Sunshine Biopharma, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; financial statements are unaudited. Sunshine Biopharma is developing pharmaceutical candidates and sells science-based nutritional supplements. The reported revenue came from supplement sales.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $50,376 | $17,150 | $143,308 | $43,397 |
| Gross profit | $30,870 | $10,810 | $86,767 | $28,013 |
| Operating loss | $496,259 | $67,288 | $2,160,503 | $233,556 |
| Net loss | $4,039,383 | $698,595 | $13,103,563 | $1,700,298 |
| Loss per common share | $0.01 | $0.00 | $0.03 | $0.01 |
- Gross margin was approximately 61% in Q3 and 61% for the first nine months of 2021, versus approximately 63% and 65%, respectively, in the comparable 2020 periods. Management attributed the nine-month margin decline to new, lower-margin products.
- At September 30, 2021, cash was $2.39 million, current assets $2.49 million, current liabilities $471,632, and total liabilities $3.68 million. Notes payable totaled about $3.53 million, including $330,000 current and $3.20 million long-term. Shareholders’ deficit was $1.17 million.
- For the nine months, operating cash used was $1.52 million; financing provided $2.93 million; investing cash flow was zero. Cash increased from $989,888 at year-end 2020 to $2.39 million.
Material changes and notable items
- Nine-month revenue rose to $143,308 from $43,397; Q3 revenue increased to $50,376 from $17,150. Management linked the quarterly increase to expanded advertising.
- General and administrative expense increased to $2.25 million from $261,569 for the nine months. This included $581,011 of research and development expense and $918,000 of stock-based officer and director compensation.
- Debt-conversion losses rose to $10.71 million for the nine months, compared with $1.42 million in 2020; Q3 alone included $3.50 million. Interest expense for the nine-month period was $292,188, versus $62,669. These items drove much of the net loss; the filing attributes conversion losses to costly convertible financing and share-price volatility.
- The company issued 103.7 million common shares for debt and interest conversions during the first nine months, recorded at $11.98 million and associated with a $10.71 million conversion loss. It also issued 60 million shares valued at $918,000 for management compensation. Common shares outstanding were 510.1 million at September 30 and 515.3 million on November 9, 2021.
- A $330,000 principal note plus $16,500 accrued interest converted into 5.25 million shares on October 13, 2021, after the reporting date.
Outlook, risks and contingencies
- Going concern: Management and the auditor-facing financial statements identify substantial doubt about the company’s ability to continue as a going concern, citing continuing losses, limited revenue, and dependence on external financing. The statements contain no adjustments for the outcome of this uncertainty.
- The company estimated it would need approximately $10 million to implement its plan—about $9 million for drug development and $1 million for supplements. A proposed approximately $10 million offering of common stock and warrants, underwritten by Aegis Capital, was conditional on due diligence, Nasdaq listing approval, and a reverse stock split; completion was not assured and could substantially dilute existing shareholders.
- Anti-coronavirus candidates, including SBFM-PL4 and two University of Georgia-licensed compounds, remained in preclinical development. The company described a transgenic-mouse study and said successful results could support seeking authorization for a Phase I trial. Adva-27a cancer development had been delayed by lack of funding; manufacturing, IND-enabling work, regulatory filing, and Phase I plans were contingent on adequate financing. No specific financial guidance was provided.
- Management warned that the COVID-19 pandemic could adversely affect business activities and fundraising, with duration and magnitude uncertain.
- Disclosure controls and procedures were reported ineffective at September 30, 2021. Cited deficiencies included insufficient qualified personnel, deficient revenue-recognition policies, and weaknesses in transaction and accounting controls. Management said remediation was a priority; no material control changes during the period were reported.
- The filing reported no material legal claims known to management, no defaults upon senior securities, and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the proposed offering closed, its final terms, and the effect on liquidity and dilution.
- Cash needs, debt maturities and conversion terms, accrued interest, and the scale of future financing requirements.
- Progress and results of coronavirus preclinical studies, and the financing and regulatory steps required for clinical trials; separately, the status of Adva-27a development.
- Supplement sales growth, product-level margins, and whether the business can generate meaningful operating cash.
- Progress addressing ineffective disclosure controls, particularly revenue recognition and staffing of financial reporting functions.