Sunshine Biopharma, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; filed August 9, 2021. The company develops drug candidates and sells science-based nutritional supplements. Reported revenue came from supplement sales; the company described revenue as limited.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $52,874 | $15,145 | $92,932 | $26,247 |
| Gross profit | $34,359 | $9,984 | $55,897 | $17,203 |
| Gross margin | 65.0% | 65.9% | 60.1% | 65.5% |
| Operating loss | $(388,598) | $(128,569) | $(1,664,244) | $(166,268) |
| Net loss | $(2,879,054) | $(907,444) | $(9,064,180) | $(1,001,703) |
| Basic loss per share | $(0.01) | $(0.01) | $(0.02) | $(0.01) |
- For the six months, operating cash used was $916,207, versus $113,050 in 2020; financing provided $1,652,648, versus $159,007. Investing cash flows were zero in both periods. Cash at June 30 was $1,735,094, up from $989,888 at year-end.
- At June 30, total assets were $1,817,068, total liabilities $2,689,778, and shareholders’ deficit $872,710. Current assets were $1,803,586 and current liabilities $635,563.
- Notes payable included $330,000 current and $2,054,215 long-term, plus $143,661 payable to a related party. Accrued interest payable was $58,712. The filing reports substantial convertible-note activity.
Material changes and unusual items
- Six-month revenue more than tripled year over year, and Q2 revenue increased by $37,729. Management attributed the quarterly increase to expanded advertising. It said the six-month gross-margin decline reflected new products with lower margins.
- Six-month general and administrative expense rose to $1,720,141 from $183,471. Key items included $358,546 of R&D expense and $1,043,927 of officer and director remuneration, including $918,000 in stock issued for services.
- Losses on debt conversions were $7,205,843 for the first six months, versus $807,414 in 2020; interest expense was $245,341 versus $40,575. Management attributed the increases to more costly convertible financing and stock-price volatility. The company issued 79,673,969 shares for note conversions, reporting $8,237,072 of stock value against reductions of approximately $1.03 million in principal and interest. Common shares outstanding rose from 346,419,296 at year-end to 486,093,265 at June 30; 510,093,265 were outstanding on August 9.
- The company’s COVID-19 drug program includes SBFM-PL4 and two University of Georgia-licensed compounds. A transgenic-mouse study was underway; the company said successful results could support seeking authorization for a Phase I trial. Adva-27a clinical development remained delayed for lack of funding.
Outlook, risks and contingencies
- Management estimated that approximately $20 million would be needed to implement its business plan, including about $18 million for drug development and $2 million for supplements. It said additional debt or equity financing is necessary, discussions with investors are ongoing, and there is no assurance funding will be obtained.
- The filing states that limited revenue, continuing losses and liabilities raise substantial doubt about the company’s ability to continue as a going concern. Management expects to seek capital, but failure to secure it could materially harm operations or prevent continued operations. New debt or equity could substantially dilute existing shareholders.
- After quarter-end, the company received a $900,000 convertible note on July 6, 2021. In connection with it, a lender converted $240,000 of another note into 24 million shares; the remaining principal was repaid and accrued interest forgiven.
- Management reported disclosure controls and procedures were ineffective at June 30, citing staffing and expertise gaps, period-end reporting and accounting-policy deficiencies, and weaknesses involving revenue recognition, inventory and accruals. It said remediation was a priority; no material change in internal control during the six-month period was reported.
- The company warned that COVID-19-related conditions could adversely affect business and fundraising, and that their duration and impact were uncertain. It reported no material legal claims and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the company can obtain the estimated funding needed to sustain operations and advance its drug programs.
- The terms, maturity, conversion prices and potential dilution from outstanding and subsequent convertible notes, and the accounting behind the unusually large conversion losses.
- Progress and results of the coronavirus mouse study, any regulatory steps toward clinical trials, and the funding and timing required for Adva-27a development.
- Remediation of the disclosed financial-reporting and disclosure-control weaknesses.
- The ownership and voting implications of the 1,000,000 Series B preferred shares held by the CEO; each share carries 1,000 votes.