# Shuttle Pharmaceuticals Holdings, Inc.: Form 10-Q for the period ended Sep 30, 2024

- Company: [Shuttle Pharmaceuticals Holdings, Inc.](/companies/shph.md) (CIK 1757499)
- Form: 10-Q
- Filed: 2024-11-13
- Accepted by EDGAR: Nov 13, 2024, 17:01 ET
- Period: 2024-09-30
- Accession: 0001493152-24-045176
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1757499/000149315224045176/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1757499/000149315224045176/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Research and development | 3 months, 2024-07-01 to 2024-09-30 | $1.4m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2024-01-01 to 2024-09-30 | $2.6m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | −$3.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | −$5.9m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | −$3.8m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | −$7.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | −$1.59 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | −$3.45 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | −$1.59 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | −$3.45 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 2,384,177 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 2,189,366 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | −$4.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2024-09-30 | $156.7k | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $361.4k | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $673.6k | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $1.7m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $2.0m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-09-30 | −$1.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 26,283 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. (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.

### 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.

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, 2024 | December 31, 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.

### 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.

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.

## Controls and procedures

As filed, 5,141 characters.

#### 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.
- 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.

Filed Nov 13, 2024.
Source: SEC EDGAR, the filing index for accession 0001493152-24-045176. Last ingested by Listed: Nov 6, 2026, 18:28 ET. No prices; not investment advice.