Notes to Unaudited Condensed Consolidated Financial
Statements
For the Three and Nine Month Interim Periods Ended September 30,
2021 and 2020
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 (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 studies were conducted in collaboration
with Binghamton University, a State University of New York, and Ecole Polytechnique, Universite de Montreal. 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 recently transitioned its focus to the development and marketing
of Science-Based Nutritional Supplements.
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, 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.
In March 2018, the Company formed NOX Pharmaceuticals,
Inc., a wholly owned Colorado corporation and assigned all of the Company’s interest in the Adva-27a 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
Science-Based Nutritional Supplements product, Essential 9™, an over-the-counter
tablet comprised of the nine (9) essential amino acids that the human body cannot make. Essential 9™
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.
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 number of Common Shares authorized for issuance remained as previously established
at 3,000,000,000 shares. All references to the Company’s Common Stock in this Report, including the Company's financial statements
reflect both the First and Second Reverse Stock Split on a retroactive basis.
On May 22, 2020, the Company filed a provisional
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 April 30, 2021, the Company filed a PCT application
containing new research results and extending coverage to include the Coronavirus Papain-Like protease, PLpro. The priority date of May
22, 2020 has been maintained in the newly filed PCT application.
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, (“RB Capital”) who agreed to provide the Company with a minimum of
$2 million in convertible debt financing during the ensuing three to six month period pursuant to the terms and conditions included in
relevant Promissory Notes (the “Promissory Notes”). The Promissory Notes bear interest at the rate of 5% per annum and have
a maturity date of two years from the date of issuance. The Company has the right to pay off all or any part of the Promissory Notes at
any time without penalty.
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 developed
alone or jointly with the Company.
On January 26, 2021, the Company received a Notice
of Allowances from the Canadian Intellectual Property Office for a new patent application covering Adva-27a. The newly issued patent contains
new subject matter and extends the proprietary protection of Adva-27a in Canada until 2033.
On February 4, 2021, the Company entered into
an exclusive license agreement with the University of Georgia (“UGA”) for two Anti-Coronavirus compounds which UGA had previously
developed and patented. The Company and UGA will advance the development of these two compounds in parallel with the Company’s own
Anti-Coronavirus compound, SBFM-PL4.
On March 9, 2021, the Company received a Notice
of Allowance from the European Patent Office for a new patent application covering Adva-27a. The newly issued patent contains new subject
matter and extends the proprietary protection of Adva-27a in Europe until 2033. The equivalent patent in the United States was issued
in 2019 (US Patent Number 10,272,065).
On June 25, 2021, the Company entered into an
engagement agreement with Aegis Capital Corp. (“Aegis”), pursuant to which we engaged Aegis to act as lead underwriter in
connection with a proposed public offering of approximately $10 million of common stock and warrants by the Company (the “Offering”).
The Offering is contingent on satisfaction of various conditions, including Aegis’s due diligence examination of the Company, Nasdaq
approval of the listing of the Company’s Common Stock, and successful completion of a reverse stock split.
On October 6, 2021, the Company filed its Definitive Information Statement
with the SEC to complete the reverse split of the Company’s Common Stock in part to meet the Nasdaq listing requirement concerning
minimum price per share.
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".
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 have been and are
continuing to evolve rapidly. Government authorities in the U.S. and 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.
Basis of Presentation of Unaudited Financial
Information
The unaudited financial statements of the Company
for the three and nine month periods ended September 30, 2021 and 2020 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-X. 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 December 31, 2020 was derived from the audited financial statements included in the Company's
financial statements as of and for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K filed with
the Securities and Exchange Commission (the “SEC”) on March 30, 2021. These financial statements should be read in conjunction
with that report.
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. There was no impact of the updated guidance on the Company’s financial statements for the year ended December
31, 2020. The Company is currently evaluating the impact of the updated guidance on its financial statements for 2021 and going forward.
In February 2020, the FASB issued ASU 2020-02, Financial
Instruments-Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin
No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842) which
amends the effective date of the original pronouncement for smaller reporting companies. ASU 2016-13 and its amendments will be effective
for the Company for interim and annual periods in fiscal years beginning after December 15, 2022. The Company believes the adoption will
modify the way the Company analyzes financial instruments, but it does not anticipate a material impact on results of operations. The
Company is in the process of determining the effects adoption will have on its consolidated financial statements.
In August
2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging
– Contracts in Entity’s Own Equity (Subtopic 815 – 40), (“ASU 2020-06”). ASU 2020-06 simplifies the
accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts
on an entity’s own equity. The ASU2020-06 amendments are effective for fiscal years beginning after December 15, 2023, and interim
periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December
15, 2020, including interim periods within those fiscal years. The Company is evaluating the impact of this guidance on its unaudited
consolidated financial statements.
Note 2 – Going Concern and Liquidity
As of September 30, 2021 and December 31,
2020, the Company had $2,386,608
and $989,888
in cash on hand, respectively, and limited revenue-producing business. Additionally, as of September 30, 2021 and December 31, 2020,
the outstanding liabilities of the Company totaled $3,675,847 and $2,000,311,
respectively. These factors raise substantial doubts about the Company’s ability to continue as a going concern. On June 25,
2021, the Company entered into an Engagement agreement with Aegis Capital for the purposes of raising $10,000,000
in equity financing in a proposed public offering and, in connection therewith, the Company filed a preliminary prospectus of Form
S-1 with the SEC on September 9, 2021. The Company believes that the afore expressed doubt about the Company’s ability to
continue as a going concern will be fully mitigated if the financing were to close. There is no
assurance the offering will be completed.
The consolidated financial statements included
in this Report 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. The consolidated financial statements included in this Report do not include any adjustments
that may result from the outcome of any going concern uncertainty.
There is no assurance that these events will be
satisfactorily completed. The issuance of equity securities in connection with the Offering (see Note 1), 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
The Company’s Notes Payable at September
30, 2021 consisted of the following:
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 matured on December 31, 2020. On August 27, 2020, the holder
of this Note transferred all of its interest therein to RB Capital and in connection with a financing agreement with RB Capital, the Company
agreed to render the Note convertible at $0.001 per share. Through September 30, 2021, the entire principal amount of $122,253 of this
Note and all accrued interest of $14,247 was converted into 136,500,000 shares of Common Stock valued at $7,884,100 resulting in a loss
of $7,747,600.
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. On June 15, 2021, the Company paid 75% 30,000 of this loan and
the remaining 25% 20,000 was forgiven.
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 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. On January 5, 2021, the Company paid off the entire principal
balance of this Note, together with accrued interest and prepayment penalties of $15,271 by issuing cash payment of $63,271.
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. On January 29, 2021, the entire principal amount of
$102,000 of this Note plus accrued interest of $4,171 was converted into 5,044,456 shares of Common Stock valued at $484,268 resulting
in a loss of $378,097.
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. On February 22, 2021, the entire principal amount of
$67,000 of this Note plus accrued interest of $2,680 was converted into 542,173 shares of Common Stock valued at $119,169 resulting in
a loss of $49,489.
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%
which was due September
14, 2022. The Note was convertible after 180 days from issuance into Common Stock at a price equal to $0.30 per
share. On June 2, 2021, the entire principal amount of $250,000
of this Note plus all accrued interest of $8,850
converted into 862,833
shares of Common Stock valued at $170,841
resulting in a gain of $88,009.
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%, which 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 analyzed 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, and determined
that there was no beneficial conversion feature on September 30, 2021.
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% whic was due October
20, 2022. The Note was convertible after 180 days from issuance into Common Stock at a price equal to $0.30
per share. On June 2, 2021, the entire principal amount of $250,000
of this Note plus all accrued interest of $7,600
was converted into 858,666
shares of Common Stock valued at $170,016
resulting in a gain of $87,584.
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%
which was due August
19, 2021. The Note was convertible after 180 days from issuance into Common Stock at a price 35% below market value. On May
19, 2021, the Company paid off the entire principal balance of this Note, together with accrued interest and prepayment penalties of
$126,881
by issuing cash payment of $376,881.
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%
which was due November
24, 2021. The Note was convertible after 180 days from issuance into Common Stock at a price 30% below market value. On June
1, 2021, the entire principal amount of $260,000
of this Note plus all accrued interest of $10,428
was converted into 3,865,841
shares of Common Stock valued at $695,078,
resulting in a loss of $424,650.
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 analyzed 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, and determined
that there was no beneficial conversion feature on September 30, 2021.
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 analyzed 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, and determined
that there was no beneficial conversion feature on September 30, 2021.
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% is due January 12, 2023. The Note is convertible
after 180 days from issuance into Common Stock at a price equal to $0.30 per share. The Company analyzed the conversion feature of the
note for a beneficial conversion feature on the commitment date of July 11, 2021, which is 180 days after the issuance date, and determined
that there was no beneficial conversion feature on September 30, 2021.
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% is due January 27, 2023. The Note is convertible
after 180 days from issuance into Common Stock at a price equal to $0.50 per share. The Company analyzed the conversion feature of the
note for a beneficial conversion feature on the commitment date of July 26, 2021, which is 180 days after the issuance date, and determined
that there was no beneficial conversion feature on September 30, 2021.
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% is due February 12, 2023. The Note is convertible
after 180 days from issuance into Common Stock at a price equal to $0.60 per share. The Company analyzed the conversion feature of the
note for a beneficial conversion feature on the commitment date of August 11, 2021, which is 180 days after the issuance date, and
determined that there was no beneficial conversion feature on September 30, 2021.
On April 5, 2021, the Company received monies
in exchange for a Note Payable having a Face Value of $330,000 with interest accruing at 10% is due January 5, 2022. The Note is convertible
after 180 days from issuance into Common Stock at a price of $0.30 per share or 35% below market value, whichever is lower. The Company
will analyze the conversion feature of the note for a beneficial conversion feature on the commitment date on October 2, 2021, which is
180 days after the issuance date.
On April 20, 2021, the Company received monies
in exchange for a Note Payable having a Face Value of $500,000 with interest accruing at 5% is due April 20, 2023. 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 of October 17, 2021, which is 180 days after the issuance date.
On July 6, 2021, the Company received monies in
exchange for a Note Payable having a Face Value of $900,000 with interest accruing at 5% is due July 6, 2023. 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 of January 2, 2022, which is 180 days after the issuance date.
On August 18, 2021, the Company received monies
in exchange for a Note Payable having a Face Value of $500,000 with interest accruing at 5% is due August 18, 2023. 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 of February 14, 2022, which is 180 days after the issuance date.
At September 30, 2021 and December 31, 2020, total
accrued interest on Notes Payable was $84,945 and $24,320, respectively.
Note 4 – Notes Payable - Related Party
Outstanding Notes Payable at September 30, 2021
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. On August 24, 2021, the Company paid off the entire principal
balance of this Note, together with accrued interest of $12,929 by issuing cash payment of $156,590.
Note 5 – Shareholders’ Equity
During the nine months ended September 30,
2021, the Company issued a total of 103,673,969
shares of Common Stock valued at $11,981,072 for the conversion of outstanding notes payable, reducing the debt by $1,233,028
and interest payable by $38,201
and generating a loss on conversion of $10,709,843.
In addition, the Company issued 60,000,000
shares of Common Stock valued at $918,000 to
its Officers and Directors as compensation for their services to the Company. The fair value of the stock was based on the closing price of the stock
on the date of the transaction.
The Company declared no dividends through September
30, 2021.
Note
6 – Management Compensation
The Company paid its Officers and Directors cash compensation totaling $130,000
and $255,927 for
the nine months ended September 30, 2021 and 2020, respectively. Of these amounts, $150,000 was paid to Advanomics Corporation (now
known as TRT Pharma Inc.), a company controlled by the CEO of the Company. In addition, the Company issued 60,000,000 shares of
Common Stock valued at $918,000 to its Officers and Directors during the nine months ended September 30, 2021.
Note 7 – Subsequent Events
On October 13, 2021, the holder of a Note Payable
dated April 5, 2021 elected to convert a total of $330,000 in principal and $16,500 in accrued interest into 5,250,000 shares of Common
Stock leaving a principal balance of $-0-.