N
otes to Unaudited Consolidated Financial
Statements
For the Three and Six Month Interim Periods Ended June 30, 2019 and
2018
Note 1 – Nature of Business and Basis of
Presentation
Sunshine
Biopharma, Inc. (the "Company") was originally incorporated under
the name Mountain West Business Solutions, Inc. on August 31, 2006
in the State of Colorado. Until October 2009, the Company was
operating as a business consultancy firm. Effective October 15,
2009, the Company acquired Sunshine Biopharma, Inc. in a
transaction classified as a reverse acquisition. Sunshine
Biopharma, Inc. was holding an exclusive license to a new
anticancer drug bearing the laboratory name, Adva-27a. Upon
completion of the reverse acquisition transaction, the Company
changed its name to Sunshine Biopharma, Inc. and began operating as
a pharmaceutical company focusing on the development of the
licensed Adva-27a anticancer drug.
In July
2014, the Company 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 world. Sunshine Canada has signed
licensing agreements for four (4) generic prescription drugs for
treatment of breast cancer, prostate cancer and BPH (Benign
Prostatic Hyperplasia).
On
January 1, 2018 the Company acquired all of the issued and
outstanding shares of Atlas Pharma Inc. (“Atlas”), a
Canadian privately held analytical chemistry company. The purchase
price for the shares was Eight Hundred Forty Eight Thousand Dollars
$848,000 Canadian ($676,748 US). The purchase price included a cash
payment of $100,500 Canadian ($80,289 US), plus the issuance of
1,000,000 shares of the Company’s Common Stock valued at
$238,000 or $0.238 per share, and a promissory note in the
principal amount of $450,000 Canadian ($358,407 US), with interest
payable at the rate of 3% per annum.
Effective
April 1, 2019, the Company re-assigned all of its stock in Atlas
back to the original owner in exchange for the Atlas related debt.
The loss on the disposition was $580,125.
In
March 2018, the Company formed NOX Pharmaceuticals, Inc., a wholly
owned Colorado corporation and assigned all of the Company’s
interest in the Adva27a anticancer drug to that company. NOX
Pharmaceuticals Inc.’s mission is to research, develop and
commercialize proprietary drugs including Adva-27a.
On
December 17, 2018, the Company launched its first over-the-counter
product, Essential 9
tm
,
a dietary supplement comprised of the nine essential amino acids
that the human body cannot synthesize. Essential 9
tm
has been authorized for marketing by Health Canada under NPN
80089663.
Effective
February 1, 2019, the Company completed a 20 to 1 reverse split of
its $0.001 par value Common Stock, reducing the issued and
outstanding shares of Common Stock from 1,713,046,242 to 85,652,400
(the “Reverse Stock Split”).
The
Company's financial statements reflect the Reverse Stock Split on a
retroactive basis and represent the consolidated activity of
Sunshine Biopharma, Inc. and its subsidiaries (Sunshine Biopharma
Canada Inc. and NOX Pharmaceuticals Inc.) herein collectively
referred to as the "Company". During the last six month period the
Company has continued to raise money through the issuance of
convertible debt.
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.
Basis of Presentation of Unaudited Financial
Information
The
unaudited financial statements of the Company for the three and six
month periods ended June 30, 2019 and 2018 have been prepared in
accordance with accounting principles generally accepted in the
United States of America for interim financial information and
pursuant to the requirements for reporting on Form 10-Q and
Regulation S-K. Accordingly, they do not include all the
information and footnotes required by accounting principles
generally accepted in the United States of America for complete
financial statements. However, such information reflects all
adjustments (consisting solely of normal recurring adjustments),
which are, in the opinion of management, necessary for the fair
presentation of the financial position and the results of
operations. Results shown for interim periods are not necessarily
indicative of the results to be obtained for a full fiscal year.
The balance sheet information as of June 30, 2019 was derived from
the audited financial statements included in the Company's
financial statements as of and for the year ended December 31, 2018
included in the Company’s Annual Report on Form 10-K filed
with the Securities and Exchange Commission (the “SEC”)
on April 12, 2019. These financial statements should be read in
conjunction with that report.
Recently Issued Accounting Pronouncements
Recently
issued amendments by the FASB are effective for fiscal years
beginning after December 15, 2018, and should be applied
prospectively on or after the adoption date. Early adoption is
permitted, including adoption in an interim period. The Company
does not expect these amendments to have a material impact on its
financial statements.
In
February 2016, the FASB issued ASU 2016-02, Leases, effective for
annual reporting periods beginning on or after December 15, 2018,
and interim periods within those annual periods. Earlier
application is permitted as of the beginning of an interim or
annual period. This update requires organizations to recognize
lease assets and lease liabilities on the balance sheet with lease
terms of more than 12 months and also disclose certain qualitative
and quantitative information about leasing arrangements. The
Company adopted this pronouncement on January 1, 2019.
Discontinued Operations
Effective
April 1, 2019 the Company disposed of its Atlas Pharma Inc.
subsidiary. As a consequence of the sale, the operating results and
the assets and liabilities of the discontinued operations, which
formerly comprised the lab testing operations, are presented
separately in the Company's financial statements. Summarized
financial information for the discontinued business is shown below.
Prior period balances have been reclassified to present the
operations of the lab testing business as a discontinued
operation.
Discontinued
Operations Income Statement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
-
|
$
107,250
|
$
119,522
|
$
198,418
|
|
Cost
of revenues
|
-
|
88,544
|
81,920
|
184,991
|
|
Gross
profit
|
-
|
18,706
|
37,602
|
13,427
|
|
|
|
|
|
|
|
General
& Administrative Expenses
|
-
|
9,146
|
36,196
|
19,321
|
|
Gain
(Loss) from operations
|
-
|
9,560
|
1,406
|
(5,894
)
|
|
|
|
|
|
|
|
Other
income (expense) - Interest
|
-
|
(4,147
)
|
(3,518
)
|
(8,231
)
|
|
|
|
|
|
|
|
Net
Income (Loss) from operations
|
$
-
|
$
5,413
|
$
(2,112
)
|
$
(14,125
)
|
|
|
|
|
|
|
|
Loss on Disposal
|
$
(580,125
)
|
$
-
|
$
(580,125
)
|
$
-
|
|
|
|
|
|
|
|
Total Net Income (Loss) from Discontinued
Operations
|
$
(580,125
|
$
5,413
|
$
(582,237
)
|
$
(14,125
)
|
The
individual assets and liabilities of the discontinued lab testing
business are in the captions "Assets of Discontinued Operation" and
"Liabilities of Discontinued Operation" in the Consolidated Balance
Sheet. The carrying amounts of the major classes of assets and
liabilities included part of the discontinued business are
presented in the following table:
Discontinued
Operations Balance Sheet:
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ASSETS
|
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|
Current
Assets:
|
|
|
|
Cash
and cash equivalents
|
$
-
|
$
4,682
|
|
Accounts
receivable
|
-
|
94,955
|
|
Total
Current Assets
|
-
|
99,637
|
|
|
|
|
|
Equipment
(net of $ 0 and $34,959 depreciation
|
-
|
224,238
|
|
Goodwill
|
-
|
665,697
|
|
|
|
|
|
TOTAL
ASSETS
|
-
|
$
989,572
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
Notes
payable
|
-
|
4,657
|
|
Notes
payable - related party
|
-
|
18,230
|
|
Related
party advances
|
-
|
10,248
|
|
Accounts
payable & accrued expenses
|
-
|
70,597
|
|
Total
Current Liabilities
|
-
|
103,732
|
|
|
|
|
|
TOTAL
LIABILITIES
|
$
-
|
$
103,732
|
Discontinued
Operations Cash Flows:
Cash
flows used in discontinued operations for the six months ended June
30, 2019 and 2018 were $8,510 and $17,342, respectively. There were
no cash flows used in or provided by investing activities during
those periods.
Note 2 – Going Concern and Liquidity
As of
June 30, 2019, and December 31, 2018, the Company had $37,277 and
$110,534 in cash on hand respectively, and limited
revenue-producing business and other sources of income.
Additionally, as of June 30, 2019, the Company had outstanding
liabilities totaling $925,691 and $70,866 in current
assets.
In the
Company’s financial statements for the fiscal years ended
December 31, 2018, and 2017, the Reports of the Independent
Registered Public Accounting Firm include an explanatory paragraph
that describes substantial doubt about the Company’s ability
to continue as a going concern. These financial statements have
been prepared on a going concern basis, which contemplates the
realization of assets and the settlement of liabilities and
commitments in the normal course of business. Based on the
Company’s current financial projections, management believes
it does not have sufficient existing cash resources to fund its
current limited operations.
It is
the Company’s current intention to raise debt and/or equity
financing to fund ongoing operating expenses. There is no assurance
that these events will be satisfactorily completed or at terms
acceptable to the Company. Any issuance of equity securities, if
accomplished, could cause substantial dilution to existing
stockholders. Any failure by the Company to successfully implement
these plans would have a material adverse effect on its business,
including the possible inability to continue
operations.
Note 3 – Notes Payable
On June
27, 2018, the Company received net proceeds of $51,000 in exchange
for a note payable having a face value of $53,000 and accruing
interest at the rate of 8% per annum. The note was due on April 15,
2019. During January 2019, the Company paid off this note by
issuing payment in the amount of $69,930 for $53,000 in principal,
$5,332 in accrued interest and $11,598 in additional
interest.
On
August 17, 2018 the Company received net proceeds of $51,000 in
exchange for a note payable having a face value of $53,000 and
accruing interest at the rate of 8% per annum. The note was due on
May 30, 2019, was convertible after 180 days from issuance into
$0.001 par value Common Stock at a price 35% below market value.
Through June 2019 the holder of this note elected to convert a
total of $53,000 in principal and $ 1,700 in accrued interest into
11,323,131 shares of $0.001 par value Common Stock valued at
$99,101 leaving balance of $420 in accrued interest and incurring a
loss on conversion of $44,401. The remaining balance of $420 was
paid off in July 2019.
On
October 23, 2018 the Company received net proceeds of $85,500 in
exchange for a note payable having a face value of $90,000 and
accruing interest at the rate of 8% per annum. The note, due on
October 23, 2019, is convertible after 180 days from issuance into
$0.001 par value Common Stock at a price 35% below market value.
Through June 2019 the holder of this note elected to convert a
total of $30,000 in principal and $1,376 in accrued interest into
7,311,890 shares of $0.001 par value Common Stock valued at $52,068
leaving a principal balance of $60,000 and incurring a loss on
conversion of $20,692.
On
December 24, 2018 the Company received net proceeds of $80,000 in
exchange for a note payable having a face value of $87,000 and
accruing interest at the rate of 8% per annum. The note, due on
December 24, 2019, 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.
On
January 8, 2019, the Company received net proceeds of $50,500 in
exchange for a note payable having a face value of $54,000 and
accruing interest at the rate of 8% per annum. The note, due on
January 8, 2020, 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.
On
January 10, 2019, the Company received net proceeds of $38,000 in
exchange for a note payable having a face value of $40,660 and
accruing interest at the rate of 8% per annum. The note, due on
October 10, 2019, 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.
On
February 5, 2019, the Company received net proceeds of $35,000 in
exchange for a note payable having a face value of $37,450 and
accruing interest at the rate of 8% per annum. The note, due on
October 10, 2019, 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.
On
February 11, 2019, the Company received net proceeds of $50,000 in
exchange for a note payable having a face value of $52,000 and
accruing interest at the rate of 8% per annum. The note, due on
November 30, 2019 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.
On
March 18, 2019, the Company received net proceeds of $38,000 in
exchange for a note payable having a face value of $40,660 and
accruing interest at the rate of 8% per annum. The note, due on
December 18, 2019 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.
On
March 18, 2019, the Company received net proceeds of $38,000 in
exchange for a note payable having a face value of $40,660 and
accruing interest at the rate of 8% per annum. The note, due on
December 18, 2019 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, 2019 and December 31, 2018, total accrued interest on Notes
Payable was $34,660 and $9,291, respectively.
Note 4 – Notes Payable - Related Party
On
January 1, 2018 as part of the acquisition of Atlas Pharma Inc.,
the Company issued a note payable in the amount of $450,000
Canadian ($358,407 US) and accruing interest at the rate of 3% per
annum. The note was due on December 31, 2023. Payments on this note
were $10,000 Canadian (approximately $8,000 US) per quarter. The
note was secured by the Atlas Pharma Inc. shares held by the
Company. Effective April 1, 2019 the Company re-assigned all of the
Atlas shares back to the seller and as a result this note was
cancelled.
In
addition to the above, at June 30, 2019 the Company had a note
payable held by the CEO of the Company having a principal amount of
$89,808 and accrued interest of $5,242. The note is unsecured,
non-convertible and accrues interest at 12%. It matures on December
31, 2019.
Note 5 – Shareholders’ Equity
During
the six months ended June 30, 2019 the Company issued a total of
18,635,021 shares of $0.001 par value Common Stock for the
conversion of outstanding notes payable, reducing the debt by
$83,000 and interest payable by $3,841 and generating a loss on
conversion of $65,093.
The
Company declared no dividends through June 30, 2019.
The
following table shows the changes in shareholders’
equity:
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|
Three
Months Ended June 30,
|
Six
Months Ended June 30,
|
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Total
beginning Shareholders' Equity (Deficit)
|
$
(211,772
)
|
$
(500,685
)
|
$
(55,753
)
|
$
(573,363
)
|
|
|
|
|
|
|
|
Beginning
and ending Series B Preferred Stock
|
50,000
|
50,000
|
50,000
|
50,000
|
|
|
|
|
|
|
|
Beginning
Common Stock
|
89,349
|
47,401
|
85,652
|
45,937
|
|
|
14,938
|
7,804
|
18,635
|
9,268
|
|
Ending
Common Stock
|
104,287
|
55,205
|
104,287
|
55,205
|
|
|
|
|
|
|
|
Beginning
additonal paid in capital (APIC)
|
15,630,289
|
13,287,974
|
15,586,678
|
12,948,386
|
APIC
increase from Common Stock issued
|
88,923
|
867,091
|
132,534
|
1,206,679
|
|
Ending
additional paid in capital
|
15,719,212
|
14,155,065
|
15,719,212
|
14,155,065
|
|
|
|
|
|
|
|
Beginning
other comprehensive income (loss)
|
(4,523
)
|
(2,234
)
|
(3,738
)
|
504
|
Other
comprehensive income (loss)
|
2,499
|
(6,032
)
|
1,714
|
(8,770
)
|
|
Ending
other comprehensive income (loss)
|
(2,024
)
|
(8,266
)
|
(2,024
)
|
(8,266
)
|
|
|
|
|
|
|
|
Beginning
retained deficit
|
(15,976,887
)
|
(13,883,826
)
|
(15,774,345
)
|
(13,618,190
)
|
|
|
(710,890
)
|
(644,308
)
|
(913,432
)
|
(909,944
)
|
|
Ending
retained deficit
|
(16,687,777
)
|
(14,528,134
)
|
(16,687,777
)
|
(14,528,134
)
|
|
|
|
|
|
|
Total
ending Shareholders' Equity (Deficit)
|
$
(816,302
)
|
$
(276,130
)
|
$
(816,302
)
|
$
(276,130
)
|
Note 6 – 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, “Earnings per Share”.
Note 7 – 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 8 – Royalties Payable
As part
of a subscription agreement entered into in 2016, the Company had
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. In May 2018, the
Company issued 50,000 shares of its Common Stock valued at $5,900
in exchange for cancellation of this royalty
obligation.
Note 9 – Related Party Transactions
In
addition to the related party transactions detailed in Note 4
above, the Company paid its Officers and Directors cash and stock
compensation totaling $3,751 and $446,644 for the three months
ended June 30, 2019 and 2018 and $43,952 and $524,431 for the six
month periods ended June 30, 2019 and 2018,
respectively.
Note 10 – Revenue Recognition
As of
January 1, 2018, the Company adopted ASU No. 201409, “Revenue
from Contracts with Customers” (ASC 606). Under the new
guidance, an entity will recognize revenue to depict the transfer
of promised goods or services to customers at an amount that the
entity expects to be entitled to in exchange for those goods or
services. A five-step model has been introduced for an entity to
apply when recognizing revenue. The new guidance also includes
enhanced disclosure requirements. The guidance was effective
January 1, 2018 and was applied on a modified prospective basis.
The adoption did not have an impact on the Company's financial
statements.
Local
governmental regulations require that companies recognize revenues
upon completion of the work by issuing an invoice and remitting the
applicable sales taxes (GST and QST) to the appropriate government
agency. The Company’s revenue recognition policy is in
compliance with these local regulations.
Note 11 – Accounts Receivable
Accounts
receivable consist of trade accounts arising in the normal course
of business and are classified as current assets and carried at
original invoice amounts less an estimate for doubtful receivables
based on a review of outstanding balances on a monthly basis. The
estimate of allowance for doubtful accounts is based on the
Company's bad debt experience, market conditions, and aging of
accounts receivable, among other factors. If the financial
condition of the Company's customers deteriorates resulting in the
customer's inability to pay the Company's receivables as they come
due, additional allowances for doubtful accounts will be
required.
Note 12 – Subsequent Events
On July
2, 2019 the Company received net proceeds of $38,000 in exchange
for a convertible note payable having a face value of $40,000 and
accruing interest at the rate of 8% per annum.
On July
23, 2019 the holder of a note payable dated October 23, 2018
elected to convert a total of $15,000 in principal and $894 in
accrued interest into an aggregate of 8,150,897 shares of Common
Stock leaving a principal balance of $45,000.
On July
25 and August 12, 2019 the holder of a note payable dated January
10, 2019 elected to convert a total of $18,068 in principal into an
aggregate of 10,246,740 shares of Common Stock leaving a principal
balance of $22,592 and accrued and unpaid interest of
$1,693.
On July
26, 2019 the Company received net proceeds of $47,500 in exchange
for a convertible note payable having a face value of $50,000 and
accruing interest at the rate of 8% per annum.
On July 31, 2019 the Company issued 4,600,000 shares of Common
Stock to a non-related party for consulting services rendered to
the Company through June 2019.
On August 13, 2019
the holder of a note payable dated February 11, 2019 elected to
convert $9,600 in principal into 6,000,000 shares of Common Stock
leaving a principal balance of $42,400.