UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| Quarterly Report UNDER Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For
the quarterly period ended
OR
| Transition Report UNDER Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from ______________ to ______________
Commission
file number
(Exact name of registrant as specified in its charter)
| 2834 | ||||
| (State or other jurisdiction of | (Primary Standard Industrial | (I.R.S. Employer | ||
| incorporation or organization) | Classification Code Number) | Identification Number) |
(Address, including zip code, and telephone number, including area code, of the registrant’s principal executive offices)
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | ||
| ☒ | Smaller reporting company | ||||
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
The number of shares outstanding of the registrant’s common stock on November14, 2022 was .
Shuttle Pharmaceuticals Holdings, Inc.
TABLE OF CONTENTS
| 2 |
PART I. Financial Information
Item 1. Unaudited Condensed Consolidated Financial Statements
Shuttle Pharmaceuticals Holdings, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Accounts receivable | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Other assets | ||||||||
| Operating lease right-of-use asset | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity (Deficit) | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued interest payable | ||||||||
| Accrued interest payable - related parties | ||||||||
| Dividends Payable | ||||||||
| Notes payable to related parties | ||||||||
| Notes payable | ||||||||
| Paycheck Protection Program note payable | ||||||||
| Derivative liability | ||||||||
| Operating lease liability current portion | ||||||||
| Total Current Liabilities | ||||||||
| Operating lease liability non-current | ||||||||
| Total Liabilities | ||||||||
| Stockholders’ Equity (Deficit) | ||||||||
| Series A convertible preferred stock, $ par value; $ | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid in capital | ||||||||
| Common stock to be issued | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity (Deficit) | ( | ) | ||||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | $ | ||||||
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
Shuttle Pharmaceuticals Holdings, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Operating expenses | ||||||||||||||||
| Research and development, net of contract expense reimbursements | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Legal and professional | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Net loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense - related parties | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Change in fair value of warrant liability | ( | ) | ||||||||||||||
| Gain on settlement of accounts payable | ||||||||||||||||
| Gain on forgiveness of Paycheck Protection Program note payable | ||||||||||||||||
| Total other income (expense) | ( | ) | ( | ) | ||||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Dividend on Series A Preferred Stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares outstanding - basic and diluted | ||||||||||||||||
| Net loss per shares - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
Shuttle Pharmaceuticals Holdings, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
For the Nine Months Ended September 30, 2022
(Unaudited)
| Series A Preferred Stock | Common Stock | Additional Paid in | Common Stock to be | Accumulated | Total Stockholders’ Equity | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Issued | Deficit | (Deficit) | |||||||||||||||||||||||||
| Balance - December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Warrants issued for financing costs | - | - | ||||||||||||||||||||||||||||||
| Common stock issued for conversion of accrued interest | - | ( | ) | |||||||||||||||||||||||||||||
| Common stock issued for restricted stock units | - | |||||||||||||||||||||||||||||||
| Dividends on Series A preferred stock | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance - March 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Common stock issued for restricted stock units | - | |||||||||||||||||||||||||||||||
| Dividends on Series A preferred stock | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance - June 30,2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Common stock issued for cash | - | |||||||||||||||||||||||||||||||
| Warrants exercised for cash | - | |||||||||||||||||||||||||||||||
| Warrants issued for financing costs | - | - | ||||||||||||||||||||||||||||||
| Common stock issued for conversion of convertible debt | - | |||||||||||||||||||||||||||||||
| Common stock issued for exercise of warrants with settlement of notes payable | - | |||||||||||||||||||||||||||||||
| Common stock issued for restricted stock units | - | |||||||||||||||||||||||||||||||
| Dividends on Series A preferred stock | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Common shares issued for dividends on and conversion of Series A preferred stock | ( | ) | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance - September 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
Shuttle Pharmaceuticals Holdings, Inc.
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
For the Nine Months Ended September 30, 2021
(Unaudited)
| Series A Preferred Stock | Common Stock | Additional Paid in | Common Stock to be | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Issued | Deficit | Deficit | |||||||||||||||||||||||||
| Balance - December 31, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Common stock issued for restricted stock units | - | |||||||||||||||||||||||||||||||
| Dividends on Series A preferred stock | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance - March 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Common stock issued for restricted stock units | - | |||||||||||||||||||||||||||||||
| Dividends on Series A preferred stock | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance - June 30,2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Common stock issued for restricted stock units | - | |||||||||||||||||||||||||||||||
| Dividends on Series A preferred stock | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance - September 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
Shuttle Pharmaceuticals Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Change in fair value of warrant liability | ( | ) | ( | ) | ||||
| Amortization of right-of-use asset | ||||||||
| Amortization of debt discount | ||||||||
| Gain on settlement of accounts payable | ( | ) | ||||||
| Gain on forgiveness of Paycheck Protection Program note payable | ( | ) | ( | ) | ||||
| Gain on interest relief on conversion of notes payable | ||||||||
| Stock-based compensation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Contracts receivable | ( | ) | ||||||
| Prepaid expenses | ( | ) | ||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Accrued interest payable | ||||||||
| Accrued interest payable - related parties | ||||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Net Cash used in Operating Activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | ||||||||
| Net Cash used in Investing Activities | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of common shares and exercise of warrants | ||||||||
| Repayment of note payable-related party | ( | ) | ||||||
| Proceeds from notes payable-related party | ||||||||
| Proceeds from PPP note payable | ||||||||
| Proceeds from notes payable | ||||||||
| Net Cash provided by Financing Activities | ||||||||
| Net change in cash | ||||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Cash paid for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Supplemental non-cash financing activities: | ||||||||
| Shares issued for conversion of accrued interest | $ | $ | ||||||
| Common stock issued for conversion of convertible debt | $ | $ | ||||||
| Common stock issued for exercise of warrants with settlement of notes payable | $ | $ | ||||||
| Common stock issued for dividend payable | $ | $ | ||||||
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
| 7 |
Shuttle Pharmaceuticals Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2022 and 2021
Note 1 – Organization
Organization and Line of Business
The
Company was formed as Shuttle Pharmaceuticals, LLC, in the State of Maryland on December 18, 2012. On August 12, 2016, the Company filed
articles of conversion with the state of Maryland to convert from an LLC to a C corporation, at which time the Company changed its name
to Shuttle Pharmaceuticals, Inc. (“Shuttle”). In connection with the conversion the Company issued shares of common
stock in exchange for
The Company’s primary purpose is to develop and commercialize unique drugs for the sensitization of cancers and protection of normal tissues, with the goal of improving outcomes for cancer patients receiving radiation therapy. Shuttle has deployed its proprietary technology to develop novel cancer immunotherapies, producing a pipeline of selective HDAC inhibitors for cancer and immunotherapy applications. The Company’s HDAC platform is designed to target candidate molecules with potential roles in therapeutics beyond cancer, including autoimmune, inflammatory, metabolic, neurological and infectious diseases. The Company’s Ropidoxuridine product, which is used with radiation therapy to sensitize cancer cells, was funded by a Small Business Innovation Research (“SBIR”) contract provided by the National Cancer Institute (“NCI”), a unit of the National Institutes of Health (“NIH”). Ropidoxuridine has been further developed though the Company’s collaborations with scientists at the University of Virginia for use in combination with proton therapy to improve patient survival. Historically, the Company has been working on developing products through NIH grants, including a product to predict late effects of radiation with metabolite biomarkers and develop prostate cancer cell lines in health disparities research.
The production and marketing of the Company’s products and its ongoing research and development activities will be subject to extensive regulation by numerous governmental authorities in the United States. Prior to marketing in the United States, any combination product developed by the Company must undergo rigorous preclinical (animal) and clinical (human) testing and an extensive regulatory approval process implemented by the Food and Drug Administration (“FDA”) under the Food, Drug and Cosmetic Act. There can be no assurance that the Company will not encounter problems in clinical trials that will cause the Company or the FDA to delay or suspend clinical trials.
The Company’s success will depend in part on its ability to obtain patents and product license rights, maintain trade secrets, and operate without infringing on the proprietary rights of others, both in the United States and other countries. There can be no assurance that patents issued to or licensed by the Company will not be challenged, invalidated or circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantages to the Company now or in the future.
Reverse Stock Split
Effective
April 1, 2022, we effected a
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
These financial statements and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The financial statements have been prepared using the accrual basis of accounting in accordance with Generally Accepted Accounting Principles of the United States (“GAAP”).
Basis of Consolidation
The financial statements have been prepared on a consolidated basis with those of the Company’s wholly-owned subsidiary, Shuttle Pharmaceuticals, Inc. All intercompany transactions and balances have been eliminated.
| 8 |
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. Significant estimates in the accompanying financial statements include useful lives of property and equipment, valuation of derivatives, and the valuation allowance on deferred tax assets.
Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with estimated lives as follows:
| Furniture | ||
| Computers and equipment | ||
| Research Equipment |
Research and Development Expenses
Research and development expenses are charged to expense as incurred. Research and development expenses include, but are not limited to, product development, clinical and regulatory expenses, payroll and other personnel expenses, materials, supplies, related subcontract expenses, and consulting costs. The expenses assigned to NIH SBIR sponsored research are related to: (1) “Topic 352: Cell-Based Models for Prostate Cancer Health Disparity Research – Moonshot Project” and (2) “Topic 345: Predictive Biomarkers of Prostate Cancer Patient Sensitivity for Radiation Late Effects.”
The research expenses are assigned to the research projects to demonstrate proof of principle in patients with prostate cancer that may support development and commercialization of biomarker products and to gather prostate cancer cell lines in African American men to serve as the product for use in health disparities research. Costs that are not covered by the SBIR contract for performing the Phase I contract to determine commercialization feasibility included partial salary support of personnel and a consultant to develop a commercialization plan. Costs that are not covered in the Phase II contract include business development and partial salary support.
Research expenses related to new drug discovery include partial support of personnel, space, supplies and legal costs.
During fiscal year 2022, the Company completed two SBIR contracts from the NIH to support research projects with potential for commercialization. The SBIR contract awards are fixed payments made by the NIH in response to quarterly Shuttle invoices and provide non-dilutive funds that do not include a repayment obligation. Details on the three contracts follow:
1.
Contract #HHSN261201600027C/75N91018C00016 supported “Topic 345: Predictive Biomarkers of Prostate Cancer Patient Sensitivity for
Radiation Late Effects.” This $
On
December 6, 2019, the Company engaged Georgetown to perform the $
| 9 |
2.
The Phase II contract #HHSN261201800016C supports the discovery work following a Phase I contract # HHSN261600038C “Topic 352 –
SBIR Phase II Cell-based Models for Prostate Cancer Health Disparity Research” and was awarded to provide $
On
December 5, 2018, the Company engaged Georgetown University to perform the $
The
Company recognizes the amounts received from the contract at fair value when there is reasonable assurance that the contract amount will
be received, and it is probable that all attaching conditions will be complied with. The Company recognizes the amounts received in accordance
with the contract as a reduction of research and development expenses over the periods necessary to match the contract on a systematic
basis to the costs that it is intended to compensate. The Company records reimbursements on the balance sheet as contract receivables
upon meeting the criteria discussed above until cash is received. During the quarter ended September 30, 2022, the Company recorded a
net deficit of $
In
September of 2022, TCG GreenChem, Inc. (“TCG GreenChem”) was contracted for process research, development and cGMP compliant
manufacture of IPdR. The total project cost is $
Regarding the accounting treatment for reimbursements, GAAP provides limited guidance on the accounting for government grants received by for-profit companies. We understand there is more than one acceptable alternative for the accounting treatment – a reduction of costs, a deferred credit to be amortized, revenue or other income. Due to the terms of the contracts we have entered into, the Company concluded that the reimbursements were more akin to a reduction of costs rather than any of the other alternatives that would match the contract reimbursements on a systematic basis to the costs that the contract is intended to compensate.
Derivative Financial Instruments
The Company evaluates all of its agreements to determine if such instruments have 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 stock-based derivative financial instruments, the Company uses a Binomial Simulation model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. As of September 30, 2022, the Company had no derivative instruments. As of December 31, 2021 the Company’s only derivative financial instrument was an embedded warrant feature associated with its Series A Convertible Preferred Stock due to certain provisions that allow for a change in the warrant value based on fluctuations of the Company’s fair value of common stock at the date of issuance of the warrant based on certain contingent call features.
Fair Value of Financial Instruments
For certain of the Company’s financial instruments, including cash, accounts receivable, accounts payable, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities.
FASB ASC Topic 820, Fair Value Measurements and Disclosures, requires disclosure of the fair value of financial instruments held by the Company. FASB ASC Topic 825, Financial Instruments, defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
| ● | Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets. | |
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. | |
| ● | Level 3 inputs to the valuation methodology use one or more unobservable inputs which are significant to the fair value measurement. |
| 10 |
The Company analyzes all financial instruments with features of both liabilities and equity under FASB ASC Topic 480, Distinguishing Liabilities from Equity, and FASB ASC Topic 815, Derivatives and Hedging.
For certain financial instruments, the carrying amounts reported in the balance sheets for cash and current liabilities, including convertible notes payable, each qualify as a financial instrument, and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest.
An established trading market for the Company’s common stock does not exist. The fair value of the shares was determined based on the then most recent price per share at which we sold preferred stock to unrelated parties in a private placement during the six months then ended.
During the year ended December 31, 2020, the Company utilized $(post-share exchange) per share as the fair value of its common stock for accounting purposes based on preferred share transactions with investors from August 2018 through December 2019, with no transactions occurring in 2020 and $ in 2021, $ through March 31, 2022 and $through June 30, 2022.
At
September 30, 2022, the Company identified
At December 31, 2021, the Company identified the following liabilities that are required to be presented on the balance sheet at fair value:
| December 31, 2021 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Liabilities | ||||||||||||||||
| Warrant Liabilities | $ | $ | $ | $ | ||||||||||||
Revenue Recognition
Revenue from providing research and development is recognized under Topic 606 in a manner that reasonably reflects the delivery of its services to customers in return for expected consideration and includes the following elements:
| ● | executed contracts with the Company’s customers that it believes are legally enforceable; | |
| ● | identification of performance obligations in the respective contract; | |
| ● | determination of the transaction price for each performance obligation in the respective contract; | |
| ● | allocation the transaction price to each performance obligation; and | |
| ● | recognition of revenue only when the Company satisfies each performance obligation. |
To satisfy these five elements, the Company records revenue for research and development services on a quarterly basis as services are provided. Revenue received from NIH contracts is received in accordance with Federal grants and contracts policies. Research and development expenses are posted against revenue and recorded on the statement of operations as “Research and development, net of contract expense reimbursements.”
Basic earnings per share (“EPS”) is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential shares of common stock outstanding during the period using the treasury stock method and as if converted method. Dilutive potential shares of common stock include outstanding warrants and Series A preferred stock.
| 11 |
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Series A preferred stock | ||||||||
| Warrants | ||||||||
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, ASC Subtopic 470-20 “Debt—Debt with “Conversion and Other Options” and ASC subtopic 815-40 “Hedging—Contracts in Entity’s Own Equity.” The standard reduced the number of accounting models for convertible debt instruments and convertible preferred stock. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting; and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The amendments in this update are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted this standard on January 1, 2021.
Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.
Note 3 – Property and Equipment, Net
Property and equipment consisted of the following:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Office Furniture and equipment | $ | $ | ||||||
| Laboratory equipment | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expense for the nine months ended September 30, 2022 and 2021, were $
Note 4 – Operating Lease Right-of-use Asset 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
Company currently has a lease agreement which allows for the use of a laboratory facility for a monthly payment of $
In
adopting ASC Topic 842, Leases (Topic 842), the Company has elected the ‘package of practical expedients,’ which permits
the Company to avoid reassessing its prior conclusions about lease identification, lease classification and initial direct costs under
the new standard. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements, as the latter
is not applicable to the Company. In addition, the Company elected not to apply ASC Topic 842 to arrangements with lease terms of
The Right-of-use assets are summarized below:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Office Lease | $ | $ | ||||||
| Less accumulated amortization | ( | ) | ( | ) | ||||
| Right-of-use, net | $ | $ | ||||||
| 12 |
Amortization on the right-of-use asset is included in rent expense on the statements of operations.
Operating lease liabilities are summarized below:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Office Lease | $ | $ | ||||||
| Less: current portion | ( | ) | ( | ) | ||||
| Long term portion | $ | $ | ||||||
The Maturities of lease liabilities are summarized below:
| As of | |||||
| September 30, | |||||
| 2022 | |||||
| 2022 | $ | ||||
| 2023 | |||||
| Total future minimum lease payments | |||||
| Less imputed interest | ( | ) | |||
| PV of Payments | $ | ||||
Note 5 – Notes Payable-Related Party
On
December 1, 2020, the Company consolidated all of the outstanding loans owed to an officer of the Company and to his spouse, resulting
in the following two loans: (i) a single loan from the spouse of an officer of the Company, dated December 1, 2020, with a principal
balance of $
On
June 21, 2021, the Company entered into a loan from the spouse of an officer of the Company in the amount of $
On
August 1, 2022, in conjunction with a private placement of 10% notes and warrants (as detailed in Note 6 below), in exchange for a $
Note 6 - Notes Payable
On
March 9, 2021, the Company obtained a $
On
May 15, 2020, the Company obtained a $
| 13 |
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| PPP Note payable | ||||||||
| PPP Note | $ | $ | ||||||
| PPP Note | ||||||||
| Loan Forgiveness | ( | ) | ( | ) | ||||
| $ | $ | |||||||
On
December 28, 2021, the Company issued $
On
February 8, 2022 and March 11, 2022, the Company sold $
On
August 1, 2022, the Company issued $
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Promissory note issued on | ||||||||
| Promissory note issued on | ||||||||
| Promissory note issued on | ||||||||
| Promissory note issued on | $ | |||||||
| Less debt discount | ( | ) | ||||||
| Total outstanding notes payable | $ | $ | ||||||
During
the nine months ending September 30, 2022, the Company fully amortized the debt discount and included $
Note 7 – Stockholders’ Equity
Pursuant to the Company’s amended and restated articles of incorporation, the Company is authorized to issue shares of common stock, with a par value of $ per share, and shares of preferred stock, with a par value of $ per share.
| 14 |
Series A Preferred Shares
The Series A Preferred Stock, in accordance with its terms, is automatically convertible into a number of shares of the Company’s common stock upon the closing of the sale of shares of common stock to the public in a qualified offering (as set forth in the Series A certificate of designation) or upon listing of the Company’s common stock on a national securities exchange.
During
September 2022, the Company converted shares of Series A Preferred Stock into shares of common stock and warrants to purchase
shares of common stock, which conversion shares
and warrants were calculated using a conversion price of
For
the nine months ended September 30, 2022, the Company accrued $
During
September 2022, the Company paid the dividend payable balance of $
As of September 30, 2022, the Company had shares of Series A Preferred Stock outstanding, and shares as of December 31, 2021.
Common Stock
As of September 30, 2022 and December 31, 2021, the Company had and shares of common stock issued and outstanding, respectively. The balance includes and shares of restricted stock issued in 2021 and 2020 respectively and shares of common stock issued to settle shares of common stock owed to Shuttle’s original membership holders.
During the nine months ended September 30, 2022, the Company issued:
| Issuance | Shares | Value $ | ||||||
| Public offering(1) | ||||||||
| Notes payable | ||||||||
| Warrant exercises(2) | ||||||||
| Common stock payable | ||||||||
| Preferred Share and Dividends Payable(3) | ||||||||
| (1) | ||
| (2) | ||
| (3) |
Common Stock to be Issued
On
June 4, 2018, $
Warrants
The
Series A Preferred Stock sold in the Company’s 2018 and 2019 private placement offerings included warrants to be issued upon the
earlier of a closing of the sale of shares of common stock to the public at a prices per share of at least $ or in a firm commitment
underwritten public offering pursuant to an effective registration statement resulting in gross proceeds of at least $
| 15 |
Effective
April 6, 2022, the Company amended its certificate of designation for the Series A Preferred Stock (the “Amended Series A
Preferred Certificate of Designation”) in order to modify the conditions pursuant to which the Series A Preferred Stock would
automatically convert. Under the Amended Series A Certificate of Designation, the automatic conversion feature was amended so as to
allow for conversion upon completion of a $
Current accounting principles that are provided in ASC 815 - Derivatives and Hedging require derivative financial instruments to be classified in liabilities and carried at fair value with changes recorded in income. The Company has selected the Binomial Option Pricing valuation technique to fair value the compound embedded derivative. Inherent in a binomial options pricing model are assumptions related to expected stock-price volatility, expected life, risk-free interest rate, and dividend yield. The Company estimates the volatility of its ordinary shares based on historical volatility of comparable companies that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants.
The
derivative warrant liability linked to the Series A Preferred Stock as of September 30, 2022 and December 31, 2021 was $ and $
| December 31, | ||||
| 2021 | ||||
| Expected average volatility | % | |||
| Dividend yield | % | |||
| Expected life | Years | |||
| Risk-free interest rate | % | |||
A continuity schedule of the Series A Preferred Stock warrants is set forth below:
| Number of Warrants | Weighted Average Exercise Price | Weighted Average Life (years) | ||||||||||
| Outstanding, December 31, 2020 | $ | |||||||||||
| Granted | - | |||||||||||
| Forfeited | - | |||||||||||
| Exercised | - | |||||||||||
| Outstanding and Exercisable, December 31, 2021 | $ | |||||||||||
| Granted | - | |||||||||||
| Forfeited | - | |||||||||||
| Exercised | ( | ) | - | |||||||||
| Outstanding and Exercisable, September 30, 2022 | $ | - | ||||||||||
A continuity schedule of the common stock warrants is set forth below:
| Number of Warrants | Weighted Average Exercise Price | |||||||
| Outstanding, December 31, 2021 | $ | |||||||
| Granted | ||||||||
| Forfeited | ||||||||
| Exercised(1) | ( | ) | ||||||
| Outstanding and Exercisable, September 30, 2022 | $ | |||||||
| (1) |
Equity Incentive Plan
Our 2018 Equity Incentive Plan provides for equity incentives to be granted to our employees, executive officers or directors and to key advisers and consultants. Equity incentives may be in the form of stock options with an exercise price of not less than the fair market value of the underlying shares as determined pursuant to the 2018 Equity Incentive Plan, restricted stock awards, other stock-based awards, or any combination of the foregoing. The 2018 Equity Incentive Plan is administered by the Company’s compensation committee. We have reserved shares of our common stock for issuance under the 2018 Equity Incentive Plan. As of September 30, 2022, shares have been granted under the 2018 Equity Incentive Plan.
| 16 |
Restricted Stock Units. We may grant restricted stock units under our 2018 Plan. Restricted stock units are bookkeeping entries representing an amount equal to the fair market value of one share of our common stock. Subject to the provisions of our 2018 Plan, the administrator determines the terms and conditions of restricted stock units, including the vesting criteria and the form and timing of payment. The administrator, in its sole discretion, may pay earned restricted stock units in the form of cash, in shares or in some combination thereof. Notwithstanding the foregoing, the administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed.
On
August 16, 2019, five individuals were appointed to the Board of Directors of the Company to serve as directors. Each individual entered
into an agreement outlining the terms of their service as a director and pursuant to which they would each receive a grant of $ worth
of Restricted Stock Units (“RSUs”) issuable under the Company’s 2018 Equity Incentive Plan (the “2018 Plan”).
The RSUs vested annually in one third increments from the date of appointment. Under the terms of the director agreements, the Company
has also agreed to pay each director $
During the nine months ended September 30, 2022 and 2021, pursuant to the agreements with directors and officers, compensation expense for the RSUs of $ and $ was included in compensation, respectively.
As of September 30, 2022, there was $ of total unrecognized compensation cost related to non-vested share-based compensation arrangements which is expected to be recognized within the current year.
A continuity schedule of the Restricted Stock Units (RSUs) is set forth as follows:
| Number of RSU | Weighted Average Exercise Price | Weighted Average Life (years) | ||||||||||
| Outstanding, December 31, 2020 | $ | |||||||||||
| Granted | - | |||||||||||
| Forfeited | ( | ) | - | |||||||||
| Exercised | - | |||||||||||
| Outstanding, December 31, 2021 | $ | |||||||||||
| Granted | - | |||||||||||
| Forfeited | - | |||||||||||
| Exercised | - | |||||||||||
| Outstanding, September 30, 2022 | $ | |||||||||||
| Exercisable, September 30, 2022 | $ | |||||||||||
Note 8 – Subsequent Events
Management evaluated all additional events subsequent to the balance sheet date through November 14, 2022, the date the financial statements were available to be issued, and determined that no items were required to be disclosed.
| 17 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis should be read in conjunction with our financial statements and the related notes thereto included elsewhere in this prospectus. The Management’s Discussion and Analysis 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 form. 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 this prospectus. In addition, any compensation disclosure contained in this prospectus regarding our officers and directors is likely to increase in the near term following completion of the offering, and therefore all such disclosures made within this prospectus reflect historical facts and will not reflect forward looking or anticipated compensation going forward. See the section entitled “Executive Compensation” below for a more detailed discussion.
We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this prospectus, except as required by U.S. federal securities laws.
Overview
Founded by Georgetown University Medical School faculty members, we are 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. The radiation biomarker project and the health disparities project have been completed. Changes in operational, administrative, legal and professional expenses related to our operations are set forth in more detail in the discussion below.
Results of Operations
Comparison of the three months ended September 30, 2022 and 2021
The following table summarizes the results of our operations:
| Three Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| 2022 | 2021 | Change | % | |||||||||||||
| Revenue | $ | - | $ | - | $ | - | 0 | % | ||||||||
| Operating expenses: | ||||||||||||||||
| Research and development, net of contract expense reimbursements | 669,038 | 186,958 | 482,080 | 258 | % | |||||||||||
| General and administrative | 81,864 | 6,422 | 75,442 | 1175 | % | |||||||||||
| Legal and professional | 70,566 | 48,736 | 21,830 | 45 | % | |||||||||||
| Total operating expenses | 821,468 | 242,116 | 579,352 | 239 | % | |||||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense - related party | (13,725 | ) | (10,547 | ) | (3,178 | ) | 30 | % | ||||||||
| Interest expense | (604,716 | ) | (113 | ) | (604,603 | ) | 535,047 | % | ||||||||
| Change in fair value of warrant liability | 112,797 | (26,685 | ) | 139,482 | (523 | %) | ||||||||||
| Gain on settlement of accounts payable | 328,687 | - | 328,687 | 100 | % | |||||||||||
| Total other Income (expense) | (176,957 | ) | 25,155 | (202,112 | ) | (803 | %) | |||||||||
| Net loss | $ | 998,425 | $ | 216,961 | $ | 781,464 | 360 | % | ||||||||
| 18 |
Research and Development – Net of contract expense reimbursements. Research and development – net of contract expense reimbursements (“R&D”) was $669,039 for the three months ended September 30, 2022, as compared to $186,958 for three months ended September 30, 2021. For the three months ended September 30, 2022, the Company received $0 in reimbursements and incurred $669,038 in R&D expenses. For the three months ended September 30, 2021, reimbursement from the NIH totaled $211,455 and total expenses related to R&D was $398,413. Quarterly expenses increased by $579.352, or 239%, in the third quarter of 2022 primarily due to the first milestone payment for TCG GreenChem of $450,000.
Compensation related expenses were $220,801 in the three months ended September 30, 2021 as compared to $202,041 in the three months ended September 30, 2022. Compensation related expenses decreased from 55% of total R&D in the three months ended September 30, 2021 to 30% for the three months ended September 30, 2022. Subcontract work made up 39% of total R&D expense in the three months ended September 30, 2021 and 67% of total R&D expenses during the three months ended September 30, 2022. All other R&D expenses were inconsequential.
Below is a breakdown of the actual costs and reimbursements received by the company for the three months ended September 30, 2022 and 2021, and a breakdown of how such cost and reimbursements were distributed across research projects.
For the three months ended September 30, 2022, total research and development costs were $669,038 for which all costs were funded by the Shuttle. For the three months ended September 30, 2021, total R & D costs were $398,413 for which 53% of the costs were allocated to the NIH funded project (Topic 345) and Shuttle funded the remaining costs of $186,958, or 47% of the total costs. For the three months ended September 30, 2021, total R&D costs were $398,413 for which $211, 455 was reimbursed by NIH and the remaining costs were funded by the Shuttle for a net R&D loss of $186,958. Company funded R&D activities increased in 2021 and decreased in 2022 due to NIH no cost extensions required to complete contracted work and file the final reports before receiving payment from the NIH. In 2022, R&D activities increased with the new program with TCG GreenChem.
Key Research and Development Projects
| R&D, Net of Contract Expense Reimbursements | Three Months |
Three Month Periods ending September 30, 2021 and 2022 (Q3)
| Research & Development | NIH Topic 345 | Shuttle Funded | Total | |||||||||||||||||||||
| Revenue and Expenses | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | ||||||||||||||||||
| NIH Reimbursement | (211,455 | ) | - | - | - | (211,455 | ) | - | ||||||||||||||||
| Compensation | 33,843 | - | 186,958 | 200,541 | 220,801 | 200,541 | ||||||||||||||||||
| Subcontracts | 153,544 | - | - | 450,000 | 153,544 | 450,000 | ||||||||||||||||||
| Supplies | 4,312 | - | - | 1,007 | 4,312 | 1,007 | ||||||||||||||||||
| Other, Lab | 19,756 | - | - | 17,490 | 19,742 | 17,490 | ||||||||||||||||||
| Expense total | 211,455 | - | 186,958 | 669,038 | 398,413 | 669,038 | ||||||||||||||||||
| R&D, Net of Contracts | - | - | (186,958 | ) | (669,038 | ) | (186,958 | ) | (669,038 | ) | ||||||||||||||
| 53 | % | - | 47 | % | 100.0 | % | ||||||||||||||||||
| Note: | Project 352 reimbursements were not received in 2021 and research costs were Company funded through an NIH extension without cost Project 345 reimbursement for the period of performance ending March 15, 2022, which reimbursement was received in April 2022 |
In addition, the CEO and CMO are actively involved in the research and development activities, but neither receives a salary from the Company. As such, research and development expenses are lower than might be incurred in the future.
The allocation of costs to the NIH research project for the three months ended September 30, 2021 were as follows:
NIH Cost Allocation for the 3-month Period Ending September 30, 2021
| ● | Compensation - $220,801, making up 55% of total R & D, with 47% of all research costs allocated to Shuttle. | |
| ● | Subcontracts - $153,544, making up 39% of total R&D, with 100% of costs allocated to Topic 345. | |
| ● | Supplies and Other Lab expenses - $24,054, making up 6% of total R&D expenses, with all costs allocated to Topic 345. |
General and Administrative Expenses. General and Administrative expenses in the three months ended September 30, 2022 increased by $75,442, from $6,422 in 2021 to $81,864 in 2022.
| 19 |
Legal and Professional Expenses. During the three months ended September 30, 2022, legal and professional expenses increased by $21,830 or 45%. This increase in legal and professional fees was primarily due to increases in our expenses related to obtaining pre-IPO financing and other expenses related to preparation for the IPO.
Other (Income) Expense. Other expense was $176,957 for the three months ended September 30, 2022, which consisted of $604,716 in interest expense on convertible loans, $13,725 in interest expense on related party loans, a gain on change in warrant liability of $112,797, and a gain on settlement of accounts payable of $328,687. Other income was $25,155 for the three months ended September 30, 2021, which consisted of $113 in interest expense, $10,547 in interest expense on related party loans and a loss on change in warrant liability of $26,685.
Comparison of the nine months ended September 30, 2022 and 2021
The following table summarizes the results of our operations:
| Nine Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| 2022 | 2021 | Change | % | |||||||||||||
| Revenue | $ | - | $ | - | $ | - | 0 | % | ||||||||
| Operating expenses: | ||||||||||||||||
| Research and development, net of contract expense reimbursements | 1,048,821 | 579,684 | 469,137 | 81 | % | |||||||||||
| General and administrative | 104,711 | 19,883 | 84,828 | 427 | % | |||||||||||
| Legal and professional | 659,958 | 154,886 | 505,072 | 326 | % | |||||||||||
| Total operating expenses | 1,813,490 | 754,453 | 1,059,037 | 140 | % | |||||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense - related party | (39,108 | ) | (31,641 | ) | (7,467 | ) | 24 | % | ||||||||
| Interest expense | (920,660 | ) | (463 | ) | (920,197 | ) | 198,747 | % | ||||||||
| Change in fair value of warrant liability | 94,025 | 30,971 | 63,054 | 204 | % | |||||||||||
| Gain on settlement of accounts payable | 328,687 | - | 328,687 | - | ||||||||||||
| Gain on forgiveness of Paycheck Protection Program note payable | 73,007 | 62,500 | 10,507 | 100 | % | |||||||||||
| Total other Income (expense) | (464,049 | ) | 61,367 | (525,416 | ) | (856 | %) | |||||||||
| Net loss | $ | 2,277,539 | $ | 693,086 | $ | 1,584,453 | 229 | % | ||||||||
Research and Development-Net of contract expense reimbursements. Research and development-net of contract expense reimbursements (“R&D”) was $1,048,821 for the nine months ended September 30, 2022, as compared to $579,684 for nine months ended September 30, 2021. For nine months ended September 30, 2022, the Company received $211,455 in reimbursement from the NIH contracts and incurred $1,260,276 in R&D expenses. For the nine months ended September 30, 2021, reimbursement from NIH totaled $422,910 and total expenses related to R&D were $1,002,594. The increase of $469,137, or 81%, is primarily related to the Company increasing R&D spending as a result of funding from the public offering and the NIH contracts ending. The no cost extension from the NIH ended on March 15, 2022, and the final report to the NIH was filed and accepted, resulting in a payment of $211,455 during the nine months ended September 30, 2022.
R&D expense reimbursements were $422,910 and $211,455 during the nine months ended September 30, 2021 and September 30, 2022, respectively. NIH requires that milestones included in the fixed price contract be met, therefore, compensation related expenses continued in 2022 under the no cost extension from the NIH. Compensation related expenses were $667,281 in the nine months ended September 30, 2021 as compared to $727,421 in the nine months ended September 30, 2022. Compensation related expenses increased from 74% of total R&D in the nine months ended September 30, 2021 as compared to 90.1% in the nine months ended September 30, 2022. Subcontract work made up 26%, compensation made up 67%, and supplies and other expenses 8% of total R&D expense in the nine months ended September 30, 2021. Subcontract work made up 36%, compensation made up 58%, and supplies and other expenses 6% of total R&D expense during the nine months ended September 30, 2022.
Below is a breakdown of the actual costs and reimbursements received by the Company for the nine months ended September 30, 2022 and 2021, and a breakdown of how such cost and reimbursements were distributed across research projects.
For the nine months ended September 30, 2022, total research and development costs were $1,260,276 for which $211,455 was paid by reimbursements received from the NIH, leaving a net of $1,048,821. For the nine months ended September 30, 2021, total R&D costs were $1,002,594 for which $422,910 was paid by reimbursements received from the NIH, leaving a net of $579,684. The Company funded R&D activities decreased in the nine months ended September 30, 2021 and increased during the nine months ended September 30, 2022 primarily due to the funding provided by the public offering. A summary of the breakdown of costs is listed below.
| 20 |
Key Research and Development Projects
| R & D, Net of Contract Expense Reimbursements | Nine Months |
Nine Month Periods ending September 30, 2021 and 2022 (Q3)
| Research & Development | NIH Topic 345 | Shuttle Funded | Total | |||||||||||||||||||||
| Revenue and Expenses | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | ||||||||||||||||||
| NIH Reimbursement | (422,910 | ) | (211,455 | ) | - | - | (422,910 | ) | (211,455 | ) | ||||||||||||||
| Compensation | 87,567 | - | 579,684 | 727,421 | 667,281 | 727,421 | ||||||||||||||||||
| Subcontracts | 256,400 | - | - | 450,000 | 256,400 | 450,000 | ||||||||||||||||||
| Supplies | 17,834 | - | - | 3,206 | 17,834 | 3,206 | ||||||||||||||||||
| Other, Lab | 61,079 | - | - | 79,649 | 61,079 | 79,649 | ||||||||||||||||||
| Expense total | 422,910 | - | 579,684 | 1,260,276 | 1,002,594 | 1,260,276 | ||||||||||||||||||
| R&D, Net of Contracts | - | 211,455 | (579,684 | ) | (1,260,276 | ) | (579,684 | ) | (1,048,821 | ) | ||||||||||||||
| Note: | Project 352 reimbursements were not received in 2021 and research costs were Company funded through an NIH extension without cost Project 345 reimbursement for the period of performance ending March 15, 2022, which reimbursement was received in April 2022 |
In addition, the CEO and CMO are actively involved in the research and development activities, but neither received a salary from the Company prior to the completion of our initial public offering in September 2022. As such, research and development expenses for the nine months ended September 30, 2022 are lower than might be incurred in the future.
The allocation of costs to the NIH research project for the nine months ended September 30, 2021 were as follows:
NIH Cost Allocation for the nine-month Period Ending September 30, 2021
| ● | Compensation - $667,281, making up 67% of total R&D expenses, with $579,684 allocated to the Company. | |
| ● | Subcontracts - $256,400, making up 26% of total R&D expenses. | |
| ● | Remaining costs – $78,913, making up 8% of total R&D costs. |
General and Administrative Expenses. General and Administrative expenses increased by $84,828, from $19,883 in the nine months ended September 30, 2021 to $104,711 in the nine months ended September 30, 2022. The increase was primarily related to increases in insurance costs, SEC and Nasdaq filing fees, processing fees and other expenses related to preparing for and closing on our IPO, which closed in September 2022. Website expenses during the nine months ended September 30, 2022 increased by $1,447 in order to maintain and update the Company’s profile for the Company’s IPO.
Legal and Professional Expenses. Legal and professional expenses increased by $505,072, or 326%, primarily due to increases in fees related to obtaining pre-IPO financing and expenses incurred related to preparing for the IPO.
Other (Income) Expense. Other expense was $464,049 for the nine months ended September 30, 2022, which consisted of $920,660 in interest expense on convertible loans, $39,108 in interest expense on related party loans, a gain on change in warrant liability of $94,025, a $328,687 gain on settlement of accounts payable, and a $73,007 gain on the forgiveness of the Company’s Paycheck Protection Program loan. Other income was $61,367 for the nine months ended September 30, 2021, which consisted of $463 in interest expense, $31,641 in interest expense on related party loans and a gain on change in warrant liability of $30,971, and a $63,054 gain on the forgiveness of the Company’s Paycheck Protection Program loan.
Liquidity and Capital Resources
Our capital needs to date have been met by contributions from existing shareholders, as well as through private offerings of our securities, SBIR contracts and other grants, and our public offering. In the nine months ended September 30, 2022, we raised a total of $10,696,228 through the sale of convertible notes, shares of common stock and warrants. In the year ended December 31, 2021, we raised a total of $525,715 through the sale of convertible notes, warrants, and common shares. 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.
| 21 |
We believe that we will continue to expend substantial resources for the foreseeable future on the 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 shareholders. 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 us and our prospects.
Balance Sheet Data:
| September 30, | December 31, | |||||||||||||||
| 2022 | 2021 | Change | % | |||||||||||||
| Current assets | $ | 9,289,486 | $ | 509,615 | $ | 8,779,871 | 1,723 | % | ||||||||
| Current liabilities | 970,470 | 2,217,331 | (1,246,861 | ) | (56 | %) | ||||||||||
| Working capital (deficiency) | $ | 8,319,016 | $ | (1,707,716 | ) | $ | 10,026,732 | (587 | %) | |||||||
As of September 30, 2022, total current assets were $9,289,486. Total current liabilities as of September 30, 2022, were $970,470, resulting in working capital of $8,319,016. As of December 31, 2021, total current assets were $509,615. Total current liabilities as of December 31, 2021, were $2,217,331, resulting in a working capital deficit of $1,707,716 for the year ended December 31, 2021. The current assets primarily resulted from $10,045,513 and $650,715 for a total of $10,696,228 cash received from the issuance of common stock and notes payable, respectively, with a $50,000 note repaid to a related party during the period ended September 30, 2022 for net cash provided by financing activities for the period of $10,646,228. The decrease in current liabilities is due to the repayment of notes payable, forgiveness of the PPP loan, payment of dividends payable and payments on trades payable.
Cash Flows from Operating Activities
| Nine Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| 2022 | 2021 | Change | % | |||||||||||||
| Cash used in operating activities | $ | (2,030,587 | ) | $ | (165,185 | ) | $ | (1,865,402 | ) | 1,129 | % | |||||
| Cash used in investing activities | $ | - | $ | - | $ | - | 0 | % | ||||||||
| Cash provided by financing activities | $ | 10,646,228 | $ | 193,007 | $ | 10,453,221 | 5,416 | % | ||||||||
| Cash on hand | $ | 9,120,390 | $ | 144,975 | $ | 8,975,415 | 6,191 | % | ||||||||
We have not generated positive cash flows from operating activities. For the nine months ended September 30, 2022, net cash flows used in operating activities was $2,030,587, consisting of a net loss of $2,258,635, reduced by depreciation expense of $4,484, gain on change in warranty liability of $94,025, amortization of right of use assets of $45,012, amortization of debt discount of $885,505, stock-based compensation of $356,733, gain on forgiveness of the PPP loan of $73,007, gain on settlement of accounts payable of $328,687 and a net change in working capital of $605,796. For the nine months ended September 30, 2021, net cash flows used in operating activities was $193,007, consisting of a net loss of $693,086, adjusted for depreciation expense of $4,050, change in warranty liability of $30,971, amortization of right of use assets of $45,408, stock-based compensation of $367,551, gain on forgiveness of the PPP of loan of $62,500, and a net change in working capital of $209,363.
Cash Flows from Investing Activities
For the nine months ended September 30, 2022 and 2021, we had no investing activities.
Cash Flows from Financing Activities
For the nine months ended September 30, 2022, we received $10,045,513 from the issuance of common shares and $650,715 from the issuance of convertible notes. For the nine months ended September 30, 2021, we received $73,007 from the Paycheck Protection Program and $120,000 from the issuance of notes payable.
| 22 |
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 | |
| ● | Derivative Financial Instruments | |
| ● | Income Taxes |
Research and Development
Research and Development expenses are offset by contract receivable payments from an NIH SBIR contract that supports this 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%, 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.
Derivative Financial Instruments
We evaluate all of our agreements to determine if such instruments have 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 stock-based derivative financial instruments, we use a Binomial Simulation model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. As of September 30, 2022, we have no derivative financial instruments.
| 23 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a “smaller reporting company,” we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules, regulations and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow for timely decisions regarding required disclosure.
As of September 30, 2022, 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, our Chief Financial Officer, and our accounting and financial service provider, PubCo Reporting Solutions, Inc., an out-sourced accounting and financial services provider (“PubCo Reporting”). Based on the foregoing, our management concluded that our internal controls over financial reporting should be strengthened because, among other things, (i) we did not maintain a sufficient complement of personnel with an appropriate degree of technical knowledge commensurate with the Company’s accounting and reporting requirements, (ii) written communication procedures and organization of files could be improved and automated, and (iii) our controls related to the financial statement closing process needed to be redesigned for a more orderly and less cumbersome closing process that would more easily identify material misstatements in our financial reporting on a timely basis. We are working to address these deficiencies through the review, recommendation and implementation of changes from our accounting and financial services provider, PubCo Reporting. As a result, our knowledge base of public company accounting reporting requirements and related procedures has been augmented by PubCo Reporting, whose services include a “…focus on US GAAP Corporate Accounting, Financial Reporting, SEC EDGAR iXBRL & SEDAR Filings, Internal (SOX) Compliance And Controls, and Regulatory Compliance.” Our collaboration with PubCo Reporting, an experienced accounting and financial reporting company with technical knowledge commensurate with the Company’s accounting and reporting requirements, has served to enhance our accounting disclosure controls and procedures.
Management has evaluated remediation plans to address these deficiencies and is implementing changes to address the material weakness identified, including hiring additional accountants and consultants and implementing controls and procedures over the financial reporting process.
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, test, and improve the effectiveness of our internal controls. There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period ending September 30, 2022 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.
| 24 |
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Currently, there are no legal proceedings pending or threatened against us.
ITEM 1A. RISK FACTORS
None.
ITEM 2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
None.
Item 6. Exhibits
The following exhibits are filed or furnished with this report:
* Filed herewith.
| 25 |
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SHUTTLE PHARMACEUTICALS HOLDINGS, INC. | ||
| November 14, 2022 | By: | /s/ Anatoly Dritschilo |
| Anatoly Dritschilo, M.D. | ||
| Chief Executive Officer | ||
| November 14, 2022 | By: | /s/ Michael Vander Hoek |
Michael Vander Hoek Chief Financial Officer |
| 26 |