Sunshine Biopharma(SBFM) - 2022 Q4 - Annual Report

Part I Business Sunshine Biopharma is a pharmaceutical company with a dual focus on developing proprietary oncology and antiviral drugs, and marketing generic pharmaceuticals and OTC supplements - The company operates through three wholly-owned subsidiaries: Nora Pharma Inc. (generic drugs in Canada), Sunshine Biopharma Canada Inc. (OTC supplements), and the inactive NOX Pharmaceuticals, Inc[16] - On October 20, 2022, the company acquired Nora Pharma Inc., a Canadian generic pharmaceuticals company with 49 prescription drugs on the market and sales of $10.7 million USD in its fiscal year ended June 30, 2022[16][20] - The company's proprietary drug development focuses on Adva-27a (anticancer), K1.1 (anticancer mRNA), and SBFM-PL4 (COVID-19 treatment)[17][18][19] Products on the Market (via Nora Pharma) | Category | Count | Market | | :--- | :--- | :--- | | Generic Prescription Drugs | 49 | Canada | | Nonprescription OTC Products | 11 | Canada & U.S. | Proprietary Drug Development Pipeline | Drug | Therapeutic Area | Development Stage | | :--- | :--- | :--- | | Adva-27a | Oncology (Pancreatic Cancer) | IND-Enabling Studies | | K1.1 (mRNA LNP) | Oncology (Liver Cancer) | Animal Testing | | SBFM-PL4 | Antiviral (COVID-19) | Animal Testing | Risk Factors The company faces significant risks, including a history of net losses and an accumulated deficit, intense competition, and uncertain regulatory approval for its drug candidates - The company has a history of financial losses, with a net loss of $26.7 million in 2022 and an accumulated deficit of $59.4 million as of December 31, 2022[56] - The generic pharmaceutical business, the primary source of revenue, is subject to pricing pressures, supply chain disruptions, and intense competition, which could adversely affect sales and profitability[57][58][59] - Development of proprietary drugs like Adva-27a and the COVID-19 treatment is costly and requires extensive clinical trials, with no guarantee of FDA approval or commercial success[63][64] - The company will require significant additional funding for R&D and clinical trials, which may not be available on favorable terms[65] - Competition is a major risk, with large pharmaceutical companies having substantially greater resources in the oncology and antiviral spaces, and the OTC supplement market being highly crowded[87][90] - Future stock offerings to raise capital may dilute the ownership percentage of existing shareholders[111] Unresolved Staff Comments The company reports no unresolved staff comments - None[113] Properties The company's principal executive office is in Pointe-Claire, Quebec, and its subsidiary Nora Pharma leases a 15,000 square foot facility in Varennes, Quebec - The principal place of business is located at 6500 Trans-Canada Highway, 4th Floor, Pointe-Claire, Quebec, Canada[114] - Wholly-owned subsidiary Nora Pharma leases a 15,000 sq. ft. facility in Varennes, Quebec, for approximately $12,750 USD per month[115] The lease expires on January 31, 2025, with a five-year extension option[115] Legal Proceedings The company is not a party to any legal proceedings, and its property is not the subject of any such proceedings - The company is not currently involved in any legal proceedings[116] Mine Safety Disclosures This item is not applicable to the company - Not applicable[117] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock and warrants are listed on Nasdaq, and it retains earnings for development rather than paying dividends - Common stock (SBFM) and warrants (SBFMW) have been listed on the Nasdaq Capital Market since February 15, 2022[120] - The company has a policy of retaining earnings for development and does not anticipate paying dividends in the foreseeable future[122] - As of December 31, 2022, the company did not have any equity compensation plans but intends to submit one for shareholder approval in 2023[121] Management's Discussion and Analysis of Financial Condition and Results of Operations In fiscal year 2022, revenue surged due to the Nora Pharma acquisition, but a net loss was recorded primarily from goodwill impairment, while cash improved significantly from stock offerings Fiscal Year Financial Comparison (2022 vs. 2021) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Revenues | $4,345,603 | $228,426 | | G&A Expenses | $28,697,325 | $2,550,730 | | Net Loss | ($26,511,136) | ($12,436,447) | | Goodwill Impairment | $18,326,719 | $0 | - The significant increase in 2022 revenue was a direct result of the Nora Pharma acquisition in October 2022, which contributed $3.8 million in revenue for the post-acquisition period[125] - The company raised significant capital in 2022, receiving net proceeds of approximately $30.4 million from public and private offerings and $13.2 million from warrant exercises[128][129] - Management believes existing cash of $21.8 million is sufficient to fund operations for the next 24 months, but additional capital will be needed for future activities[132] Quantitative and Qualitative Disclosures About Market Risk This section is not required as the company is a smaller reporting company - Not required for a smaller reporting company[139] Financial Statements and Supplementary Data The audited consolidated financial statements for 2022 and 2021 reflect significant changes due to the Nora Pharma acquisition, various financing activities, and the payoff of all outstanding notes payable Note 3 – Acquisition of Nora Pharma Inc. On October 20, 2022, the company acquired Nora Pharma for $18.86 million, resulting in $18.33 million in goodwill which was fully impaired in 2022 Nora Pharma Acquisition Purchase Price Allocation | Item | Value (USD) | | :--- | :--- | | Total Consideration | $18,860,637 | | Net Assets Acquired | $533,918 | | Goodwill | $18,326,719 | | Goodwill Impairment (2022) | ($18,326,719) | - The acquisition includes an earnout agreement of up to $5 million CAD ($3.63 million USD) payable to the seller based on future increases in gross sales[203] Note 8 & 9 – Capital Stock and Warrants In 2022, the company executed a reverse stock split and conducted several financing events, significantly increasing common shares outstanding and creating a complex warrant structure - A 1-for-200 reverse stock split was completed on February 9, 2022[210] - In February 2022, a public offering raised net proceeds of $6.8 million through the sale of 1.88 million shares and 4.1 million warrants[212] - Two private placements in March and April 2022 raised combined net proceeds of approximately $23.5 million through the issuance of common stock, pre-funded warrants, and other warrants[215][216] Outstanding Warrants as of Dec 31, 2022 | Type | Number Outstanding | Exercise Price | | :--- | :--- | :--- | | Tradeable Warrants | 963,693 | $2.22 | | Investor Warrants | 800,901 | $2.22 | | April Warrants | 9,725,690 | $3.76 | Note 12 – Notes Payable As of December 31, 2022, the company had no outstanding notes payable, as all $1.9 million in notes from 2021 were fully paid off in February 2022 - The company had $0 in notes payable outstanding as of December 31, 2022, compared to $1,900,000 at the end of 2021[226] - All outstanding notes from 2021, totaling $1.9 million in principal plus accrued interest, were paid off in cash on February 17, 2022[226][227][228] Note 16 – Subsequent Events Following the end of the fiscal year, on January 19, 2023, the company announced a stock repurchase program authorizing the buyback of up to $2 million of its common stock - On January 19, 2023, the company announced a stock repurchase program of up to $2 million[236] - To date, 445,711 shares have been repurchased at an average price of $1.1371 per share, for a total cost of $506,822[236] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with no material changes during the fourth quarter - Management concluded that disclosure controls and procedures were effective as of December 31, 2022[240] - Management concluded that internal control over financial reporting was effective as of December 31, 2022, based on the COSO framework (2013)[244] - As a smaller reporting company, an attestation report on internal control from the independent auditor is not required[245] Part III Directors, Executive Officers, and Corporate Governance The company is led by CEO Dr. Steve N. Slilaty, with an executive team and a board including three independent directors, and has established audit, compensation, and corporate governance committees - The executive team consists of Dr. Steve N. Slilaty (CEO), Dr. Abderrazzak Merzouki (COO), and Camille Sebaaly (CFO)[252] - The Board has three independent directors: Dr. Rabi Kiderchah, David Natan, and Dr. Andrew Keller[278] - The company has established audit, compensation, and corporate governance/nominating committees, with David Natan identified as the audit committee financial expert[260] - A Code of Ethics has been adopted and is available on the company's website[262] Executive Compensation In 2022, total compensation for the top three executives was $1.785 million, with CEO Dr. Steve N. Slilaty receiving $370,000, and no equity awards outstanding at year-end 2022 Executive Compensation Summary | Name and Principal Position | Year | Salary ($) | Bonus ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | Dr. Steve N. Slilaty, CEO | 2022 | 360,000 | 10,000 | 370,000 | | Camille Sebaaly, CFO | 2022 | 300,000 | 630,000 | 930,000 | | Dr. Abderrazzak Merzouki, COO | 2022 | 240,000 | 245,000 | 485,000 | - In April 2022, CEO Dr. Steve N. Slilaty entered into a four-year employment agreement with a base annual salary of $360,000[267] - No outstanding equity awards were held by executives as of December 31, 2022[268] - Each of the five directors received $60,000 in cash fees for their service in 2022[270] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of March 31, 2023, Malek Chamoun is the largest beneficial owner with 16.4% of common stock, whose voting is controlled by CEO Dr. Steve N. Slilaty - Malek Chamoun is the largest beneficial owner, holding 3,700,000 shares, or 16.4% of the common stock, as of March 31, 2023[273] - CEO Dr. Steve N. Slilaty controls the voting of Malek Chamoun's shares via a voting agreement dated October 20, 2022[274] - All officers and directors as a group beneficially own 4,113,834 shares, representing 18.2% of the class[273] Certain Relationships and Related Transactions, and Director Independence The company engaged in two notable related-party transactions, including paying off a note held by the CEO and redeeming Series B Preferred Stock from him, and has three independent directors - On August 24, 2021, the company paid off a note held by the CEO with a cash payment of $156,590, covering principal and accrued interest[276] - On February 22, 2022, the company redeemed 990,000 shares of Series B Preferred Stock from CEO Dr. Steve Slilaty at the stated value of $0.10 per share[277] - The board's independent directors are Dr. Kiderchah, Mr. Natan, and Dr. Keller[278] Principal Accountant Fees and Services For fiscal year 2022, the company incurred $137,500 in audit fees from B F Borgers CPA PC, an increase from $75,600 in 2021, with no other fees billed Auditor Fees (B F Borgers CPA PC) | Fee Type | 2022 | 2021 | | :--- | :--- | :--- | | Audit Fees | $137,500 | $75,600 | | Audit-related Fees | $0 | $0 | | Tax Fees | $0 | $0 | | All Other Fees | $0 | $0 | | Total | $137,500 | $75,600 | Part IV Exhibits, Financial Statement Schedules This section lists all exhibits filed with the Form 10-K, including the underwriting agreement, articles of incorporation, various agreements, and required certifications by the CEO and CFO - Key exhibits filed include the Share Purchase Agreement for Nora Pharma Inc. (10.19), the Employment Agreement with CEO Dr. Steve Slilaty (10.14), and various securities purchase and research agreements[283] - Certifications from the Chief Executive Officer and Chief Financial Officer pursuant to the Sarbanes-Oxley Act are included as exhibits 31.1, 31.2, and 32.1[283]