Sunshine Biopharma, Inc - Quarter Report: 2016 September (Form 10-Q)

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

Form 10-Q

 

Quarterly Report Under

the Securities Exchange Act of 1934

 

For Quarter Ended: September 30, 2016

 

Commission File Number: 000-52898

 

SUNSHINE BIOPHARMA INC.

(Exact name of small business issuer as specified in its charter)

 

Colorado		20-5566275
(State of other jurisdiction of incorporation)		(IRS Employer ID No.)

 

469 Jean-Talon West

3rd Floor

Montreal, Quebec, Canada H3N 1R4

(Address of principal executive offices)

 

(514) 764-9698

(Issuer’s Telephone Number)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ☑ No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☑
(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No

 

The number of shares of the registrant’s only class of common stock issued and outstanding as of November 14, 2016, was 686,399,858 shares.

 

 

TABLE OF CONTENTS

 

PART I.

FINANCIAL INFORMATION

 

		Page No.
Item 1.	Financial Statements	3
	Unaudited Consolidated Balance Sheet as of September 30, 2016	3
	Unaudited Consolidated Statement of Operations for the three and nine month Period Ended September 30, 2016	4
	Unaudited Consolidated Statement of Cash Flows for the nine month Period Ended September 30, 2016 and 2015	5
	Notes to Unaudited Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations/Plan of Operation.	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	20
Item 4.	Controls and Procedures.	21
	PART II
	OTHER INFORMATION
Item
Item 1.	Legal Proceedings	22
Item 1A.	Risk Factors	22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3.	Defaults Upon Senior Securities	22
Item 4.	Mine Safety Disclosures	22
Item 5.	Other Information	22
Item 6.	Exhibits	23
	Signatures	24

 

 

 

 

Sunshine Biopharma, Inc.
Consolidated Balance Sheet
	Unaudited	Audited
	September 30,	December 31,
	2016	2015
ASSETS
Current Assets:
Cash and cash equivalents	$21,789	$50,798
Receivables and prepaid expenses	1,006	3,111
Total Current Assets	22,795	53,909
Equipment (net of $1,360and $479 depreciation resepctively)	5,777	4,314
Patents (net of $48,060 and $3,772 amortization respectively)	570,750	615,038
TOTAL ASSETS	$599,322	$673,261
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable	248,994	305,178
Notes payable - related party	-	835,394
Accounts payable	19,280	46,591
Accounts payable - related party	-	80,487
Accrued expenses	-	-
Interest payable	8,406	2,656
Total current liabilities	276,680	1,270,306
TOTAL LIABILITIES	276,680	1,270,306
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, Series A $0.10 par value per share;
Authorized 850,000 Shares; Issued
and outstanding -0- shares.	-	-
Preferred stock, Series B $0.10 par value per share;
Authorized 500,000 Shares; Issued
and outstanding 500,000 shares.	50,000	50,000
Common Stock, $0.001 per share;
Authorized 3,000,000,000 Shares; Issued
and outstanding 636,025,383 and 198,265,118 at
September 30, 2016 and December 31, 2015 respectively	636,025	198,265
Capital paid in excess of par value	11,088,339	8,235,217
Accumulated other comprehensive income	1,769	740
Accumulated (Deficit)	(11,453,491)	(9,081,267)
TOTAL SHAREHOLDERS' EQUITY (DEFICIT)	322,642	(597,045)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)	$599,322	$673,261

 

Sunshine Biopharma, Inc.
Unaudited Consolidated Statement Of Operations and Comprehensive Loss
	Unaudited	Unaudited	Unaudited	Unaudited
	3 Months	3 Months	9 Months	9 Months
	Ended	Ended	Ended	Ended
	September 30,	September 30,	September 30,	September 30,
	2016	2015	2016	2015
Revenue:	$-	$-	$-	$1,708
General & Administrative Expenses
Accounting	46,311	2,700	59,280	60,260
Amortization & depreciation	14,963	-	45,169	-
Consulting	24,054	6,011	156,477	107,432
Generic drug license fees	11,442	-	19,203	-
Legal	9,483	26,104	53,272	103,346
Licenses	-	64,986	-	259,094
Office	4,832	3,187	16,764	8,911
Officer & director renumeration	376	-	255,719	50,000
Research & development	-	8,657	32,793	8,657
Stock Transfer Fee	1,548	1,408	6,997	10,043
Travel	3,007	-	11,337	-
Total G & A	116,016	113,053	657,011	607,743
(Loss) from operations	(116,016)	(113,053)	(657,011)	(606,035)
Other Income (expense):	-
Forign exchange gain	-	204		204
Interest expense	(12,129)	(9,755)	(29,080)	(49,186)
Gain on interest forgiveness	381		381	9,465
Litigation settlement proceeds	-		25,000	-
Debt release	7,790		7,790
Loss on debt conversions	(1,465,646)	(80,211)	(1,719,304)	(359,677)
Total Other (Expense)	(1,469,604)	(89,762)	(1,715,213)	(399,194)
Net (loss)	$(1,585,620)	$(202,815)	$(2,372,224)	$(1,005,229)
Basic (Loss) per common share	$0.00	$0.00	$(0.01)	$(0.01)
Weighted Average Common Shares Outstanding	581,464,440	130,069,136	353,977,067	109,827,383
Net Income (Loss)	$(1,585,620)	$(202,815)	$(2,372,224)	$(1,005,229)
Other comprehensive income:
Gain from foreign exchange translation	(305)	(3,234)	1,029	1,123
Comprehensive (Loss)	(1,585,925)	(206,049)	(2,371,195)	(1,004,106)
Basic (Loss) per common share	$0.00	$0.00	$(0.01)	$(0.01)
Weighted Average Common Shares Outstanding	581,464,440	130,069,136	353,977,067	109,827,383

 

 

Sunshine Biopharma, Inc.
Unaudited Consolidated Statement Of Cash Flows
	Unaudited	Unaudited
	9 Months	9 Months
	Ended	Ended
	September 30,	September 30,
	2016	2015
Cash Flows From Operating Activities:
Net Gain (Loss)	$(2,372,224)	$(1,005,229)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization (Equipment and Patents)	45,169	-
Stock issued for licenses, services, and other assets	419,500	116,500
Stock issued for payment interest	6,520	6,406
Debt forgiveness	(1,313)
Loss on debt conversion	1,719,304	359,677
Stock issued for payment of expenses	-	9,160
(Increase) In accounts receivable	-	-
(Increase) decrease in prepaid expenses	2,105	(11,411)
Increase (decrease) in Accounts Payable & accrued expenses	(107,799)	(129)
Increase in interest payable	5,750	175
Net Cash Flows (used) in operations	(282,988)	(524,851)
Cash Flows From Investing Activities:
Purchase of equipment	(2,343)	-
Net Cash Flows (used) in Investing activities	(2,343)	-
Cash Flows From Financing Activities:
Proceed from note payable	131,150	232,840
Note payable used to pay expenses		-
Note payable used to pay origionation fees & interest	20,015	36,140
Sale of common stock	104,128	236,550
Net Cash Flows provided by financing activities	255,293	505,530
Net Increase (Decrease) In Cash and cash equivalents	(30,038)	(19,321)
Foreign currency translation adjustment	1,029	1,123
Cash and cash equivalents at beginning of period	50,798	143,423
Cash and cash equivalents at end of period	$21,789	$125,225
Supplementary Disclosure Of Cash Flow Information:
Stock issued for services, licenses and other assets	$419,500	$116,500
Stock issued for note conversions including interest	$2,767,254	$576,735
Cash paid for interest	$-	$-
Cash paid for income taxes	$-	$-

 

 

 

 

PART I.

 

ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with our consolidated financial statements and notes thereto included herein. In connection with, and because we desire to take advantage of, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we caution readers regarding certain forward looking statements in the following discussion and elsewhere in this report and in any other statement made by, or on our behalf, whether or not in future filings with the Securities and Exchange Commission. Forward looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward looking statements made by, or on our behalf. We disclaim any obligation to update forward looking statements.

 

Overview and History

 

We were incorporated in the State of Colorado on August 31, 2006 under the name “Mountain West Business Solutions, Inc.”  Until October 2009, our business was to provide management consulting with regard to accounting, computer and general business issues for small and home-office based companies. Effective October 15, 2009, we executed an agreement to acquire Sunshine Biopharma, Inc., a Colorado corporation, in exchange for the issuance of 21,962,000 shares of our Common Stock and 850,000 shares of Convertible Preferred Stock, each convertible into twenty (20) shares of our Common Stock. As a result of this transaction we changed our name to “Sunshine Biopharma, Inc. and our officers and directors resigned their positions with us and were replaced by our current management. The majority of the Common Shares and all of the Convertible Preferred Shares we issued for this transaction were issued to Advanomics Corporation, a privately held Canadian company (“Advanomics”). As a result of the issuance of this stock, Advanomics became a related party. On December 21, 2011, Advanomics exercised its right to convert the 850,000 shares of Series “A” Preferred Stock it held in our Company into 17,000,000 shares of Common Stock.

 

We operated under a technology license agreement with Advanomics until December 2015, at which time we acquired all of the worldwide right to the technology and became direct owner of all issued and pending patents pertaining to our technology. See “Plan of Operation – Intellectual Property” below.

 

Our principal place of business is located at 469 Jean-Talon West, 3rd Floor, Montreal, Quebec, Canada H3N 1R4.  Our phone number is (514) 764-9698 and our website address is www.sunshinebiopharma.com.

 

We have not been subject to any bankruptcy, receivership or similar proceeding.

 

Results Of Operations

 

Comparison of Results of Operations for the nine months ended September 30, 2016 and 2015

 

For the nine months ended September 30, 2016 and 2015, we did not generate any significant revenue.

 

General and administrative (“G&A”) expenses during the nine month period ended September 30, 2016 were $657,011, compared to G&A expense of $607,743 incurred during the nine month period ended September 30, 2015, an increase of $49,268. While this overall increase is not very large, some of the individual items in our G&A expenses saw a significant increase or decrease during the nine month period ended September 30, 2016. Specifically, we saw an increase in our executive compensation of $205,719. This increase was a result of stock issued to each of our officers and directors during the second quarter of 2016. All of the executive compensation paid during both 2016 and 2015 arose from the issuance of shares of our Common or Preferred Stock. We also incurred $49,045 in additional consulting fees as a result of stock based payments to consultants we engaged to provide services related to our Generic Pharmaceuticals Business. In addition, we saw a $24,136 increase in research and development expense during the nine months ended September 30, 2016, compared to no R&D expenditure during the similar period in 2015. We also incurred $19,190 in additional office and travel expenses during the nine months ended September 30, 2016. In addition, we incurred $45,169 in amortization and depreciation during the nine months ended September 30, 2016 which we did not incur during the same period in 2015. This amount of amortization and depreciation is largely related to the patents we purchased in 2015. Finally, we saw an increase of $19,203 in generic drugs licenses expenses which we did not have in the same period in 2015. This expense is the result of new generic drugs license agreements we signed during the period ended September 30, 2016. See Note 9 of the Financial Statements. These increases were offset by our no longer being required to pay a license fee, which saved $259,094 because we acquired the patent rights which were previously the subject of the license fee. See “Plan of Operation – Intellectual Property” below, as well as a decrease of $50,074 in legal fees as the litigation we were involved in was settled in exchange for a $25,000 payment made to us during the nine month period ended September 30, 2016.

 

 

  We also incurred $29,080 in interest expense during the nine months ended September 30, 2016, compared to $49,186 in interest expense during the similar period in 2015 as a result of decreased borrowings.  However, we incurred $1,719,304 in losses arising from debt conversion during the nine months ended September 30, 2016, compared to $359,677 on losses from debt conversion during the nine months ended September 30, 2015, a difference of $1,359,627. Although we retired over $1,000,000 in convertible debt (including the related party debt in the amount of $835,394 for the patents purchased in 2015) during the nine month period ended September 30, 2016, we do not anticipate that we will fund our operations using convertible debt financing moving forward. We also negotiated the release of $7,790 of outstanding debt during the nine months ended September 30, 2016

 

As a result, we incurred a net loss of $2,372,224 (approximately $0.01 per share) for the nine month period ended September 30, 2016, compared to a net loss of $1,005,229 (approximately $0.01 per share) during the nine month period ended September 30, 2015.

 

Comparison of Results of Operations for the three months ended September 30, 2016 and 2015

 

General and administrative expenses during the three month period ended September 30, 2016 were $116,016, compared to general and administrative expense of $113,053 incurred during the three month period ended September 30, 2015, an increase of $2,963. While this increase was not overly significant, the various components of our general and administrative expense varied significantly from prior results of operations.

 

Specifically, licensing fees decreased from $64,986 to nil during the three months ended September 30, 2016 compared to the similar period in 2015 because we acquired the patent rights which were previously the subject of the license fee. See “Plan of Operation – Intellectual Property” below. Research and development costs also decreased by $8,657, as our management concentrated on developing our newly launched Generics Pharmaceuticals Business. See “Plan of Operation” below.  Legal fees decreased by $16,621 because we were no longer involved in any litigation. Offsetting these decreases were increases in generic drugs licensing fees, accounting fees, consulting fees and amortization and depreciation expenses. We incurred $11,442 in generic drugs licenses expenses which we did not incur in the same period in 2015. This expense is the result of new generic drugs license agreements we signed during the period ended September 30, 2016. See Note 9 of the Financial Statements. We also incurred $43,611 in increased accounting fees during the three months ended September 30, 2016, compared to the similar period in 2015 because we used stock based compensation to pay for all of 2016 bookkeeping and tax related services. The stock issued in connection with these services was expensed at market value during the three month period ended September 30, 2016. Similarly, consulting fees increased by $18,043 during the three months ended September 30, 2016 compared to the similar period in 2015 for services related to financing and development of the Generic Pharmaceuticals Business. Finally, we incurred $14,963 in amortization and depreciation expenses during the three months ended September 30, 2016 which we did not incur during the same period in 2015, largely related to the patents we acquired in 2015.

 

We also incurred $12,129 in interest expense during the three months ended September 30, 2016, compared to $9,755 in interest expense during the similar period in 2015 as a result of decreased borrowings.  However, we incurred $1,465,646 in losses arising from debt conversion during the three months ended September 30, 2016, compared to $80,211 during the corresponding period in 2015. We also negotiated the release of $7,790 of outstanding debt during the three months ended September 30, 2016.

 

As a result, we incurred a net loss of $1,585,620 (approximately $0.00 per share) during the three month period ended September 30, 2016, compared to a net loss of $202,815 (approximately $0.00 per share) during the three month period ended September 30, 2015.

 

Because we did not generate any significant revenues during our prior two fiscal years, following is our Plan of Operation.

 

Plan of Operation

 

Until recently, we have been operating as a pharmaceutical company focused on the research, development and commercialization of drugs for the treatment of various forms of cancer.  Following our recent entry and expansion into the generic pharmaceuticals business, we have become a fully integrated pharmaceutical company offering generic and proprietary drugs for the treatment of cancer and other acute and chronic indications. In what follows, we describe our generic pharmaceuticals operations followed by our proprietary drug development activities.

 

 

Generic Pharmaceuticals Operations

 

On July 25, 2014, we formed Sunshine Biopharma Canada Inc. (“Sunshine Canada”), a Canadian wholly owned subsidiary for the purposes of conducting generic pharmaceuticals business in Canada and elsewhere around the globe. Sunshine Canada recently signed Cross Referencing Agreements with a major pharmaceutical company for four prescription generic drugs for the treatment of Breast Cancer, Prostate Cancer and Enlarged Prostate. We will market and sell these new pharmaceutical products under our own Sunshine Biopharma label. These four generic products are as follows:

 

 

Worldwide sales of the brand name version of these products as reported by the respective owner of the registered trademark are as follows:

 

 

Sunshine Canada is currently in the process of securing a Drug Identification Number (“DIN”) for each of these products from Health Canada. The Company is also working on finding an appropriate facility and obtaining a Drug Establishment License (“DEL”) from Health Canada. Upon receipt of the DEL and DIN’s, we will be able to accept orders for our own label SBI-Anastrozole, SBI-Letrozole, SBI-Bicalutamide and SBI-Finasteride. While no assurances can be provided, we hope to build a much larger portfolio of “SBI” label Generic Pharmaceuticals over time.

 

While no assurances can be provided and subject to the availability of adequate financing, of which there is no assurance, we anticipate that profits from the sales of Generic Products will be used to finance our proprietary drug development program, including Adva-27a, our flagship anticancer compound. In addition to near-term revenue generation, building the generics business infrastructure and securing the proper permits will render Sunshine Canada appropriately positioned for the marketing and distribution of our proprietary Adva-27a drug candidate, provided that Adva-27a is approved for such marketing and distribution, of which there can be no assurance.

 

Proprietary Drug Development Operations

 

Since inception, our proprietary drug development activities have been focused on the development of a small molecule called Adva-27a for the treatment of aggressive cancers. A Topoisomerase II inhibitor, Adva-27a has been shown to be effective at destroying Multidrug Resistant cancer cells including Pancreatic Cancer cells, Breast Cancer cells, Small-Cell Lung Cancer cells and Uterine Sarcoma cells (Published in ANTICANCER RESEARCH, Volume 32, Pages 4423-4432, October 2012). Sunshine Biopharma is direct owner of all issued and pending worldwide patents pertaining to Adva-27a including U.S. Patent Number 8,236,935 (See “Intellectual Property” below).

 

Adva-27a Preclinical Studies

 

Adva-27a is a GEM-difluorinated C-glycoside derivative of Podophyllotoxin, targeted for various forms of cancer.  If we are successful in our current financing efforts, Adva-27a is expected to enter Phase I clinical trials for pancreatic cancer and, in parallel, multidrug resistant breast cancer in late 2017. See “Clinical Development Path” and “Clinical Trials” below.  Another derivative of Podophyllotoxin called Etoposide is currently on the market and is used to treat various types of cancer including leukemia, lymphoma, testicular cancer, lung cancer, brain cancer, prostate cancer, bladder cancer, colon cancer, ovarian cancer, liver cancer and several other forms of cancer.  Like Etoposide, Adva-27a is a Topoisomerase II inhibitor; however, unlike Etoposide and other anti-tumor drugs currently in use, Adva-27a is able to destroy Multidrug Resistant cancer cells.  Adva-27a is a new chemical entity and has been shown to have distinct and more desirable biological properties compared to Etoposide.  Most notably, Adva-27a is very effective against Multidrug Resistant breast cancer cells while Etoposide has no activity against this aggressive form of cancer (see Figure 1).  In other side-by-side studies against Etoposide as a reference, Adva-27a showed markedly improved cell killing activity in various other cancer types. Our preclinical studies to date have shown that:

 

  

These and other preclinical data have been published in ANTICANCER RESEARCH, a peer-reviewed International Journal of Cancer Research and Treatment.  The manuscript entitled “Adva-27a, a Novel Podophyllotoxin Derivative Found to Be Effective Against Multidrug Resistant Human Cancer Cells” appeared in print in the October 2012 issue of the journal [ANTICANCER RESEARCH 32: 4423-4432 (2012)].  A copy of the full manuscript as it appeared in the journal is available on our website at www.sunshinebiopharma.com.

 

 

Clinical Development Path

 

The early stage preclinical studies for our lead compound, Adva-27a, were successfully completed and the results have been published in ANTICANCER RESEARCH 32: 4423-4432 (2012).  We have been delayed in our implementation of our clinical development program due to lack of funding.  Our fund raising efforts are continuing and as soon as adequate financing is in place we will continue our clinical development program of Adva-27a by conducting the next sequence of steps comprised of the following.  There are no assurances we will be successful in our fund raising efforts:

 

  

 

GMP Manufacturing

 

On November 14, 2014, we entered into a Manufacturing Services Agreement with Lonza Ltd. and Lonza Sales Ltd. (hereinafter jointly referred to as “Lonza”), whereby we engaged Lonza to be the manufacturer of our Adva-27a anticancer drug (the “Lonza Agreement”).  Lonza is one of the world’s leading and most-trusted manufacturers of pharmaceutical ingredients.  Headquartered in Basel, Switzerland, Lonza has more than 40 major manufacturing facilities worldwide.  The Lonza Agreement was effective November 10, 2014, has a term of 5 years, and may be extended or terminated earlier as provided in the Lonza Agreement.

 

In June 2015 we received a sample of the scale-up manufacturing process for evaluation and confirmation of adherence to specifications.  Based upon our laboratory analyses, the sample meets all of the required chemical, physical and biological specifications.  The amount of material (the “Yield”) generated by this pilot run was found to be significantly lower than anticipated and we are currently working towards finding possible solutions to increase the Yield and define a path forward. During the course of our discussions concerning the problem of the low Yield, Lonza informed us that they required us to pay them $687,818 prior to moving forward with any activity pertaining to the agreement we have with them for the manufacturing of our compound. We have repeatedly indicated to Lonza that a clear path defining exactly how the extremely low yield issue would be addressed is imperative prior to us making any payments. As of the date of this report, neither party has changed its position. 

 

Clinical Trials

 

Adva-27a’s initial indication will be pancreatic cancer and multidrug resistant breast cancer for which there are currently little or no treatment options available.  In June 2011 we concluded an agreement with McGill University’s Jewish General Hospital in Montreal, Canada to conduct Phase I clinical trials for these two indications.  All aspects of the planned clinical trials in Canada will employ FDA standards at all levels.  Subject to obtaining the necessary financing, we now anticipate that Phase I clinical trials will commence in mid to late 2017 and we estimate that it will take 18 months to complete, at which time we expect to receive limited marketing approval for “compassionate-use” under the FDA and similar guidelines in Canada. See “Potential Future Opportunities” below.

 

Potential Future Opportunities

 

According to the American Cancer Society, nearly 1.5 million new cases of cancer are diagnosed in the U.S. each year.  Given the terminal and limited treatment options available for the pancreatic cancer and multidrug resistant breast cancer indications we are planning to study, we anticipate being granted limited marketing approval (“compassionate-use”) for our Adva-27a following receipt of funding and a successful Phase I clinical trial.  There are no assurances that either will occur.  Such limited approval will allow us to make the drug available to various hospitals and health care centers for experimental therapy and/or “compassionate-use”, thereby generating some revenues in the near-term.

 

We believe that upon successful completion of Phase I Clinical Trials we may receive one or more offers from large pharmaceutical companies to buyout or license our drug.  However, there are no assurances that our Phase I Trials will be successful, or if successful, that any pharmaceutical companies will make an acceptable offer to us.  In the event we do not consummate such a transaction, we will require significant capital in order to manufacture and market our new drug.

 

Intellectual Property

 

Effective October 8, 2015, we executed a Patent Purchase Agreement (the “October Purchase Agreement”), with Advanomics, a related party, pursuant to which we acquired all of the right, title and interest in and to U.S. Patent Number 8,236,935 (the “US Patent”) for our anticancer compound, Adva-27a.  On December 28, 2015, we executed a second Patent Purchase Agreement (the “December Purchase Agreement”), with Advanomics, pursuant to which we acquired all of the right, title and interest in and to all of the remaining worldwide rights covered by issued and pending patents under PCT/FR2007/000697 and PCT/CA2014/000029 (the “Worldwide Patents”) for our anticancer compound, Adva-27a.

 

Effective December 28, 2015, we entered into amendments (the “Amendments”) of these Purchase Agreements pursuant to which the total purchase price was reduced from $17,142,499 to $618,810, the book value of this intellectual property on the financial statements of Advanomics.  Further, the Amendments provided for automatic conversion of the promissory notes representing the new purchase price into an aggregate of 321,305,416 shares of our Common Stock once we increase our authorized capital such that these shares can be issued.  The October and December Purchase Agreements and Amendments thereof provide us with direct ownership of all worldwide patents and rights pertaining to Adva-27a.

 

 

Our Lead Anti-Cancer Compound, Adva-27a, in 3D

 

 

Liquidity and Capital Resources

 

As of September 30, 2016, we had cash or cash equivalents of $21,789.

 

Net cash used in operating activities was $282,988 during the nine month period ended September 30, 2016, compared to $524,851 for the nine month period ended September 30, 2015.  We anticipate that overhead costs in current operations will increase in the future as we move forward with our Generic Pharmaceuticals and Proprietary Drug Developments operations discussed above.

 

Cash flows from financing activities were $255,293 for the nine month periods ended September 30, 2016, compared to $505,530 during the nine months ended September 30, 2015.  Cash flows used by investing activities were $2,343 for the nine months ended September 30, 2016, compared to $0 for the nine month periods ended September 30, 2015.

 

At September 30, 2016, we had issued and outstanding 636,025,383 shares of our Common Stock. During the nine months ended September 30, 2016, we issued a total of 437,760,265 shares of our Common Stock. Of these, 366,454,709 shares valued at $2,767,254 were issued pursuant to conversion of outstanding convertible notes payable, reducing debt by $1,041,430 and interest payable by $6,520 and generating a loss on conversion of $1,719,304 for the period.

 

On July 1, 2016, we issued 5,750,000 shares of our $0.001 par value Common Stock in exchange for services.

 

On July 1, 2016, we executed a Convertible Promissory Note payable having a face value of $55,000.00. The proceeds from this Note were received by us on September 30, 2016 and were recorded in our Financial Statements included in this report as a current liability.

 

On July 1, 2016, we executed a Convertible Promissory Note payable having a face value of $174,852, comprised of the principal amount ($165,000.00) and all accrued interest ($9,852.00) on the Convertible Promissory Note payable that matured on September 30, 2016. See Note 4 to Financial Statements.

 

On July 6, 2016, we amended our Articles of Incorporation, increasing our authorized capital to 3,000,000,000 shares of Common Stock, $0.001 par value per share, and 30,000,000 shares of Preferred Stock, $0.10 par value per share.

 

On July 8, 2016, we issued 321,305,416 shares of our $0.001 par value Common Stock to Advanomics Corporation (“Advanomics”), a related party, in exchange for cancellation of the two notes payable in the aggregate principal amount of $835,394 applicable to our acquisition of the patent rights discussed above and in Note 5 to our Financial Statements.

 

We also issued 7,000,000 shares of Common Stock for $105,000 Canadian (approximately $79,128 US) to finance our Generic Pharmaceuticals operations and 5,555,556 shares of Common Stock for $25,000 to pay for our filing expenses.

 

 

In addition, we issued, 10,000,000 shares of $0.001 par value Common Stock to an unrelated party for services valued at $100,000 or $0.01 per share. These services are for a two year period but were fully expensed during the period ended June 30, 2016.

 

We also issued 36,000,000 shares of our Common Stock for services rendered to us by our current directors, valued at $252,000 or $0.007 per share.

 

We are generating only nominal revenue from our operations, and our ability to implement our business plan for the future will depend on the future availability of financing. Such financing will be required to enable us to continue our Generic Pharmaceuticals business and Proprietary Drug Development operations. We intend to raise funds through private placements of our Common Stock and through short-term borrowing. We estimate that we will require approximately $5 million in debt and/or equity capital to fully implement our business plan in the future and there are no assurances that we will be able to raise this capital. While we have engaged in discussions with various investment banking firms and venture capitalists to provide us these funds, as of the date of this report we have not reached any agreement with any party that has agreed to provide us with the capital necessary to effectuate our business plan. Our inability to obtain sufficient funds from external sources when needed will have a material adverse effect on our plan of operation, results of operations and financial condition.

 

Our cost to continue operations as they are now conducted is nominal, but these are expected to increase as we advance our Generic Pharmaceuticals business and we commence Phase I clinical trials. We do not have sufficient funds to cover the anticipated increase in these expenses. We need to raise additional funds in order to continue our existing operations and advance our plans to expand our operations for the next year. If we are successful in raising additional funds, our Generic Pharmaceuticals business and Proprietary Drug Development efforts will continue and expand.

 

Subsequent Events

 

On October 14, 2016, we issued 10,000,000 shares of $0.001 par value Common Stock to an unrelated party for financial consulting services.

 

On October 18, 2016, the holder of the convertible note having a face value of $174,852 elected to convert $74,852 in principal amount into 40,374,475 shares of $0.001 par value Common Stock, leaving a principal balance of $100,000.

 

Inflation

 

Although our operations are influenced by general economic conditions, we do not believe that inflation had a material effect on our results of operations during the nine month period ended September 30, 2016.

 

Critical Accounting Estimates

 

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The following represents a summary of our critical accounting policies, defined as those policies that we believe are the most important to the portrayal of our financial condition and results of operations and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

We are a smaller reporting company and are not required to provide the information under this item pursuant to Regulation S-K.

 

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Disclosure Controls and Procedures - Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report.

 

These controls are designed to ensure that information required to be disclosed in the reports we file or submit pursuant to the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

 

Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2016, at the reasonable assurance level. We believe that our consolidated financial statements presented in this Form 10-Q fairly present, in all material respects, our financial position, results of operations, and cash flows for all periods presented herein.

 

Inherent Limitations - Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdown can occur because of simple error or mistake. In particular, many of our current processes rely upon manual reviews and processes to ensure that neither human error nor system weakness has resulted in erroneous reporting of financial data.

 

Changes in Internal Control over Financial Reporting - There were no changes in our internal control over financial reporting during the nine month period ended September 30, 2016, which were identified in conjunction with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

In June 2015 we received a sample of the scale-up manufacturing process for evaluation and confirmation of adherence to specifications.  Based upon our laboratory analyses, the sample meets all of the required chemical, physical and biological specifications.  The amount of material (the “Yield”) generated by this pilot run was found to be significantly lower than anticipated and we are currently working towards finding possible solutions to increase the Yield and define a path forward. During the course of our discussions concerning the problem of the low Yield, Lonza informed us that they required us to pay them $687,818 prior to moving forward with any activity pertaining to the agreement we have with them for the manufacturing of our compound. We have repeatedly indicated to Lonza that a clear path defining exactly how the extremely low yield issue would be addressed is imperative prior to us making any payments. As of the date of this report, neither party has changed its position. 

 

Other than the above, we are not party to any material legal proceedings, nor have any such actions been threatened against us.

 

ITEM 1A. RISK FACTORS

 

We are a smaller reporting company and are not required to provide the information under this item pursuant to Regulation S-K.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

During the nine months ended September 30, 2016, we issued a total of 437,760,265 shares of $0.001 par value Common Stock. Of these, 366,454,709 shares valued at $2,767,254 were issued upon conversion of outstanding notes payable, reducing debt by $1,041,430 and interest payable by $6,520 and generating a loss on conversion of $1,719,304. We relied upon the exemption from registration provided by Regulation D promulgated under the Securities Act of 1933, as amended, to issue these shares. The proceeds of these loans were used to acquire patents and for working capital.

 

In addition, we issued 7,000,000 shares of $0.001 par value Common Stock for $105,000 Canadian (approximately $79,128 US) and 5,555,556 shares of $0.001 par value Common Stock for $25,000. We used these funds for working capital.

 

We also issued 10,000,000 shares of $0.001 par value Common Stock to an unrelated party for services valued at $100,000 or $0.01 per share, the market value of the shares at the time of issuance. These services are for a two year period but were fully expensed during the period ended September 30, 2016.

 

In addition, we issued 5,750,000 shares of $0.001 par value Common Stock to an unrelated party for services valued at $43,700 or $0.0076 per share, the market value of the shares at the time of issuance.

 

Wey also issued 7,000,000 shares of $0.001 par value Common Stock to an unrelated party for services valued at $23,800 or $0.0034 per share, the market value of the shares at the time of issuance.

 

In addition, we issued 36,000,000 shares of $0.001 par value Common Stock for services rendered to the Company by our Directors valued at $252,000 or $0.007 per share, the market value of the shares at the time of issuance.

 

Except as otherwise indicated, herein, we relied upon the exemption from registration provided by Section 4(a)(2) promulgated under the Securities Act of 1933, as amended, to issue the aforesaid shares.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4. MINE SAFETY DISCLOSURE

 

Not Applicable

 

ITEM 5. OTHER INFORMATION

 

None

 

 

ITEM 6. EXHIBITS

 

Exhibit No.		Description
31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

101.INS		XBRL Instance Document*
101.SCH		XBRL Schema Document*
101.CAL		XBRL Calculation Linkbase Document*
101.DEF		XBRL Definition Linkbase Document*
101.LAB		XBRL Label Linkbase Document*
101.PRE		XBRL Presentation Linkbase Document*

______________________ 

* Pursuant to Rule 406T of Regulation S-T, these interactive data files are not deemed filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act or Section 18 of the Securities Exchange Act and otherwise not subject to liability.

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of Section 12 of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on November 14, 2016.

 

	SUNSHINE BIOPHARMA, INC.
	By:	s/ Dr. Steve N. Slilaty
		Dr. Steve N. Slilaty,
		Principal Executive Officer
	By:	s/ Camille Sebaaly
		Camille Sebaaly, Principal Financial Officer and
		Principal Accounting Officer