# Shuttle Pharmaceuticals Holdings, Inc.: Form 10-Q for the period ended Jun 30, 2023

- Company: [Shuttle Pharmaceuticals Holdings, Inc.](/companies/shph.md) (CIK 1757499)
- Form: 10-Q
- Filed: 2023-08-14
- Accepted by EDGAR: Aug 14, 2023, 16:14 ET
- Period: 2023-06-30
- Accession: 0001493152-23-028462
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1757499/000149315223028462/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1757499/000149315223028462/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Research and development | 3 months, 2023-04-01 to 2023-06-30 | $933.4k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2023-01-01 to 2023-06-30 | $1.9m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-04-01 to 2023-06-30 | −$1.5m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-01-01 to 2023-06-30 | −$3.0m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | −$2.2m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | −$3.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | −$0.15 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | −$0.23 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | −$0.15 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | −$0.23 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 14,261,313 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 13,950,355 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | −$3.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2023-06-30 | $5.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-06-30 | $8.4m | us-gaap:AssetsCurrent |
| Total assets | at 2023-06-30 | $8.8m | us-gaap:Assets |
| Current liabilities | at 2023-06-30 | $493.7k | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-06-30 | $1.9m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-06-30 | $6.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 23,167 characters.

*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 have received SBIR contract funding from the 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 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. In addition, Shuttle’s recent request for a Type B pre-IND meeting with the FDA for guidance with the proposed Phase II clinical trial has been approved with the goal of the Company receiving written responses from the FDA by September 18, 2023. 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 June 30, 2023 and 2022

The following table summarizes the results of our operations:

|  | Three Months Ended June 30, 2023 | 2022 | Change% |  |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $- | $- | $- | - |
| Operating expenses: |  |  |  |  |
| Research and development | 933,373 | 83,868 | 849,505 | 1,013% |
| General and administrative | 115,571 | 9,078 | 106,493 | 1,173% |
| Legal and professional | 416,688 | 260,680 | 156,008 | 60% |
| Total operating expenses | 1,465,632 | 353,626 | 1,112,006 | 314% |
| Other income (expense): |  |  |  |  |
| Interest expense - related party | (2,588) | (14,836) | 12,248 | (83)% |
| Interest expense | (729,351) | (170,391) | (558,960) | 328% |
| Gain on sale of marketable securities | 1,744 | - | 1,744 | 100% |
| Unrealized loss on marketable securities | (26,534) | - | (26,534) | (100)% |
| Interest income | 19,267 | - | 19,267 | 100% |
| Change in fair value of derivative liabilities | 434,275 | (58,422) | 492,697 | (843)% |
| Loss on settlement of convertible debt | (415,553) | - | (415,553) | (100)% |
| Total other expense | (718,740) | (243,649) | (475,091) | 195% |
| Net loss | $2,184,372 | $597,275 | $1,587,097 | 266% |

18

*Research and Development.* Research and development (“R&D”) expense was $933,373 for the three months ended June 30, 2023, as compared to $83,868 for three months ended June 30, 2022. The increase of $849,505, or 1,013%, 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. The increased R&D expenses also included the third milestone payment of $300,000 made to TCG GreenChem for IPdR related work.

Compensation related expenses were $423,677 in the three months ended June 30, 2023 as compared to $262,697 in the three months ended June 30, 2022. Compensation related expenses decreased from 90.9% of total R&D in the three months ended June 30, 2022 to 45.4% for the three months ended June 30, 2023. Subcontract work made up 0% of total R&D expenses in the three months ended June 30, 2022 and 50.2% of total R&D expenses during the three months ended June 30, 2023. All other R&D expenses were inconsequential.

*General and Administrative Expenses.* General and Administrative expenses in the three months ended June 30, 2023 increased by $106,493, or 1,173%, from $9,078 in the three months ended June 30, 2022 to $115,571 in the three months ended June 30, 2023. The increase in general and administrative expenses was primarily due to increases in insurance of $35,788, director fees of $31,250 and advertising costs of $24,583.

*Legal and Professional Expenses*. During the three months ended June 30, 2023, legal and professional expenses increased by $156,008 or 60%. 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 $718,740 for the three months ended June 30, 2023, which consisted of $729,351 in interest expense on convertible loans, $2,588 in interest expense on related party loans, interest income of $19,267, loss on settlement of convertible debt of $415,553, gain on disposal of marketable securities of $1,744, unrealized loss on marketable securities of $26,534, and a gain on change in fair value of derivative liabilities of $434,275. Other expense was $243,649 for the three months ended June 30, 2022, which consisted of $170,391 in interest expense, $14,836 in interest expense on related party loans and loss on change in derivative liability of $58,422.

### Comparison of the six months ended June 30, 2023 and 2022

The following table summarizes the results of our operations:

|  | Six Months Ended June 30, 2023 | 2022 | Change% |  |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $- | $- | $- | - |
| Operating expenses: |  |  |  |  |
| Research and development | 1,944,181 | 379,783 | 1,564,398 | 412% |
| General and administrative | 281,918 | 22,847 | 259,071 | 1,134% |
| Legal and professional | 784,312 | 589,392 | 194,920 | 33% |
| Total operating expenses | 3,010,411 | 992,022 | 2,018,389 | 203% |
| Other income (expense): |  |  |  |  |
| Interest expense - related party | (6,825) | (25,383) | 18,558 | (73)% |
| Interest expense | (1,328,682) | (315,944) | (1,012,738) | 321% |
| Interest income | 35,955 | - | 35,955 | 100% |
| Finance fee | (104,245) | - | (104,245) | (100)% |
| Change in fair value of derivative liabilities | 1,675,275 | (18,772) | 1,694,047 | (9,024)% |
| Gain on sale of marketable securities | 1,744 | - | 1,744 | 100% |
| Change in fair value of marketable securities | 11,528 | - | 11,528 | 100% |
| Loss on settlement of convertible debt | (433,807) | - | (433,807) | (100)% |
| Gain on forgiveness of Paycheck Protection Program note payable | - | 73,007 | (73,007) | (100)% |
| Total other expense | (149,057) | (287,092) | 138,035 | (48)% |
| Net loss | $3,159,468 | $1,279,114 | $1,880,354 | 147% |

19

*Research and Development.* Research and development (“R&D”) expense was $1,944,181 for the six months ended June 30, 2023, as compared to $379,783 for six months ended June 30, 2022. The increase of $1,564,398, or 412%, 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 period ended March 31, 2023. The increased expenses also included the second and third milestone payments of $300,000 for a total in the period of $600,000 made to TCG GreenChem for IPdR related work.

Compensation related expenses were $1,073,042 in the six months ended June 30, 2023 as compared to $526,880 in the six months ended June 30, 2022. Compensation related expenses decreased from 90.1% of total R&D in the six months ended June 30, 2022 to 55.2% for the six months ended June 30, 2023. Subcontract work made up 0% of total R&D expenses in the six months ended June 30, 2022 and 41.5% of total R&D expenses during the six months ended June 30, 2023. All other R&D expenses were inconsequential.

*General and Administrative Expenses.* General and Administrative expenses in the six months ended June 30, 2023 increased by $259,071, or 1,134%, from $22,847 in the six months ended June 30, 2022 to $281,918 in the six months ended June 30, 2023 primarily due to increases in insurance of $71,763, director fees of $68,750, advertising expenses of $53,811 and corporate filing fees of $55,555.

*Legal and Professional Expenses*. During the six months ended June 30, 2023, legal and professional expenses increased by $194,920 or 33%. The increase in legal and professional fees was primarily due to increases in our expenses related to public filing requirements, contract and financing work.

*Other Income (Expense)*. Other expense was $149,057 for the six months ended June 30, 2023, which consisted of $1,328,682 in interest expense on convertible loans, $6,825 in interest expense on related party loans, interest income of $35,955, finance fee on convertible loans of $104,245, loss on settlement of convertible debt of $433,807, gain on sale of marketable securities of $1,744, unrealized gain on marketable securities of $11,528, and a gain on change in fair value of derivative liabilities of $1,675,275. Other expense was $287,092 for the six months ended June 30, 2022, which consisted of $315,944 in interest expense, $25,383 in interest expense on related party loans and gains on change in derivative liability of $18,772 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 six months ended June 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 National Institutes of Health.

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, 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, 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.

### Balance Sheet Data:

|  | June 30, 2023 | December 31, 2022 | Change% |  |
| --- | ---: | ---: | ---: | ---: |
| Current assets | $8,443,342 | $8,578,351 | $(135,009) | (2)% |
| Current liabilities | 493,682 | 975,676 | (481,994) | (49)% |
| Working capital (deficiency) | $7,949,660 | $7,602,675 | $346,985 | 5% |

As of June 30, 2023, total current assets were $8,443,342 and total current liabilities were $493,682, resulting in working capital of $7,949,660. 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 June 30, 2023. The decrease in current liabilities is primarily due to the current portion of the new $4,300,000 convertible note which is $268,396 and a decrease in accounts payable offset by the reduction of $783,608 in related party notes payable and accrued interest.

### Cash Flows from Operating Activities

|  | Six Months Ended June 30, 2023 | 2022 | Change% |  |
| --- | ---: | ---: | ---: | ---: |
| Cash used in operating activities | $(2,984,039) | $(980,027) | $(2,004,013) | 204% |
| Cash used in investing activities | $(2,890,905) | $- | $(2,890,905) | (100)% |
| Cash provided by financing activities | $2,904,527 | $525,715 | $2,378,812 | 452% |
| Cash on hand | $5,446,786 | $50,437 | $5,396,348 | 10,699% |

To date, we have not generated positive cash flows from operating activities. For the six months ended June 30, 2023, net cash flows used in operating activities was $2,984,039, consisting of a net loss of $3,159,468, increased by a gain on change in derivative liabilities of $1,675,275, offset by amortization of debt discount of $1,116,422, loss on settlement of convertible debt of $433,806, accrued interest settled with common stock of $240,831, stock-based compensation of $57,855 and further reduced by a net change in working capital of $12,091. For the six months ended June 30, 2022, net cash flows used in operating activities was $980,027, consisting of a net loss of $1,279,114, amortization of debt discount of $278,531, stock-based compensation of $333,066, gain on forgiveness of the PPP loan of $73,007 and a net change in working capital of $261,174.

### Cash Flows from Investing Activities

For the six months ended June 30, 2023, we invested in trading marketable securities for $2,970,905 and received $80,000 in proceeds from disposition of marketable securities. For the six months ended June 30, 2022, we had no investing activities.

### Cash Flows from Financing Activities

For the six months ended June 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 six months ended June 30, 2022, we received $525,715 from the issuance of convertible 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 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
- Income Taxes

#### 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.

#### Income Taxes

The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. ASC 740 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, the Company does not foresee generating taxable income in the near future and utilizing its deferred tax asset, therefore, it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company has no material uncertain tax positions for any of the reporting periods presented.

## Controls and procedures

As filed, 2,846 characters.

#### 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 June 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 June 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 June 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.

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.

Filed Aug 14, 2023.
Source: SEC EDGAR, the filing index for accession 0001493152-23-028462. Last ingested by Listed: Nov 6, 2026, 18:28 ET. No prices; not investment advice.