Sunshine Biopharma, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed March 30, 2021. The filing reports annual results, not standalone fourth-quarter figures. The company is a development-stage pharmaceutical and supplement business whose only reported revenue came from nutritional supplements.
Financial performance and position
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $71,410 | $21,121 |
| Gross profit / gross margin | $45,563 / 63.8% | $10,071 / 47.7% |
| General and administrative expenses | $622,437 | $651,707 |
| Operating loss | $(576,874) | $(641,636) |
| Interest expense | $168,105 | $115,901 |
| Loss on debt conversions | $2,057,513 | $314,752 |
| Net loss | $(2,784,091) | $(1,660,291) |
| Basic loss per share | $(0.01) | $(0.15) |
| Cash and cash equivalents at year-end | $989,888 | $40,501 |
| Cash used in operating activities | $657,299 | $495,798 |
- Revenue grew about 238%, but remained minimal relative to operating costs. Gross margin improved; the company remained loss-making.
- The net loss widened mainly because the loss recognized on converting debt into shares rose sharply. The lower loss per share in 2020 reflects a much larger weighted-average share count, not improved net income.
- Financing activities provided $1,608,253 in 2020, compared with $442,255 in 2019. Cash increased largely alongside financing; operations continued to consume cash.
- At December 31, 2020, total assets were $1,045,474 and total liabilities were $2,000,311, including $1,769,460 in notes payable, of which $949,006 was classified long-term. Shareholders’ deficit was $954,837. Current assets of $1,025,943 were slightly below current liabilities of $1,051,305.
Business developments and changes
- COVID-19 drug program: The company synthesized four candidate protease inhibitors and identified SBFM-PL4 as its lead in 2020. It entered a research agreement with the University of Georgia for further development. At year-end, the program was preclinical; the company said in vitro work and animal studies would precede any clinical trial. The filing reports no FDA filings.
- Adva-27a cancer candidate: Development remained delayed by lack of funding. The company described future GMP manufacturing, IND-enabling work, regulatory filing, and Phase I testing as planned steps, but gave no assured schedule or funding.
- Other products: Essential 9 was sold through Amazon. Health Canada had authorized Essential Calcium-Vitamin D, which the company anticipated making available on Amazon.ca in early 2021. Four licensed generic drugs still required Canadian Drug Identification Numbers and a Drug Establishment License; timing was uncertain.
- Capital structure: A second 20-for-1 reverse stock split took effect April 6, 2020. Common shares outstanding rose from 35.3 million at year-end 2019 to 346.4 million at year-end 2020, largely due to debt conversions; the filing reports 465.0 million outstanding as of March 30, 2021. The CEO held all 1 million Series B preferred shares, carrying 1,000 votes each, and the filing estimates these shares represented 68.26% of voting power.
Outlook, risks and unusual items
- Going concern: Management and the auditor stated that recurring losses, working-capital constraints and dependence on further financing raise substantial doubt about the company’s ability to continue as a going concern. The statements include no adjustments for a possible failure to continue operations.
- The company estimated it would need approximately $20 million to implement its business plan, including $18 million for proprietary drug development and $2 million for supplements. It had no assurance it could raise the funds and said expected operating costs would increase.
- The September 2020 financing agreement with RB Capital Partners called for at least $2 million of convertible debt. The filing reports $1.35 million received by year-end, but approximately $2.05 million received as of the report date; verify the amounts and timing. The notes bear 5% interest and have conversion terms including a $0.30 floor.
- Debt conversions generated a $2.06 million loss in 2020. The company issued 311.1 million common shares valued at $2.52 million in connection with conversion of debt and interest. One note was past due at year-end, and the company was discussing an extension with its holder.
- The company disclosed ineffective disclosure controls and internal control over financial reporting, citing staffing and expertise gaps and weaknesses in reporting, accounting policies, revenue recognition, inventory controls and accruals. The auditor did not attest to internal controls.
- Related-party matters included $177,000 paid to a company controlled by the CEO and the CEO’s receipt of 500,000 Series B preferred shares valued at $50,000. The CEO also held a 12% related-party note renewed at $143,661 at year-end.
- Management said the COVID-19 pandemic had materially adversely affected and could continue to affect business activity and fundraising. The company faced established competitors in drug development and generic pharmaceuticals; its common stock traded on OTC Markets Pink and was subject to penny-stock trading restrictions.
- The company reported no formal financial guidance. Its stated development plans, regulatory expectations and revenue opportunities are forward-looking and subject to funding, scientific, clinical and regulatory uncertainty.
Important facts for investors to verify
- Whether subsequent financing was received as described, and the reconciliation of the RB Capital funding figures at year-end and at filing.
- Current cash runway, near-term debt maturities, the status of the past-due note, and the extent of additional funding required.
- Share-count and dilution updates after the 311.1 million shares issued in 2020 and the subsequent conversions disclosed in the filing.
- Progress and results of preclinical studies for SBFM-PL4 and the University of Georgia compounds; no clinical efficacy is established in this filing.
- Whether the generic products obtain required Canadian approvals and whether the planned supplement launch occurred.
- Remediation of the disclosed ineffective financial-reporting controls and monitoring of related-party payments and governance.