Sunshine Biopharma, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited consolidated results. Sunshine Biopharma combines early-stage drug development with nutritional-supplement sales. Its principal drug programs include Adva-27a, an anticancer candidate, and SBFM-PL4 and licensed compounds being developed as potential coronavirus treatments.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 or prior period |
|---|---|---|
| Sales | $40,058 | $11,102 |
| Gross profit / margin | $21,538 / 53.8% | $7,219 / 65.0% |
| Operating loss | $(1,275,646) | $(37,699) |
| Net loss | $(6,185,126), or $(0.01) per share | $(94,259), or $(0.00) per share |
| Operating cash flow | $(297,355) | $(31,034) |
| Cash and equivalents | $1,796,596 | $989,888 at Dec. 31, 2020 |
| Total liabilities | $2,942,857 | $2,000,311 at Dec. 31, 2020 |
| Shareholders’ deficit | $(1,084,389) | $(954,837) at Dec. 31, 2020 |
- Sales increased $28,956 year over year; management attributed the increase to expanded advertising. All reported revenue came from nutritional supplements.
- Cost of sales was 46% of revenue versus 35% in Q1 2020, which management attributed to increased manufacturing costs.
- General and administrative expenses rose to $1.30 million from $44,918. Officer and director remuneration was $1,021,927, including $918,000 in stock compensation and $103,927 in cash compensation. Research and development expense was $166,786.
- The net loss included $4,910,786 of losses on debt conversions, compared with $51,100 in Q1 2020, and $49,711 of interest expense. Debt release income of $51,031 partly offset other expenses.
- Financing activities provided $1,102,000 net cash, including $1.15 million of note proceeds and $48,000 of repayments. Investing cash flow was zero. Ending cash was $1,796,596.
- Current assets were $1,841,839 and current liabilities were $864,786 at quarter-end. Notes payable totaled $2,599,099, plus $143,661 of related-party notes payable; the filing reports $2,078,071 of notes payable as long-term.
- Common shares outstanding increased from 346,419,296 at year-end to 465,005,925 at March 31. The filing reports 480,505,925 shares outstanding as of May 11, 2021.
Material changes and business developments
- The company issued 58,586,629 common shares during Q1 to convert notes and pay interest, recording $5,139,637 of stock value against $222,000 of debt and $6,851 of interest payable. It also issued 60 million shares valued at $918,000 for officer and director services.
- Management reported $2.554 million in cumulative funding under its RB Capital financing agreement as of the report date. The agreement’s convertible notes bear 5% interest and convert at the market value on the conversion date or $0.30 per share, whichever is greater.
- Product expansion included a March 2021 e-commerce website offering more than 20 supplement products. The company also reported Canadian and European patent allowances for Adva-27a extending stated protection to 2033.
- The company licensed two University of Georgia coronavirus compounds and continued work on SBFM-PL4. Management described planned transgenic-mouse testing; any later clinical trial would depend on successful preclinical results and regulatory authorization.
Outlook, risks and unusual items
- Going concern: The filing says limited revenue and liabilities raise substantial doubt about the company’s ability to continue as a going concern. Management expects to seek debt and equity financing, but states there is no assurance it will succeed. It estimates approximately $20 million is needed to implement its business plan, including about $18 million for drug development and $2 million for supplements.
- Funding and dilution: The company says it is not generating sufficient operating revenue to fund its plans and expects costs to increase. Convertible borrowing and equity issuance could materially dilute existing shareholders. A note with $11,028 principal was past due at March 31; it was converted, with accrued interest, into 15.5 million shares on April 22.
- Drug-development uncertainty: Adva-27a clinical development has been delayed for lack of funding. Coronavirus programs remain in development; the filing provides no clinical efficacy results or assurance of successful testing, regulatory approval, or commercialization.
- Controls: Management concluded disclosure controls were not effective as of March 31, citing personnel and accounting-process weaknesses, deficiencies in revenue recognition and inventory controls, and inadequate transaction and period-end controls. The board said it was reviewing remediation measures.
- Other risks: Management said the COVID-19 pandemic’s duration and business impact could not be predicted. No material legal claims were reported, and the filing states there were no off-balance-sheet arrangements. No formal financial guidance was provided.
Important facts for investors to verify
- Reconcile the large debt-conversion loss and share issuances, including the filing’s reported conversion values, liabilities reduced, and subsequent share count.
- Review the terms, maturities, conversion prices, and potential dilution from outstanding and subsequent convertible notes.
- Monitor cash burn, financing availability, and progress toward the stated $20 million funding requirement and going-concern plans.
- Assess remediation of the disclosed ineffective controls and any resulting changes to financial reporting.
- Track independently verifiable progress in coronavirus and Adva-27a research, regulatory steps, and supplement sales growth.