Sunshine Biopharma, Inc - Quarter Report: 2019 March (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: March 31, 2019

 

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.)

 

6500 Trans-Canada Highway

4th Floor

Pointe-Claire, Quebec, Canada H9R 0A5

 (Address of principal executive offices)

 

(514) 426-6161

(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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)

 

	Large accelerated filer  ☐	Accelerated filer  ☐
	Non-accelerated filer  ☒	Smaller reporting company  ☒
		Emerging growth company ☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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 May 20, 2019, was 95,417,765 shares.

  

	TABLE OF CONTENTS
	PART I FINANCIAL INFORMATION	Page No.
Item 1.	Financial Statements	3
	Consolidated Condensed Balance Sheets as of March 31, 2019 and December 31, 2018 (Unaudited)	3
	Consolidated Condensed Statements of Operations for the Three Month Periods Ended March 31, 2019 and 2018 (Unaudited)	4
	Consolidated Condensed Statements of Cash Flows for the Three Month Periods Ended March 31, 2019 and 2018 (Unaudited)	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	24
Item 4.	Controls and Procedures.	24

	PART II OTHER INFORMATION
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Defaults Upon Senior Securities	26
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	27
	Signatures	28

 

 

 

PART I.  FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

Sunshine Biopharma, Inc.
Consolidated Condensed Balance Sheets (Unaudited)

	March 31,	December 31,
	2019	2018
ASSETS
Current Assets:
Cash and cash equivalents	$95,129	$115,216
Accounts receivable	119,197	94,955
Inventory	13,237	-
Prepaid expenses	3,743	1,341
Total Current Assets	231,306	211,512
Non-Current Assets:		-
Equipment (net of $74,832 and $57,964 depreciation)	254,336	269,362
Patents (net of $58,918 amortization and $556,120 impairment)	-	-
Right-of-use assets	95,610	-
Goodwill	665,697	665,697
Total Non-Current Assets	1,015,643	935,059
TOTAL ASSETS	$1,246,949	$1,146,571
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable	745,397	419,663
Notes payable - related party	108,796	243,094
Related party advances	59,558	49,349
Accounts payable & accrued expenses	140,343	191,080
Interest payable	19,393	9,291
Lease liability	46,461	-
Total Current Liabilities	1,119,748	912,477
Long-Term Liabilities:
Lease liability	49,148	-
Related party note payable	289,825	289,847
Total Long-Term Liabilities	338,973	289,847
TOTAL LIABILITIES	1,458,721	1,202,324
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 at March 31, 2019 and December 31, 2018	-	-
Preferred Stock, Series B $0.10 par value per share; Authorized 500,000 shares;
Issued and outstanding 500,000 shares at March 31, 2019 and December 31, 2018	50,000	50,000
Common Stock, $0.001 per share; Authorized 3,000,000,000 shares;
Issued and outstanding 89,348,981 and 85,652,400 at March 31, 2019 and December 31, 2018	89,349	85,652
Reserved for issuance 158,945,360 at March 31, 2019
Capital paid in excess of par value	15,630,289	15,586,678
Accumulated Comprehensive Income (Loss)	(4,523)	(3,738)
Accumulated (Deficit)	(15,976,887)	(15,774,345)
TOTAL SHAREHOLDERS' EQUITY (DEFICIT)	(211,772)	(55,753)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)	$1,246,949	$1,146,571

 

See Accompanying Notes To These Financial Statements. 

 

 

Sunshine Biopharma, Inc.
Consolidated Condensed Statement Of Operations and Comprehensive Loss (Unaudited)

	3 Months	3 Months
	Ended	Ended
	March 31,	March 31,
	2019	2018
Revenue:	$119,728	$91,168
Cost of Sales	84,866	100,819
Gross profit	34,862	(9,651)
General & Administrative Expenses:
Accounting	17,000	28,000
Consulting	11,076	4,118
Legal	32,656	27,485
Office	54,153	19,048
Officer & Director remuneration	40,201	77,787
Depreciation	579	6,08
Total General & Administrative	155,665	157,046
Income (Loss) from operations	(120,803)	(166,697)
Other Income (Expense):
Foreign exchange gain (loss)	(9,616)	14,868
Interest expense	(49,815)	(75,467)
Loss on debt conversions	(22,308)	(38,340)
Total Other Income (Expense)	(81,739)	(98,939)
Net Income (Loss)	$(202,542)	$(265,636)
Unrealized Gain (Loss) from foreign exchange translation	(785)	(2,738)
Comprehensive Income (Loss)	(203,327)	(268,374)
Basic (Loss) per Common Share	$0.00	$(0.01)
Weighted Average Common Shares Outstanding	86,094,708	47,080,329

 

See Accompanying Notes To These Financial Statements.  

 

 

Sunshine Biopharma, Inc.
Consolidated Condensed Statement Of Cash Flows (Unaudited)

	3 Months	3 Months
	Ended	Ended
	March 31,	March 31,
	2019	2018
Cash Flows From Operating Activities:
Net (Loss)	$(202,542)	$(265,636)
Depreciation and amortization	16,475	6,740
Foreign exchange gain (loss)	9,616	(14,868)
Rent from ASC 842 lease calculation	3,389	-
Stock issued for payment interest	-	1,712
Loss on debt conversion	22,308	38,340
(Increase) in accounts receivable	(24,242)	(12,882)
(Increase) in inventory	(13,237)	-
(Increase) decrease in prepaid expenses	(2,402)	4,331
decrease in deposits	-	72,534
(decrease) in Accounts Payable & accrued expenses	(53,426)	(11,435)
Increase in interest payable	10,102	12,709
Net Cash Flows (Used) in Operations	(233,959)	(168,455)
Cash Flows From Investing Activities:
Cash paid for acquisition of subsidiary	-	(80,289)
Cash received from acquisition of subsidiary	-	4,942
Purchase of equipment	-	(4,783)
Net Cash Flows (Used) in Investing Activities	-	(80,130)
Cash Flows From Financing Activities:
Proceed from notes payables	249,500	356,885
Payment of notes payable	(53,767)	(130,908)
Advances from related parties	2,993	12,240
Payments to related parties	-	(1,163)
Note payable used to pay origionation fees & interest	15,930	11,500
Net Cash Flows Provided by Financing Activities	214,656	248,554
Net Increase (Decrease) in Cash and Cash Equivalents	(19,302)	(31)
Foreign currency translation adjustment	(785)	(2,738)
Cash and cash equivalents at beginning of period	115,216	107,532
Cash and cash equivalents at end of period	$92,129	$104,763
Supplementary Disclosure of Cash Flow Information:
Stock issued for services, licenses and other assets	$-	$484,100
Stock issued for note conversions including interest	$47,308	$95,052
Stock issued for acqusition of subsidiary	$-	$246,000
Cash paid for interest	$11,034	$9,428
Cash paid for income taxes	$-	$-

 

Sunshine Biopharma Inc.

Notes to Unaudited Consolidated Financial Statements

For the Three Month Interim Period Ended March 31, 2019

 

Note 1 – Nature of Business and Basis of Presentation

 

The Company was originally incorporated under the name Mountain West Business Solutions, Inc. on August 31, 2006 in the State of Colorado. Until October 2009, the Company was operating as a business consultancy firm. Effective October 15, 2009, the Company acquired Sunshine Biopharma, Inc. in a transaction classified as a reverse acquisition. Sunshine Biopharma, Inc. was holding an exclusive license to a new anticancer drug bearing the laboratory name, Adva-27a. Upon completion of the reverse acquisition transaction, the Company changed its name to Sunshine Biopharma, Inc. and began operating as a pharmaceutical company focusing on the development the licensed Adva-27a anticancer drug.

 

In July 2014, the Company formed a wholly owned Canadian subsidiary, Sunshine Biopharma Canada Inc. (“Sunshine Canada”) for the purposes of offering generic pharmaceutical products in Canada and elsewhere around the world. Sunshine Canada has signed licensing agreements for four (4) generic prescription drugs for treatment of breast cancer, prostate cancer and BPH (Benign Prostatic Hyperplasia). Sunshine Canada is currently evaluating several other generic products for in-licensing and is working on securing a Drug Establishment License (“DEL”) and a Drug Identification Number (“DIN”) per product from Health Canada. Once the DEL and the DIN’s are secured, Sunshine Canada will begin its generic pharmaceuticals marketing and sales program in Canada and overseas.

 

On January 1, 2018 the Company acquired all of the issued and outstanding shares of Atlas Pharma Inc. (“Atlas”), a Canadian privately held company. The purchase price for the shares was Eight Hundred Forty Eight Thousand Dollars $848,000 Canadian ($676,748 US). The purchase price included a cash payment of $100,500 Canadian ($80,289 US), plus the issuance of 1,000,000 shares of the Company’s Common Stock valued at $238,000 or $0.238 per share, and a promissory note in the principal amount of $450,000 Canadian ($358,407 US), with interest payable at the rate of 3% per annum. Atlas is a certified company dedicated to chemical analysis of pharmaceutical and other industrial samples. Atlas’ operations are authorized by a Drug Establishment License issued by Health Canada. Atlas is also registered with the FDA.

 

The Company has performed analysis of the fair market value of Atlas Pharma Inc. assets and liabilities. The following table summarizes the allocation of the purchase price as of the acquisition date:

 

Cash	$4,942
Accounts receivable	$79,508
Prepaids	$1,428
Property and equipment	$62,990
Goodwill	$665,697
Less: Liabilities assumed ($172,899 Canadian)	$(137,817)
Total consideration	$676,748

 

 

 

 

In March 2018, the Company formed NOX Pharmaceuticals, Inc., a wholly owned Colorado corporation and assigned all of the Company’s interest in the Adva27a anticancer drug to that company. NOX Pharmaceuticals Inc.’s mission is to research, develop and commercialize proprietary drugs including Adva-27a.

 

On December 17, 2018, the Company launched its first over-the-counter product, Essential 9tm, a dietary supplement comprised of the nine amino acids that the human body cannot synthesize. Essential 9tm has been authorized for marketing by Health Canada under NPN 80089663.

 

Effective February 1, 2019, the Company completed a 20 to 1 reverse split of its $0.001 par value Common Stock reducing the issued and outstanding shares of Common Stock from 1,713,046,242 to 85,652,400 (“Reverse Stock Split”).

 

The financial statements reflect the Reverse Stock Split on a retroactive basis and represent the consolidated activity of Sunshine Biopharma, Inc. and its subsidiaries (Sunshine Biopharma Canada Inc., Atlas Pharma Inc. and NOX Pharmaceuticals Inc.) herein collectively referred to as the "Company"). During the last three month period the Company has continued to raise money through the issuance of convertible debt.

 

The Company’s activities are subject to significant risks and uncertainties, including failing to secure additional funding to operationalize the Company’s generics business and proprietary drug development program.

 

Basis of Presentation of Unaudited Condensed Financial Information

 

The unaudited condensed financial statements of the Company for the three month periods ended March 31, 2019 and 2018 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-K. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the financial position and the results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. The balance sheet information as of December 31, 2018 was derived from the audited financial statements included in the Company's financial statements as of and for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on April 12, 2019. These financial statements should be read in conjunction with that report.

 

 

 

Recently Issued Accounting Pronouncements

 

Recently issued amendments by the FASB are effective for fiscal years beginning after December 15, 2018, and should be applied prospectively on or after the adoption date. Early adoption is permitted, including adoption in an interim period. The Company does not expect these amendments to have a material impact on its financial statements.

  

In February 2016, the FASB issued ASU 2016-02, Leases, effective for annual reporting periods beginning on or after December 15, 2018, and interim periods within those annual periods. Earlier application is permitted as of the beginning of an interim or annual period. This update requires organizations to recognize lease assets and lease liabilities on the balance sheet with lease terms of more than 12 months and also disclose certain qualitative and quantitative information about leasing arrangements. The Company adopted this pronouncement on January 1, 2019.

 

Due to this pronouncement the balance sheet will show an asset reflecting the value of a Right-of-use asset and a current and long-term lease liability. The rent expense will be calculated based on this pronouncement and therefore not reflect the actual rent paid for the period by the Company.

 

At March 31, 2019 the Right-to-use-asset has a balance of $95,610. The current portion of the lease liability is $46,461 and the long-term portion is $49,148. The rent expense for the three month period ended March 31, 2019 is $15,027 which is $3,389 higher than the actual rent paid of $11,638.

 

 Note 2 – Going Concern

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Since inception, the Company has had recurring operating losses and negative operating cash flows. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

The Company’s continuation as a going concern is dependent on its ability to obtain additional financing to fund operations, implement its business, and ultimately, attain profitability. The Company will need to secure additional funds through various means, including equity and debt financing. There can be no assurance that the Company will be able to obtain additional equity or debt financing, if and when needed, on terms acceptable to the Company, or at all. Any additional equity or debt financing may involve substantial dilution to the Company’s stockholders, restrictive covenants or high interest costs. The Company’s long-term liquidity also depends upon its ability to generate revenues and achieve profitability.

 

Note 3 – Notes Payable

 

On June 27, 2018, the Company received net proceeds of $51,000 in exchange for a note payable having a face value of $53,000 and accruing interest at the rate of 8% per annum. The note, due on April 15, 2019, is convertible after 180 days from issuance into $0.001 par value Common Stock at a price 35% below market value. During January 2019, $69,930 was paid for a total of $53,000 in principal, $5,332 in accrued interest and $11,598 in additional interest.

 

 

 

On August 17, 2018 the Company received net proceeds of $51,000 in exchange for a note payable having a face value of $53,000 and accruing interest at the rate of 8% per annum. The note, due on May 30, 2019, is convertible after 180 days from issuance into $0.001 par value Common Stock at a price 35% below market value. During March 2019, the holder of this note elected to convert a total of $25,000 in principal into 3,696,581 shares of $0.001 par value Common Stock leaving a principal balance of $28,000 and incurring a loss on conversion of $22,308.

 

On January 8, 2019, the Company received net proceeds of $50,500 in exchange for a note payable having a face value of $54,000 and accruing interest at the rate of 8% per annum. The note, due on January 8, 2020, is convertible after 180 days from issuance into $0.001 par value Common Stock at a price 35% below market value. The Company estimates that the fair value of this convertible debt approximates the face value, so no value has been assigned to the beneficial conversion feature.

 

On January 10, 2019, the Company received net proceeds of $38,000 in exchange for a note payable having a face value of $40,660 and accruing interest at the rate of 8% per annum. The note, due on October 10, 2019, is convertible after 180 days from issuance into $0.001 par value Common Stock at a price 35% below market value. The Company estimates that the fair value of this convertible debt approximates the face value, so no value has been assigned to the beneficial conversion feature.

 

On February 5, 2019, the Company received net proceeds of $35,000 in exchange for a note payable having a face value of $37,450 and accruing interest at the rate of 8% per annum. The note, due on October 10, 2019, is convertible after 180 days from issuance into $0.001 par value Common Stock at a price 35% below market value. The Company estimates that the fair value of this convertible debt approximates the face value, so no value has been assigned to the beneficial conversion feature.

 

On February 11, 2019, the Company received net proceeds of $50,000 in exchange for a note payable having a face value of $52,000 and accruing interest at the rate of 8% per annum. The note, due on November 30, 2019 is convertible after 180 days from issuance into $0.001 par value Common Stock at a price 35% below market value. The Company estimates that the fair value of this convertible debt approximates the face value, so no value has been assigned to the beneficial conversion feature.

 

On March 18, 2019, the Company received net proceeds of $38,000 in exchange for a note payable having a face value of $40,660 and accruing interest at the rate of 8% per annum. The note, due on December 18, 2019 is convertible after 180 days from issuance into $0.001 par value Common Stock at a price 35% below market value. The Company estimates that the fair value of this convertible debt approximates the face value, so no value has been assigned to the beneficial conversion feature.

 

On March 18, 2019, the Company received net proceeds of $38,000 in exchange for a note payable having a face value of $40,660 and accruing interest at the rate of 8% per annum. The note, due on December 18, 2019 is convertible after 180 days from issuance into $0.001 par value Common Stock at a price 35% below market value. The Company estimates that the fair value of this convertible debt approximates the face value, so no value has been assigned to the beneficial conversion feature.

 

  

 

 

Note 4 – Notes Payable - Related Party

 

On January 1, 2018 as part of the acquisition of Atlas Pharma Inc., the Company issued a note payable in the amount of $450,000 Canadian ($358,407 US) and accruing interest at the rate of 3% per annum. The note is due on December 31, 2023. Payments on this note are $10,000 Canadian (approximately $8,000 US) per quarter. The outstanding principal balance at March 31, 2019 was $310,670. The note is secured by the Atlas Pharma Inc. shares held by the Company.

 

In addition to the above, at March 31, 2019 the Company had a note payable held by the CEO of the Company having a principal amount of $87,951 and accrued interest of $2,548.

               

Note 5 – Stockholders’ Equity

 

During the three months ended March 31, 2019, the Company issued a total of 3,696,581 shares of $0.001 par value Common Stock for the conversion of outstanding notes payable, reducing the debt by $25,000 and interest payable by $-0- and generating a loss on conversion of $22,308.

 

The Company declared no dividends through March 31, 2019.

 

The following table shows the changes in shareholders’ equity:

 

 

 

	Three Months Ended
	2019	2018
Total beginning shareholders' (deficit)	$(55,753)	$(573,363)
Beginning and ending Series B preferred stock	50,000	50,000
Beginning common stock	85,652	45,937
Common stock issued	3,697	1,464
Ending common stock	89,349	47,401
Beginning additonal paid in capital	15,586,678	12,948,386
APIC increase from common stock issued	43,611	339,588
Ending additional paid in capital	15,630,289	13,287,974
Beginning other comprehensive income	(3,738)	504
Other comprehensive income (loss)	(785)	(2,738)
Ending other comprehensive income	(4,523)	(2,234)
Beginning accumulated deficit	(15,774,345)	(13,618,190)
Net (loss)	(202,542)	(265,636)
Ending accumulated deficit	(15,976,887)	(13,883,826)
Total ending shareholders' equity	$(211,772)	$(500,685)

 

Note 6 – Leases

 

The Company’s subsidiary, Atlas Pharma Inc. (Atlas), leases one facility under a 60 month, non-cancelable operating lease agreement (the “Lease”). The Lease expires on May 31, 2021 (remaining lease term of 2 years) and does not have a renewal option.

 

The Lease requires Atlas to pay additional rent for real estate taxes, insurance, and repairs. The Lease also requires the Company to provide a lien on all of furniture and equipment used at the facility.

 

The following is a maturity analysis of the annual undiscounted cash flows of the operating Lease liability as of March 31, 2019:

 

 

 

Year Ending December 31, 2019	$35,216
Year Ending December 31, 2020	$46,554
Year Ending December 31, 2021	$19,397
Total	$101,167
Less: Imputed Interest	$(5,557)
Total Lease Liability	$95,610

 

The following are total lease cost, cash flows, and discount rates for the three months period ended March 31,

 

	2019	2018
Operating lease cost	$11,638	$46,554
Variable lease cost	$3,389	$13,553
Total lease cost	$15,027	$60,107

  

Cash paid for amounts included in the measurement of lease liabilities	$11,638	-
Operating cash flows from operating leases	$11,638	-
Weighted-average discount rate - Operating leases	5.2%	-

 

 

 

Note 7 – Earnings (Loss) Per Share

 

Earnings (loss) per share is computed using the weighted average number of Common Shares outstanding during the period. The Company has adopted ASC 260, “Earnings per Share”.

 

Note 8 – Goodwill

 

On January 1, 2018, the Company acquired all of the issued and outstanding shares of Atlas Pharma Inc. ("Atlas"), a Canadian privately held company. The purchase price for the shares was Eight Hundred Forty Eight Thousand Dollars ($848,000 Canadian ($676,748 US). The net book value of the assets acquired was $11,051. The remainder of the purchase price ($665,697) was applied to Goodwill.

 

Note 9 – Income Taxes

 

Deferred income taxes arise from the temporary differences between financial statement and income tax recognition of net operating losses and other items. Loss carryovers are limited under the Internal Revenue Code should a significant change in ownership occur.

 

A deferred tax asset at each date has been offset by a 100% valuation allowance.

 

Note 10 – Royalties Payable

 

As part of a subscription agreement entered into in 2016, the Company has an obligation to pay a royalty of 5% of net sales on one of its generic products (Anastrozole) for a period of three (3) years from the date of the first sale of that product. In 2018 the Company issued 50,000 shares of its Common Stock valued at $5,900 in exchange for cancellation of this royalty obligation.

 

Note 11 – Related Party Transactions

 

In addition to the related party transactions detailed in Note 4 above, the Company paid its Officers and Directors cash compensation totaling $40,201 and $77,787 for the three month periods ended March 31, 2019 and 2018, respectively. 

 

Note 12 – Revenue Recognition

 

As of January 1, 2018, the Company adopted ASU No. 201409, “Revenue from Contracts with Customers” (ASC 606). Under the new guidance, an entity will recognize revenue to depict the transfer of promised goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. A five-step model has been introduced for an entity to apply when recognizing revenue. The new guidance also includes enhanced disclosure requirements. The guidance was effective January 1, 2018 and was applied on a modified prospective basis. The adoption did not have an impact on the Company's financial statements. All of the revenues of the Company are generated by Atlas Pharma Inc., the Company's wholly owned Canadian subsidiary which provides laboratory testing services.

 

Local governmental regulations require that companies recognize revenues upon completion of the work by issuing an invoice and remitting the applicable sales taxes (GST and QST) to the appropriate government agency. Atlas Pharma Inc.'s revenue recognition policy is in compliance with these local regulations.

 

 

 

Note 13 – Accounts Receivable

 

Accounts receivable consist of trade accounts arising in the normal course of business and are classified as current assets and carried at original invoice amounts less an estimate for doubtful receivables based on a review of outstanding balances on a monthly basis. The estimate of allowance for doubtful accounts is based on the Company's bad debt experience, market conditions, and aging of accounts receivable, among other factors. If the financial condition of the Company's customers deteriorates resulting in the customer's inability to pay the Company's receivables as they come due, additional allowances for doubtful accounts will be required.

 

Note 14 – Subsequent Events

 

On May 6, 2019 the holder of a note payable dated October 23, 2018 elected to convert $18,000 in principal and $765 in interest into 3,184,169 shares of Common Stock leaving a principal balance of $72,000.

 

On May 10, 2019 the holder of a note payable dated August 17, 2018 elected to convert $15,000 in principal into 2,884,615 shares of Common Stock leaving a principal balance of $13,000.

 

 

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.

 

In October 2009, we acquired Sunshine Biopharma, Inc., a Colorado corporation holding an exclusive license (the “License”) to a new anticancer drug bearing the laboratory name, Adva-27a. 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 Sunshine Biopharma, Inc.’s management at the time, including our current CEO, Dr. Steve N. Slilaty, and our current CFO, Camille Sebaaly each of whom remain part of our current management. Our principal business became that of a pharmaceutical company focusing on the development of our licensed Adva-27a anticancer compound. In December 2015 we acquired all issued and pending patents pertaining to our Adva-27a technology and terminated the License.

 

In July 2014, we formed a wholly owned Canadian subsidiary, Sunshine Biopharma Canada Inc. (“Sunshine Canada”), for the purposes of offering generic pharmaceutical products in Canada and elsewhere around the world. Sunshine Canada has signed licensing agreements for four (4) generic prescription drugs for the treatment of breast cancer, prostate cancer and BPH (Benign Prostatic Hyperplasia). We have applied for and are currently awaiting the issuance by Health Canada of a Drug Establishment License and a Drug Identification Number for each of our four (4) generic products in order to begin marketing of the same.

 

In January 2018, we acquired Atlas Pharma Inc. (“Atlas”), a Canadian company dedicated to chemical analysis of pharmaceutical and other industrial samples whose operations are authorized by a Drug Establishment License issued by Health Canada. Atlas has been generating revenues since its inception in September 2013. The majority of the revenues reported in our consolidated financial statements are a result of the Atlas operations.

 

In March 2018, we formed NOX Pharmaceuticals, Inc., a Colorado corporation, and assigned all of our interest in our Adva-27a anticancer compound to that company. NOX Pharmaceuticals, Inc.’s mission is to research, develop and commercialize proprietary drugs including Adva-27a.

In December 2018, we completed the development of a new dietary supplement which we trademarked Essential 9tm. This dietary supplement is an over-the-counter tablet comprised of the nine amino acids which the human body cannot synthesize. Essential 9tm has been authorized for marketing by Health Canada under NPN 80089663.

Effective February 1, 2019, we completed a 20 to 1 reverse split of our $0.001 par value Common Stock reducing the issued and outstanding shares of Common Stock from 1,713,046,242 to 85,652,400 (the “Reverse Stock Split”). All references in this report to our issued and outstanding Common Stock as well as the price per share of Common Stock are presented on a post Reverse Stock Split basis.

On March 12, 2019 Essential 9tm became available for sale on Amazon.ca and on March 23, 2019 we recorded our first revenues of Essential 9tm sales.

Our principal place of business is located at 6500 Trans-Canada Highway, 4th Floor, Pointe-Claire, Quebec, Canada H9R 0A5. Our phone number is (514) 426-6161and our website address is www.sunshinebiopharma.com.

 

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

 

Plan of Operation

 

Despite the fact that we now are generating revenues, we have elected to include a Plan of Operation to discuss our ongoing research and development activities relating to our proprietary drug development operations, as well as, our other business activities.

 

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 forms of cancer. 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.

 

Figure 1

 

Adva-27a is a GEM-difluorinated C-glycoside derivative of Podophyllotoxin (see Figure 1). 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. Etoposide is one of the most widely used anticancer drugs. Adva-27a and Etoposide are similar in that they both attack the same target in cancer cells, namely the DNA unwinding enzyme, Topoisomerase II. Unlike Etoposide, and other anti-tumor drugs currently in use, Adva-27a is able to destroy Multidrug Resistant Cancer cells. Adva-27a is the only compound known today that is capable of destroying Multidrug Resistant Cancer. In addition, Adva-27a has been shown to have distinct and more desirable biological and pharmacological properties compared to Etoposide. In side-by-side studies using Multidrug Resistant Breast Cancer cells and Etoposide as a reference, Adva-27a showed markedly greater cell killing activity (see Figure 2).

 

 

 

 

Figure 2

 

  

 Our preclinical studies to date have shown that:

 

●	Adva-27a is effective at killing different types of Multidrug Resistant cancer cells, including Pancreatic Cancer Cells (Panc-1), Breast Cancer Cells (MCF-7/MDR), Small-Cell Lung Cancer Cells (H69AR), and Uterine Sarcoma Cells (MES-SA/Dx5).

 

●	Adva-27a is unaffected by P-Glycoprotein, the enzyme responsible for making cancer cells resistant to anti-tumor drugs.

   

●	Adva-27a has excellent clearance time (half-life = 54 minutes) as indicated by human microsomes stability studies and pharmacokinetics data in rats.

 

●	Adva-27a clearance is independent of Cytochrome P450, a mechanism that is less likely to produce toxic intermediates.

 

●	Adva-27a is an excellent inhibitor of Topoisomerase II with an IC50 of only 13.7 micromolar (this number has recently been reduce to 1.44 micromolar as a result of resolving the two isomeric forms of Adva-27a).

 

●	Adva-27a has shown excellent pharmacokinetics profile as indicated by studies done in rats.

 

●	Adva-27a does not inhibit tubulin assembly.

 

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

 

 

 

We have been delayed in 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 following next sequence of steps:

 

●	GMP Manufacturing of 2 kilogram for use in IND-Enabling Studies and Phase I Clinical Trials

●	IND-Enabling Studies

●	Regulatory Filing (Fast-Track Status Anticipated)

●	Phase I Clinical Trials (Pancreatic Cancer Indication)

 

Adva-27a’s initial indication will be Pancreatic Cancer for which there are currently little or no treatment options available. We are planning to conduct our clinical trials at McGill University’s Jewish General Hospital in Montreal, Canada. All aspects of the clinical trials in Canada will employ FDA standards at all levels.

   

According to the American Cancer Society, nearly 1.5 million new cases of cancer are diagnosed in the U.S. each year.  While particularly effective against Multidrug Resistant Cancer, we believe Adva-27a can potentially treat all cancer types as it is general chemotherapy drug. 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. The following, Figure 3, is a space-filling molecular model of our Adva-27a.

 

 

 

Figure 3

 

Generic Pharmaceuticals Operations

 

In 2016, our Canadian wholly owned subsidiary, Sunshine Biopharma Canada Inc. (“Sunshine Canada”), signed Licensing Agreements with a major pharmaceutical company for four prescription generic drugs for the treatment of Breast Cancer, Prostate Cancer and Enlarged Prostate. We have since been working towards commencement of marketing of these pharmaceutical products under our own, Sunshine Biopharma, label. These four generic products are as follows:

 

 

●	Anastrozole (brand name Arimidex® by AstraZeneca) for treatment of Breast Cancer;

●	Letrozole (brand name Femara® by Novartis) for treatment of Breast Cancer;

●	Bicalutamide (brand name Casodex® by AstraZeneca) for treatment of Prostate Cancer;

●	Finasteride (brand name Propecia® by Merck) for treatment of BPH (Benign Prostatic Hyperplasia)

 

Sunshine Canada is currently in the process of securing a Drug Identification Number (“DIN”) for each of these products from Health Canada. We are planning to use part of the already approved Atlas Pharma Inc. space as a drug warehouse to facilitate the process of 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. We cannot estimate the timing in our obtaining either the DIN’s or the DEL due to variables involved that are out of our control. Figure 4 below shows our 30-Pill blister pack of Anastrozole.

 

 

Figure 4

 

We currently have a number of additional Generic Pharmaceuticals under review for in-licensing. While no assurances can be provided that we will acquire the rights to all or any of these drugs, we are confident we will acquire most, if not all of these rights. We believe that a larger product portfolio will provide us with more opportunities and a greater reach into the marketplace. We hope to further build our generics portfolio of “SBI” label Generic Pharmaceuticals over time. There are no assurances this will occur.

  

Various publicly available sources indicate that the worldwide sales of generic pharmaceuticals are approximately $200 billion per year. In the United States and Canada, the sales of generic pharmaceuticals are approximately $50 billion and $5 billion, respectively. The generic pharmaceuticals business is fairly competitive and there are several multinational players in the field including Teva (Israel), Novartis - Sandoz (Switzerland), Hospira (USA), Mylan (Netherlands), Sanofi (France), Fresenius Kabi (Germany) and Apotex (Canada). While no assurances can be provided, with our offering of Canadian approved products we believe that we will be able to access at least a small percentage of the generic pharmaceutical marketplace.

  

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 us 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.

 

 

Analytical Chemistry Services Operations

 

On January 1, 2018, we acquired all of the issued and outstanding shares of Atlas Pharma Inc. (“Atlas”). The purchase price was $848,000 Canadian (approximately $676,748 US). Payment of the purchase price was comprised of (i) a cash payment of $100,500 Canadian (approximately $80,300 US); (ii) the issuance of 1,000,000 shares of our Common Stock, and (iii) a promissory note in the principal amount of $450,000 Canadian (approximately $360,000 US), with interest payable at the rate of 3% per annum. We are required to make payments of $10,000 Canadian (approximately $8,000 US) per calendar quarter, due and payable on or before the end of each such calendar quarter through December 31, 2023.

 

Atlas is a Health Canada certified company dedicated to chemical analysis of pharmaceutical and other industrial samples. Atlas has 9 full-time employees and generated revenues of $580,558 and $598,109 Canadian (approximately $447,000 and $478,000 US) in 2018 and 2017, respectively. Housed in a 5,250 square foot facility, Atlas’s operations are authorized by a Drug Establishment License (DEL) issued by Health Canada and are fully compliant with the requirements of Good Laboratory Practices (GLP). Atlas is also registered with the FDA. Atlas Pharma Inc.’s website address is www.atlaspharmainc.ca.

 

In June 2018, we acquired testing and other laboratory equipment as part of our plan to expand Atlas’ business operations. Part of the expansion will include hiring additional technical and sales personnel and offering microbiology and other sample testing capabilities.

 

Dietary Supplements Operations

 

In December 2018, we completed the development of Essential 9tm, the first in a line of essential micronutrients products that we are planning to launch. On December 14, 2018, Health Canada issued NPN 80089663 through which it authorized Sunshine Biopharma Inc. to manufacture and sell the Essential 9tm product. Our Essential 9tm dietary supplement tablets contain a balanced formula of the 9 Essential Amino Acids that the human body cannot make. Essential Amino Acids are 9 out of the 20 amino acids required for protein synthesis. Proteins are involved in all body functions – From the musculature and immune system to hormones and neurotransmitters. Like vitamins, Essential Amino Acids cannot be made by the human body and must be obtained through diet. Deficiency in one or more of the 9 Essential Amino Acids can lead to loss of muscle mass, fatigue, weight gain and reduced ability to build muscle mass in athletes. Sunshine Biopharma’s Essential 9tm provides all 9 Essential Amino Acids in freeform and in the proportions recommended by Health Canada. Essential 9tm is currently available on Amazon.com, Amazon.ca and soon other Amazon sites. Figure 5 below shows our 60-Tablet Essential 9tm product.

 

 

Figure 5

 

 

 

Results Of Operations

 

Comparison of Results of Operations for the Three Months Ended March 31, 2019 and 2018

 

  During the three months ended March 31, 2019, we generated $119,728 in revenues, compared to $91,168 in revenues for the same three months period of 2018, an increase of $28,560. Nearly all of these revenues were generated from the operations of our new wholly owned subsidiary, Atlas Pharma Inc. (“Atlas”), which we acquired on January 1, 2018. The other component of the revenues generated during the three months ended March 31, 2019 were initial sales of our new dietary supplement, Essential 9tm, which was launched on March 12, 2019 ($206). The direct cost for generating these revenues was $84,866 for the period ended March 31, 2019 compared to $100,819 for the same period in 2018, a decrease of $15,953. The cost of revenues is comprised of Atlas related salaries, laboratory supplies, rent and depreciation.

 

On the whole, our gross profit increased to $34,862 for the period ended March 31, 2019 compared to a gross loss of $9,651 for the same period in 2018.

 

General and administrative expenses during the three month period ended March 31, 2019 were $155,665, compared to general and administrative expense of $157,178 incurred during the three month period ended March 31, 2018, a decrease of $1,513. While our overall general and administrative expenses remained relatively constant some of our expense categories saw an increase while others decreased. The expense categories that saw an increase included consulting fees by $6,958, legal fees by $5,171 and office expenses by $35,105. The increase in office expenses is due to administrative expenses associated with the acquisition of Atlas. The expense categories that saw a decrease included accounting by $11,000 and executive compensation by $37,586.

 

We also incurred $49,815 in interest expense during the three months ended March 31, 2019, compared to $75,467 in interest expense during the similar period in 2018. In addition, we incurred $22,308 in losses arising from debt conversion during the three months ended March 31, 2019, compared to $38,340 in losses from debt conversion during the similar period in 2018 as a result of decreased borrowings.

 

As a result, we incurred a net loss of $202,542 ($0.00 per share) for the three month period ended March 31, 2019, compared to a net loss of $265,636 ($0.01 per share) during the three month period ended March 31, 2018.

 

Liquidity and Capital Resources

 

As of March 31, 2019, we had cash or cash equivalents of $95,129.

 

Net cash used in operating activities was $233,959 during the three month period ended March 31, 2019, compared to $168,455 for the three month period ended March 31, 2018.  We anticipate that overhead costs and other expenses will increase in the future as we move forward with our Proprietary Drug Development activities and expansion of our Generic Pharmaceuticals, Analytical Chemistry Services and Dietary Supplements operations as discussed above.

 

Cash flows provided by financing activities were $214,656 for the three month periods ended March 31, 2019, compared to $248,554 during the three months ended March 31, 2018.  Cash flows used in investing activities were $-0- for the three month period ended March 31, 2019 compared to $80,130 during the same three month period in 2018.

 

During the three months ended March 31, 2019, we issued a total of 3,696,581 shares of $0.001 par value Common Stock for the conversion of outstanding notes payable, reducing the debt by $25,000 and interest payable by $-0- and generating a loss on conversion of $22,308.

During the three month period ended March 31, 2018, we issued a total of 1,464,152 shares of our Common Stock. Of these, 464,152 shares valued at $95,052 were issued upon conversion of outstanding notes payable, reducing debt by $55,000 and interest payable by $1,712 and generating a loss on conversion of $38,340. In addition, we issued 1,000,000 shares of our Common Stock valued at $238,000 or $0.238 per share as part of the acquisition of Atlas Pharma Inc. 

During the three months ended March 31, 2019, we entered into the following new debt arrangements:

 

 

 

 

 

 

 

We are not generating adequate revenues from our operations to fully implement our business plan as set forth herein. As a result, our future success will depend on the future availability of financing, among other things. Such financing will be required to enable us to expand our Analytical Chemistry Services business and further develop our Generic Pharmaceuticals operations and Proprietary Drug Development program. We intend to raise funds through private placements of our Common Stock and/or debt financing. We estimate that we will require approximately $7 million ($2 million for the Analytical Chemistry and Generic Pharmaceuticals operations and $5 million for the Proprietary Drug Development program) to fully implement our business plan in the future and there are no assurances that we will be able to raise this capital. 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 plan is to fund our Proprietary Drug Development Program, including Adva-27a, through the sales of Generic Drugs and Dietary Supplements if we are unable to find any additional financing. There are also no assurances that we will generate sufficient revenues and profits from our analytical chemistry services and products sales program to accomplish these objectives.

 

 

Our cost of operations is expected to increase as we move forward with implementation of our business plan. We do not have sufficient funds to cover the anticipated increase in the relevant expenses. We need to raise additional capital in order to continue our existing operations and finance our expansion plans for the next year. If we are successful in raising additional funds, we expect our operations and business efforts to continue and expand. There are no assurances this will occur.

  

On September 10, 2018, we entered into an equity financing agreement (the “Equity Financing Agreement”) and registration rights agreement (the “Registration Rights Agreement”) with GHS Investments LLC, a Nevada limited liability company (“GHS”). Under the terms of the Equity Financing Agreement, GHS agreed to provide us with up to $10,000,000 upon effectiveness of a registration statement on Form S-1 (the “Registration Statement”) to be filed with the U.S. Securities and Exchange Commission (the “Commission”).

 

Following effectiveness of the Registration Statement, we will have the discretion to deliver puts to GHS and GHS will be obligated to purchase shares of our Common Stock, based on the investment amount specified in each put notice. The maximum amount that we are entitled to put to GHS in each put notice shall not exceed two hundred fifty percent (250%) of the average daily trading dollar volume of our Common Stock during the ten (10) trading days preceding the put date, so long as such amount does not exceed $300,000. Pursuant to the Equity Financing Agreement, GHS and its affiliates will not be permitted to purchase and we may not put shares of our Common Stock to GHS that would result in GHS’s beneficial ownership equaling more than 9.99% of our outstanding Common Stock. The price of each put share shall be equal to eighty one percent (81%) of the Market Price (as defined in the Equity Financing Agreement). Puts may be delivered by us to GHS until the earlier of thirty-six (36) months after the effectiveness of the Registration Statement or the date on which GHS has purchased an aggregate of $10,000,000 worth of Common Stock under the terms of the Equity Financing Agreement. Additionally, in accordance with the Equity Financing Agreement, we agreed to issue GHS a promissory note in the principal amount of $20,000 to offset transaction costs (the “Note”). The Note bears interest at the rate of 8% per annum, is not convertible and is due on June 30, 2019. On October 9, 2018, we filed a Registration Statement on Form S-1 and, as requested by the Commission, on October 31, 2018, we withdrew the same because our Common Stock is not currently trading on the OTCQB or a higher stock exchange. We are currently reviewing various remedy options

 

  On October 9, 2018, we filed a Registration Statement on Form S-1 and, as requested by the Commission, on October 31, 2018, we withdrew the same because our Common Stock is not currently trading on the OTCQB or a higher stock exchange. We are currently reviewing various remedy options.

Subsequent Events

 

On May 6, 2019 the holder of a note payable dated October 23, 2018 elected to convert $18,000 in principal and $765 in interest into 3,184,169 shares of Common Stock leaving a principal balance of $72,000.

 

On May 10, 2019 the holder of a note payable dated August 17, 2018 elected to convert $15,000 in principal into 2,884,615 shares of Common Stock leaving a principal balance of $13,000.

 

Off Balance Sheet Arrangements

 

None

 

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 to allow timely decisions regarding required disclosure.

 

Based on this evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were not effective as of March 31, 2019, at reasonable assurance level, for the following reasons:

 

●	Ineffective control environment and lack of qualified full-time CFO who has SEC experience to focus on our financial affairs;

 

●	Lack of qualified and sufficient personnel, and processes to adequately and timely identify making any and all required public disclosures;

 

●	Deficiencies in the period-end reporting process and accounting policies;

 

●	Inadequate internal controls over the application of new accounting principles or the application of existing accounting principles to new transactions;

 

●	Inadequate internal controls relating to the authorization, recognition, capture, and review of transactions, facts, circumstances, and events that could have a material impact on the company’s financial reporting process;

 

●	Deficient revenue recognition policies;

 

●	Inadequate internal controls with respect to inventory transactions; and

 

●	Improper and lack of timely accounting for accruals such as prepaid expenses, accounts payable and accrued liabilities.

 

Our Board of Directors has assigned a priority to the short-term and long-term improvement of our internal control over financial reporting. We are reviewing various potential solutions to remedy the processes that would eliminate the issues that may arise due to the absence of separation of duties within the financial reporting functions. Additionally, the Board of Directors will work with management to continuously review controls and procedures to identified deficiencies and implement remediation within our internal controls over financial reporting and our disclosure controls and procedures.

 

 

We believe that our financial statements presented in this quarterly report on 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, does 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 three month period ended March 31, 2019, 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

 

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. In June 2016 we received a sample of the pilot manufacturing run for evaluation. Our laboratory analyses showed that, while the sample meets all of the required chemical, physical and biological specifications, the amount of material generated (the “Yield”) by the pilot run was found to be significantly lower than anticipated. 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 manufacturing agreement we have with them. 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. We issued a letter to them in June 2017 advising of our position. As of the date of this Report we have not received a response to our letter and no further action has been taken by either party.

In June 2018 we filed an action in the Superior Court of the Province of Quebec in the District of Montreal (Canada) against one of our existing shareholders residing in Quebec City (Canada) arising out of a possible equity investment intended to be completed by August 2018. The complaint alleges among other things, claims of misrepresentations and misleading conduct resulting in damages to us in an amount of approximately $200,000 Canadian (approximately $154,000 US). On April 1, 2019, a note payable held by the defendant having a face value of $100,000 Canadian (approximately $76,000 US) became due and payable. We have elected not to pay the amount due and to petition the courts to link this matter to the ongoing litigation. As of the date of this report we are awaiting a court date for the hearings to commence.

To the best of our management’s knowledge and belief, there are no other material claims that have been brought against us nor have there been any claims threatened.

 

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 three months ended March 31, 2019, we issued a total of 3,696,581 shares of $0.001 par value Common Stock for the conversion of outstanding notes payable, reducing the debt by $25,000 and interest payable by $-0- and generating a loss on conversion of $22,308.

 

During the three month period ended March 31, 2018, we issued a total of 1,464,152 shares of our Common Stock. Of these, 464,152 shares valued at $95,052 were issued upon conversion of outstanding notes payable, reducing debt by $55,000 and interest payable by $1,712 and generating a loss on conversion of $38,340. In addition, we issued 1,000,000 shares of our Common Stock valued at $238,000 or $0.238 per share as part of the acquisition of Atlas Pharma Inc.

 

We relied upon the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, to issue these shares.

 

Other than reduction of debt from the conversion of the outstanding convertible notes described above and acquisition of Atlas Pharma Inc., we did not receive any direct proceeds from the issuance of these shares. The proceeds from the notes payable were used for the acquisition of Atlas Pharma Inc. and working capital.

 

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 May 20, 2019.

 

	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