statements of
Advanomics. Further, the Amendments provided for
automatic conversion of the promissory notes representing the new
purchase price into an aggregate of 321,305,415 shares of our
Common Stock once we increase our authorized capital such that
these shares can be issued. In July 2016 we increased
our authorized capital and issued the 321,305,415 Common shares to
Advanomics thereby completing all aspects of the patent purchase
arrangements and securing direct ownership of all worldwide patents
and rights pertaining to Adva-27a.
In
addition, in 2016 we signed Cross Referencing Agreements with a
major pharmaceutical company for four (4) prescription generic
drugs for the treatment of Breast Cancer, Prostate Cancer and
Enlarged Prostate. These agreements give us the right to register
the four (4) generic products, Anastrozole, Letrozole, Bicalutamide
and Finasteride in Canada under our own label and obtain a DIN for
each in order to be able to place them on the market.
While
no assurances can be provided, we are also planning to expand our
product line through acquisitions and/or in-licensing as well as
in-house research and development.
Liquidity and Capital Resources
As
of June 30, 2017, we had cash or cash equivalents of
$128,768.
Net cash used in operating activities was $185,850
during the six month period ended June 30, 2017, compared to
$219,995 for the six month period ended June 30,
2016. We anticipate that overhead costs and other
expenses will increase in the future as we move forward with our
proprietary drug development activities and our
offering of
generic pharmaceutical products as
discussed above.
Cash
flows from financing activities were $275,665 for the six month
periods ended June 30, 2017, compared to $244,128 during the six
months ended June 30, 2016. Cash flows used by investing
activities were $22,295 and $2,343 for the six month periods ended
June 30, 2017 and 2016, respectively.
18
During
the six months ended June 30, 2017, we issued a total of 99,194,792
shares of $0.001 par value Common Stock. Of these, 42,528,125
shares valued at $128,451 were issued upon conversion of
outstanding notes payable, reducing the debt by $48,500 and
interest payable by $3,022 and generating a loss on conversion of
$76,929. The remaining 56,666,667 shares were issued as
follows:
●
6,000,000 shares
for $15,000 Canadian ($11,278 US), which funds were paid directly
to a firm engaged to conduct a valuation of the Company’s
assets.
●
34,000,000 shares
for cash of $85,000 Canadian ($63,912 US).
●
6,666,667 shares
for purchase of laboratory equipment valued at
$22,000.
●
10,000,000 shares
for bookkeeping services required by the Company during
2017.
In
addition, during the six months ended June 30, 2017, we engaged in
the following debt transactions:
●
On February 10,
2017, we received monies in exchange for a convertible note payable
having a face value of $50,000.
●
On April 1, 2017,
we received monies in exchange for a convertible note payable
having a face value of $100,000 Canadian (approximately $75,190
US).
●
On April 26, 2017,
we received monies in exchange for a convertible note payable
having a face value of $65,000.
We are not generating revenue from our operations, and our ability
to implement our business plan as set forth herein will depend on
the future availability of financing. Such financing will be
required to enable us to further develop our generic
pharmaceuticals business and proprietary drug development program.
We intend to raise funds through private placements of our Common
Stock and/or debt financing. We estimate that we will require
approximately $6 million ($1 million for the generic pharmaceutical
operations and $5 million for the proprietary drug development
program) to fully implement our business plan in the future and
there are no assurances that we will be able to raise this capital.
While we are engaged in discussions with various investment banking
firms and venture capitalists to provide us these funds, as of the
date of this report we have not reached any agreement with any
party that has agreed to provide us with the capital necessary to
effectuate our business plan. Our inability to obtain sufficient
funds from external sources when needed will have a material
adverse effect on our plan of operation, results of operations and
financial condition.
Our
cost to continue operations as they are now conducted is nominal,
but these are expected to increase as we move forward with
implementation of our business plan. We do not have sufficient
funds to cover the anticipated increase in the relevant expenses.
We need to raise additional funds in order to continue our existing
operations to finance our plans to expand our operations for the
next year. If we are successful in raising additional funds, we
expect our operations and business efforts to continue and expand.
There are no assurances this will occur.
Independent
Valuation
We had
previously reported in our Form 10-K for our fiscal year ended
December 31, 2016 and Form 10-Q for the three months ended March
31, 2017, that pursuant to terms included in certain Subscription
Agreements with us we had undertaken to obtain a valuation report
(the “Report”) on our issued and outstanding shares by
an independent valuation firm. To comply with this obligation, on
March 9, 2017, we engaged MNP LLP (“MNP”) to provide us
with such Report.
On June
22, 2017, MNP issued its Report, which arrived at an estimated en
bloc Fair Market Value at March 31, 2017 (the "Valuation Date"), of
our issued and outstanding shares, in the range of $977.0 million
to $1,133.0 million.
MNP is
one of the largest public accountancy firms in Canada (www.mnp.ca).
The Montréal Valuation Practice (the “Practice”)
is engaged in the valuation of businesses, business ownership
interests, and securities and intangible assets in connection with
business combinations, distributions of listed and unlisted
securities, private placements, exchanges of shares, corporate and
financial reorganizations, going-private transactions, leveraged
buy-outs, fair value measurement of assets and liabilities for
purchase price allocation and annual impairment testing for
financial reporting pursuant to generally-accepted accounting
principles both in Canada and the United States. The Practice has
performed more than 3,000 valuations of public and private
companies throughout Canada and in the United States during the
past thirty years. Members of the Practice have also been playing
an active role in the Canadian and U.S. professional societies of
which they are accredited members, including serving on governing
boards and standards promulgating committees.
MNP is
not an insider, associate, or affiliate of our Company or any of
our affiliates, associates, or shareholders (collectively, the
“Interested Parties”). MNP does not own shares in our
Company, nor does it have any agreements, commitments, or
undertakings in respect of any future business involving any of the
Interested Parties. MNP’s professional fees for services
rendered in preparing the Report were not contingent, in whole or
in part, on the conclusions reached therein and were based strictly
on the professional time expended on the engagement at their
standard hourly rates.
19
The
results of this valuation have not been used in the preparation of
our financial statements.
Subsequent
Events
On July
20, 2017, we issued the three members of our Board of Directors
42,000,000 shares of $0.001 Common Stock valued at $336,000 or
$0.008 per share for services rendered to us in 2017.
On July
20, 2017, we issued 4,337,500 shares of our $0.001 par value Common
Stock for the purchase of laboratory equipment valued at
$34,700.
On July
24, 2017, we issued 2,717,391 shares of our $0.001 Common Stock
valued at $21,739, or $0.008 per share, for $25,000 of consulting
services rendered to us in June 2017. We will recognize a gain of
$3,261 on the settlement of this obligation, the difference between
the value of the stock issued at July 20, 2017 and the amount of
the invoice.
On
August 3, 2017, we received monies in exchange for a convertible
note payable having a face value of $80,000.
On
August 4, 2017, we issued payment in the amount of $67,422 to pay
off a note payable having a principal amount of $50,000, accrued
interest of $1,863 and prepayment penalty of $15,559. The note had
a maturity date of November 20, 2017.
Inflation
Although
our operations are influenced by general economic conditions, we do
not believe that inflation had a material effect on our results of
operations during the six month period ended June 30,
2017.
Critical Accounting Estimates
The
discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these
consolidated financial statements requires us to make estimates and
judgments that affect the amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates based
on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under
different assumptions or conditions. The following represents a
summary of our critical accounting policies, defined as those
policies that we believe are the most important to the portrayal of
our financial condition and results of operations and that require
management’s most difficult, subjective or complex judgments,
often as a result of the need to make estimates about the effects
of matters that are inherently uncertain.
We
are a smaller reporting company and are not required to provide the
information under this item pursuant to Regulation
S-K.
Disclosure
Controls and Procedures
–
Our
management, with the participation of our Chief Executive Officer
and Chief Financial Officer, has evaluated the effectiveness of our
disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (the “Exchange Act”) as of the end of
the period covered by this Report.
These
controls are designed to ensure that information required to be
disclosed in the reports we file or submit pursuant to the
Securities Exchange Act of 1934 is recorded, processed, summarized
and reported within the time periods specified in the rules and
forms of the Securities and Exchange Commission, and that such
information is accumulated and communicated to our management,
including our CEO/CFO to allow timely decisions regarding required
disclosure.
Based
on this evaluation, our CEO and CFO have concluded that our
disclosure controls and procedures were not effective as of June
30, 2017, at reasonable assurance level, for the following
reasons:
●
Ineffective control
environment and lack of qualified full-time CFO who has SEC
experience to focus on our financial affairs;
20
●
Lack of qualified
and sufficient personnel, and processes to adequately and timely
identify making any and all required public
disclosures;
●
Deficiencies in the
period-end reporting process and accounting policies;
●
Inadequate internal
controls over the application of new accounting principles or the
application of existing accounting principles to new
transactions;
●
Inadequate internal
controls relating to the authorization, recognition, capture, and
review of transactions, facts, circumstances, and events that could
have a material impact on the company’s financial reporting
process;
●
Deficient revenue
recognition policies;
●
Inadequate internal
controls with respect to inventory transactions; and
●
Improper and lack
of timely accounting for accruals such as prepaid expenses,
accounts payable and accrued liabilities.
Our
Board of Directors has assigned a priority to the short-term and
long-term improvement of our internal control over financial
reporting. We are reviewing various potential solutions to remedy
the processes that would eliminate the issues that may arise due to
the absence of separation of duties within the financial reporting
functions. Additionally, the Board of Directors will work with
management to continuously review controls and procedures to
identified deficiencies and implement remediation within our
internal controls over financial reporting and our disclosure
controls and procedures.
We
believe that our financial statements presented in this quarterly
report on Form 10-Q fairly present, in all material respects, our
financial position, results of operations, and cash flows for all
periods presented herein.
Inherent
Limitations
– Our management, including our Chief
Executive Officer and Chief Financial Officer, does not expect that
our disclosure controls and procedures will prevent all error and
all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are
met. The design of any system of controls is based in
part upon certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed
in achieving its stated goals under all potential future
conditions. Further, the design of a control system must
reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within our company
have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and
that breakdown can occur because of simple error or mistake. In
particular, many of our current processes rely upon manual reviews
and processes to ensure that neither human error nor system
weakness has resulted in erroneous reporting of financial
data.
Changes in
Internal Control over Financial Reporting
– There were
no changes in our internal control over financial reporting during
our fiscal year ended December 31, 2016, which were identified in
conjunction with management’s evaluation required by
paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act,
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting.
In
November 2014, we entered into a Manufacturing Services Agreement
with Lonza Ltd. and Lonza Sales Ltd. (hereinafter jointly referred
to as “Lonza”), whereby we engaged Lonza to be the
manufacturer of our Adva-27a anticancer drug. In June 2015 we
received a sample of the pilot manufacturing run for evaluation.
Our laboratory analyses showed that, while the sample meets the
required biological specifications, the amount of material
generated (the “Yield”) by the pilot run was found to
be significantly lower than planned. During the course of our
discussions concerning the problem of the low Yield, Lonza informed
us that they required us to pay them $687,818 prior to moving
forward with any activity pertaining to the manufacturing agreement
we have with them. We have repeatedly indicated to Lonza that a
clear path defining exactly how the extremely low Yield issue would
be addressed is imperative prior to us making any payments. As of
the date of this report, neither party has changed its
position.
We
are not party to any material legal proceedings, nor have any other
such actions been threatened against us.
21
We
are a smaller reporting company and are not required to provide the
information under this item pursuant to Regulation
S-K.
During
the six months ended June 30, 2017, we issued a total of 99,194,792
shares of our Common Stock. Of these, 42,528,125 shares were issued
upon conversion of outstanding notes payable, reducing our debt by
$48,500 and interest payable by $3,022 and generating a loss on
conversion of $76,929. The remaining 56,666,667 shares were issued
as follows:
●
6,000,000 shares
issued in March 2017 for $15,000 Canadian ($11,278 US). The $15,000
Canadian was paid directly to a firm which was engaged to conduct a
valuation of our assets. See “Part I,, Item 2, Liquidity and
Capital Resources – Independent Valuation,”
above.
●
34,000,000 shares
were also issued in March 2017 for $85,000 Canadian ($63,912 US)
(approximately $0.0019 per share)
●
6,666,667 shares
were issued in April 2017 for purchase of laboratory equipment
valued at $22,000.
●
10,000,000 shares
were issued in May 2017 in exchange for bookkeeping services
rendered in 2017.
In
addition, we engaged in the following convertible debt
transactions:
●
On February 10,
2017, we received net proceeds of $48,000 in exchange for a note
payable having a face value of $50,000 and accruing interest at the
rate of 8% per annum. The note, due on November 20, 2017, is
convertible after 180 days from issuance into shares of our Common
Stock at a price 39% below market value.
●
On April 1, 2017,
we received $100,000 Canadian ($76,923 US) in exchange for a note
payable having a face value of $100,000 Canadian accruing interest
at the rate of 9% per annum. The note, due on April 1, 2019, is
convertible any time after April 1, 2017 into shares of our Common
Stock at a conversion price of $0.015 Canadian (approximately
$0.012 US) per share. Payments on this note are comprised of
interest only amounts due and payable on the last day of each
calendar quarter.
●
On April 26, 2017,
we received net proceeds of $63,000 in exchange for a note payable
having a face value of $65,000 and accruing interest at the rate of
8% per annum. The note, due on April 26, 2018, is convertible after
180 days from issuance into shares of our Common Stock at a price
35% below market value.
The funds obtained
from these transactions were used for working capital, including
the development of our new business described above under
“Plan of Operation.” We relied upon the exemption from
registration provided by Section 4(a)(1) of the Securities Act of
1933, as amended, to issue these shares.
Subsequent
Events
On July
20, 2017, we issued the three members of our Board of Directors
42,000,000 shares of $0.001 Common Stock valued at $336,000 or
$0.008 per share for services rendered to us in 2017.
On July
20, 2017, we issued 4,337,500 shares of our $0.001 par value Common
Stock for the purchase of laboratory equipment valued at
$34,700.
On July
24, 2017, we issued 2,717,391 shares of our $0.001 Common Stock
valued at $21,739 or $0.008 per share for $25,000 of consulting
services rendered to us in June 2017. We will recognize a gain of
$3,261 on the settlement of this obligation, the difference between
the value of the stock issued at July 20, 2017 and the amount of
the invoice.
On
August 3, 2017, we received $80,000 and issued a convertible note
for a like amount.
On
August 4, 2017, we issued payment in the amount of $67,422 to pay
off a note payable having a principal amount of $50,000, accrued
interest of $1,863 and prepayment penalty of $15,559. The note had
a maturity date of November 20, 2017.
None
22
Not
Applicable
None
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Exhibit
No.
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Description
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Certification of
Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
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Certification of
Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
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Certification of
Chief Executive Officer and Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
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101.INS
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XBRL
Instance Document*
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101.SCH
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XBRL
Schema Document*
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101.CAL
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XBRL
Calculation Linkbase Document*
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101.DEF
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XBRL
Definition Linkbase Document*
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101.LAB
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XBRL
Label Linkbase Document*
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101.PRE
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XBRL
Presentation Linkbase Document*
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______________________
*
Pursuant to Rule 406T of Regulation S-T, these interactive data
files are not deemed filed or part of a registration statement or
prospectus for purposes of Section 11 or 12 of the Securities Act
or Section 18 of the Securities Exchange Act and otherwise not
subject to liability.
23
SIGNATURES
Pursuant
to the requirements of Section 12 of the Securities and Exchange
Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized
on August 11, 2017.
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SUNSHINE
BIOPHARMA, INC.
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By:
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s/ Dr.
Steve N. Slilaty
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Dr.
Steve N. Slilaty,
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Principal Executive
Officer
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By:
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s/
Camille Sebaaly
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Camille
Sebaaly,
Principal Financial
Officer and
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Principal
Accounting Officer
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24
TABLE OF CONTENTS
Part IItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosureItem 5. Other InformationItem 6. Exhibits