Shuttle Pharmaceuticals Holdings, Inc.: Form 10-Q for the period ended Mar 31, 2025

The following Management’s Discussion and Analysis of Financial Condition and Result 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 and our financial statement and related notes contained in our annual report on Form 10-K for the fiscal year ended December 31, 2024. 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 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 including, but not limited to, those noted under “Risk Factors” in our annual report on Form 10-K for the fiscal year ended December 31, 2024.

We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this report, except as required by U.S. federal securities laws.

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 explore the application of the PC-RAD Test, predictive biomarkers of radiation response. The clinical development of Ropidoxuridine has included completion of a Phase I clinical trial to establish drug bioavailability and a maximum tolerated dose for use in Phase II clinical trials. TCG GreenChem, with whom we have contracted for process research, development and cGMP compliant manufacture of IPdR, has manufactured the API of Ropidoxuridine and the University of Iowa Pharmaceuticals has formulated the drug product for use in our upcoming Phase II clinical trial in brain cancer patients undergoing radiation therapy. The drug product (capsules) were shipped to CRO Theradex Oncology and distributed to clinical trial sites that are fully approved to enroll patients in the trial. Shuttle received approval from the FDA to begin the clinical trial. The FDA thereafter made recommendations to expand the clinical trial to include a randomized dose “optimization” step and we agreed with the recommendation. Meetings with engaged clinical sites to review the protocol documents have occurred and FDA required IRB approvals have been received. With FDA recommended changes incorporated into the revised protocol and the completion of site initiation visits, we commenced our Phase II clinical study in October 2024. The Company’s radiation biomarker project and the health disparities project have been completed and we are proceeding with plans for clinical validation and potential for commercialization of Ropidoxuridine as a radiation sensitizer.

Nasdaq Listing Compliance

On December 31, 2024, we received a letter from the Nasdaq Listing Qualifications Staff of The Nasdaq Stock Market LLC (“Nasdaq”) stating that for the 30 consecutive business day period between November 15, 2024 to December 30, 2024 our common stock had failed to maintain a minimum closing bid price of $1.00 per share, as required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), we have a period of 180 calendar days, or until June 30, 2025 (the “Compliance Period”), to regain compliance with the Minimum Bid Price Requirement. To regain compliance, the closing bid price of our common stock must meet or exceed $1.00 per share for a minimum of 10 consecutive business days.

Because we have already completed a 1-for-8 reverse stock split in August 2024, under new Nasdaq rules, we will not be allowed an additional 180 day compliance period. As such, if we do not regain compliance with the Minimum Bid Price Requirement by June 30, 2025, we will be subject to delisting. As such, we are seeking stockholder approval to complete an additional reverse stock split at our upcoming Annual Meeting of Stockholders, scheduled to be held on May 9, 2025, in the event our stock does not begin trading above $1.00 per share in the interim.

If we cannot regain compliance during the Compliance Period, by reverse split or otherwise, Nasdaq will provide a notice that our common stock will be subject to delisting. At that time, we may appeal Nasdaq’s delisting determination to a Nasdaq Hearings Panel.

Nasdaq’s notice of noncompliance has no immediate effect on the listing of our common stock and our common stock will continue to be listed on The Nasdaq Capital Market under the symbol “SHPH.” There can be no assurance that we will regain compliance with the Minimum Bid Price Requirement or maintain compliance with any of the other Nasdaq continued listing requirements. We will continue to monitor the closing bid price of its common stock and may, if appropriate, consider available options to regain compliance with the Minimum Bid Price Requirement.

On September 10, 2024, we received a letter from Nasdaq, notifying us that we were 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 $2.5 million. In our Quarterly Report on Form 10-Q for the period ended June 30, 2024, we reported stockholders’ equity of $0.8 million, which was below the minimum stockholders’ equity required for continued listing pursuant to Nasdaq Listing Rule 5550(b)(1). Nasdaq provided us with 45 calendar days, or until October 25, 2024, to submit a plan to regain compliance with the minimum stockholders’ equity standard. On October 15, 2024, we submitted a plan to Nasdaq to regain compliance and Nasdaq subsequently granted us up until March 10, 2025 to regain compliance.

Following the Company’s March 2025 $5.75 million equity financing, on March 14, 2025, Nasdaq acknowledged that we had regained compliance with the Listing Rule 5550(b)(1) but indicated that if we fail to evidence compliance upon filing our next periodic report for the period ended March 31, 2025, we may be subject to delisting. As evidenced herein, we continue to be in compliance with the Listing Rule 5550(b)(1). However, Nasdaq will continue to monitor our ongoing compliance with the Minimum Equity Requirement and, subject to a determination that we are not in compliance, we may be subject to delisting.

Results of Operations

Comparison of the three months ended March 31, 2025 and 2024

The following table summarizes the results of our operations:

25

Research and Development. Total research and development (“R&D”) expense was $1.6 million for the three months ended March 31, 2025, as compared to $0.6 million to the three months ended March 31, 2024. The increase in total R&D expense of $1.0 million, or 169%, is primarily related to the Company having completed production of the drug product and the start of work related to the initiation of trials including contract research organization (“CRO”) expenses, clinical trial sites, other regulatory activities.

R&D compensation related expenses were $0.6 million in the three months ended March 31, 2025 as compared to $0.3 million in the three months ended March 31, 2024. For the three months ended March 31, 2025, R&D compensation related expenses were 39% as a percent of total R&D expense, representing a decrease from the 56% of total R&D incurred in the three months ended March 31, 2024. Subcontractor expense made up 58% of total R&D expenses in the three months ended March 31, 2025 and 34% of total R&D expenses during the three months ended March 31, 2024.

General and Administrative Expenses. General and administrative expenses in the three months ended March 31, 2025 increased by $0.3 million, or 84%, from $0.3 million in the three months ended March 31, 2024 to $0.6 million in the three months ended March 31, 2025. The increase in general and administrative expenses was primarily due to costs associated with stock-based compensation of $0.1 million and marketing of $0.1 million for investor relations and other administrative costs.

Legal and Professional Expenses. During the three months ended March 31, 2025, legal and professional expenses increased by $0.3 million or 65% compared to the same period in 2024. The increase in legal and professional fees was primarily due to increases in legal costs associated with corporate matters and our accounting expenses related to our public filing requirements.

Other Income (expense). During the three months ended March 31, 2025, other expense decreased by $0.3 million or 73% compared to the same period in 2024. The decrease was primarily driven by a $0.5 million decrease in interest expense. The decrease was partially offset by a $0.2 million decrease in change in fair value of derivative liabilities.

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. We have incurred losses since inception and had a net loss of $3.0 million and no revenues generated during the three months ended March 31, 2025 and working capital of approximately $3.2 million as of March 31, 2025. We do not expect to generate positive cash flows from operating activities in the near future.

In January 2025, we entered into a change order to the existing agreement with Theradex Systems, Inc., our primary third-party CRO, for purposes of supporting our clinical trials of Ropidoxuridine. Following the change order, our total cost limit increased by $3.0 million, for an aggregate of $5.3 million, of which $2.4 million had not yet been incurred as of March 31, 2025.

In March 2025, we entered into a consulting services agreement (the “Bowery Consulting Agreement”) with Bowery Consulting Group Inc. (the “Consultant”). According to the Bowery Consulting Agreement, the Consultant will provide consulting services in connection with our business, advising on viability of plans for scaling activities, growth and capital raising strategies and cost minimization associated with technological platform improvements and marketing spend. We agreed to pay the Consultant $260,000 for their services. We are not obligated to pay amounts under the Bowery Consulting Agreement until we regain full Nasdaq listing requirement compliance.

In April 2025, we entered into a consulting agreement (the “IR Agency Consulting Agreement”) with IR Agency LLC (the “IR Agency”). Pursuant to the IR Agency Consulting Agreement, IR Agency agrees to provide certain marketing and advertising services to communicate information about us to the financial community (the “Services”), including, but not limited to, creating company profiles, media distribution and building a digital community with respect to us. As consideration for the performance of the Services, we paid IR Agency $2.0 million on April 5, 2025. The term of the IR Agency Consulting Agreement is three months commencing April 3, 2025.

Our ability to continue as a going concern is dependent upon our ability to continue to successfully raise additional equity or debt financing to allow us to fund ongoing operations, conduct clinical trials and bring a drug candidate to commercialization to generate revenues. These conditions raise substantial doubt about our ability to continue as a going concern within one year after the date that the unaudited condensed consolidated financial statements contained in this report are issued.

Recent Financings

On February 27, 2025, we entered into a Revolving Loan Agreement (the “Revolving Loan Agreement”) with certain lender identified on the signature page thereto. Pursuant to and under the terms of the Revolving Loan Agreement, we issued a revolving note dated February 28, 2025 in the principal amount of up to $2.0 million (the “Revolving Note”), which we may draw upon at our discretion from time to time through its maturity on February 28, 2026. The Revolving Note bears interest at the rate of 18% per annum calculated on the basis of a 360-day year, consisting of twelve 30 calendar day periods, and shall accrue interest daily commencing from the date of any draw down until paid in full.

On March 12, 2025, we consummated a public offering of an aggregate of (i) 1,340,921 shares of common stock, of the Company, at a public offering price of $0.30 per share and (ii) pre-funded warrants to purchase 17,825,746 shares of common stock at an exercise price of $0.001 per share, at a public offering price of $0.299 per pre-funded warrant (the “Offering”). The Offering closed on March 13, 2025. We received gross proceeds of approximately $5.7 million and net proceeds of approximately $5.0 million, reflecting approximately $0.7 million of legal costs and other expenses connected with the Offering.

Balance Sheet Data:

As of March 31, 2025, total current assets were $5.0 million and total current liabilities were $1.8 million, resulting in working capital of $3.2 million. As of December 31, 2024, total current assets were $2.2 million and total current liabilities were $1.5 million, resulting in a working capital of $0.7 million. The Company’s current assets as of March 31, 2025 are comprised of $4.5 million of cash and cash equivalents and $0.4 million of prepaid expenses, with the increase from December 31, 2024 being primarily due to the March 2025 equity raise that provided $5.0 million in net cash.

In addition, we continued progress on our R&D programs during the three months ended March 31, 2025 that resulted in increased cash expenditures. The Company’s current liabilities as of March 31, 2025 are primarily comprised of $0.7 million of convertible notes payable, $0.9 million of accounts payable and accrued expenses, $0.1 million of notes payable to related parties, and the current portion of our operating lease liability of $0.1 million. The increase in current liabilities is primarily due to an increases in accounts payable and accrued expenses of $0.2 million, primarily attributable to our efforts to preserve cash while we strive to raise funds to finance ongoing business and operations.

Cash Flows

Cash Flows from Operating Activities

Our cash flows from operating activities are greatly influenced by our use of cash for operating expenses and working capital requirements to support the business. We have historically experienced negative cash flows from operating activities as we invested in research and development activities. The cash used in operating activities resulted primarily from our net losses adjusted for non-cash charges, which are generally attributable to stock-based compensation, changes in fair value of our derivative liabilities and amortization of debt discounts and finance fees, as well as changes in components of operating assets and liabilities, which are generally attributable to increased expenses and timing of vendor payments.

During the three months ended March 31, 2025, net cash used in operating activities of $2.5 million was primarily due to our net loss of $3.0 million, stock-based compensation of $0.5 million, change in fair value of convertible notes of $0.1 million, partially offset by the net change in operating assets and liabilities of $0.1 million.

During the three months ended March 31, 2024, net cash used in operating activities of $1.2 million was primarily due to our net loss of $1.7 million, increased by a gain on change in derivative liabilities of $0.2 million, offset by amortization of debt discount of $0.4 million, loss on settlement of convertible debt of less than $0.1 million, accrued interest settled with common stock of less than $0.1 million, stock-based compensation of $0.1 million and increased by a net change in working capital of $0.1 million.

Cash Flows from Investing Activities

For the three months ended March 31, 2025, the Company did not have investing activities. For the three months ended March 31, 2024, cash flows used in investing activities was primarily attributable to investing in trading marketable securities for $19 thousand and receiving $120 thousand in proceeds from disposition of marketable securities.

Cash Flows from Financing Activities

For the three months ended March 31, 2025, cash flows from financing activities was primarily comprised of net proceeds of $5.4 million, from the sale of common stock and pre-funded warrants, net of placement agent costs of $0.3 million, partially offset by $0.2 million payment of other issuance costs for issuance of common stock and equity-classified warrants, $0.1 million of payment for finance cost, and $0.1 million of repayment of note payable-related party used to finance the Company’s ongoing operations. For the three months ended March 31, 2024, the Company paid $40,000 related to financing activities.

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 the significant accounting policies are described in more detail in the notes to the 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 Convertible Notes
• Fair Value of Warrant to Purchase Common Stock
• Fair Value of Derivative Financial Instruments

Research and Development Expense

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 Convertible Notes

As permitted under ASC 825, Financial Instruments (“ASC 825”), we elected the fair value option to account for the October 2024 Convertible Bridge Notes. The valuation of the October 2024 Convertible Bridge Notes utilizes a Monte Carlo simulation model. Monte Carlo simulation models require the use of simulations that are weighted based on projected future stock prices, the volatility of a set of guideline companies and significant unobservable inputs including probabilities assigned to not achieving a successful capital raise and a registration of related securities. 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 significant inputs and assumptions used to estimate the fair value also include: (i) the expected timing of conversion, (ii) the amount subject to equity conversion, (iii) the sum of the notes’ principal and unpaid accrued interest, (iv) expected volatility, (v) risk-free interest rate, (vi) the discount rate, (vii) volume-weighted average price (“VWAP”), (viii) illiquidity discounts, and (ix) probabilities assigned. The October 2024 Convertible Bridge Notes are subject to revaluation at the end of each reporting period, with changes in fair value recognized in the accompanying unaudited condensed consolidated statements of operations, or for changes due to our credit worthiness, if any, as a component of other comprehensive income.

Fair Value of Warrants to Purchase Common Stock

We have issued warrants to investors in our debt and equity offerings. We have also issued warrants to service providers in relation to our financing offerings.

We evaluate all warrants issued to determine the appropriate classification under ASC 480 and ASC 815 (as well as under ASC 718 for warrants issued as share-based payments). In addition to determining classification, we evaluate these instruments to determine if such instruments meet the definition of a derivative.

For warrants that are determined to be equity-classified, we estimate the fair value at issuance and record the amounts to additional paid in capital (potentially on a relative fair value basis if issued in a basket transaction with other financial instruments). Warrants that are equity-classified are not subsequently remeasured unless modified or required to be reclassified as liabilities. For warrants that are determined to be liability-classified, we estimate the fair value at issuance and each subsequent reporting date, with changes in the fair value reported in the unaudited condensed consolidated statements of operations. The classification of all outstanding warrants, including whether such instruments should be recorded as equity, is evaluated at the end of each reporting period.

For warrants with uncertain or more complex terms (such as variability in the warrant shares or exercise price), we may utilize more complex models to address such provisions, including Monte Carlo simulation models. Monte Carlo simulation models require the use of simulations that are weighted based on projected future stock prices, the volatility of a set of guideline companies and significant unobservable inputs including 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 use of these valuation models requires the input of highly subjective assumptions. Any change to these inputs could produce significantly higher or lower fair value measurements.

Fair Value of Financial Instruments

We evaluate our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, such as the Acceleration Option in the Alto warrants (as defined in Note 5). 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, we use 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 the volatility of a set of guideline companies and significant unobservable inputs including 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.

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 March 31, 2025, 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 March 31, 2025. Based on the foregoing, our management concluded that our internal controls over the following financial reporting areas to be material weaknesses:

• Our written policies and procedures over accounting transaction processing and period end financial close and reporting are limited, which has resulted in ineffective oversight in the establishment of proper monitoring controls over accounting and financial reporting; in addition, we lacked sufficient review and segregation of duties for certain financial transactions, manual journal entries, and critical financial spreadsheets, such that a proper review had not been performed by someone other than preparer, and that process documentation is lacking for review and monitoring controls over accounting and financial reporting. These were contributing factors which led to untimely filings for certain periods in fiscal year 2024.
• We lack a formal process to identify and ensure the proper classification of operating expenses as Research and Development.
• We identified findings related to overall information technology general controls (“ITGCs”) including issues with super-user access and segregation of duties for systems supporting the Company’s internal control processes and controls.

Management’s Remediation Measures

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 during the second quarter of 2024 to bolster the Company’s internal technical accounting and financial reporting experience and provide bandwidth for the prior Chief Financial Officer 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.

Remediation of Previously Disclosed Material Weaknesses

As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024, we identified material weaknesses in our internal controls over financial reporting for 1) significant unusual transactions, including complex accounting associated with debt and equity transactions and 2) certain technical aspects of financial reporting for stock-based compensation transactions. Our remediation efforts, including those noted above, were completed and the related controls were in place for a sufficient period of time to conclude that these material weaknesses were remediated as of March 31, 2025.

Changes in Internal Control over Financial Reporting

There has been no change in the Company’s internal control over financial reporting during the three months ended March 31, 2025 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.