Sunshine Biopharma Inc.: Form 10-Q for the period ended Mar 31, 2022

The following discussion should be read in conjunction with our consolidated financial statements and notes thereto included herein. This discussion includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. The statements regarding Sunshine Biopharma, Inc. contained in this Report that are not historical in nature, particularly those that utilize terminology such as “may,” “will,” “should,” “likely,” “expects,” “anticipates,” “estimates,” “believes” or “plans,” or comparable terminology, are forward-looking statements based on current expectations and assumptions, and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. Important factors known to us that could cause such material differences are identified in this report and in our annual report on Form 10-K for the year ended December 31, 2021. We undertake no obligation to correct or update any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable law. You are advised, however, to consult any future disclosures we make on related subjects in future reports to the SEC.

Overview

We are a pharmaceutical and nutritional supplement company focusing on the research and development of proprietary drugs including our anti-cancer compound Adva-27a, and anti-coronavirus lead compound, SBFM-PL4. In addition, we are engaged in the development of specific mRNA molecules for cancer therapy.

We also, through our wholly owned Canadian subsidiary, Sunshine Biopharma Canada Inc. (“Sunshine Canada”), develop science-based nutritional supplements, and currently sell one nutritional supplement product, Essential 9tm.

Proprietary Drug Development Operations

SBFM-PL4 Anti-Coronavirus Treatment

The following is a summary of the development to date of our coronavirus treatment project:

• On May 22, 2020, we filed a patent application in the United States for a new treatment for Coronavirus infections. Our patent application covers composition subject matter pertaining to small molecules for inhibition of the Coronavirus main protease (Mpro) and papain-like protease (PLpro). Both enzymes are essential for viral replication. In addition to being involved in maturation of specific viral proteins, PLpro is responsible for suppression of the human immune system making the virus more virulent. The small molecules covered by the patent application were designed by Dr. Steve N. Slilaty, our chief executive officer. The patent application has a priority date of May 22, 2020.
• In August 2020, we completed the synthesis of four different potential inhibitors of PLpro. These compounds are based on the technology described in our patent application filed on May 22, 2020.
• In September 2020, we completed the screening of our four compounds and subsequently identified a lead Anti-Coronavirus drug candidate (SBFM-PL4). The screening which pinpointed the lead compound was performed at the University of Georgia, College of Pharmacy under the leadership of Dr. Scott D. Pegan, Director of the Center for Drug Discovery and Interim Associate Head of Pharmaceutical and Biomedical Sciences.
• The next steps in our SBFM-PL4 drug development plan will involve conducting in vitro studies followed by cell culture assays and assessment in Coronavirus infected mice before entering human clinical trials.
• In February 2022, we expanded our search for additional PLpro inhibitors by entering into a research agreement with the University of Arizona. Pursuant to the research agreement, the University of Arizona agreed to perform a research project focused on determining the in vivo safety, pharmacokinetics, and dose selection properties of three University of Arizona owned PLpro inhibitors, followed by efficacy testing in mice infected with SARS-CoV-2. Under the research agreement, the University of Arizona granted us a first option to negotiate for a commercial, royalty-bearing license for all intellectual property invented or authored by University of Arizona personnel under the research project.

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Adva-27a Anticancer Drug

In the area of oncology, 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 patents pertaining to Adva-27a including U.S. Patents Number 8,236,935 and 10,272,065.

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 however, Adva-27a is able to penetrate and destroy Multidrug Resistant Cancer cells. 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).

The next sequence of steps in our Adva-27a development program include:

• GMP Manufacturing of 2 kilograms 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, particularly those in which Topoisomerase II has been amplified. We believe that upon successful completion of Phase I Clinical Trials we may receive one or more offers from large pharmaceutical companies to purchase 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 secure regulatory approval, manufacture and market our new drug on our own.

mRNA Molecules as Anti-Cancer Agents

In June 2021, we initiated a new research project in which we set out to determine if certain mRNA molecules can be used as anti-cancer agents. The data collected to date have shown that certain mRNA molecules are capable of destroying cancer cells in vitro including multidrug resistant breast cancer cells (MCF-7/MDR), ovarian adenocarcinoma cells (OVCAR-3), and pancreatic cancer cells (SUIT-2). Other studies using non-transformed (normal) human cells (HMEC cells) showed that these mRNA molecules had little cytotoxic effects. These new mRNA molecules are readily adaptable for delivery into patients using the mRNA vaccine technology. In April 2022, we filed a provisional patent application in the United States covering the subject mRNA molecules. We plan to commence mice xenograft studies within approximately the next twelve months.

Nutritional Supplements Operations

Our wholly owned Canadian subsidiary, Sunshine Canada, focuses on the development and marketing of science-based nutritional supplements. In December 2018, we completed the development of Essential 9™. On December 14, 2018, Health Canada issued NPN 80089663 through which it authorized us to manufacture and sell the Essential 9™ product. Our Essential 9™ nutritional 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. Our Essential 9™ provides all 9 Essential Amino Acids in freeform and in the proportions recommended by Health Canada. Essential 9™ is currently available on Amazon.com and Amazon.ca. Figure 3 below shows our 60-Tablet Essential 9™ product.

In November 2019, we received Health Canada approval for another nutritional supplement, a new Calcium-Vitamin D tablet. Health Canada issued NPN 80093432 through which it authorized us to manufacture and sell the new Calcium-Vitamin D supplement under the brand name Essential Calcium-Vitamin D™. Vitamin D is a group of steroid-like molecules responsible for increasing intestinal absorption of calcium, magnesium, and phosphate. They are also involved in multiple other biological functions, including proper functioning of the immune system, promoting healthy growth of bone, and reduction of inflammation. The most important compounds in this group are ergocalciferol (Vitamin D2) and cholecalciferol (Vitamin D3). Sunshine Biopharma’s Essential Calcium-Vitamin D™ tablets contain both of these compounds as well as calcium for optimum health benefits. We are considering potentially launching this product in 2022.

We are also developing additional nutritional supplement products. We may launch additional nutritional supplement products within approximately 1-2 years.

Results of Operations

Comparison of results of operations for the three months ended March 31, 2022 and 2021

During the three months ended March 31, 20212, we generated $122,645 in revenues, compared to $40,058 for the three months ended March 31, 2021, an increase of $82,587. The increase is attributable to a slightly widened advertising program. All of these revenues were generated from our science-based nutritional supplements operations. The direct cost for generating these revenues was $59,845 for the three months ended March 31, 2022 (48.8%), compared to $18,520 (46.2%) for the three months ended March 31, 2021. The increase in the cost of goods sold in 2022 is due to increased manufacturing cost. Our gross profit increased to $62,800 for the three months ended March 31, 2022, compared to a gross profit of $21,538 for the same period in 2021.

General and administrative expenses during the three month period ended March 31, 2022 were $1,286,164 compared to $1,297,184 during the three month period ended March 31, 2021, a decrease of $10,420. Overall, we incurred a loss of $1,223,364 from our operations in the three month period ended March 31, 2022, compared to a loss from operations of $1,275,646 in the similar period of 2021.

In addition, we incurred $12,864 in interest expense during the three months ended March 31, 2022, compared to $49,711 in interest expense during the similar period in 2021. We incurred no losses related to debt conversion during the three months ended March 31, 2022, compared to $4,910,786 in losses arising from debt conversion during the three months ended March 31, 2021. This was due to the fact that all of our outstanding debt was paid during the quarter ended March 31, 2022 prior to the occurrence of any debt conversion events.

As a result, we incurred a net loss of $1,236,234 for the three month period ended March 31, 2022, compared to a net loss of $6,185,126 for the three month period ended March 31, 2021.

Liquidity and Capital Resources

As of March 31, 2022, we had cash or cash equivalents of $13,177,625.

Net cash used in operating activities was $1,304,208 during the three months ended March 31, 2022, compared to $297,355 during the three month period ended March 31, 2021. The increase was a result of increased business activities including expenses related to the two financing transactions completed during the quarter ended March 31, 2022.

Cash flows provided by financing activities were $12,437,673 for the three months ended March 31, 2022, compared to $1,102,000 for the three month periods ended March 31, 2021. The increase was a result of the two financing transactions completed on February 17 and March 14, 2022.

Cash flows used in investing activities were $0 for the three months ended March 31, 2022, compared to $0 for the three month period ended March 31, 2021.

We are not generating adequate revenues from our operations to fully implement our business plan as set forth herein. On February 17, 2022, we received net proceeds of approximately $6.8 million from the sale of common stock and warrants in an underwritten public offering. On March 14, 2022, we received net proceeds of approximately $6.8 million from the sale of common stock and warrants in a private placement. On April 28, 2022, we received net proceeds of approximately $16.8 million from the sale of common stock and warrants in a private placement. We believe our existing cash will be sufficient to fund our operations, including general and administrative expenses, expanded research and development activities, and nutritional supplement business, for the next 24 months. There is no assurance our estimates will be accurate. We have no committed sources of capital and we anticipate that we will need to raise additional capital in the future, including for further research and development activities and possibly clinical trials. Additional capital may not be available on terms acceptable to us, or at all.

Critical Accounting Policies and Estimates

Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these 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.

For a detailed list of significant accounting policies, please see our annual report on Form 10-K for the fiscal year ended December 31, 2021, including our financial statements and notes thereto included therein as filed with the SEC on March 21, 2022,

Recently Adopted Accounting Standards

In February 2020, the FASB issued ASU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842) which amends the effective date of the original pronouncement for smaller reporting companies. ASU 2016-13 and its amendments will be effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2022. The Company believes the adoption will modify the way the Company analyzes financial instruments, but it does not anticipate a material impact on results of operations. The Company is in the process of determining the effects adoption will have on its consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, *Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40), (“*ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU2020-06 amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is evaluating the impact of this guidance on its unaudited consolidated financial statements.

Off Balance-Sheet Arrangements

None

Evaluation of 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 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 Exchange Act 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 management, including our CEO and CFO, concluded that our disclosure controls and procedures were not effective as of March 31, 2022, 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 tracking and transactions; and
• improper and lack of timely accounting for accruals such as prepaid expenses, accounts payable and accrued liabilities.

The Company is addressing the ineffective controls, including through the following steps:

• The Company added independent directors in the fourth quarter of 2021 and the first quarter of 2022.
• The Company has additional financial resources, including funds received through a public offering and a private placement completed in the first quarter of 2022, to enable the hiring of additional personnel that will result in a separation of duties going forward.
• The Company established an independent Audit Committee in the first quarter of 2022.

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 report fairly present, in all material respects, our financial position, results of operations, and cash flows for all periods presented herein.

Changes in Internal Control Over Financial Reporting

Except as set forth above, there were no changes in our internal control over financial reporting during the quarter ended March 31, 2022, 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.