Notes to Consolidated Financial
Statements
December
31, 2020 and 2019
Note 1 – Description of Business
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 (the “License Agreement”). 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 October 2012, the Company published the results of its initial
preclinical studies of Adva-27a in the peer-reviewed
journal, ANTICANCER RESEARCH. The preclinical studies were
conducted in collaboration with Binghamton University, a State
University of New York. The publication is entitled
“Adva-27a, a Novel Podophyllotoxin Derivative Found to Be
Effective Against Multidrug Resistant Human Cancer Cells”
[ANTICANCER RESEARCH Volume 32, Pages 4423-4432
(2012)].
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).
In
December 2015, the Company acquired all worldwide issued (US Patent
Number 8,236,935, and 10,272,065) and pending patents under
PCT/FR2007/000697 and PCT/CA2014/000029 for the Adva-27a anticancer
compound from Advanomics Corporation, a related party, in exchange
for an aggregate of 803,264 shares of Common Stock valued at
$835,394 and terminated the License Agreement. In 2016, the
remaining value of these patents was impaired. The Company is
however continuing development of the Adva-27a anticancer drug
covered by these patents.
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 cash
payment of $100,500 Canadian ($80,289 US), plus the issuance of
50,000 shares of the Company’s Common Stock valued at
$238,000, and a promissory note (“Atlas Debt”) 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 Debt. The loss on the disposition
was $580,125. See Note 11, below for a more detailed explanation of
this disposition.
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.
In December 2018, the Company launched its first over-the-counter
product, Essential 9™, a nutritional supplement comprised of
the nine (9) essential amino acids that the human body cannot make.
Essential 9tm
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 Common Stock, reducing the issued and outstanding
shares of Common Stock from 1,713,046,242 to 85,652,400 (the
“First Reverse Stock Split”). The Company’s
authorized capital of Common Stock remained as previously
established at 3,000,000,000 shares.
In November 2019, the Company received Health Canada approval for a
new Calcium-Vitamin D supplement. Health Canada issued NPN 80093432
through which it authorized the Company to manufacture and sell the
new Calcium-Vitamin D supplement under the brand name Essential
Calcium-Vitamin Dtm.
Effective April 6, 2020, the Company completed another 20 to 1
reverse split of its Common Stock, reducing the issued and
outstanding shares of Common Stock from 1,193,501,925 to 59,675,417
(the “Second Reverse Stock Split”). The Company’s
authorized capital of Common Stock remained as previously
established at 3,000,000,000 shares.
On May 22, 2020, the Company filed a patent application in the
United States for a new treatment for Coronavirus infections. The
Company’s patent application covers composition subject
matter pertaining to small molecules for inhibition of the main
Coronavirus protease (Mpro), an enzyme that is essential for viral
replication. The patent application has a priority date of May 22,
2020.
On June 17, 2020, the Company filed an amendment to its Articles of
Incorporation (the “Amendment”) with the State of
Colorado, to eliminate the Series “A” Preferred Shares
consisting of Eight Hundred and Fifty Thousand (850,000) shares,
par value $0.10 per share, and the designation thereof, which
shares were returned to the status of undesignated shares of
Preferred Stock. In addition, the Amendment increased the number of
authorized Series “B” Preferred Shares from Five
Hundred Thousand (500,000) to One Million (1,000,000)
shares.
Also on June 17, 2020, the Company issued Five Hundred Thousand
(500,000) shares of Series “B” Preferred Stock in favor
of Dr. Steve N. Slilaty, the Company’s CEO, in consideration
for the COVID-19 treatment technology he developed. The Series
“B” Preferred Stock is non-convertible, non-redeemable,
non-retractable and has a superior liquidation value of $0.10 per
share. Each share of Series “B” Preferred Stock is
entitled to 1,000 votes per share. This issuance brought the
total number of Series “B” Preferred Stock held by Dr.
Slilaty to 1,000,000 shares.
On
September 8, 2020, the Company executed a financing agreement with
RB Capital Partners, Inc., La Jolla, CA, who has agreed to provide
the Company with a minimum of $2 million in convertible debt
financing over the next three to six months pursuant to the terms
and conditions included in relevant Promissory Notes (the
“Promissory Notes”). The Promissory Notes will bear
interest at the rate of 5% per annum and will be fully convertible
into shares of shares of the Company’s Common Stock at a
conversion price equal to the market value of the Company’s
Common Stock on the applicable conversion date or $0.30 per share,
whichever is greater. The Promissory Notes will have a maturity
date of two years from the date of issuance and must be fully
converted on or before the maturity date. The Company has the right
under these Promissory Notes to pay off all or any part of the
Promissory Notes at any time without penalty. As of December 31,
2020, the Company has received a total of $1,350,000 in funding
under this agreement.
Effective
October 6, 2020, the Company entered into a Research Agreement (the
“Agreement”) with the University of Georgia Research
Foundation, Inc. (“UGARF”), representing the University
of Georgia (“UGA”). The purpose of the Agreement is to
memorialize the terms of the Company working together with UGA to
conduct the necessary research and development to advance the
Company’s Anti-Coronavirus lead compound, SBFM-PL4 (or
derivatives thereof) through various stages of preclinical
development, animal studies and clinical trials for Coronavirus
infections. The Agreement grants the Company an exclusive worldwide
license for all of the intellectual property developed by UGA,
whether alone or jointly with the Company.
The
Company's financial statements reflect both the First and Second
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 twelve 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 proprietary drug development program and other
business activities.
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.
IMPACT OF CORONAVIRUS (COVID-19) PANDEMIC
In March 2020, the World Health Organization declared Coronavirus
and its associated disease, COVID-19, a global pandemic. Conditions
surrounding the Coronavirus outbreak are evolving rapidly and
government authorities around the world have implemented emergency
measures to mitigate the spread of the virus. The outbreak and
related mitigation measures have had and will continue to have a
material adverse impact on the world economies and the Company's
business activities. It is not possible for the Company to predict
the duration or magnitude of the adverse conditions of the outbreak
and their effects on the Company’s business or ability to
raise funds. No adjustments have been made to the amounts reported
in the Company's financial statements as a result of this
matter.
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 US 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 Statements 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 $989,888 and
$40,501 as of December 31, 2020 and December 31, 2019,
respectively. At times such cash balances may be in excess of the
FDIC limit of $250,000 or the equivalent in Canada.
PROPERTY AND EQUIPMENT
Property
and equipment is reviewed for recoverability when events or changes
in circumstances indicate that its carrying value may exceed future
undiscounted cash inflows. As of December 31, 2020 and 2019, the
Company had not identified any such impairment. Repairs and
maintenance are charged to operations when incurred and
improvements and renewals are capitalized.
Property
and equipment are stated at cost. Depreciation is calculated using
the straight-line method for financial reporting purposes and
accelerated methods for tax purposes. Their estimated useful lives
are as follows:
Office
Equipment:
|
5-7
Years
|
Laboratory
Equipment:
|
5
Years
|
Vehicles:
|
5
Years
|
EARNINGS PER SHARE
The
Company has adopted the Financial Accounting Standards Board (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.
INCOME TAXES
In
accordance with ASC 740 – Income Taxes, the provision for
income taxes is computed using the asset and liability method. The
liability method measures deferred income taxes by applying enacted
statutory rates in effect at the balance sheet date to the
differences between the tax basis of assets and liabilities and
their reported amounts on the financial statements. The resulting
deferred tax assets or liabilities have been adjusted to reflect
changes in tax laws as they occur. A valuation allowance is
provided when it is more likely than not that a deferred tax asset
will not be realized.
The
Company expects to recognize the financial statement benefit of an
uncertain tax position only after considering the probability that
a tax authority would sustain the position in an examination. For
tax positions meeting a "more-likely-than-not" threshold, the
amount to be recognized in the financial statements will be the
benefit expected to be realized upon settlement with the tax
authority. For tax positions not meeting the threshold, no
financial statement benefit is recognized. As of December 31, 2020
the Company had no uncertain tax positions. The Company recognizes
interest and penalties, if any, related to uncertain tax positions
as general and administrative expenses. The Company currently has
no federal or state tax examinations nor has it had any federal or
state examinations since its inception. To date, the Company has
not incurred any interest or tax penalties.
For
Canadian and US tax purposes, the Company’s 2017 through 2019
tax years remain open for examination by the tax authorities under
the normal three-year statute of limitations.
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.
CONCENTRATION OF CREDIT RISKS
Financial
instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash equivalents and trade
receivables. The Company places its cash equivalents with high
credit quality financial institutions.
FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL
INSTRUMENTS
The
Company applies the provisions of accounting guidance, FASB Topic
ASC 825, Financial Instruments. ASC 825 requires all entities to
disclose the fair value of financial instruments, both assets and
liabilities recognized and not recognized on the balance sheet, for
which it is practicable to estimate fair value, and defines fair
value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between
willing parties. As of December 31, 2020 and 2019, the fair value
of cash, accounts receivable and notes receivable, accounts
payable, accrued expenses, and other payables approximated carrying
value due to the short maturity of the instruments, quoted market
prices or interest rates which fluctuate with market
rates.
The
Company defines fair value as the price that would be received to
sell an asset or be paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
The Company applies the following fair value hierarchy, which
prioritizes the inputs used to measure fair value into three levels
and bases the categorization within the hierarchy upon the lowest
level of input that is available and significant to the fair value
measurement. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities
(Level 1 measurements) and the lowest priority to unobservable
inputs (Level 3 measurements).
●
Level 1
– Level 1 inputs are quoted prices (unadjusted) in active
markets for identical assets or liabilities that the reporting
entity has the ability to access at the measurement
date.
●
Level 2
– Level 2 inputs are inputs other than quoted prices included
within Level 1 that are observable for the asset or liability,
either directly or indirectly. If the asset or liability has a
specified (contractual) term, a Level 2 input must be observable
for substantially the full term of the asset or
liability.
●
Level 3
– Level 3 inputs are unobservable inputs for the asset or
liability in which there is little, if any, market activity for the
asset or liability at the measurement date.
The
carrying value of financial assets and liabilities recorded at fair
value is measured on a recurring or nonrecurring basis. Financial
assets and liabilities measured on a non-recurring basis are those
that are adjusted to fair value when a significant event occurs.
The Company had no financial assets or liabilities carried and
measured on a nonrecurring basis during the reporting periods.
Financial assets and liabilities measured on a recurring basis are
those that are adjusted to fair value each time a financial
statement is prepared.
NOTES PAYABLE
Borrowings
are recognized initially at fair value, net of transaction costs
incurred. Borrowings are subsequently carried at amortized cost;
any difference between the proceeds (net of transaction costs) and
the redemption value is recognized in the income statement over the
period of the borrowings using the effective interest
method.
ACCOUNTING FOR DERIVATIVES LIABILITIES
The
Company evaluates stock options, stock warrants or other contracts
to determine if those contracts or embedded components of those
contracts qualify as derivatives to be separately accounted for
under the relevant sections of ASC Topic 815-40, Derivative
Instruments and Hedging: Contracts in Entity’s Own Equity.
The result of this accounting treatment could be that the fair
value of a financial instrument is classified as a derivative
instrument and is marked-to-market at each balance sheet date and
recorded as a liability. In the event that the fair value is
recorded as a liability, the change in fair value is recorded in
the statement of operations as other income or other
expense.
Upon
conversion or exercise of a derivative instrument, the instrument
is marked to fair value at the conversion date and then that fair
value is reclassified to equity. Financial instruments that are
initially classified as equity that become subject to
reclassification under ASC Topic 815-40 are reclassified to a
liability account at the fair value of the instrument on the
reclassification date. The Company determined that none of the
Company’s financial instruments meet the criteria for
derivative accounting as of December 31, 2020 and
2019.
EQUITY INSTRUMENTS ISSUED TO EMPLOYEES OR NON-EMPLOYEES FOR
AQUIRING GOODS OR SERVICES
The stock-based compensation expense for both employee and
non-employee awards is generally recognized on a straight-line
basis over the requisite service period of the award. The Company
accounts for stock-based compensation to employees in conformity
with the provisions of ASC Topic 718, Stock Based Compensation.
Stock-based compensation to employees consisting of stock option
grants and restricted shares are recognized in the statement of
operations based on their fair values at the date of grant. The
Company accounts for equity instruments issued to non-employees in
accordance with the provisions of ASC Topic 718, based upon the
fair-value of the underlying instrument.
BASIC AND DILUTED NET GAIN (LOSS) PER SHARE
The
Company computes loss per share in accordance with ASC 260,
Earnings per Share. ASC 260 requires presentation of both basic and
diluted earnings per share (“EPS”) on the face of the
income statement.
Basic
net income (loss) per share is calculated by dividing net (loss) by
the weighted-average common shares outstanding. Diluted net income
per share is calculated by dividing net income by the
weighted-average common shares outstanding during the period using
the treasury stock method or the two-class method, whichever is
more dilutive. As the Company incurred net losses for the year
ended December 31, 2020 no potentially dilutive securities were
included in the calculation of diluted earnings per share as the
impact would have been anti-dilutive.
Therefore,
basic and dilutive net (loss) per share were the same as of
December 31, 2020 and 2019.
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 retrospective basis.
The adoption did not have an impact on the Company's financial
statements. All of the revenues of the Company are the Company's
wholly owned Canadian subsidiary, which sells nutritional
supplements through Amazon.com and Amazon.ca.
In
Canada, 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 wholly owned
Canadian subsidiary's revenue recognition policy is in compliance
with these local regulations.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2019, the FASB issued ASU 2019-12 “Income Taxes
(Topic 740): Simplifying the Accounting for Income Taxes.”
This guidance removes certain exceptions to the general principles
in Topic 740 and provides consistent application of U.S. GAAP by
clarifying and amending existing guidance. The effective date of
the new guidance for public companies is for fiscal years beginning
after December 15, 2020 and interim periods within those
fiscal years. Early adoption is permitted. The Company is currently
evaluating the timing of adoption and impact of the updated
guidance on its financial statements.
LEGAL FEES
During
the years ended December 31, 2020 and 2019, the legal fees incurred
were related to services provided to the Company to assist with its
regulatory requirements with the Securities and Exchange
Commission, patenting costs and one ongoing
litigation.
DATE OF MANAGEMENT’S REVIEW
Subsequent events have been evaluated through March 29, 2021, which
is the date the Financial Statements were available to be
issued.
Note 3 – Going Concern
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. In the
course of its life, the Company has had limited operations and
Working Capital deficit. This raises substantial doubt about the
Company’s ability to continue as a going concern. The Company
believes it can raise capital through equity sales and borrowing to
fund its operations. Management believes this will contribute
toward its subsequent profitability. The accompanying Financial
Statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going
concern.
Note 4 – Patents
The
following is a summary of the patents held by the Company at
December 31, 2020 and 2019:
In
December 2015, the Company acquired all worldwide issued (US Patent
Number 8,236,935, and US Patent Number 10,272,065) and pending
patents under PCT/FR2007/000697 and PCT/CA2014/000029 for the
Adva-27a anticancer compound from Advanomics Corporation, a related
party, in exchange for an aggregate of 803,264 shares of Common
Stock valued at $835,394 and terminated the License Agreement. In
2016, the remaining value of these patents was impaired. The
Company is however continuing development of the Adva-27a
anticancer drug covered by these patents.
On May 22, 2020, the Company filed a patent application in the
United States for a new treatment for Coronavirus infections. The
Company’s patent application covers composition subject
matter pertaining to small molecules for inhibition of the main
Coronavirus protease (Mpro), an enzyme that is essential for viral
replication. The patent application has a priority date of May 22,
2020.
Note 5 – Capital Stock
The
Company’s authorized capital is comprised of 3,000,000,000
shares of $0.001 par value Common Stock and 30,000,000 shares of
$0.10 par value Preferred Stock, to have such rights and
preferences as the Directors of the Company have or may assign from
time to time. Out of the authorized Preferred Stock, the Company
had designated 850,000 shares as Series “A” Preferred
Stock (“Series A”). At December 31, 2020 and December
31, 2019, the Company had no issued and outstanding shares of
Series A. On June 17, 2020, the Company filed an amendment to its
Articles of Incorporation (the “Amendment”) eliminating
the Series A shares
and the designation thereof, which shares were returned to the
status of undesignated shares of Preferred Stock. In addition to
eliminating the Series A shares, the Amendment also increased the
number of authorized Series B Preferred Shares from Five Hundred
Thousand (500,000) to One Million (1,000,000)
shares.
During
the year ended December 31, 2015, the Company authorized 500,000
shares of $0.10 par value Series “B” Preferred Stock
(“Series B”). The Series B Preferred Stock is
non-convertible, non-redeemable and non-retractable. It has
superior liquidation rights to the Common Stock at $0.10 per share
and gives the holder the right to 1,000 votes per share. All shares
of the Series B Preferred Stock are held by the CEO of the
Company.
On June 17, 2020, the Company issued Five Hundred Thousand
(500,000) shares of Series “B” Preferred Stock in favor
of the Company’s CEO, in consideration for the COVID-19
treatment technology he developed. This issuance brought the
total number of Series B Preferred Stock held by the
Company’s CEO to 1,000,000 shares.
Through
December 31, 2020 and December 31, 2019, the Company has issued and
outstanding a total of 346,419,296 and 35,319,990 shares of Common
Stock, respectively. Through the same periods, the Company has
issued and outstanding a total of -0- and -0- shares of Series A
Preferred Stock and 1,000,000 and 500,000 shares of Series B
Preferred Stock, respectively.
During
the fiscal year ended December 31, 2020, the Company issued an
aggregate of 311,098,985 shares of its Common Stock valued at
$2,515,015 in connection with the conversion of $415,269 in debt
and interest of $ 42,233 resulting in a $2,057,513 loss on
conversion.
During
the fiscal year ended December 31, 2019, the Company issued an
aggregate of 31,037,370 shares of its Common Stock as
follows:
●
9,150,000 shares
valued at $204,300 as compensation to the Company’s Directors
and Officers
●
1,455,000 shares
for services rendered to the Company by third parties valued at
$57,390
●
20,432,370 shares
valued at $717,726 in connection with the conversion of $385,778 in
debt and interest of $6,689 resulting in a $314,751 loss on
conversion
The
Company has declared no dividends since inception.
Note 6 – Earnings Per Share
The
following table sets forth the computation of basic and diluted net
income per share for the years ended December 31:
|
|
|
|
|
|
Net gain (loss)
attributable to Common Stock
|
$(2,784,091)
|
$(1,660,291)
|
Basic weighted
average outstanding shares of Common Stock
|
204,096,338
|
10,392,813
|
Dilutive effects of
common share equivalents
|
-0-
|
-0-
|
Dilutive weighted
average outstanding shares of Common Stock
|
204,096,338
|
10,932,813
|
Net gain (loss) per
share attributable to Common Stock
|
$(0.01)
|
$(0.15)
|
Note 7 – Income Taxes
The
Company files a United States federal income tax return and a
Canadian branch return on a calendar year basis. The Company and
its wholly-owned subsidiaries, Sunshine Biopharma Canada Inc., have
not generated taxable income since inception.
Deferred
income taxes arise from the temporary differences between financial
statement and income tax recognition of net operating losses and
other items. These loss carryovers are limited under the Internal
Revenue Code should a significant change in ownership occur. The
Company accounts for income taxes pursuant to ASC 740,
“Accounting for Income Taxes”, which requires, among
other things, an asset and liability approach to calculating
deferred income taxes. The components of the deferred income tax
assets and liabilities arising under ASC No. 740 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax
assets:
|
|
|
|
|
Net operating
loss
|
$2,784,091
|
$683,773
|
$1,660,291
|
$407,767
|
Other
differences
|
$26,786
|
$6,579
|
$(686,984)
|
$(168,723)
|
Net deferred tax
assets
|
$2,810,877
|
$690,352
|
$973,307
|
$239,044
|
Valuation
allowance
|
$(2,810,877)
|
$(690,352)
|
$(973,307)
|
$(239,044)
|
|
|
|
|
|
Total deferred tax
asset
|
$-0-
|
$-0-
|
$-0-
|
$-0-
|
|
|
|
|
|
Deferred tax
liabilities:
|
$-0-
|
$-0-
|
$-0-
|
$-0-
|
Net deferred tax
asset
|
$-0-
|
$-0-
|
$-0-
|
$-0-
|
Deferred
income taxes arise from the temporary differences between financial
statement and income tax recognition of net operating losses. These
loss carryovers are limited under the Internal Revenue Code should
a significant change in ownership occur.
As of December 31, 2020, the Company had net operating loss carry
forwards of $10,611,921 that may be available to reduce future
years’ taxable income through 2037 and $5,329,161 may be
available to reduce future years’ taxable income
indefinitely. At December
31, 2020 and December 31, 2019, a deferred tax asset at each date
of approximately $690,352 and $239,044, respectively, resulting
from the loss carryforwards has been offset by a 100% valuation
allowance. The change in the valuation allowance for the period
ended December 31, 2020 and December 31, 2019 was approximately
$(451,307) and $149,054, respectively.
A
reconciliation of the U.S. statutory federal income tax rate to the
effective tax rate is as follows:
|
|
|
|
|
|
U.S. Federal
statutory graduated income tax rate
|
21.00%
|
21.00%
|
State income tax
rate, net of federal benefit
|
3.56%
|
3.56%
|
|
|
|
Net income tax
rate
|
24.56%
|
24.56%
|
|
|
|
Net operating loss
used
|
0.00%
|
0.00%
|
|
|
|
Net operating loss
for which no tax benefit is currently available
|
0.00%
|
0.00%
|
|
|
|
Canada Federal
statutory rate
|
15.00%
|
15.00%
|
Canada Provincial
rate
|
11.80%
|
11.80%
|
|
|
|
Net Canada
rate
|
26.80%
|
26.80%
|
|
|
|
Net operating loss
used (Canada)
|
0.00%
|
0.00%
|
Net operating loss
for which no tax benefit is currently available
(Canada)
|
-26.80%
|
-26.80%
|
The
Company’s income tax filings are subject to audit by various
taxation authorities. The Company’s open audit periods are
2018, 2019, and 2020, although, the statute of limitations for the
2018 tax year will expire effective October 15, 2020. In evaluating
the Company’s provisions and accruals, future taxable income,
and reversal of temporary differences, interpretations and tax
planning strategies are considered. The Company believes its
estimates are appropriate based on current facts and
circumstances.
Note 8 – Notes Payable
The Company’s Notes Payable at December 31, 2020 consisted of
the following:
On April 1, 2017, the Company received monies in exchange for a
Note Payable having a Face Value of $100,000 Canadian ($74,970 US
at September 30, 2020) with interest payable quarterly at 9%, which
Note was due April 1, 2019. The Note is convertible any time after
issuance into $0.001 par value Common Stock at a price of $0.015
Canadian (approximately $0.011 US) per share. 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. Any gain or loss will be recognized at conversion. In June
2018, the Company filed an action in the Superior Court of the
Province of Quebec in the District of Montreal (Canada) against the
holder of this Note. The complaint alleges among other things,
claims of misrepresentations and misleading conduct resulting in
damages to the Company in an amount of approximately $200,000
Canadian (approximately $143,000 US). A date for the hearings to
commence was set for November 16, 2020. On November 10, 2020, the
Company elected to pay off the Note together with accrued interest
of $14,696 Canadian (approximately $10,500 US) and terminate the
proceedings.
On September 10, 2018, the Company issued two Notes Payable having
an aggregate Face Value of $36,500 with interest accruing at 8%.
The two Notes were issued for services rendered to the Company and
had maturity dates in June 2019. The Company was unable to pay the
notes and on November 30, 2019 the Company issued a new Note which
included accrued interest and accelerated interest of $7,059 for a
total Face Value of $43,559. The new Note accrues interest at 8%
and is convertible after 180 days from issuance into Common Stock
at a price 35% below market value. The new Note was due August 31,
2020. During the year ended December 31, 2020, the entire principal
amount of $43,559 of this Note plus accrued interest of
$2,523 was converted into
14,198,048 shares of Common Stock valued at $86,685 resulting in a
loss of $40,603.
On December 24, 2018, the Company received monies in exchange for a
Note Payable having a Face Value of $87,000 with interest accruing
at 8% was due December 24, 2019. The Note is convertible after 180
days from issuance into $0.001 par value Common Stock at a price
35% below market value. As of December 31, 2020, the entire
principal amount of $87,000 of this Note plus accrued interest of
$9,639 was converted into 43,986,317 shares of Common Stock valued
at $276,396 resulting in a loss of $161,036.
On January 8, 2019, the Company received monies in exchange for a
Note Payable having a Face Value of $54,000 with interest accruing
at 8% was due January 8, 2020. The Note is convertible after 180
days from issuance into Common Stock at a price 35% below market
value. During the year ended December 31, 2020, the entire
principal amount of $54,000 of this Note plus accrued interest of
$9,814 was converted into 44,931,640 shares of Common Stock valued
at $365,787 resulting in a loss of $301,973.
On February 5, 2019, the Company received monies in exchange for a
Note Payable having a Face Value of $37,450 with interest accruing
at 8% was due October 10, 2019. The Note is convertible after 180
days from issuance into Common Stock at a price 35% below market
value. During the year ended December 31, 2020, the entire
principal amount of $37,450 of this Note plus accrued interest of
$2,996 was converted into 38,263,409 shares of Common Stock valued
at $217,971 resulting in a loss of $182,790.
On July 2, 2019, the Company received monies in exchange for a Note
Payable having a Face Value of $40,000 with interest accruing at 8%
was due April 30, 2020. The Note is convertible after 180 days from
issuance into Common Stock at a price 35% below market value.
During the year ended December 31, 2020, the entire principal
amount of $40,000 of this Note plus accrued interest of $1,600 was
converted into 13,099,359 shares of Common Stock valued at $58,684
resulting in a loss of $17,084.
On July 26, 2019, the Company received monies in exchange for a
Note Payable having a Face Value of $50,000 with interest accruing
at 8%, which became due July 26, 2020. The Note is convertible
after 180 days from issuance into Common Stock at a price 35% below
market value. During the year ended December 31, 2020, the entire
principal of $50,000 of this Note plus accrued interest of $4,909
was converted into 43,522,363 shares of Common Stock valued at
$131,370 resulting in a loss of $76,461.
On September 12, 2019, the Company received monies in exchange for
a Note Payable having a Face Value of $43,000 with interest
accruing at 8% is due July 15, 2020. The Note is convertible after
180 days from issuance into Common Stock at a price 35% below
market value. During the year ended December 31, 2020, the entire
principal amount of $43,000 of this Note plus accrued interest of
$1,720 was converted into 38,855,726 shares of Common Stock valued
at $117,177 resulting in a loss of $72,457.
On December 14, 2019, the Company received monies in exchange for a
Note Payable having a Face Value of $42,800 with interest accruing
at 8% and which is due December 14, 2020. The Note is convertible
after 180 days from issuance into Common Stock at a price 35% below
market value. During the year ended December 31, 2020, the entire
principal amount of $42,800 of this Note plus accrued interest of
$1,712 was converted into 18,592,605 shares of Common Stock valued
at $81,796 resulting in a loss of $37,284.
A Note Payable dated December 31, 2019 having a Face Value of
$30,120 and accruing interest at 12% was due December 31, 2020. On
December 1, 2020, the Company paid off the entire principal balance
of this Note, together with accrued interest of $3,614 by issuing
cash payment of $33,734.
A Note Payable dated December 31, 2018 having a Face Value of
$136,744 and accruing interest at 12% was due December 31, 2019. On
October 1, 2019, the holder of this note requested to convert
$30,000 in principal amount into 1,500,000 shares of Common Stock,
leaving a principal balance $106,744. On December 31, 2019, the
Company renewed the remaining principal balance of this Note,
together with accrued interest of $15,509 for a 12-month period.
The new Note has a Face Value of $122,253 and accrues interest at
12%. This Note matures on December 31, 2020. On August 27, 2020,
the holder of this Note transferred all of its interest therein to
a third party and on September 4, 2020, the Company agreed to
render the Note convertible at $0.001 per share. During the year
ended December 31, 2020, an aggregate principal amount of $58,225
of this Note plus accrued interest of $9,775 was converted into
68,000,000 shares of Common Stock valued at $1,286,400 resulting in
a loss of $1,218,400. This note is currently past due and the
Company is in discussion with the holder to extend the due
date.
On April 17, 2020, the Company’s Canadian subsidiary received
a CEBA Loan (Canada Emergency Business Account Loan) from CIBC
(Canadian Imperial Bank of Commerce) in the principal amount of
$40,000 Canadian ($29,352 US) as part of the Canadian
government’s COVID-19 relief program. The CEBA Loan is
non-interest bearing if repaid on or before December 31, 2022 (the
“Termination Date”). The CEBA Loan is considered repaid
in full if the borrower repays 75% of the Principal Amount on or
before the Termination Date. If the CEBA Loan is not repaid in full
on or before the Termination Date, the lender will automatically
extend the term of the loan by three years until December 31, 2025
(the “Extension Period”). During the Extension Period,
interest will be charged, and will accrue on the outstanding amount
of the CEBA Loan at a fixed rate of 5% per year, calculated daily
and compounded monthly. The outstanding balance of the CEBA Loan
and all accrued interest will be due at the end of the Extension
Period.
On April 27, 2020, the Company received a Paycheck Protection
Program loan ("PPP Loan") in the principal amount of $50,655 from
the US Small Business Administration (“SBA”) as part of
the US government’s COVID-19 relief program. This loan
accrues interest at the rate of 1% per annum. The Company is
obligated to make payments of principal and interest totaling
$2,133 each month commencing on November 27, 2020, with any
remaining balances due and payable on or before April 27, 2022. The
proceeds derived from this loan may only be used for payroll costs,
interest on mortgages, rent and utilities (“Admissible
Expenses”). In addition, the Paycheck Protection Program
provides for conditional loan forgiveness if the Company utilizes
at least 75% of the proceeds from the loan to pay Admissible
Expenses. On December 15, 2020, the Company applied to the funding
bank for forgiveness of this loan per SBA guidance. On December 18,
2020, the Company received notification that the funding bank has
approved forgiveness of the loan in its entirety and that it has
submitted a request to the SBA for final approval. On February 22,
2021, the funding bank informed the Company that the SBA has fully
forgiven the loan.
On June 1, 2020, the Company received monies in exchange for a Note
Payable having a Face Value of $42,000 with interest accruing at 8%
is due June 1, 2021. The Note is convertible after 180 days from
issuance into Common Stock at a price 35% below market value. On
December 2, 2020, the Company paid off the entire principal balance
of this Note, together with accrued interest and prepayment
penalties of $13,435 by issuing payment of $55,435.
On June 9, 2020, the Company received monies in exchange for a Note
Payable having a Face Value of $37,000 with interest accruing at 8%
is due June 9, 2021. The Note is convertible after 180 days from
issuance into Common Stock at a price 35% below market value. On
December 2, 2020, the Company paid off the entire principal balance
of this Note, together with accrued interest and prepayment
penalties of $11,779 by issuing payment of $48,779.
On July 7, 2020, the Company received monies in exchange for a Note
Payable having a Face Value of $48,000 with interest accruing at 8%
is due July 7, 2021. The Note is convertible after 180 days from
issuance into Common Stock at a price 35% below market value. The
Company will analyze the conversion feature of the note for a
beneficial conversion feature on the commitment date on January 3,
2021 which is 180 days after the issuance
date.
On July 27, 2020, the Company received monies in exchange for a
Note Payable having a Face Value of $102,000 with interest accruing
at 8% is due July 27, 2021. The Note is convertible after 180 days
from issuance into Common Stock at a price 30% below market value.
The Company will analyze the conversion feature of the note for a
beneficial conversion feature on the commitment date on January 23,
2021 which is 180 days after the issuance
date.
On August 14, 2020, the Company received monies in exchange for a
Note Payable having a Face Value of $67,000 with interest accruing
at 8% is due August 14, 2021. The Note is convertible after 180
days from issuance into Common Stock at a price 30% below market
value. The Company will analyze the conversion feature of the note
for a beneficial conversion feature on the commitment date on
February 10, 2021 which is 180 days after the issuance
date.
On September 14, 2020, the Company received monies in exchange for
a Note Payable having a Face Value of $250,000 with interest
accruing at 5% is due September 14, 2022. The Note is convertible
after 180 days from issuance into Common Stock at a price equal to
$0.30 per share. The Company will analyze the conversion feature of
the note for a beneficial conversion feature on the commitment date
on March 13, 2021 which is 180 days after the issuance
date.
On September 24, 2020, the Company received monies in exchange for
a Note Payable having a Face Value of $50,000 with interest
accruing at 5% is due September 24, 2022. The Note is convertible
after 180 days from issuance into Common Stock at a price equal to
$0.30 per share. The Company will analyze the conversion feature of
the note for a beneficial conversion feature on the commitment date
on March 23, 2021 which is 180 days after the issuance
date.
On October 20, 2020, the Company received monies in exchange for a
Note Payable having a Face Value of $250,000 with interest accruing
at 5% is due October 20, 2022. The Note is convertible after 180
days from issuance into Common Stock at a price equal to $0.30 per
share. The Company will analyze the conversion feature of the note
for a beneficial conversion feature on the commitment date on April
18, 2021 which is 180 days after the issuance
date.
On November 19, 2020, the Company received monies in exchange for a
Note Payable having a Face Value of $250,000 with interest accruing
at 8% is due August 19, 2021. The Note is convertible after 180
days from issuance into Common Stock at a price 35% below market
value. The Company will analyze the conversion feature of the note
for a beneficial conversion feature on the commitment date on May
18, 2021 which is 180 days after the issuance
date.
On November 24, 2020, the Company received monies in exchange for a
Note Payable having a Face Value of $260,000 with interest accruing
at 8% is due November 24, 2021. The Note is convertible after 180
days from issuance into Common Stock at a price 30% below market
value. The Company will analyze the conversion feature of the note
for a beneficial conversion feature on the commitment date on May
23, 2021 which is 180 days after the issuance
date.
On November 25, 2020, the Company received monies in exchange for a
Note Payable having a Face Value of $250,000 with interest accruing
at 5% is due November 25, 2022. The Note is convertible after 180
days from issuance into Common Stock at a price equal to $0.30 per
share. The Company will analyze the conversion feature of the note
for a beneficial conversion feature on the commitment date on May
24, 2021 which is 180 days after the issuance
date.
On December 2, 2020, the Company received monies in exchange for a
Note Payable having a Face Value of $104,215 with interest accruing
at 5% is due December 2, 2022. The Note is convertible after 180
days from issuance into Common Stock at a price equal to $0.30 per
share. The Company will analyze the conversion feature of the note
for a beneficial conversion feature on the commitment date on May
31, 2021 which is 180 days after the issuance
date.
At December 31, 2020 and December 31, 2019, total accrued interest
on Notes Payable was $24,320 and $21,077,
respectively.
Note 9 – Notes Payable - Related Party
Outstanding Notes Payable at December 31, 2020 held by related
parties consist of the following:
A Note Payable dated December 31, 2019 held by the CEO of the
Company having a Face Value of $128,269 and accruing interest at
12% was due December 31, 2020. On December 31, 2020, the Company
renewed the Note together with accrued interest of $15,392 for a
12-month period. The new Note has a face Value of $143,661, accrues
interest at 12% per annum, and has a maturity date of December 31,
2021.
Note 10 – Related Party Transactions
In
addition to the transactions specified under Note 9 above, during
the period ended December 31, 2020, the Directors and Officers of
the Company were paid $221,930 in cash. Of this amount, $177,000
was paid to Advanomics Corporation (now known as TRT Pharma Inc.),
a company controlled by the CEO of the Company. In addition, during
the period ended December 31, 2020, the Company issued to its CEO
500,000 shares of Series B Preferred Stock valued at
$50,000.
For the
period ended December 31, 2019, the Company issued to the Board of
Directors 1,950,000 shares of Common Stock valued at $74,100,
3,300,000 shares of Common Stock valued at $99,000, and 3,900,000
shares of Common Stock valued at $31,200. The Company also issued
550,000 shares of Common Stock valued at $16,500 to the CFO for
consulting services rendered to the Company in 2019. During the
year ended December 31, 2019 the Directors and officers were paid
$72,916 in cash. Of this amount, $28,000 was paid to Advanomics
Corporation, a company controlled by the CEO of the
Company.
Note 11 – Acquisition and Disposition of Atlas Pharma
Inc.
On
January 1, 2018 the Company acquired all of the issued and
outstanding shares of Atlas Pharma Inc. (“Atlas”), a
privately held Canadian company providing analytical chemistry
testing services (“Atlas Business”). The purchase price
for the shares was $848,000 Canadian ($676,748 US). The purchase
price included cash payment of $100,500 Canadian ($80,289 US), plus
the issuance of 50,000 shares of the Company’s Common Stock
valued at $238,000, 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 (“Atlas Note”). The following
table summarizes the allocation of the purchase price as of the
acquisition date:
Cash
|
$4,942
|
Accounts
receivable
|
$79,508
|
Prepaids
|
$1,428
|
Property and
equipment
|
$62,990
|
Goodwill
|
$665,697
|
Liabilities assumed
($172,899 Canadian)
|
$(137,817)
|
|
|
Total
consideration
|
$676,748
|
Effective
April 1, 2019, the Company disposed of Atlas by re-assigning all of
its stock in Atlas back to the original owner in exchange for the
Atlas Note. As a consequence of the sale, the operating results and
the assets and liabilities of the discontinued Atlas Business are
presented separately in the Company's financial statements.
Summarized financial information for the discontinued Atlas
Business is shown below. Prior period balances have been
reclassified to present the operations of the Atlas Business as
discontinued operations.
Discontinued
Operations Income Statement:
|
Audited
December 31,
2020
|
Audited
December
31,
2019
|
|
|
|
Revenues
|
$0
|
$119,522
|
Cost
of revenues
|
0
|
81,920
|
Gross
profit
|
0
|
37,602
|
|
|
|
General
and administrative expenses
|
0
|
36,196
|
Gain
(Loss) from operations
|
0
|
1,406
|
Other
income (expense) – Interest
|
0)
|
(3,518)
|
Net
Income (Loss) from operations
|
0)
|
(2,112)
|
|
|
|
Loss
on Disposal
|
0
|
(580,125)
|
|
|
|
Net
Income (Loss) from Discontinued Operations
|
0
|
(582,237)
|
|
|
|
The
individual assets and liabilities of the discontinued Atlas
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 Sheets:
|
Audited
December
31,
2020
|
Audited
December
31,
2019
|
ASSETS
|
|
|
Current
Assets:
|
|
|
Cash
and cash equivalents
|
$-
|
$-
|
Accounts
receivable
|
-
|
-
|
Total
Current Assets
|
-
|
-
|
|
|
|
Equipment
(net of $ 0 and $34,959 depreciation)
|
-
|
-
|
Goodwill
|
-
|
-
|
|
|
|
TOTAL
ASSETS
|
$-
|
$-
|
|
|
|
LIABILITIES
|
|
|
|
|
|
Current
Liabilities:
|
|
|
Notes
payable
|
-
|
-
|
Notes
payable - related party
|
-
|
-
|
Related
party advances
|
-
|
-
|
Accounts
payable & accrued expenses
|
-
|
-
|
Total
Current Liabilities
|
-
|
-
|
|
|
|
TOTAL
LIABILITIES
|
$-
|
$-
|
Discontinued
Operations Cash Flows:
Cash
flows used in discontinued operations for the period ended December
31, 2020 and 2019 were $-0-and $8,510, respectively. There were no
cash flows used in or provided by investing or financing activities
during those periods.
Note 12 – Leases
The
Company's arrangement in connection with its office space located
in Pointe-Claire, Quebec, Canada has no short-term or long-term
asset or liability value.
Note 13 – Subsequent Events
On January 5, 2021, the Company paid off a Note Payable dated July
7, 2020 by issuing cash payment in the amount of $63,271 comprised
of $48,000 in principal and $15,271 in accrued interest and
prepayment penalties.
On January 12, 2021, the Company received monies in exchange for a
Note Payable having a Face Value of $150,000 with interest accruing
at 5%. The Note is convertible after 180 days from issuance into
Common Stock at a price equal to $0.30 per share.
On January 12 and 28, and on March 3, 2021, the holder of a
Note Payable dated December 31, 2019 elected to convert a total of
$53,000 in principal into 53,000,000 shares of Common Stock leaving
a principal balance of $11,028.
On January 27, 2021, the Company received monies in exchange for a
Note Payable having a Face Value of $300,000 with interest accruing
at 5%. The Note is convertible after 180 days from issuance into
Common Stock at a price equal to $0.50 per share.
On January 29, 2021, the holder of a Note Payable dated July
27, 2020 elected to convert the entire principal amount of $102,000
and accrued interest of $4,171 into 5,044,456 shares of Common
Stock leaving a balance of $-0-.
On February 12, 2021, the Company received monies in exchange for a
Note Payable having a Face Value of $700,000 with interest accruing
at 5%. The Note is convertible after 180 days from issuance into
Common Stock at a price equal to $0.60 per share.
On February
22, 2021, the holder of a Note Payable dated August 14, 2020
elected to convert the entire principal amount of $67,000 and
accrued interest of $2,680 into 542,173 shares of Common Stock
leaving a balance of $-0-.
On
February 22, 2021, the funding bank informed the Company that the
SBA has fully forgiven the Company's PPP Loan dated April 27, 2020
in the amount of $50,655.