Sunshine Biopharma Inc

For the Three Months Ended March 31, 2024 and 2023

Note 1 –Description of Business

The Company was incorporated under the name Mountain West Business Solutions, Inc. on August 31, 2006, in the State of Colorado. Effective October 15, 2009, the Company acquired Sunshine Biopharma, Inc. in a transaction classified as a reverse acquisition. Upon completion of the reverse acquisition transaction, the Company changed its name to Sunshine Biopharma, Inc. and began operating as a pharmaceutical company.

Sunshine Biopharma operates two wholly owned subsidiaries: (i) Nora Pharma Inc. (“Nora Pharma”), a Canadian corporation with a portfolio of pharmaceutical products consisting of 52 generic prescription drugs on the market in Canada, and (ii) Sunshine Biopharma Canada Inc. (“Sunshine Canada”), a Canadian corporation which develops and sells nonprescription over-the-counter (“OTC”) products.

The Company has determined that it has two reportable segments:

Through March 31, 2024, sales from the Generic Pharmaceuticals segment represented approximately 97% of total revenues of the Company while the remaining approximately 3% was generated from the sale of OTC Products. Based on these results, the Company deems segmentation reporting to be immaterial at March 31, 2024.

The Company is not subject to material customer concentration risks as it sells its products directly to pharmacies in several Canadian provinces. However, in Canada provincial governments reimburse patients for their prescription drugs expenditures to various degrees under drug reimbursement programs, making generic drugs prices highly dependent on governmental policies which may change over time. The most recent negotiations between the pan-Canadian Pharmaceutical Alliance and the Canadian Generic Pharmaceutical Association have resulted in updated generic pricing for certain products which took effect on October 1, 2023. The updated prices are valid for three years and the agreement may be extended for an additional two years. On February 29, 2024, the Canadian federal government tabled new drug reimbursement legislation, a bill known as PharmaCare which, if passed, would result in a single-payer program whereby the Canadian federal government would pay for the drugs sold in Canada rather than the Provinces.

In addition, the Company is engaged in the development of the following proprietary drugs:

Note 2 –Basis of Presentation

The unaudited financial statements of the Company for the three months periods ended March 31, 2024 and 2023 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-X. 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, 2023, was derived from the audited financial statements included in the Company's financial statements as of and for the year ended December 31, 2023, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 28, 2024. These financial statements should be read in conjunction with that report.

On April 17, 2024, the Company completed a 1-for-100 reverse split of its common stock (the “Reverse Split”). The share amounts, warrants, and related parameters specified in this report have been adjusted to reflect the Reverse Split on a retroactive basis.

Note 3 –Underwritten Public Offering

On February 15, 2024, the Company completed an underwritten public offering for gross proceeds of approximately $10 million, before deducting fees to the underwriter and other offering expenses payable by the Company. The net proceeds received by the Company were $8,522,411.

The offering consisted of 714,286 Units, consisting of (i) 264,286 Common Units, with each Common Unit consisting of one share of common stock, one-tenth of a Series A warrant to purchase one share of common stock (“Series A Warrant”) and two-tenths of a Series B warrant to purchase one share of common stock (“Series B Warrant”), and (ii) 450,000 Pre-Funded Units, with each Pre-Funded Unit consisting of one pre-funded warrant to purchase one share of common stock (“Pre-Funded Warrants”), one-tenth of a Series A Warrant and two-tenths of a Series B Warrant. The public offering price was $14.00 per Common Unit and $13.9 per Pre-Funded Unit. The Pre-Funded Warrants have an exercise price of $0.10 per share. The Pre-Funded Warrants are immediately exercisable and may be exercised at any time until exercised in full. The initial exercise price of each Series A Warrant is $210.00 per share of common stock or pursuant to an alternative cashless exercise option. Under the alternative cashless exercise provision, which became effective following stockholder approval in March 2024, each Series A Warrant is exercisable on a cashless basis for two shares of common stock. The Series A Warrants are exercisable immediately and expire 30 months after the initial issuance date. The initial exercise price of each Series B Warrant is $238.00 per share of common stock. The Series B Warrants are exercisable immediately and expire 60 months after the initial issuance date.

In addition (effective following the stockholder approval), the Series A Warrants and Series B Warrants included a provision under which, following a reverse split of the common stock, the exercise price will be adjusted to the lowest volume weighted average price (“VWAP”) for the five trading days immediately preceding and immediately following the date of reverse stock split, and the number of shares issuable upon exercise of the Series A Warrants or Series B Warrants will be adjusted such that the aggregate exercise price of the Series A Warrants or Series B Warrants will remain unchanged. The Series B Warrants do not include an alternate cashless exercise provision and can only be exercised for cash so long as the Company’s registration statement for such warrants and underlying shares remains effective. As a result of the Reverse Split, the exercise price of the Series A Warrants has been reduced to $1.026 and the number of Series A Warrants has been increased to 16,319,444. Also as a result of the Reverse Split, the exercise price of Series B Warrants was reduced to $1.026 and the number of Series B Warrants increased to 36,990,739.

In addition, the Company granted the underwriter, Aegis Capital Corp. ("Aegis"), a 45-day option to purchase up to an additional 15% of the total number of shares of common stock and/or Pre-Funded Warrants and/or Series A Warrants and/or Series B Warrants sold in the offering, solely to cover overallotments, if any. On February 15, 2024, Aegis partially exercised its over-allotment option for a total of 8,304 Series A Warrants and 16,607 Series B Warrants.

As of March 31, 2024, all of the Pre-Funded Warrants, consisting of 450,000 warrants in total, have been exercised resulting in the Company issuing 450,000 shares of common stock and receiving net proceed of $45,000.

The following table sets forth the outstanding warrants, as adjusted, issued in connection with this offering at March 31, 2024:

Note 4 –Acquisition of Nora Pharma Inc.

On October 20, 2022, the Company acquired all of the issued and outstanding shares of Nora Pharma Inc. (“Nora Pharma”), a Canadian privately held pharmaceutical company. The purchase price for the shares was $18,860,637 (USD), $14,346,637 of which was paid in cash and the remainder was paid through the issuance of 37,000 shares of the Company’s common stock valued at $4,514,000 or $122.00 per share. Nora Pharma sells generic pharmaceutical products in Canada. Nora Pharma’s operations are authorized by a Drug Establishment License issued by Health Canada.

The following table summarizes the allocation of the purchase price as of October 20, 2022, the acquisition date using Nora Pharma’s balance sheet assets and liabilities:

The value of the 37,000 common shares issued as part of the consideration paid for Nora Pharma was determined based on the closing market price of the Company’s common shares on the acquisition date, October 20, 2022 ($122.00 per share).

The Company impaired 100% of the goodwill amount in 2022 and plans to depreciate the intangible assets as detailed in Note 5 below.

As part of the consideration paid for Nora Pharma, the Company agreed to a $5,000,000 CAD ($3,632,000 USD) earn-out amount payable to Mr. Malek Chamoun, the Seller of Nora Pharma. The earnout is payable in the form of twenty (20) payments of $250,000 CAD for every $1,000,000 CAD increase in gross sales (as defined in the Purchase Agreement) above Nora Pharma’s June 30, 2022 gross sales, provided that his employment with the Company is not terminated pursuant to the Company’s employment agreement with him. The total earn-out amount of $3,632,000 has been recorded as a salary payable. During the fiscal year ended December 31, 2023, the Company paid an earn-out amount of $1,084,169 for the fiscal year ended December 31, 2022. On April 22, 2024, the Company paid an earn-out amount of $3,093,878 CAD (approximately $2,291,761 USD) for the earn-out realized in fiscal year 2023. The current remaining earn-out balance is $479,207 CAD (approximately $354,968 USD).

Note 5 –Intangible Assets

Intangible assets, net consisted of the following:

As of March 31, 2024, the estimated amortization amounts of the Company’s intangible assets for each of the next five years are as follows:

Note 6 –Reverse Stock Splits

Effective April 17, 2024, the Company completed a 1-for-100 reverse split of its common stock (the “Reverse Split”). The Company had previously completed three (3) reverse stock splits including a 1-for-200 on February 9, 2022, and two 1-for-20 reverse stock splits, one in 2019 and the other in 2020. The Company’s financial statements included in this report reflect all four reverse stock splits on a retroactive basis for all periods presented and for all references to common stock, unless specifically stated otherwise.

Note 7 –Capital Stock

The Company’s authorized capital is comprised of 3,000,000,000 shares of common stock, par value $0.001, and 30,000,000 shares of preferred stock, $0.10 par value. As of March 31, 2024, the Company had authorized 1,000,000 shares of Series B Preferred Stock. The Series B Preferred Stock is non-convertible and non-redeemable. It has a liquidation preference equal to the stated value of $0.10, relative to the common stock and gives the holder the right to 1,000 votes per share. As of March 31, 2024,130,000 shares of Series B Preferred Stock were outstanding and held by the Company’s Chief Executive Officer.

On February 17, 2022, the Company completed a public offering and received net proceeds of $6,833,071 from the offering. Pursuant to the public offering, the Company issued and sold an aggregate of 18,824 shares of common stock and 41,022 warrants to purchase shares of common stock (the “Tradeable Warrants”).

On February 22, 2022, the Company redeemed 990,000 shares of Series B Preferred Stock from the CEO of the Company at a redemption price equal to the stated value of $0.10 per share. The remaining 10,000 shares of Series B Preferred Stock could not be voted pursuant to a warrant agent agreement relating to the Tradeable Warrants (the “Warrant Agent Agreement”). On October 12, 2023, the Company held a special meeting of the holders of the outstanding Tradeable Warrants in which the holders of the majority of the outstanding Tradeable Warrants approved an amendment to the Warrant Agent Agreement to eliminate the provision that prohibited the Company’s CEO from exercising his voting rights under the Series B Preferred Stock, as well as to lower the exercise price of the Tradeable Warrants from $222.00 to $11.00. The Company entered into the amendment to the Warrant Agent Agreement on October 18, 2023.

On March 14, 2022, the Company completed a private placement and received net proceeds of $6,781,199. In connection with this private placement, the Company issued (i)23,014 shares of its common stock together with investor warrants (“Investor Warrants”) to purchase up to 23,014 shares of common stock, and (ii) 13,023 pre-funded warrants (“Pre-Funded Warrants”) with each Pre-Funded Warrant exercisable for one share of common stock, together with Investor Warrants to purchase up to 130,225 shares of common stock. Each share of common stock and accompanying Investor Warrant was sold together at a combined offering price of $222.00 and each Pre-Funded Warrant and accompanying Investor Warrant were sold together at a combined offering price of $221.9. The Pre-Funded Warrants were immediately exercisable, at an exercise price of $0.1, and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full. The Investor Warrants have an exercise price of $222.00 per share (subject to adjustment as set forth in the warrant), are exercisable upon issuance and will expire five years from the date of issuance.

On April 28, 2022, the Company completed another private placement and received net proceeds of $16,752,915. In connection with this private placement, the Company issued (i) 24,728 shares of its common stock together with warrants (“April Warrants”) to purchase up to 49,456 shares of common stock, and (ii) 23,900 pre-funded warrants (“Pre-Funded Warrants”) with each Pre-Funded Warrant exercisable for one share of common stock, together with April Warrants to purchase up to 47,801 shares of common stock. Each share of common stock and accompanying two April Warrants were sold together at a combined offering price of $401.00 and each Pre-Funded Warrant and accompanying two April Warrants were sold together at a combined offering price of $400.90. The Pre-Funded Warrants were immediately exercisable, at an exercise price of $0.1, and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full. The April Warrants have an exercise price of $376.00 per share (subject to adjustment as set forth in the warrant), are exercisable upon issuance and will expire five years from the date of issuance.

On October 20, 2022, the Company issued 37,000 shares of common stock as part of the acquisition of Nora Pharma. These shares were valued at $4,514,000, or $122.00 per share.

On January 19, 2023, the Company announced a stock repurchase program of up to $2 million (“Stock Repurchase Program”). During the six months ended June 30, 2023, the Company repurchased a total of 44,571 shares of common stock at an average price of $113.71 per share for a total cost of $506,822. The 44,571 repurchased common shares were cancelled and returned to treasury reducing the number of issued and outstanding shares from 225,856 to 221,399.

On May 16, 2023, the Company completed a private placement pursuant to a securities purchase agreement with an institutional investor for gross proceeds of approximately $5 million, before deducting fees to the placement agent and other offering expenses payable by the Company. The net proceeds received by the Company were $4,089,218. In connection with the private placement, the Company issued (i)24,500 shares of common stock, (ii)35,024 pre-funded warrants (the “May Pre-Funded Warrants”), and (iii) investor warrants (the “May Warrants”) to purchase up to 119,048 shares of common stock at $59.00 per share. Each share of common stock and accompanying two May Warrants were sold together at a combined offering price of $84.00 and each May Pre-Funded Warrant and accompanying two May Warrants were sold together at a combined offering price of $83.90. The May Pre-Funded Warrants are immediately exercisable, at an exercise price of $0.1, and may be exercised at any time until all of the May Pre-Funded Warrants are exercised in full. The May Warrants have an exercise price of $59.00 per share (subject to adjustment as set forth therein), are exercisable upon issuance and will expire five and a half years from the date of issuance.

In 2022 and 2023, the Company issued a total of 107,934 shares of common stock in connection with warrant exercises for aggregate net proceeds of $13,196,681.

In July 2023, the Company repurchased a total of 680 shares of common stock under the Stock Repurchase Program announced on January 19, 2023, at an average price of $50.46 per share for a total cost of $34,321. In October 2023, the 680 repurchased common shares were cancelled and returned to treasury reducing the number of issued and outstanding shares from 257,463 to 256,783.

On November 16, 2023, the Company issued 23,460 shares of common stock and received net proceeds of $2,346 in connection with the exercise of all 23,460 remaining May Pre-Funded Warrants at the nominal exercise price of $0.1 per share.

On February 8, 2024, the Company issued 20,000 shares of Series B Preferred Stock to the Company’s CEO for a purchase price of $0.10 per share.

On February 15, 2024, the Company completed an underwritten public offering and in connection therewith it issued an aggregate of 714,286 shares of common stock, of which 450,000 shares were issued in connection with pre-funded warrant exercises.

On March 4, 2024, the Company issued 100,000 shares of Series B Preferred Stock to the Company’s CEO for a purchase price of $0.10 per share.

As of March 31, 2024 and December 31, 2023, the Company had a total of 994,529 and 280,243 shares of common stock issued and outstanding, respectively.

The Company has declaredno dividends since inception.

Note 8 –Warrants

The Company accounts for issued warrants either as a liability or equity in accordance with ASC 480-10 or ASC 815-40. Under ASC 480-10, warrants are considered a liability if they are mandatorily redeemable and they require settlement in cash, other assets, or a variable number of shares. If warrants do not meet liability classification under ASC 480-10, the Company considers the requirements of ASC 815-40 to determine whether the warrants should be classified as a liability or as equity. Under ASC 815-40, contracts that may require settlement for cash are liabilities, regardless of the probability of the occurrence of the triggering event. Liability-classified warrants are measured at fair value on the issuance date and at the end of each reporting period. Any change in the fair value of the warrants after the issuance date is recorded in the consolidated statements of operations as a gain or loss. If warrants do not require liability classification under ASC 815-40, in order to conclude warrants should be classified as equity, the Company assesses whether the warrants are indexed to its common stock and whether the warrants are classified as equity under ASC 815-40 or other applicable GAAP standard. Equity-classified warrants are accounted for at fair value on the issuance date with no changes in fair value recognized after the issuance date.

In 2022, 2023, and during the three months ended March 31, 2024, the Company completed five (5) financing events, and in connection therewith, it issued warrants as follows:

As of March 31, 2024, all of the 2022, May, and 2024 Pre-Funded Warrants, and a total of 31,385 Tradeable Warrants, and 28,027 Investor Warrants were exercised resulting in aggregate proceeds of $13,241,681 received by the Company.

On February 11, 2024, the Company purchased back all of the April Warrants and the May Investor Warrants for an aggregate purchase price of $3,139,651.

The Company’s outstanding warrants as of May 20, 2024 consisted of the following:

Note 9 –Earnings Per Share

The following table sets forth the computation of basic and diluted net income per share for the quarters ended March 31:

Note 10 –Lease

The Company has obligations as a lessee for office and warehouse space with initial non-cancellable terms in excess of one year. The Company classified the lease as an operating lease. The lease contains a renewal option for a period of five years. Because the Company is certain to exercise the renewal option, the optional period is included in determining the lease term, and associated payments under the renewal option are included in the lease payments. The Company’s lease does not include termination options for either party to the lease or restrictive financial or other covenants. Payments due under the lease include fixed payments plus a variable payment. The Company’s lease requires it to make variable payments for the Company’s proportionate share of building’s property taxes, insurance, and common area maintenance. These variable lease payments are not included in lease payments used to determine lease liability and are recognized as variable costs when incurred.

Amounts reported on the balance sheet as of March 31, 2024 were as follows:

Amounts disclosed for ROU assets obtained in exchange for lease obligations and reductions of ROU assets resulting from reductions of lease obligations include amounts reduced from the carrying amount of ROU assets resulting from deferred rent.

Maturities of lease liabilities under non-cancellable operating leases at March 31, 2024 are as follows:

Note 11 –Management and Director Compensation

The Company paid its officers cash compensation totaling $262,486 and $820,000 for the three-month periods ended March 31, 2024 and 2023, respectively.

The Company paid its directors aggregate cash compensation totaling $100,000 for each of the three-month periods ended March 31, 2024 and 2023.

Note 12 –Income Taxes

In calculating the provision for income taxes on an interim basis, the Company uses an estimate of the annual effective tax rate based upon currently known facts and circumstances and applies that rate to its year-to-date earnings or losses. The Company’s effective tax rate is based on expected income and statutory tax rates and takes into consideration permanent differences between financial statement and tax return income applicable to the Company in the various jurisdictions in which the Company operates. The effect of discrete items, such as changes in estimates, changes in rates or tax status, and unusual or infrequently occurring events, is recognized in the interim period in which the discrete item occurs. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or as the result of new judicial interpretations or regulatory or tax law changes.

The Company’s interim effective tax rate, inclusive of discrete items, for the three-month periods ended March 31, 2024 and 2023 was 26.83%.

The Company’s consolidated financial statements contain various tax related entries the same being due to the operations of the two Canadian subsidiaries and are in compliance with Canadian tax laws.

Note 13 –Subsequent Events

Effective April 17, 2024, the Company completed a 1-for-100 reverse split of its common stock (the “Reverse Split”). As a result of the Reverse Split, the exercise price of the Series A Warrants has been reduced to $1.026 and the number of Series A Warrants has been increased to 16,319,444. Also as a result of the Reverse Split, the exercise price of Series B Warrants was reduced to $1.026 and the number of Series B Warrants increased to 36,990,739. All share amounts, warrants, and related parameters specified in this report have been adjusted to reflect the Reverse Split.

Subsequent to March 31, 2024, the Company issued 17,950,523 shares of common stock upon exercise of 8,975,262 Series A Warrants pursuant to the alternative cashless exercise of the Series A Warrants.

On April 24, 2024, the Company paid Malek Chamoun, the Seller of Nora Pharma, an earn-out amount of $3,093,878 CAD (approximately $2,291,761 USD), pursuant to its obligation under the applicable Sale Agreement.

On May 3, 2024, the SEC announced that it had settled charges against BF Borgers CPA PC (“Borgers”), the Company’s independent accounting firm, stating that Borgers failed to conduct audits in accordance with the standards of the Public Company Accounting Oversight Board (the “PCAOB”). As part of the settlement, Borgers agreed to a permanent ban on appearing or practicing before the SEC. As a result, the Company dismissed Borgers as its independent accountant.

On May 7, 2024, the Company engaged Bush & Associates CPA LLC as its new independent auditor.