UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______________ to ______________
Commission
File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The
|
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.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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.
| Large accelerated filer | ☐ | 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 ☐
The number of shares outstanding of the registrant’s common stock on November 13, 2023 was .
Shuttle Pharmaceuticals Holdings, Inc.
Form 10-Q
For the Quarterly Period Ended September 30, 2023
TABLE OF CONTENTS
| 2 |
PART I. Financial Information
Item 1. Unaudited Condensed Consolidated Financial Statements
Shuttle Pharmaceuticals Holdings, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Marketable securities | ||||||||
| Accrued interest income | ||||||||
| Other assets | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Other assets | ||||||||
| Operating lease right-of-use asset | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accounts payable and accrued expenses related party | ||||||||
| Accrued interest payable | ||||||||
| Accrued interest payable - related parties | ||||||||
| Notes payable to related parties | ||||||||
| Convertible notes payable, net | ||||||||
| Operating lease liability | ||||||||
| Total Current Liabilities | ||||||||
| Convertible notes payable non-current, net | ||||||||
| Derivative liabilities | ||||||||
| Operating lease liability non-current | ||||||||
| Total Liabilities | ||||||||
| Stockholders’ Equity | ||||||||
| Series A Convertible Preferred Stock, $ par value; $ | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
Shuttle Pharmaceuticals Holdings, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Operating expenses | ||||||||||||||||
| Research and development, net of contract expense reimbursements | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Legal and professional | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense - related parties | ( | ) | ( | ) | ( | ) | ||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest income | ||||||||||||||||
| Finance fee | ( | ) | ||||||||||||||
| Change in fair value of derivative liabilities | ||||||||||||||||
| Gain on sale of marketable securities | ||||||||||||||||
| Change in fair value of marketable securities | ||||||||||||||||
| Loss on settlement of convertible debt | ( | ) | ( | ) | ||||||||||||
| Gain on settlement of accounts payable | ||||||||||||||||
| Gain on forgiveness of Paycheck Protection Program note payable | ||||||||||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Dividend on Series A Preferred Stock | ( | ) | ( | ) | ||||||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares outstanding - basic and diluted | ||||||||||||||||
| Net loss per shares - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
Shuttle Pharmaceuticals Holdings, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
(Unaudited)
For the Three and Nine Months Ended September 30, 2023
| Series A Preferred Stock | Common Stock | Additional Paid in | Common Stock to | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | be Issued | Deficit | Equity | |||||||||||||||||||||||||
| Balance - December 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Warrants issued for financing costs | - | - | ||||||||||||||||||||||||||||||
| Financing fees allocated to warrants | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Common stock issued for conversion of accrued interest and principal | - | |||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance - March 31, 2023 | ( | ) | ||||||||||||||||||||||||||||||
| Common stock issued for conversion of accrued interest and principal | - | |||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance - June 30,2023 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Common stock issued for conversion of convertible debt | - | |||||||||||||||||||||||||||||||
| Common stock issued for restricted stock units | - | |||||||||||||||||||||||||||||||
| Stock based compensation | - | |||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance - September 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| 5 |
For the Three and Nine Months Ended September 30, 2022
| Series A Preferred Stock | Common Stock | Additional Paid in | Common Stock to | Accumulated | Total Stockholders’ Equity | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | be Issued |
Deficit | (Deficit) | |||||||||||||||||||||||||
| Balance - December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Warrants issued for financing costs | - | - | ||||||||||||||||||||||||||||||
| Common stock issued for conversion of accrued interest | - | ( | ) | |||||||||||||||||||||||||||||
| Common stock issued for restricted stock units | - | |||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Dividends on Series A preferred stock | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance - March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Common stock issued for restricted stock units | - | |||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Dividends on Series A preferred stock | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance - June 30, 2022 | $ | $ | | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||
| Common stock issued for cash | - | |||||||||||||||||||||||||||||||
| Warrants exercised for cash | - | |||||||||||||||||||||||||||||||
| Warrants issued for financing costs | - | - | ||||||||||||||||||||||||||||||
| Common stock issued for conversion of convertible debt | - | |||||||||||||||||||||||||||||||
| Common stock issued for exercise of warrants with settlement of notes payable | - | |||||||||||||||||||||||||||||||
| Common stock issued for restricted stock units | - | |||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Dividends on Series A preferred stock | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Common shares issued for dividends on and conversion of Series A preferred stock | ( | ) | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance - September 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
Shuttle Pharmaceuticals Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Change in fair value of derivative liabilities | ( | ) | ( | ) | ||||
| Amortization of debt discount and finance fees | ||||||||
| Gain on marketable securities | ( | ) | ||||||
| Change in fair value of marketable securities | ( | ) | ||||||
| Accrued interest settled with common stock | ||||||||
| Loss on settlement of convertible debt | ||||||||
| Gain on settlement of accounts payable | ( | ) | ||||||
| Gain on forgiveness of Paycheck Protection Program note payable | ( | ) | ||||||
| Gain on interest relief on conversion of notes payable | ||||||||
| Stock-based compensation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accrued interest income | ( | ) | ||||||
| Contracts receivable | ( | ) | ||||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Operating lease right of use asset | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Accounts payable and accrued expenses - related parties | ( | ) | ||||||
| Accrued interest payable | ||||||||
| Accrued interest payable - related parties | ( | ) | ||||||
| Change in operating lease asset and liability | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Investment in marketable securities | ( | ) | ||||||
| Proceeds from disposition of marketable securities | ||||||||
| Purchase of equipment | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of common shares and exercise of warrants | ||||||||
| Proceeds from note payable-related party | ||||||||
| Repayment of note payable-related party | ( | ) | ( | ) | ||||
| Proceeds from convertible notes payable and warrants | ||||||||
| Payment for finance costs related to convertible note payable | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net change in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Cash paid for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Supplemental non-cash financing activities: | ||||||||
| Common stock issued for conversion of accrued interest | $ | $ | ||||||
| Common stock issued for settlement of debt | $ | $ | ||||||
| Common stock issued for exercise of warrants with settlement of notes payable | $ | $ | ||||||
| Common stock issued for dividend payable | $ | $ | ||||||
| Warrants issued for financing fees | $ | $ | ||||||
| Initial recognition of right of use asset and liability | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 7 |
Shuttle Pharmaceuticals Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2023
Note 1 – Organization and Liquidity
Organization and Line of Business
The
Company was formed as Shuttle Pharmaceuticals, LLC, in the State of Maryland on December 18, 2012. On August 12, 2016, the Company filed
articles of conversion with the State of Maryland to convert from an LLC to a C corporation, at which time the Company changed its name
to Shuttle Pharmaceuticals, Inc. (“Shuttle”). In connection with the conversion the Company issued shares of common
stock in exchange for
The Company’s primary purpose is to develop and commercialize unique drugs for the sensitization of cancers and protection of normal tissues, with the goal of improving outcomes for cancer patients receiving radiation therapy. Shuttle has deployed its proprietary technology to develop novel cancer immunotherapies, producing a pipeline of selective HDAC inhibitors for cancer and immunotherapy applications. The Company’s HDAC platform is designed to target candidate molecules with potential roles in therapeutics beyond cancer, including autoimmune, inflammatory, metabolic, neurological and infectious diseases. The Company’s Ropidoxuridine product, which is used with radiation therapy to sensitize cancer cells, was funded by a Small Business Innovation Research (“SBIR”) contract provided by the National Cancer Institute (“NCI”), a unit of the National Institutes of Health (“NIH”). Ropidoxuridine has been further developed though the Company’s collaborations with scientists at the University of Virginia for use in combination with proton therapy to improve patient survival. Historically, and prior to the Company’s initial public offering, the Company has obtained funding to develop products through NIH grants, including a product to predict late effects of radiation with metabolite biomarkers and develop prostate cancer cell lines in health disparities research.
The production and marketing of the Company’s products and its ongoing research and development activities will be and are subject to extensive regulation by numerous governmental authorities in the United States. Prior to marketing in the United States, any products or combination of products developed by the Company must undergo rigorous preclinical (animal) and clinical (human) testing and an extensive regulatory approval process implemented by the Food and Drug Administration (“FDA”) under the Food, Drug and Cosmetic Act. There can be no assurance that the Company will not encounter problems in clinical trials that will cause the Company or the FDA to delay or suspend clinical trials.
The Company’s success will depend in part on its ability to obtain patents and product license rights, maintain trade secrets, and operate without infringing on the proprietary rights of others, both in the United States and in other countries. There can be no assurance that patents issued to or licensed by the Company will not be challenged, invalidated or circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantages to the Company now or in the future.
Liquidity
The
Company has incurred losses since inception and a net loss of $
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and notes required by accounting principles generally accepted in the United States of America for annual financial statements. A complete discussion of the Company’s significant accounting policies is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
| 8 |
In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all of the adjustments necessary to present the financial position of the Company as of September 30, 2023 and the results of operations and cash flows for the periods presented. The accompanying condensed consolidated financial statements of the Company have not been audited by the Company’s independent registered public accounting firm, except that the year-end condensed consolidated balance sheet was derived from audited financial statements. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and related notes thereto for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 15, 2023.
Basis of Consolidation
The unaudited condensed consolidated financial statements have been prepared on a consolidated basis with those of the Company’s wholly-owned subsidiary, Shuttle Pharmaceuticals, Inc. All intercompany transactions and balances have been eliminated.
Reclassifications
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. Significant estimates are contained in the accompanying condensed consolidated financial statements for the valuation of derivatives, share-based compensation, useful lives for depreciation and amortization of long-lived assets, and the incremental borrowing rate used on right-of-use assets.
Cash and Cash Equivalents
Cash and cash equivalents include cash in bank accounts and money market funds with maturities of less than three months from inception, which are readily convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of loss in value. As of September 30, 2023 and December 31, 2022, cash and cash equivalents consisted of the following:
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Cash | $ | $ | ||||||
| Money market funds | ||||||||
| $ | $ | |||||||
Periodically,
the Company may carry cash balances at financial institutions in excess of the federally insured limit of $
Marketable Securities
Our investments in debt securities are carried at fair value. Investments in debt securities that are not classified as held-to-maturity are carried at fair value and classified as either trading or available-for-sale. Realized and unrealized gains and losses on trading of debt securities are charged to income.
The
marketable securities held by the Company, which are classified as trading marketable securities, consisted of an outstanding balance
of $
| 9 |
Fair Value of Financial Instruments
The Company follows accounting guidelines on fair value measurements for financial instruments measured on a recurring basis, as well as for certain assets and liabilities that are initially recorded at their estimated fair values. Fair Value is defined as the exit price, or the amount that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The Company uses the following three-level hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs to value its financial instruments:
| ● | Level 1: Observable inputs such as unadjusted quoted prices in active markets for identical instruments. | |
| ● | Level 2: Quoted prices for similar instruments that are directly or indirectly observable in the marketplace. | |
| ● | Level 3: Significant unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires a significant judgment or estimation. |
Financial instruments measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires the Company to make judgments and consider factors specific to the asset or liability. The use of different assumptions and/or estimation methodologies may have a material effect on estimated fair values. Accordingly, the fair value estimates disclosed, or initial amounts recorded, may not be indicative of the amount that the Company or holders of the instruments could realize in a current market exchange.
The carrying amounts of the Company’s financial instruments including cash and cash equivalents, prepaid expenses, accounts payable and accrued liabilities approximate fair value due to the short-term maturities of these instruments.
Set out below are the Company’s financial instruments that are required to be remeasured at fair value on a recurring basis and their fair value hierarchy as of September 30, 2023 (none for December 31, 2022):
| September 30, 2023 | Level 1 | Level 2 | Level 3 | Carrying Value | ||||||||||||
| Assets | ||||||||||||||||
| Marketable Securities: | ||||||||||||||||
| United States Treasury Bonds | $ | $ | $ | $ | ||||||||||||
| Liabilities | ||||||||||||||||
| Derivative Liability - Warrants | $ | $ | $ | $ | ||||||||||||
| Derivative Liability - Accelerated feature | ||||||||||||||||
| Total Liabilities | $ | $ | $ | $ | ||||||||||||
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. We evaluate all of our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For our derivative financial instruments, the Company used a Monte Carlo valuation model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within twelve (12) months of the balance sheet date.
Research and Development Expenses
Research
and development expenses are charged to expense as incurred. Research and development expenses include, but are not limited to, product
development, clinical and regulatory expenses, payroll and other personnel expenses, materials, supplies, related subcontract expenses,
and consulting costs. In September of 2022, TCG GreenChem, Inc. (“TCG GreenChem”) was contracted for process research, development
and cGMP compliant manufacture of IpdR, for which the final report was completed and delivered by TCG GreenChem during September 2023.
The total project cost was $
| 10 |
Regarding the accounting treatment for reimbursements, GAAP provides limited guidance on the accounting for government grants received by for-profit companies. We understand there is more than one acceptable alternative for the accounting treatment – a reduction of costs, a deferred credit to be amortized, revenue or other income. The Company has concluded that reimbursements are more akin to a reduction of costs and applies reimbursements against incurred research costs.
Net loss per share of common stock requires presentation of basic earnings per share on the face of the statements of operations for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic earnings per share computation. In the accompanying financial statements, basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock and potentially dilutive outstanding shares of common stock during the period to reflect the potential dilution that could occur from common shares issuable through contingent share arrangements, stock options and warrants unless the result would be antidilutive.
The dilutive effect of restricted stock units subject to vesting and other share-based payment awards is calculated using the “treasury stock method,” which assumes that the “proceeds” from the exercise of these instruments are used to purchase common shares at the average market price for the period. The dilutive effect of convertible securities is calculated using the “if-converted method.” Under the if-converted method, securities are assumed to be converted at the beginning of the period, and the resulting shares of common stock are included in the denominator of the diluted calculation for the entire period being presented.
| September 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Convertible notes (Note 6) | ||||||||
| Warrants | ||||||||
| Restricted stock units | ||||||||
Recent Accounting Pronouncements
The Company has considered all recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.
Note 3 – Leases
Operating
lease right-of-use (“ROU”) assets and liabilities are recognized at the present value of the future lease payments as of
the lease commencement date.
The
Company currently has two lease agreements which allow for the use of a laboratory facility.
| 11 |
The following summarizes the right-of use asset and lease information for the Company’s operating leases:
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| Operating lease cost | $ | $ | ||||||
| Sublease income | ( | ) | ( | ) | ||||
| Total lease cost | $ | $ | ||||||
| Other information | ||||||||
| Cash paid for operating cash flows from operating leases | $ | $ | ||||||
| Right-of-use assets obtained in exchange for new operating lease liability | $ | $ | ||||||
| Weighted-average remaining lease term — operating leases (year) | ||||||||
| Weighted-average discount rate — operating leases | % | % | ||||||
Future non-cancelable minimum lease payments under the operating lease liability as of September 30, 2023, are as follows:
| As of September 30, 2023 | ||||||||
| Years Ended December 31, | Lease Ending August 31, 2028 | Lease Ending October 31, 2023 | ||||||
| 2023 (remaining three months) | $ | $ | ||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| Total future minimum lease payments | ||||||||
| Less: imputed interest | ( | ) | ||||||
| Present value of payments | $ | $ | ||||||
Note 4 – Notes Payable-Related Party
On
December 1, 2020, the Company consolidated all of the outstanding loans owed to an officer of the Company and to his spouse, resulting
in the following two loans: (i) a single loan from the spouse of an officer of the Company, dated December 1, 2020, with a principal
balance of $
On
June 21, 2021, the Company entered into a loan from the spouse of an officer of the Company in the amount of $
During
the six months ended June 30, 2023 principal payments of $
| 12 |
Note 5 – Convertible Notes and Notes Payable
Alto Opportunity Master Fund, SPC
On
January 11, 2023, the Company entered into a securities purchase agreement (the “SPA”) with Alto Opportunity Master Fund,
SPC – Segregated Master Portfolio B, a Cayman entity (the “Investor”), pursuant to which the Company sold to the Investor
a $
In
conjunction with entry into the SPA, the Company entered into a series of related agreements, including a security agreement (the “Security
Agreement”), an intellectual property security agreement (the “IP Security Agreement”) and a subsidiary guaranty (the
“Subsidiary Guaranty”). The security agreements and guaranty allow, among other things, for the Investor to have a security
interest in and place a lien on all of the Company’s assets and intellectual property until such time as the Alto Convertible Note
is paid off. In addition, the SPA called for the Company to enter into a springing deposit account control agreement (the “Springing
DACA”), which, in the event the Company defaults on its repayment of the Alto Convertible Note, would allow the Investor to assume
control of the Company’s bank account only with regard to any funds remaining outstanding under the Alto Convertible Note. As such,
in conjunction with entry into the SPA, the Company established a separate bank account in which it deposited the Investment Amount and
pursuant to which the Company, the Investor and the bank holding the Investment Amount, First Republic Bank, entered into the Springing
DACA agreement. As the Investment Amount had been held at First Republic Bank, in light of certain banking crises then affecting smaller
banks, on March 12, 2023, the Company and the Investor moved the Investment Amount from First Republic Bank, after which time the Springing
DACA was no longer in effect. Further, pursuant to amendments to the SPA entered into in May and June of 2023, the Company and the Investor
agreed that all of the Investment Amount would be released to the Company and the relevant provision of the SPA which required the Springing
DACA would no longer be deemed applicable. In addition, the Company granted the Investor the option to purchase up to an additional $
Boustead
Securities, LLC (“Boustead”) served as a placement agent for the Alto Convertible Note and Warrant offering and received
$
The
Company allocated the finance costs related to the Boustead placement agent fee of $
The
Company allocated to the debt component of the note an original discount of $
During
the three and nine months ended September 30, 2023, the Company recorded interest expense of $
As
of September 30, 2023, the outstanding principal for the convertible note was $
| 13 |
Note 6 – Stockholders’ Equity
Common Stock
During the three and nine months ended September 30, 2023, the Company issued:
| ● |
and shares of common stock to settle $ | |
| ● | and shares of common stock issued for vesting of restricted stock units. |
During the three and nine months ended September 30, 2022, the Company issued:
| ● | and shares of common stock for conversion of $ and $ of accrued interest, respectively. | |
| ● | ||
| ● | and shares of common stock upon completion of the Company’s initial public offering for
$ | |
| ● | and shares of common stock upon settlement of notes payable for $5 | |
| ● | and shares of common stock upon exercise of warrants to settle notes payable for $ | |
| ● | and shares of common stock upon conversion of preferred shares and to settle dividends payable
for $ |
Warrants
In
connection with the January 2023 Alto Convertible Note, Boustead was granted warrants to purchase
A summary of activity regarding all warrants issued for the nine months ended September 30, 2023 were as follows:
| Number of | Weighted Average | Average | ||||||||||
| warrants | Exercise Price | Life (years) | ||||||||||
| Outstanding, December 31, 2022 | $ | |||||||||||
| Granted - Boustead | ||||||||||||
| Granted - Ayrton | ||||||||||||
| Outstanding, September 30, 2023 | $ | |||||||||||
The intrinsic value of the warrants as of September 30, 2023 is $. All of the outstanding warrants are exercisable as of September 30, 2023.
Equity Incentive Plan
Our 2018 Equity Incentive Plan (the “2018 Plan”) provides for equity incentives to be granted to our employees, executive officers, directors and key advisers and consultants. Equity incentive grants may be made in the form of stock options with an exercise price of not less than the fair market value of the underlying shares as determined pursuant to the 2018 Equity Incentive Plan, restricted stock awards, other stock-based awards, or any combination of the foregoing. The 2018 Equity Incentive Plan is administered by the Company’s compensation committee. We have reserved shares of our common stock for issuance under the 2018 Equity Incentive Plan. As of September 30, 2023, shares have been granted under the 2018 Equity Incentive Plan, of which shares have vested.
Restricted Stock Units
We may grant restricted stock units (“RSU”) under our 2018 Plan. RSUs are bookkeeping entries representing an amount equal to the fair market value of one share of our common stock. Subject to the provisions of our 2018 Plan, the administrator determines the terms and conditions of RSUs, including the vesting criteria and the form and timing of payment. Notwithstanding the foregoing, the administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed. RSUs granted typically vest annually in one third increments from the date of appointment.
During
the nine months ended September 30, 2023 and 2022, pursuant to agreements with directors and officers, and RSUs with a value
of $
As of September 30, 2023, there was $ of unrecognized RSU compensation cost related to non-vested share-based compensation arrangements which is expected to be recognized by the end of May 31, 2026.
| 14 |
| Number of RSU | Weighted Average Grant Date Fair Value Per RSU | |||||||
| Outstanding, December 31, 2022 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Outstanding, September 30, 2023 | $ | |||||||
Note 7 – Derivative Liabilities
Fair Value Assumptions Used in Accounting for Derivative Liabilities
ASC 815 requires us to assess the fair market value of derivative liabilities at the end of each reporting period and recognize any change in the fair market value as other income or expense.
In
January 2023, in connection with the Alto Convertible Note, the Company issued warrants to purchase
The Company determined our derivative liability from the noteholder’s Acceleration Option for the Alto Convertible Note is not clearly and closely related to the host, and should be thus accounted for as a bifurcated derivative liability.
We
classified these derivative liabilities as a Level 3 fair value measurement and used the Monte Carlo pricing model to calculate the fair
value as of January 11, 2023 ($
The key inputs for the Monte Carlo simulation for the nine months ended September 30, 2023, were as follows:
| Net cash settlement and down round key valuation inputs – warrants | ||||
| Annualized volatility | % | |||
| Risk-free interest rate | ||||
| VWAP | - | |||
| Dividend yield | % | |||
| Exercise price | ||||
| Probability of fundamental transaction | % | |||
| Date of fundamental transaction | ||||
| * | Based on a Monte Carlo simulation analysis of 75,000 – 100,000 iterations |
| Acceleration option key valuation inputs | ||||
| Annualized volatility | % | |||
| Risk-free interest rate | % | |||
| VWAP | - | |||
| Probability of fundamental transaction | % | |||
| Date of fundamental transaction |
| * | Based on a Monte Carlo simulation analysis of 75,000 – 100,000 iterations |
| 15 |
The following table summarizes the changes in the derivative liabilities:
| Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||||||
| Warrants | Accelerated Feature | |||||||
| Balance - December 31, 2022 | $ | $ | ||||||
| Addition of new derivatives | ||||||||
| Gain on change in fair value | ( | ) | ( | ) | ||||
| Balance - March 31, 2023 | $ | $ | ||||||
| Gain on change in fair value | ( | ) | ( | ) | ||||
| Balance - June 30, 2023 | $ | $ | ||||||
| (Gain) loss on change in fair value of the derivative | ( | ) | ||||||
| Balance - September 30, 2023 | $ | $ | ||||||
| Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||
| Balance - December 31, 2021 | $ | |||
| Gain on change in fair value - warrants | ( | ) | ||
| Balance - September 30, 2022 | $ | |||
Note 8 – Subsequent Events
Management evaluated all additional events subsequent to the balance sheet date through the date the unaudited interim condensed consolidated financial statements were issued and determined that, other than as set forth below, there were no items required to be disclosed.
On October 24, 2023, the Company entered into a license agreement (the
“License Agreement”) with Georgetown University (“Georgetown”), pursuant to which Georgetown agreed to license
the invention known as “Predictive Biomarkers for Adverse Effects of Radiation Therapy,” (U.S. Application No. 17/476,148,
titled Predictive Biomarkers for Adverse Effects of Radiation Therapy, filed on September 15, 2021) (the “Intellectual Property”),
which had previously been developed by the Company’s officers when they were employees of Georgetown. Under the terms of the License
Agreement, the Company will be entitled to use the Intellectual Property on a worldwide basis in exchange for making certain milestone
payments and adhering to other terms of the License Agreement: including initiating a validation clinical trial of the Licensed Product,
completion of the validation of the clinical trial in relation to the Licensed Products, obtaining U.S. regulatory approval of the Licensed
Product, and reaching certain fundraising and sales milestones in relation to the Licensed Product. In addition, assuming the Company
successfully obtains FDA approval and commences commercial sale of the Licensed Product, the Company will be obligated to pay at least
a guaranteed minimum royalty payment each year following the First Commercial Sale (as defined in the License Agreement), along with earned
royalty payments of
| 16 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (the “MD&A”) should be read in conjunction with our unaudited financial statements and the related notes thereto included elsewhere in this quarterly report. The MD&A contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations, and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this quarterly report. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors.
Overview
Founded by Georgetown University Medical School faculty members, Shuttle Pharmaceuticals Holdings, Inc. is a discovery and development stage pharmaceutical company leveraging our proprietary technology to develop novel therapies that are designed to cure cancer. Originally formed as Shuttle Pharmaceuticals, LLC in 2012, our goal is to extend the benefits of cancer treatments by leveraging insights into cancer therapy with surgery, radiation therapy, chemotherapy and immunotherapy. While there are several therapies being developed with the goal of curing cancer, one of the most effective and proven approaches to this is radiation therapy (RT). We are developing a pipeline of products designed to address the limitations of the current standard of cancer therapies. We believe that our product candidates will enable us to deliver cancer treatments that are safer, more reliable and at a greater scale than that of the current standard of care.
Operations to date have focused on continuing our research and development efforts to advance Ropidoxuridine clinical testing and improved drug formulation, to advance HDAC6 inhibitor (SP-2-225) preclinical development, and complete SBIR contract work on predictive biomarkers of radiation response, as well as prostate cell lines for health disparities research. We received Small Business Innovation Research (“SBIR”) contract funding from the National Institutes of Health (“NIH”) for the aforementioned projects. The clinical development of Ropidoxuridine has shown drug bioavailability and a maximum tolerated dose has been established for use in Phase II clinical trials. TCG GreenChem, Inc. (“TCG GreenChem”), with whom we have contracted for process research, development and cGMP compliant manufacture of IPdR, has successfully completed the initial manufacturing campaign for the active pharmaceutical ingredient (API) of Ropidoxuridine for use in the Company’s upcoming Phase II clinical trial in brain cancer patients undergoing radiation therapy. Shuttle has been working concomitantly with TCG GreenChem to manufacture API and University of Iowa Pharmaceuticals to develop the formulation and packaging of the drug product into capsules for clinical use. Both activities have now been completed. In addition, Shuttle received a positive response from the Type B pre-IND meeting with the FDA and is following the guidance provided by the FDA for the proposed Phase II clinical trial. With this, the Company believes it remains on track to commence its Phase II clinical study in the fourth quarter of 2023. The radiation biomarker project and the health disparities project have been completed and the company is following up with plans for clinical validation and potential commercialization. Changes in operational, administrative, legal and professional expenses related to our operations are set forth in more detail in the discussion below.
Results of Operations
Comparison of the three months ended September 30, 2023 and 2022
The following table summarizes the results of our operations:
| Three Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| 2023 | 2022 | Change | % | |||||||||||||
| Revenue | $ | - | $ | - | $ | - | - | |||||||||
| Operating expenses: | ||||||||||||||||
| Research and development, net of contract reimbursements | 1,140,307 | 669,038 | 471,269 | 70 | % | |||||||||||
| General and administrative | 170,423 | 81,864 | 88,559 | 108 | % | |||||||||||
| Legal and professional | 288,416 | 70,566 | 217,850 | 309 | % | |||||||||||
| Total operating expenses | 1,599,146 | 821,468 | 777,678 | 95 | % | |||||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense - related parties | - | (13,725 | ) | 13,725 | (100 | )% | ||||||||||
| Interest expense | (623,465 | ) | (604,716 | ) | (18,749 | ) | 3 | % | ||||||||
| Change in fair value of marketable securities | 9,606 | - | 9,606 | 100 | % | |||||||||||
| Interest income | 20,765 | - | 20,765 | 100 | % | |||||||||||
| Change in fair value of derivative liabilities | 442,900 | 112,797 | 330,103 | 293 | % | |||||||||||
| Loss on settlement of convertible debt | (43,414 | ) | - | (43,414 | ) | (100 | )% | |||||||||
| Gain on settlement of accounts payable | - | 328,687 | (328,687 | ) | (100 | )% | ||||||||||
| Total other expense | (193,608 | ) | (176,957 | ) | (16,651 | ) | 9 | % | ||||||||
| Net loss | $ | 1,792,754 | $ | 998,425 | $ | 794,329 | 80 | % | ||||||||
| 17 |
Research and Development, net of contract expense reimbursements. Research and development (“R&D”) expense was $1,140,307 for the three months ended September 30, 2023, as compared to $669,038 for three months ended September 30, 2022. The increase of $471,269, or 70%, is primarily related to the Company increasing R&D spending as a result of having received funding from the Company’s initial public offering in the third quarter of fiscal 2022 and, the convertible note issued during the period ended March 31, 2023.
Compensation related expenses were $395,235 in the three months ended September 30, 2023 as compared to $200,541 in the three months ended September 30, 2022. Compensation related expenses increased from 29.7% of total R&D in the three months ended September 30, 2022 to 34.7% for the three months ended September 30, 2023. Subcontract work made up 66.6% of total R&D expenses in the three months ended September 30, 2022 and 60.0% of total R&D expenses during the three months ended September 30, 2023.
General and Administrative Expenses. General and Administrative expenses in the three months ended September 30, 2023 increased by $88,560, or 108%, from $81,864 in the three months ended September 30, 2022 to $170,424 in the three months ended September 30, 2023. The increase in general and administrative expenses was primarily due to increases in insurance expenses of $21,731, director fees of $31,250 and advertising costs of $34,550, which increased expenses were offset by reduced corporate filing fees of $27,200.
Legal and Professional Expenses. During the three months ended September 30, 2023, legal and professional expenses increased by $217,850 or 309%. The increase in legal and professional fees was primarily due to increases in our expenses related to our public filing requirements, contracts and financing related work.
Other Income Expense. Other expense was $193,608 for the three months ended September 30, 2023, which consisted of $623,465 in interest expense on convertible loans, interest income of $20,765, loss on settlement of convertible debt of $43,414, change in marketable securities of $9,606, and a gain on change in fair value of derivative liabilities of $442,900. Other expense was $176,957 for the three months ended September 30, 2022, which consisted of $604,716 in interest expense, $13,725 in interest expense on related party loans, gain on settlement of accounts payable of $328,687 and change in fair value of derivative liability of $112,767.
Comparison of the nine months ended September 30, 2023 and 2022
The following table summarizes the results of our operations:
| Nine Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| 2023 | 2022 | Change | % | |||||||||||||
| Revenue | $ | - | $ | - | $ | - | - | |||||||||
| Operating expenses: | ||||||||||||||||
| Research and development, net of contract expense reimbursements | 3,084,488 | 1,048,821 | 2,035,667 | 194 | % | |||||||||||
| General and administrative | 452,342 | 104,711 | 347,631 | 332 | % | |||||||||||
| Legal and professional | 1,072,728 | 659,958 | 412,770 | 63 | % | |||||||||||
| Total operating expenses | 4,609,558 | 1,813,490 | 2,796,068 | 154 | % | |||||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense - related parties | (6,825 | ) | (39,108 | ) | 32,283 | (83 | )% | |||||||||
| Interest expense | (1,952,147 | ) | (920,660 | ) | (1,031,487 | ) | 112 | % | ||||||||
| Interest income | 56,720 | - | 56,720 | 100 | % | |||||||||||
| Finance fee | (104,245 | ) | - | (104,245 | ) | (100 | )% | |||||||||
| Change in fair value of derivative liabilities | 2,118,175 | 94,025 | 2,024,150 | 2,153 | % | |||||||||||
| Gain on sale of marketable securities | 1,744 | - | 1,744 | 100 | % | |||||||||||
| Change in fair value of marketable securities | 21,134 | - | 21,134 | 100 | % | |||||||||||
| Loss on settlement of convertible debt | (477,221 | ) | - | (477,221 | ) | (100 | )% | |||||||||
| Gain on settlement of accounts payable | - | 328,687 | (328,687 | ) | (100 | )% | ||||||||||
| Gain on forgiveness of Paycheck Protection Program note payable | - | 73,007 | (73,007 | ) | (100 | )% | ||||||||||
| Total other expense | (342,665 | ) | (464,049 | ) | 121,384 | (26 | )% | |||||||||
| Net loss | $ | 4,952,223 | $ | 2,277,539 | $ | 2,674,684 | 117 | % | ||||||||
| 18 |
Research and Development, net of contract expense reimbursements. R&D expense was $3,084,488 for the nine months ended September 30, 2023, as compared to $1,260,276 less the final $211,455 reimbursement from the Topic 345: Predictive Biomarkers of Prostate Cancer NIH contract for a net of $1,048,821 for the nine months ended September 30, 2022. The increase of $2,035,667, or 194%, is primarily related to the Company increasing R&D spending as a result of funding received from the Company’s initial public offering in the third quarter of fiscal 2022 and the convertible note issued during the first quarter of fiscal 2023 and the $211,455 reimbursement received in the same period in the prior year.
Compensation related expenses were $1,468,277 in the nine months ended September 30, 2023 as compared to $727,421 in the nine months ended September 30, 2022. Compensation related expenses decreased from 57.7% of total R&D, excluding reimbursements, in the nine months ended September 30, 2022 to 47.6% for the nine months ended September 30, 2023. Subcontract work made up 35.7% of total R&D expenses, excluding reimbursements, in the nine months ended September 30, 2022 and 48.3% of total R&D expenses during the nine months ended September 30, 2023. Other general R&D expenses, including supplies and rent were 6.6% in the nine months ended September 30, 2022 and 4.1% in the nine months ended September 30, 2023.
General and Administrative Expenses. General and Administrative expenses in the nine months ended September 30, 2023 increased by $347,631, or 332%, from $104,711 in the nine months ended September 30, 2022 to $452,342 in the nine months ended September 30, 2023 primarily due to increases in insurance expenses of $93,494, director fees of $100,000, advertising expenses of $88,361 and corporate filing fees of $27,120.
Legal and Professional Expenses. During the nine months ended September 30, 2023, legal and professional expenses increased by $412,770 or 63%. The increase in legal and professional fees was primarily due to increases in our expenses related to public filing requirements, contract work and financing activities.
Other Income Expense. Other expense was $342,665 for the nine months ended September 30, 2023, which consisted of $1,952,147 in interest expense on convertible loans, $6,825 in interest expense on related party loans, interest income of $56,720, finance fee on convertible loans of $104,245, loss on settlement of convertible debt of $477,221, gain on sale of marketable securities of $1,744, unrealized gain on marketable securities of $21,134, and a gain on change in fair value of derivative liabilities of $2,118,175. Other expense was $464,049 for the nine months ended September 30, 2022, which consisted of $920,660 in interest expense, $39,108 in interest expense on related party loans and gains on change in derivative liability of $94,025, gain on settlement of accounts payable of $328,687 and forgiveness of Paycheck Protection Program note payable of $73,007.
Liquidity and Capital Resources
Our capital needs to date have been met by funds raised through our initial public offering and a subsequent convertible note offering, private placement offerings of our securities, as well as through contributions from existing stockholders, SBIR contracts and other grants. In the nine months ended September 30, 2023, we raised a net total of $3,590,000 after finder’s fees through the sale of convertible notes and warrants. In the year ended December 31, 2022, we raised a total of $10,672,908 through the sale of shares of common stock, convertible notes, and warrants. In addition, since inception, we have received a total of $5,531,722 in SBIR contracts and other grants received primarily through the NIH.
We believe that we will continue to expend substantial resources for the foreseeable future in relation to completion of clinical development and regulatory preparedness of our product candidates, preparations for a commercial launch of our product candidates, if approved by the FDA, and development of any other current or future product candidates we may choose to develop. These expenditures will include costs associated with research and development, conducting preclinical studies and clinical trials, obtaining marketing approvals, and, if we are not able to enter into planned collaborations, manufacturing and supply as well as marketing and selling any products approved for sale. In addition, other unanticipated costs may arise. Because the outcome of any drug development process is highly uncertain, we cannot reasonably estimate the actual amounts necessary to complete the development and commercialization of our current product candidates, if approved, or future product candidates that may be developed, if any.
There can be no assurance that additional financing will be available to us when needed, on favorable terms or otherwise. Moreover, any such additional financing may dilute the interests of existing stockholders. The absence of additional financing, when needed, could cause us to delay implementation of our business plan in whole or in part, curtail our business activities and seriously harm our business and our prospects.
| 19 |
Balance Sheet Data:
| September 30, | December 31, | |||||||||||||||
| 2023 | 2022 | Change | % | |||||||||||||
| Current assets | $ | 6,995,608 | $ | 8,578,351 | $ | (1,582,743 | ) | (18 | )% | |||||||
| Current liabilities | 810,437 | 975,676 | (165,239 | ) | (17 | )% | ||||||||||
| Working capital | $ | 6,185,171 | $ | 7,602,675 | $ | (1,417,504 | ) | (19 | )% | |||||||
As of September 30, 2023, total current assets were $6,995,608 and total current liabilities were $810,437, resulting in working capital of $6,185,171. As of December 31, 2022, total current assets were $8,578,351 and total current liabilities were $975,676, resulting in a working capital of $7,602,675. The current assets primarily resulted from $3,590,000 net cash received from the issuance of a convertible note payable and $783,608 repaid for a related party notes ($685,473 in principal and $98,135 of accrued interest), for net cash provided by issuance and settlement of notes for the period of $2,904,527. Additionally, we continued progress on our R&D programs during the period ended September 30, 2023. The decrease in current liabilities is primarily due to the current portion of the $4,300,000 convertible note which is $462,825, accrued interest of $106,578 an increase in accounts payable of $63,255, offset by the reduction of $783,608 in related party notes payable and accrued interest.
Cash Flows from Operating Activities
| Nine Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| 2023 | 2022 | Change | % | |||||||||||||
| Cash used in operating activities | $ | (4,518,973 | ) | $ | (2,030,587 | ) | $ | (2,488,386 | ) | 123 | % | |||||
| Cash used in investing activities | $ | (2,916,760 | ) | $ | - | $ | (2,916,760 | ) | (100 | )% | ||||||
| Cash provided by financing activities | $ | 2,904,527 | $ | 10,646,228 | $ | (7,741,701 | ) | (73 | )% | |||||||
Cash on hand | $ | 3,885,997 | $ | 9,120,390 | $ | (5,234,393 | ) | (57 | )% | |||||||
To date, we have not generated positive cash flows from operating activities. For the nine months ended September 30, 2023, net cash flows used in operating activities was $4,518,973, consisting of a net loss of $4,952,223, increased by a gain on change in derivative liabilities of $2,118,175, offset by amortization of debt discount of $1,654,724, loss on settlement of convertible debt of $477,221, accrued interest settled with common stock of $294,927, stock-based compensation of $95,438 and further reduced by a net change in working capital of $47,165. For the nine months ended September 30, 2022, net cash flows used in operating activities was $2,030,587, consisting of a net loss of $2,277,539, reduced by depreciation expense of $4,484, gain on change in warrant liability of $94,025, amortization of debt discount of $885,505, stock-based compensation of $356,733, gain on forgiveness of the PPP loan of $73,007, gain on settlement of accounts payable of $328,687 and a net change in working capital of $516,676.
Cash Flows from Investing Activities
For the nine months ended September 30, 2023, we invested in trading marketable securities for $2,977,714 and received $80,000 in proceeds from disposition of marketable securities and purchased $19,046 of equipment. For the nine months ended September 30, 2022, we had no investing activities.
Cash Flows from Financing Activities
For the nine months ended September 30, 2023, we received a net of $3,590,000 from the sale and issuance of convertible notes payable and warrants and repaid $685,473 in related party notes payable. For the nine months ended September 30, 2022, we received $10,045,513 from the issuance of common shares and $650,715 from the issuance of convertible notes and repaid $50,000 of notes payable.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
| 20 |
Critical Accounting Policies and Significant Judgments and Estimates
This discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in the notes to our financial statements included elsewhere in this registration statement, we believe that the following accounting policies are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
Our most critical accounting policies and estimates relate to the following:
| ● | Research and Development Expenses | |
| ● | Operating Lease Accounting | |
| ● | Fair Value of Financial Instruments |
Research and Development
Research and development expenses are expensed as incurred and, prior to our initial public offering in September 2022, have historically been offset by contract receivable payments from an NIH SBIR contract that has supported our scientific research. This is stated in the financials as research and development-net of contract expense reimbursements.
Operating Lease Right-of-use Assets and Operating Lease Liability
Operating lease right-of-use assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value is our incremental borrowing rate, estimated to be 10.48%, as the interest rate implicit in most of our leases is not readily determinable. Operating lease expense is recognized on a straight-line basis over the lease term.
Fair Value of Financial Instruments
We evaluate all of our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For derivative financial instruments that are accounted for as equity, the derivative instrument is initially recorded at its fair value and recorded to additional paid in capital. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period.
For our derivative financial instruments classified as a liability, the Company used a Monte Carlo valuation model to value the derivative instruments at inception and on subsequent valuation dates. The Monte Carlo simulation uses an implied VWAP for valuation. The implied VWAP was backsolved by setting the summation of the parts (e.g., derivatives and debt without derivatives) equal to the cash proceeds. For our derivative financial instruments classified as equity, the Company used a Black Scholes valuation model, to calculate the fair value on issuance date, without revaluation.
The use of Monte Carlo and Black Scholes valuation models require key inputs, some of which are based on estimates and judgements by management and/or external consultants. Any change to these key inputs could produce significantly higher or lower fair value measurements.
| 21 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a “smaller reporting company,” we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules, regulations and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow for timely decisions regarding required disclosure.
In the preparation of our Quarterly Report on Form 10-Q for the period ended September 30, 2023, we identified certain deficiencies in our internal controls over financial reporting related to the following financial reporting areas to be material weaknesses: accounting policy and documentation of management’s contemplation of the accounting treatment and implications over significant unusual transactions, and adequate controls over financials statement close process and financial reporting reviews. Based on this evaluation, as a result of our material weaknesses in internal controls over financial reporting, management concluded that our disclosure controls and procedures were not effective as of September 30, 2023.
Changes in Internal Controls
In connection with our continued monitoring and maintenance of our controls procedures as part of the implementation of Section 404 of the Sarbanes-Oxley Act, we continue to review and improve the effectiveness of our internal controls. The following changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period ending September 30, 2023 or subsequent to the date the Company completed its evaluation, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting were:
| (1) | Automation and electronic data interfaces of banking and payroll systems with our accounting system to improve accuracy, efficiency, and timeliness of reporting; | |
| (2) | Reorganization of, and additional procedures for, recordkeeping; | |
| (3) | Additional segregated monthly review and month end close procedures to identify errors or omissions in recording transactions; | |
| (4) | Addition of accounting staff supervised by an experienced financial reporting company to improve preparation of financial statements in accordance with GAAP; and | |
| (5) | Segregation of approval and review of financial transactions. | |
| (6) | Implementation of a more rigorous schedule to accommodate additional analyses related to convertible notes. |
Management will continue to monitor and evaluate the effectiveness of our internal controls and procedures over financial reporting on an ongoing basis and are committed to taking further action and implementing additional improvements as necessary.
| 22 |
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Currently, there are no legal proceedings pending or threatened against us. We are not presently party to any pending or other threatened legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results, although from time to time, we may become involved in legal proceedings in the ordinary course of business.
ITEM 1A. RISK FACTORS
As a smaller reporting company, we are not required to provide the information required by this item.
ITEM 2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
None.
| 23 |
Item 6. Exhibits
The following exhibits are filed or furnished with this report:
* Filed herewith.
**Furnished herewith.
+Certain portions of the exhibit have been redacted in accordance with Item 601(b) of Regulation S-K. The Company will supplementally furnish an unredacted copy to the SEC upon requested; provided however, that the Company may request confidential treatment pursuant to Ruel 24b-2 of the Securities Exchange Act of 1934, as amended, to the extent so furnished.
| 24 |
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SHUTTLE PHARMACEUTICALS HOLDINGS, INC. | ||
| November 13, 2023 | By: | /s/ Anatoly Dritschilo |
| Anatoly Dritschilo, M.D. | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| November 13, 2023 | By: | /s/ Michael Vander Hoek |
Michael Vander Hoek | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
| 25 |