SEC Form 10-Q filed by Shuttle Pharmaceuticals Holdings Inc.
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 ______________
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
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
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by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
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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.
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| ☒ | Smaller reporting company | |||
| Emerging growth company |
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The number of shares outstanding of the registrant’s common stock on November 13, 2024 was
TABLE OF CONTENTS
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PART I. Financial Information
Item 1. Unaudited Condensed Consolidated Financial Statements
Shuttle Pharmaceuticals Holdings, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Marketable securities | ||||||||
| Accrued interest income | ||||||||
| Deferred costs | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| 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 liability | ||||||||
| Operating lease liability non-current | ||||||||
| Total Liabilities | ||||||||
| Stockholders’ Equity (Deficit) | ||||||||
| 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 (Deficit) | ( | ) | ||||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | $ | ||||||
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, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Operating expenses | ||||||||||||||||
| Research and development | ||||||||||||||||
| 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 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| 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 Nine Months Ended September 30, 2024
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid in | Accumulated | Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity (Deficit) | ||||||||||||||||
| Balance - December 31, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Common stock issued for conversion of accrued interest and principal | ||||||||||||||||||||
| Common stock issued for restricted stock units | ||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance - March 31, 2024 | ( | ) | ||||||||||||||||||
| Common stock issued for restricted stock units | ||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance - June 30, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Common stock issued for conversion of convertible debt accrued interest and principal | ||||||||||||||||||||
| Common stock issued for restricted stock units | ||||||||||||||||||||
| Common stock issued for reverse stock split fractional share round up | ( | ) | ||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance - September 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
For the Nine Months Ended September 30, 2023
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid in | Accumulated | Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance - December 31, 2022 | $ | $ | ( | ) | $ | |||||||||||||||
| Warrants issued for financing costs, net of issuance fees of $ | - | |||||||||||||||||||
| 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 accrued interest and principal | ||||||||||||||||||||
| Common stock issued for restricted stock units | ||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance - September 30, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
Shuttle Pharmaceuticals Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| 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 | ||||||||
| Stock-based compensation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accrued interest income | ( | ) | ||||||
| Prepaid expenses | ( | ) | ||||||
| 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 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 | ( | ) | ||||||
| Payment for finance costs | ( | ) | ||||||
| Payment of 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 settlement of debt | $ | $ | ||||||
| Warrants issued for financing fees, net of issuance fees of $ | $ | $ | ||||||
| Initial recognition of right of use asset and liability | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
Shuttle Pharmaceuticals Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2024
Note 1 – Organization and Liquidity
Organization and Line of Business
Shuttle
Pharmaceuticals Holdings, Inc. (“we,” “us,” “our,” or the “Company”) was originally
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 initially 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 in September 2022, 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 its clinical trials that will cause the Company or the FDA to delay or suspend the 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 and Going Concern
Our
unaudited condensed consolidated financial statements are prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities and commitments in the normal course of business. The Company has incurred losses since inception
and has a net loss of approximately $
| 7 |
In
September 2024, the Company’s CEO provided $
The Company’s capital raises have to date supported operations, the manufacture of drug product and FDA approval of the IND for the Phase II clinical trial of Ropidoxuridine and radiation therapy in glioblastoma and other radiation sensitizer discovery and therapy. The FDA recommended and the Company agreed to an expansion of the Phase II clinical trial, necessitating additional capital to complete the trial as well as fund ongoing operations. Additionally, the Phase II clinical trial of Ropidoxuridine has evolved with finalized agreements with all six of the planned site enrollment locations to administer the Phase II clinical trial of Ropidoxuridine and the enrollment of the first three patients.
The ability of the Company to continue as a going concern is dependent upon its ability to continue to successfully raise additional equity or debt financing to allow it to fund ongoing operations, conduct clinical trials and bring a drug candidate to commercialization to generate revenues. These conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the unaudited condensed consolidated financial statements are issued.
The accompanying unaudited condensed consolidated financial statements do not include any adjustments to reflect the future effects on the recoverability and classification of assets or the amounts and classification of liabilities if the Company is unable to continue as a going concern.
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 GAAP 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/A for the year ended December 31, 2023.
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, 2024 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 consolidated balance sheet was derived from audited financial statements. The results of operations for the nine months ended September 30, 2024 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 restated financial statements and related notes thereto for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K/A filed with the SEC on September 4, 2024.
Reverse Stock Split
On
August 13, 2024, in order to meet Nasdaq’s minimum bid price requirement of $ per share (the “Minimum Bid Price Requirement”),
the Company effectuated a
| 8 |
Basis of Consolidation
The unaudited condensed consolidated financial statements have been prepared on a consolidated basis with those of the Company’s wholly-owned subsidiaries, Shuttle Pharmaceuticals, Inc. and Shuttle Diagnostics Inc. All intercompany transactions and balances have been eliminated.
Correction of an Immaterial Error in the Prior Period Financial Statements
During
the fourth quarter of 2023, the Company determined that the prior year consolidated financial statements had a misstatement caused by
an immaterial classification error of certain research and development expenses in accordance with Accounting Standards Codification
(“ASC”) 730. As a result, certain prior year amounts have been corrected for consistency with the current year presentation.
The Company assessed the materiality of this change in presentation on prior period consolidated financial statements in accordance with
SEC Staff Accounting Bulletin No. 99, “Materiality,” (ASC Topic 250, Accounting Changes and Error Corrections). Based on
this assessment, the Company concluded that these error corrections in its unaudited condensed consolidated statements of operations
are not material to any previously presented financial statements based upon overall considerations of both quantitative and qualitative
factors. The corrections had no impact on the unaudited condensed consolidated balance sheet, unaudited condensed consolidated statements
of cash flows, or unaudited condensed consolidated statement of changes in stockholders’ equity, to these financial statements,
or for any previously presented interim or annual financial statements. Further, the corrections did not result in a change in quarterly
or year-to-date operating losses, basic or diluted earnings per share, or working capital. The quarterly correction required for the
three and nine months ended September 30, 2023 was $
| September 30, 2023 | Correction | Corrected September 30, 2023 | ||||||||||
| Research and development expense | $ | $ | ( | ) | $ | |||||||
| General and administrative expense | ||||||||||||
| Net Loss | $ | $ | $ | |||||||||
Use of Estimates
The preparation of unaudited 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 unaudited 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 unaudited condensed consolidated financial statements for the recognition of research and development expenses, valuation of warrants and valuation of bifurcated derivative liabilities and other financial instruments.
| 9 |
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, 2024 and December 31, 2023, cash and cash equivalents consisted of the following:
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| 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 $ and $
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.
| 10 |
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, 2024 and December 31, 2023:
| September 30, 2024 | Level 1 | Level 2 | Level 3 | Carrying Value | ||||||||||||
| Assets | ||||||||||||||||
| Marketable Securities: | ||||||||||||||||
| United States Treasury Bonds | $ | $ | $ | $ | ||||||||||||
| Total Assets | $ | $ | $ | $ | ||||||||||||
| Liabilities | ||||||||||||||||
| Derivative Liability - Warrants | $ | $ | $ | $ | ||||||||||||
| Derivative Liability - Accelerated feature | ||||||||||||||||
| Total Liabilities | $ | $ | $ | $ | ||||||||||||
| December 31, 2023 | Level 1 | Level 2 | Level 3 | Carrying Value | ||||||||||||
| Assets | ||||||||||||||||
| Marketable Securities: | ||||||||||||||||
| United States Treasury Bonds | $ | $ | $ | $ | ||||||||||||
| Total Assets | $ | $ | $ | $ | ||||||||||||
| 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 unaudited condensed consolidated statements of operations. For our liability classified derivative financial instruments, the Company used a Monte Carlo valuation model to value the derivative instruments at inception and on subsequent valuation dates. For our equity classified derivative financial instruments, we used a Black-Scholes option-pricing model at the grant date to value the derivative instrument. 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 unaudited condensed consolidated balance sheets 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.
Warrants
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in FASB ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
| 11 |
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the unaudited condensed consolidated statements of operations. The fair value of the warrants is estimated using a Black-Scholes pricing model or a Monte Carlo simulation.
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, which include a certain portion of our chief executive officer, chief operating officer, chief financial officer and directors’ compensation. For the three and nine months ended September 30, 2024 and 2023, a portion of personnel-related expenses and stock-based compensation expense for these individuals totaling $ million and $ million, respectively, and $ million and $ million, respectively, was included within research and development due to their active involvement in the research and development activities, materials, supplies, related subcontract expenses, and consulting costs. In June 2024, the Company recruited a new chief financial officer who is substantially devoted to administrative functions and our then existing chief financial officer, who also handled research and development compliance functions, transitioned to substantially research and development functions.
Regarding the accounting treatment for reimbursements, GAAP provides limited guidance on the accounting for government grants received by for-profit companies. In accordance with ASC Topic 832, Government Assistance, as adopted January 1, 2022, we disclose certain types of government assistance received in the notes to the consolidated financial statements that includes: a) the nature of the transaction including the nature of the assistance being given, b) the accounting policies being used to account for the transaction and c) other provisions of relevance, where required. Depending on the type of grant or contract, 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 received for R&D expenses incurred, are more akin to a reduction of costs and applies reimbursements against incurred research costs. There were no reimbursements received for the three and nine months ended September 30, 2024 and 2023.
Net loss per share of common stock requires presentation of basic earnings per share on the face of the unaudited condensed consolidated 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 unaudited condensed consolidated 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 stock-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.
| 12 |
| September 30, | September 30, | |||||||
| 2024 | 2023 | |||||||
| Convertible notes (Note 5) | ||||||||
| Warrants (Note 6) | ||||||||
| Restricted stock units (Note 6) | ||||||||
Deferred Offering Costs
Pursuant to ASC 340-10-S99-1, costs directly attributable to an offering of equity securities are deferred and would be charged against the gross proceeds of an offering as a reduction of additional paid-in capital. Deferred offering costs may consist of underwriting, legal, accounting, and other expenses incurred through the balance sheet date that are directly related to a proposed public offering. Should the proposed public offering prove to be unsuccessful, any deferred costs, as well as additional expenses to be incurred, will be expensed.
Recent Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting Topic 280, “Segment Reporting-Improvements to Reportable Segment Disclosures,” which allows disclosure of one or more measures of segment profit or loss used by the chief operating decision maker to allocate resources and assess performance. Additionally, the standard requires enhanced disclosures of significant segment expenses and other segment items, as well as incremental qualitative disclosures on both an annual and interim basis. This guidance is effective for annual reporting periods beginning after December 15, 2023, and interim reporting periods after December 15, 2024. Early adoption is permitted and retrospective application is required for all periods presented. The adoption of this new guidance is not expected to have a significant impact on our consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes Topic 740, “Income Tax-Improvements to Income Tax Disclosures,” which requires enhanced disclosures, including specific categories and disaggregation of information in the effective tax rate reconciliation, disaggregated information related to income taxes paid, income or loss from continuing operations before income tax expense or benefit, and income tax expense or benefit from continuing operations. This guidance is effective for annual reporting periods beginning after December 15, 2024. Early adoption is permitted and should be applied on a prospective basis, however retrospective application is permitted. The Company is currently evaluating the impact of adopting this guidance on its consolidated and condensed financial statements and disclosures included within notes to consolidated and condensed financial statements.
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. Operating lease expense is recognized on a straight-line basis over the lease term.
During
the nine months ended September 30, 2023, the Company had a lease agreement which allowed for the use of a laboratory facility for a
monthly payment of $
The
Company currently has a lease agreement which allows for the use of a laboratory facility, entered into on February 16, 2023, with base
rent of $
| 13 |
The following summarizes the ROU lease expense components and cash flow information for the Company’s operating leases:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Operating lease cost | $ | $ | $ | $ | ||||||||||||
| Variable lease cost | ||||||||||||||||
| Sublease income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||
| Cash paid for operating cash flows from operating leases | $ | $ | $ | $ | ||||||||||||
| Right-of-use assets obtained in exchange for new operating lease liability | $ | $ | $ | $ | ||||||||||||
Supplemental balance sheet information related to operating leases was as follows:
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Weighted-average remaining lease term (year) | ||||||||
| Weighted-average discount rate | % | % | ||||||
Future non-cancelable minimum lease payments under the operating lease liability as of September 30, 2024, are as follows:
| Years Ended December 31, | ||||
| 2024 (excluding the nine months ended September 30, 2024) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Total future minimum lease payments | $ | |||
| Less imputed interest | ( | ) | ||
| Present value of payments | $ | |||
Note 4 – Notes Payable-Related Party
On
September 4, 2024, the Company issued a $
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 $
| 14 |
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 three and nine months ended September 30, 2023 the Company incurred $
Note 5 – Convertible Notes
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 $
| 15 |
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 $
On
August 6, 2024, the Company entered into an amendment to the SPA with Alto. Under the Amendment Agreement, the Company and Alto agreed
as follows: (i) that the Company would pay $
During
the three and nine months ended September 30, 2024, the Company recorded interest expense of $
During
the three and nine months ended September 30, 2023, the Company recorded interest expense of $
As of September 30, 2024, the outstanding principal, debt discount and net carry value for the convertible note was $.
| 16 |
Note 6 – Stockholders’ Equity
Common Stock
During the three and nine months ended September 30, 2024, the Company issued:
| ● |
and shares of common stock to settle $ | |
| ● | and shares of common stock issued for vesting of restricted stock units, respectively. | |
| ● | shares of common stock issued for the round up of reverse split fractional shares. |
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. |
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, 2024 were as follows:
| Number of | Weighted Average | Average | ||||||||||
| warrants | Exercise Price | Life (years) | ||||||||||
| Outstanding, December 31, 2023 | $ | |||||||||||
| Granted | - | |||||||||||
| Outstanding, September 30, 2024 | $ | |||||||||||
The intrinsic value of the warrants as of September 30, 2024 is $. All of the outstanding warrants are exercisable as of September 30, 2024.
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, 2024, 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 three and nine months ended September 30, 2024 and 2023, pursuant to agreements with officers and consultants, and , respectively
and and RSUs, respectively with a value of $
| 17 |
As of September 30, 2024, there was $ of unrecognized RSU compensation cost related to non-vested stock-based compensation arrangements which is expected to be recognized over a weighted-average period of years.
| Number of RSU | Weighted Average Fair Value Per RSU | |||||||
| Outstanding, December 31, 2023 | $ | |||||||
| Granted | ||||||||
| Forfeiture | ( | ) | ||||||
| Vested | ( | ) | ||||||
| Outstanding, September 30, 2024 | $ | |||||||
Rights Offering and Financing Commitment
On
February 7, 2024, the Company and its wholly-owned subsidiary, Shuttle Diagnostics, Inc., entered into a securities purchase agreement
(the “Purchase Agreement”) with SRO, LLC, a Nevada limited liability company, pursuant to which SRO LLC agreed to commit
to purchasing from the Company $
The
Company filed an initial registration statement on Form S-1 (the “Form S-1”) with the SEC in April 2024 related to the registration
of subscription rights to purchase the Units to be sold in the Rights Offering. The Form S-1 has not been declared effective as of the
date these unaudited condensed consolidated financial statements were issued. Upon the Form S-1 being declared effective, the Purchase
Agreement allows SRO LLC up to 60 days to raise the initial $
In
conjunction with its entry into the Purchase Agreement, on February 7, 2024, the Company entered into a placement agent and advisory
services agreement (the “Placement Agent Agreement”) with BSL, pursuant to which BSL and BSL’s affiliates agreed to provide
the Company with regular and customary financial consulting advice and act as placement agent, on a best efforts basis, for the
Rights Offering. In exchange for its services, BSL will receive a commitment fee equal to $
| 18 |
The
Company has incurred $
Alliance Global Partners
On
July 30, 2024, the Company entered into an agreement with A.G.P./Alliance Global Partners (“AGP”), as the exclusive underwriter,
placement agent, or advisor in a public or private offering of up to $
As
of September 30, 2024, the Company has incurred $
See Note 9, Subsequent Events, Alliance Global Partners.
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 has determined the Acceleration Option is an embedded derivative within the host instrument and has bifurcated it from the host
instrument and recorded it as a derivative liability valued at $
The
Company 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 as of September 30, 2024, were as follows:
| September 30, 2024 | ||||
| Net cash settlement and down round key valuation inputs – warrants* | ||||
| Annualized volatility | ||||
| Risk-free interest rate | ||||
| Quoted VWAP | $ | |||
| Exercise price | $ | |||
| Probability assessment | ||||
| Illiquidity discount | ( | %) | ||
| Time period (years) | ||||
| * |
| 19 |
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, 2023 | $ | $ | ||||||
| Gain on change in fair value | ( | ) | ( | ) | ||||
| Balance - March 31, 2024 | $ | $ | ||||||
| Loss (gain) on change in fair value | ( | ) | ||||||
| Balance - June 30, 2024 | $ | $ | ||||||
| Gain on change in fair value of the derivative | ( | ) | ( | ) | ||||
| Balance - September 30, 2024 | $ | $ | ||||||
Note 8 –Other Related Party transactions
On
September 14, 2022, we entered into a manufacturing agreement with TCG GreenChem, Inc. (“TCG GreenChem”), the U.S. subsidiary
of TCG Lifesciences Pvt Ltd., a global contract research and manufacturing services company located in India. Dr. Chis Senanayake, one
of our independent directors, is CEO and CSO of TCG GreenChem and CSO of TCG Lifesciences Pvt Ltd. TCG GreenChem was contracted for process
research, development and cGMP compliant manufacture of IPdR. During the nine months ended September 30, 2024 and 2023, the Company expensed
$
Note 9 – Subsequent Events
Convertible Bridge Notes
On
October 14, 2024, the Company issued an aggregate of $
On
October 21, 2024, the Company issued an additional $
Alliance Global Partners
On
October 31, 2024, the Company consummated a public offering of an aggregate of (i) shares of common stock and pre-funded
warrants to purchase up to
The
public offering price for each share of common stock and one accompanying warrant was $. The public offering price of each pre-funded
warrant and one accompanying common warrant was $, which equals the price at which one share of common stock and accompanying warrant
was sold to the public in this offering, minus $. The exercise price of each pre-funded warrant is $
| 20 |
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. (the “Company”) 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 explore new Small Business Innovation Research (SBIR) contract work on predictive biomarkers of radiation response, as well as prostate cell lines for health disparities research. We received 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 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 also worked with University of Iowa Pharmaceuticals to develop the formulation, produce the capsules, and which have been shipped to Contract Research Organization (CRO) Theradex Oncology for distribution to clinical trial sites. Both activities have now been completed. In addition, Shuttle received approval from the U.S. Food and Drug Administration (FDA) to begin the clinical trial. The FDA made recommendations to expand the clinical trial and the Company agreed with the recommendation. With this change incorporated into the revised protocol, the Company commenced its Phase II clinical study with finalized agreements with all six of the planned site enrollment locations to administer the Phase II clinical trial of Ropidoxuridine and has enrolled the first three patients in October 2024. 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.
Reverse Stock Split
On August 13, 2024, in order to meet the Nasdaq minimum bid price requirement, the Company effectuated a 1-for-8 reverse stock split of its issued and outstanding common stock, rounding up to account for any fractional shares (the “Reverse Stock Split”). The Reverse Stock Split had no effect on the Company’s authorized shares of common stock or preferred stock. All share, option, warrant and per share amounts (except our authorized outstanding and previously reserved shares) have been retroactively recast in our most recent filings, and are presented as such in these financial statements and related disclosures.
| 21 |
Nasdaq Listing Compliance
On September 10, 2024, the Company received a letter (the “Notification”) from The Nasdaq Capital Market (“Nasdaq”), notifying the Company that it is no longer in compliance with the minimum stockholders’ equity requirement for continued listing on the Nasdaq Capital Market. Nasdaq Listing Rule 5550(b)(1) requires listed companies to maintain stockholders’ equity of at least $2,500,000. In the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2024, the Company reported stockholders’ equity of $801,434, which is below the minimum stockholders’ equity required for continued listing pursuant to Nasdaq Listing Rule 5550(b)(1). In addition, presently, the Company does not meet the alternatives of market value of listed securities or net income from continuing operations.
This Notification has no immediate effect on the listing of the Company’s securities on the Nasdaq Capital Market. Nasdaq has provided the Company with 45 calendar days, or until October 25, 2024, to submit a plan to regain compliance with the minimum stockholders’ equity standard. If the Company’s plan to regain compliance is accepted, Nasdaq may grant an extension of up to 180 calendar days from September 10, 2024 for the Company to regain compliance.
On October 15, 2024, the Company submitted a plan to Nasdaq to regain compliance. However, there can be no assurance that the Company’s plan will be accepted or that, if it is, that the Company will be able to regain compliance and maintain its listing on the Nasdaq Capital Market. If the Company’s plan to regain compliance is not accepted or if Nasdaq does not grant an extension and the Company does not regain compliance, or if the Company fails to satisfy another Nasdaq requirement for continued listing, Nasdaq could provide notice that the Company’s securities will become subject to delisting. In that event, the Company will have an opportunity to appeal Nasdaq’s decision to a hearings panel.
Results of Operations
Comparison of the three months ended September 30, 2024 and 2023
The following table summarizes the results of our operations:
| Three Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| 2024 | 2023 | Change | % | |||||||||||||
| Revenue | $ | - | $ | - | $ | - | - | |||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | 1,400,564 | 1,045,177 | 355,387 | 34 | % | |||||||||||
| General and administrative | 328,995 | 265,553 | 63,442 | 24 | % | |||||||||||
| Legal and professional | 1,322,002 | 288,416 | 1,033,586 | 358 | % | |||||||||||
| Total operating expenses and loss of operations | 3,051,561 | 1,599,146 | 1,452,415 | 91 | % | |||||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense - related parties | (2,137 | ) | - | (2,137 | ) | (100 | %) | |||||||||
| Interest expense | (270,538 | ) | (623,465 | ) | 352,927 | 56 | % | |||||||||
| Gain on sale of marketable securities | 56,398 | - | 56,398 | 100 | % | |||||||||||
| Change in fair value of marketable securities | (42,898 | ) | 9,606 | (52,504 | ) | (547 | %) | |||||||||
| Interest income | 2,524 | 20,765 | (18,241 | ) | (88 | %) | ||||||||||
| Change in fair value of derivative liabilities | 286,316 | 442,900 | (156,584 | ) | (35 | %) | ||||||||||
| Loss on settlement of convertible debt | (762,186 | ) | (43,414 | ) | (718,772 | ) | 1656 | % | ||||||||
| Total other expense | (732,521 | ) | (193,608 | ) | (538,913 | ) | 278 | % | ||||||||
| Net loss | $ | (3,784,082 | ) | $ | (1,792,754 | ) | $ | (1,991,328 | ) | 111 | % | |||||
| 22 |
Research and Development. Research and development (“R&D”) expenses were $1.4 million for the three months ended September 30, 2024, as compared to $1.0 million for three months ended September 30, 2023. The increase of $0.4 million, or 34%, is primarily related to the Company having completed production of the drug product and the start of work related to the initiation of trials.
R&D compensation related expenses were $0.3 million in the three months ended September 30, 2024 as compared to $0.3 million in the three months ended September 30, 2023. Compensation related expenses were 22% for the three months ended September 30, 2024, representing a decrease from 29% of total R&D in the three months ended September 30, 2023. Subcontract work made up 73% of total R&D expenses in the three months ended September 30, 2024 and 65% 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, 2024 increased by $63 thousand, or 24% to $0.33 million in the three months ended June 30, 2024, compared to $0.27 million in the three months ended September 30, 2023, largely due to costs associated with the additional focus on financial reporting and capital needs.
Legal and Professional Expenses. During the three months ended September 30, 2024, legal and professional expenses increased by $1.0 million or 358% to $1.3 million compared to $0.3 million in the same period in the prior year. The increase in legal and professional fees was primarily due to increases in our expenses related to our public filing requirements, reaudits, contracts, and financing related work.
Other Income Expense. Other expense was $0.7 million for the three months ended September 30, 2024, which consisted primarily of $0.3 million in interest expense on convertible loans, loss on settlement of debt of $0.8 million, and a gain on change in fair value of derivative liabilities of $0.3 million. Other expense was $0.2 million for the three months ended September 30, 2023, which consisted primarily of $0.4 million in interest expense on convertible loans, loss on settlement of convertible debt of $0.8 million, and a gain on change in fair value of derivative liabilities of $0.4 million. The $0.4 million gain in fair value of derivative liability resulted from the fair value measurement using the Monte Carlo pricing model and the impact of the decrease in the market price of warrant shares. These amounts were largely attributable to the Alto Convertible Note conversions and cash management activities.
Comparison of the nine months ended September 30, 2024 and 2023
The following table summarizes the results of our operations:
| Nine Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| 2024 | 2023 | Change | % | |||||||||||||
| Revenue | $ | - | $ | - | $ | - | - | |||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | 2,632,387 | 2,806,644 | (174,257 | ) | (6 | %) | ||||||||||
| General and administrative | 963,642 | 730,186 | 233,456 | 32 | % | |||||||||||
| Legal and professional | 2,323,013 | 1,072,728 | 1,250,285 | 117 | % | |||||||||||
| Total operating expenses and loss of operations | 5,919,042 | 4,609,558 | 1,309,484 | 28 | % | |||||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense - related parties | (2,137 | ) | (6,825 | ) | 4,688 | (69 | %) | |||||||||
| Interest expense | (1,198,738 | ) | (1,952,147 | ) | 753,409 | 39 | % | |||||||||
| Interest income | 38,135 | 56,720 | (18,585 | ) | (33 | %) | ||||||||||
| Finance fee | - | (104,245 | ) | 104,245 | (100 | %) | ||||||||||
| Change in fair value of derivative liabilities | 340,405 | 2,118,175 | (1,777,770 | ) | (84 | %) | ||||||||||
| Gain on sale of marketable securities | 100,118 | 1,744 | 98,374 | 5,641 | % | |||||||||||
| Change in fair value of marketable securities | (71,568 | ) | 21,134 | (92,702 | ) | (439 | %) | |||||||||
| Loss on settlement of convertible debt | (833,501 | ) | (477,221 | ) | (356,280 | ) | (75 | %) | ||||||||
| Total other expense | (1,627,286 | ) | (342,665 | ) | (1,284,621 | ) | 375 | % | ||||||||
| Net loss | $ | (7,546,328 | ) | $ | (4,952,223 | ) | $ | (2,594,105 | ) | 52 | % | |||||
| 23 |
Research and Development. Research and development (“R&D”) expenses were $2.6 million for the nine months ended September 30, 2024, as compared to $2.8 million for nine months ended September 30, 2023. The decrease of $0.2 million, or 6%, is primarily related to the Company having completed production of the drug product in the prior period substantially offset by costs incurred for the start of work related to the initiation of trials in the current period.
R&D compensation related expenses were $0.9 million in the nine months ended September 30, 2024 as compared to $1.2 million in the nine months ended September 30, 2023. Compensation related expenses were 36% for the nine months ended September 30, 2024, representing a decrease from 42% of total R&D in the nine months ended September 30, 2023. Subcontract work made up 57% of total R&D expenses in the nine months ended September 30, 2024 and 53% of total R&D expenses during the nine months ended September 30, 2023.
General and Administrative Expenses. General and Administrative expenses in the nine months ended September 30, 2024 increased by $0.2 million, or 32% to $1.0 million in the nine months ended September 30, 2024. The increase in general and administrative expenses was primarily due to increases in marketing, advertising and filing expenses.
Legal and Professional Expenses. During the nine months ended September 30, 2024, legal and professional expenses increased by $1.3 million or 117%. The increase in legal and professional fees was primarily due to increases in our expenses related to our public filing requirements, reaudits, contracts and financing related work.
Other Income Expense. Other expense was $1.6 million for the nine months ended September 30, 2024, which consisted primarily of $1.2 million in interest expense on convertible loans, loss on settlement of convertible debt of $0.8 million, change in marketable securities of $0.1 million, and a gain on change in fair value of derivative liabilities of $0.3 million. Other expense was $0.3 million for the nine months ended September 30, 2023, which consisted primarily of $2.0 million in interest expense on convertible loans, finance fee on convertible loans of $0.1 million, loss on settlement of convertible debt of $0.5 million, and a gain on change in fair value of derivative liabilities of $2.1 million. The $2.1 million gain in fair value of derivative liability resulted from the fair value measurement using the Monte Carlo pricing model and the impact of the decrease in the market price of warrant shares. These amounts were largely attributable to the Alto Convertible Note conversions and cash management activities.
Liquidity and Capital Resources
Our unaudited condensed consolidated financial statements are prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has incurred losses since inception and has a net loss of approximately $7.5 million and no revenues for the nine months ended September 30, 2024 and has a working capital deficit of approximately $1.3 million as of September 30, 2024. The Company does not expect to generate positive cash flows from operating activities in the near future.
In September 2024, the Company’s CEO provided $250 thousand to the Company in exchange for a promissory note repayable in equal monthly installments of principal and interest over a term of one year. In October 2024, the Company completed an offering of senior secured convertible bridge notes, receiving $790 thousand in cash. The notes have a term of one-year and were accompanied by 329,461 warrants with a weighted-average exercise price of $1.42. Also in October 2024, the Company completed an equity raise that provided $3.9 million net cash for the issuance of 2.9 million shares / pre-funded warrants, and by 2.9 million warrants with an exercise price of $1.40. However, the Company’s existing cash resources and the cash received from the equity offering and senior convertible note are not expected to provide sufficient funds to carry out the Company’s operations and clinical trials through the next twelve months.
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The Company’s capital raises have to date supported operations, the manufacture of drug product and FDA approval of the IND for the Phase II clinical trial of Ropidoxuridine and radiation therapy in glioblastoma and other radiation sensitizer discovery and therapy. The FDA recommended and the Company agreed to an expansion of the Phase II clinical trial, necessitating additional capital to complete the trial as well as fund ongoing operations. Additionally, the Phase II clinical trial of Ropidoxuridine has evolved with finalized agreements with all six of the planned site enrollment locations to administer the Phase II clinical trial of Ropidoxuridine and the enrollment of the first three patients.
The ability of the Company to continue as a going concern is dependent upon its ability to continue to successfully raise additional equity or debt financing to allow it to fund ongoing operations, conduct clinical trials and bring a drug candidate to commercialization to generate revenues. These conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the unaudited condensed consolidated financial statements are issued.
The accompanying unaudited condensed consolidated financial statements do not include any adjustments to reflect the future effects on the recoverability and classification of assets or the amounts and classification of liabilities if the Company is unable to continue as a going concern.
Balance Sheet Data:
| September 30, | December 31, | |||||||||||||||
| 2024 | 2023 | Change | % | |||||||||||||
| Current assets | $ | 361,351 | $ | 5,593,005 | $ | (5,231,654 | ) | (94 | %) | |||||||
| Current liabilities | 1,659,233 | 1,042,237 | 616,996 | 59 | % | |||||||||||
| Working capital (deficiency) | $ | (1,297,882 | ) | $ | 4,550,768 | $ | (5,848,650 | ) | (129 | %) | ||||||
As of September 30, 2024, total current assets were $0.4 million and total current liabilities were $1.7 million, resulting in a working capital deficiency of $1.3 million. As of December 31, 2023, total current assets were $5.6 million and total current liabilities were $1.0 million, resulting in a working capital of $4.6 million. As of September 30, 2024, the current assets were from $0.2 million cash, $0.1 million in prepaid expenses and $0.1 million in deferred costs, with the decrease from December 31, 2023 being primarily due to ongoing cash burn from our R&D programs, filing expenses, reaudits, and general operations. The increase in current liabilities is primarily due to an increase in accounts payable of $1.1 million compared to December 31, 2023, partially offset by the net change in amounts owed under convertible notes and notes payable of $0.5 million.
Cash Flows from Operating Activities
| Nine Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| 2024 | 2023 | Change | % | |||||||||||||
| Cash used in operating activities | $ | (4,637,068 | ) | $ | (4,518,973 | ) | $ | (118,095 | ) | 3 | % | |||||
| Cash provided by (used in) investing activities | $ | 2,915,761 | $ | (2,916,760 | ) | $ | 5,832,521 | (200 | %) | |||||||
| Cash provided by (used in) financing activities | $ | (698,457 | ) | $ | 2,904,527 | $ | (3,602,984 | ) | (124 | %) | ||||||
| Cash on hand | $ | 156,652 | $ | 3,885,997 | $ | (3,729,345 | ) | (96 | %) | |||||||
To date, we have not generated positive cash flows from operating activities. For the nine months ended September 30, 2024, and 2023, net cash flows used in operating activities were $4.6 million and $4.5 million, respectively, with a shift in 2024 from a majority of research and development activity costs in 2023 to additional administrative costs in 2024 associated with financing and financial reporting matters.
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Cash Flows from Investing Activities
For the nine months ended September 30, 2024, we invested in trading marketable securities for $44 thousand and received $3.0 million in proceeds from disposition of marketable securities. For the nine months ended September 30, 2023, we invested in trading marketable securities for $3.0 million and received $80 thousand in proceeds from disposition of marketable securities and purchased $19 thousand of equipment.
Cash Flows from Financing Activities
For the nine months ended September 30, 2024, we paid $0.8 million related to payments on a convertible note and $0.1 million for finance costs, and received $0.3 million of proceeds from a related party notes payable. For the nine months ended September 30, 2023, we received a net of $3.6 million from the sale and issuance of convertible notes payable and warrants and repaid $0.7 million in related party 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.
Critical Accounting Policies and Significant Judgments and Estimates
This discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of these unaudited condensed consolidated 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 unaudited condensed consolidated 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 unaudited condensed consolidated financial statements included elsewhere in this report, 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 | |
| ● | Fair Value of Derivative Financial Instruments | |
| ● | Initial Measurement of Equity-Based Warrants |
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.
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 unaudited condensed consolidated statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities are evaluated at the end of each reporting period.
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For our derivative financial instruments classified as a liability, the Company uses a Monte Carlo valuation model to value the derivative instruments at inception and on subsequent valuation dates. The model requires the use of simulations that are weighted based on significant unobservable inputs including the average volatility of a population set and probabilities assigned. Each simulation is based on the range of inputs in a scenario with the mean of the output on each simulation calculated as an average. 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 and is updated each period.
The use of Monte Carlo valuation models require key inputs, some of which are based on estimates and judgements by management. Any change to these key inputs could produce significantly higher or lower fair value measurements.
Initial Measurement of Equity-Based Warrants
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 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 equity, is evaluated at the end of each reporting period.
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 Black Scholes valuation model requires the input of highly subjective assumptions, including the expected price volatility, that is based on an analysis of the historical volatility of the common stock of a group of comparable entities. Any change to these inputs could produce significantly higher or lower fair value measurements.
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
Disclosure controls and procedures (as defined in Securities Exchange Act of 1934, as amended, or the Exchange Act Rule 15d-15(e)) are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this report, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As of September 30, 2024, our management carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Such evaluation was carried out under the supervision of our Chief Executive Officer with the participation of our President and Chief Operating Officer, and our Chief Financial Officer, and our third-party financial service provider. Based on this evaluation, management concluded that our disclosure controls and procedures were, and continue to be, ineffective as of September 30, 2024. Based on the foregoing, our management concluded that our internal controls over the following financial reporting areas to be material weaknesses:
| ● | Our written accounting policies and documentation of management’s contemplation of the accounting treatment and implications over significant unusual transactions, including complex accounting associated with debt and equity transactions, is limited and resulted in ineffective monitoring of financial reporting. These were contributing factors which lead to untimely filings. |
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| ● | Due to our size and stage of development, segregation of all conflicting duties may not always be possible and may not be economically feasible. During the reporting period, we lacked sufficient review procedures and segregation of duties such that a proper review had not been performed by someone other than a preparer, including manual journal entries, and that process documentation is lacking for review and monitoring controls over financial statements close process and financial reporting. | |
| ● | As a result of the Company’s evolution since the date of our initial formation, when we were focused on NIH SBIR research contracts with related costing allocation allowances until when we completed our IPO and continued our development process, management lacks a formal process to identify and properly classify operating expenses such as R&D. | |
| ● | We identified findings related to overall information technology general controls including issues with access and segregation of duties for systems supporting the Company’s internal control processes and controls. | |
| ● | Our accounting policies and oversight regarding certain technical aspects of financial reporting for stock-based compensation transactions, particularly relating to grant date valuations and expense attribution, is limited and resulted in the incorrect recording of related compensation expense and related disclosures. |
Except as noted below, there has been no change in the Company’s internal control over financial reporting during the three months ended September 30, 2024 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Management will continue to monitor and evaluate the effectiveness of our internal controls and procedures over financial reporting on an ongoing basis and is committed to taking further action and implementing additional improvements as necessary.
Management’s Remediation Measures
The aforementioned material weaknesses were identified in 2023 and 2024 and the ineffective monitoring of financial reporting weaknesses resulted in the Company needing to restate its 2023 and 2022 financial statements. While the Company has improved its organizational capabilities, the Company’s remediation efforts will continue to take place. Management is committed to maintaining a strong internal control environment. In response to the identified material weaknesses in the overall control environment, management is currently implementing additional measures which include:
| ● | Hired a new Chief Financial Officer (“CFO”) during the second quarter of 2024 to bolster the Company’s internal technical accounting and financial reporting experience and provide bandwidth for the prior CFO to focus on the Company’s expanding clinical trial. |
| ● | Engaged a third-party consulting firm to assist with the preparation of SEC reporting and other technical accounting matters. |
The Company will continue to review and improve its internal controls over financial reporting to address the underlying causes of the material weaknesses and control deficiencies. Such material weaknesses and control deficiencies will not be fully remediated until the Company has concluded that its internal controls are operating effectively for a sufficient period of time.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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. We maintain insurance policies in amounts and with the coverage and deductibles we believe are adequate, based on the nature and risks of our business, historical experience and industry standards.
ITEM 1A. RISK FACTORS
As a smaller reporting company, we are not required to provide the information required by this item.
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ITEM 2. UNREGISTERED SALES OF EQUITY 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.
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.
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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, 2024 | By: | /s/ Anatoly Dritschilo |
| Anatoly Dritschilo, M.D. | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| November 13, 2024 | By: | /s/ Timothy J. Lorber |
| Timothy J. Lorber | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
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