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 Annual Report. 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 Annual 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 this Annual Report.
We do not undertake any obligation to update forward-looking statements to
reflect events or circumstances occurring after the date of this Annual Report,
except as required by
Overview Founded byGeorgetown 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 asShuttle 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 this 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 theNIH 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. 49 Results of Operations
Comparison of the year ended
The following table summarizes the results of our operations:
Years Ended December 31, 2022 2021 Change % Revenue $ - $ - $ - - Operating expenses: Research and development, net of contract expense reimbursements 1,488,530 1,021,808 466,722 46 % General and administrative 198,978 36,500 162,478 445 % Legal and professional 866,770 684,684 182,086 27 % Total operating expenses 2,554,278 1,742,992 811,286 47 % Other income (expense):
Interest expense - related party (52,010 ) (46,947 ) (5,063 ) (11 )% Interest expense (917,879 ) (3,841 ) (914,038 ) 23797 % Change in fair value of warrant liability 94,025 579,146 (485,121 ) (84 )% Gain on settlement of accounts payable 328,687 - 328,687 100 % Gain on forgiveness of Paycheck Protection Program note payable 73,007 62,500
10,507 17 % Total other expense (474,170 ) 590,858 (1,065,028 ) (180 )% Net loss$ 3,028,448 $ 1,152,134 $ 1,876,314 163 % Research and Development-Net of contract expense reimbursements. Research and development-net of contract expense reimbursements ("R&D") was$1,488,530 for the year endedDecember 31, 2022 , as compared to$1,021,808 for year endedDecember 31, 2021 . For the year endedDecember 31, 2022 , the Company received$211,455 in reimbursement from theNIH contracts and incurred$1,699,985 in R&D expenses. For the year endedDecember 31, 2021 , the Company received$505,377 in reimbursement fromNIH contracts and incurred$1,527,185 in research and development expenses. The increase of$466,722 , or 46%, is primarily related to the Company increasing R&D spending as a result of funding from the public offering and theNIH contracts ending. The no cost extension from theNIH ended onMarch 15, 2022 , and the final report to theNIH was filed and accepted, resulting in a payment of$211,455 during the year endedDecember 31, 2022 . R&D expense reimbursements were$505,377 and$211,455 during the years endedDecember 31, 2021 and 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 theNIH . Compensation related expenses were$883,602 in the year endedDecember 31, 2021 as compared to$1,115,001 in the year endedDecember 31, 2022 . Compensation related expenses increased from 58% of total R&D in the year endedDecember 31, 2021 as compared to 66% in the year endedDecember 31, 2022 . Subcontract work made up 35%, compensation made up 58%, and supplies and other expenses 7% of total R&D expense in the year endedDecember 31, 2021 . Subcontract work made up 28%, compensation made up 66%, and supplies and other expenses 7% of total R&D expense during the year endedDecember 31, 2022 . 50
Below is a breakdown of the actual costs and reimbursements received by the
Company for the years ended
For the year endedDecember 31, 2022 , total research and development costs were$1,699,985 for which$211,455 was paid by reimbursements received from theNIH , leaving a net of$1,488,530 . For the year endedDecember 31, 2021 , total R&D costs were$1,527,185 for which$505,377 was paid by reimbursements received from theNIH , leaving a net of$1,021,808 . The Company funded R&D activities decreased in the year endedDecember 31, 2021 and increased during the year endedDecember 31, 2022 primarily due to the funding provided by the public offering. A summary of the breakdown of costs is listed below.
R & D, Net of Contract Expense Reimbursements Twelve Months
Years ending
Research & Development NIH Topic 345 NIH Topic 352 Shuttle Funded Total Revenue and Expenses 2021 2022 2021 2022 2021 2022 2021 2022 NIH Reimbursement (422,910 ) (211,455 ) (82,467 ) - - - (505,377 ) (211,455 ) Compensation 198,426 - - - 685,176 1,115,001 883,602 1,115,001 Subcontracts 539,043 - - - - 469,680 539,043 469,680 Supplies 30,181 - - - - 21,381 30,181 21,381 Other, Lab 72,611 - - - 1,748 93,923 74,359 93,923 Expense total 840,261 - - - 686,924 1,699,985 1,527,185 1,699,985 R&D, Net of Contracts 417,351 (211,455 ) (82,467 ) - 686,924 1,699,985 1,021,808 1,488,530
Note: Project 352 reimbursements were not received in 2021 and research costs
were Company funded through an
reimbursement for the period of performance ending
reimbursement was received inApril 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 inSeptember 2022 . As such, research and development expenses for the year endedDecember 31, 2022 are lower than might be incurred in the future.
The allocation of costs to the
NIH Cost Allocation for the year Ending
? Compensation -
allocated to the Company. ? Subcontracts -$539,043 , making up 35% of total R&D expenses. ? Remaining costs -$104,540 , making up 7% of total R&D costs. General and Administrative Expenses. General and Administrative expenses increased by$162,478 , from$36,500 in the year endedDecember 31, 2021 to$198,978 in the year endedDecember 31, 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 inDecember 2022 . 51
Legal and Professional Expenses. Legal and professional expenses increased by
Other Income (Expense). Other expense was$474,170 for the year endedDecember 31, 2022 , which consisted of$917,879 in interest expense on convertible loans,$52,010 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$590,858 for the year endedDecember 31, 2021 , which consisted of$3,841 in interest expense,$46,947 in interest expense on related party loans and a gain on change in warrant liability of$579,146 , and a$62,500 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 year endedDecember 31, 2022 , we raised a total of$10,672,908 through the sale of convertible notes, notes payable, shares of common stock and warrants, repaying$50,000 in notes payable in cash for net cash raised of$10,622,908 . In the year endedDecember 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$5,531,722 in SBIR contracts and other grants received primarily through theNational Institutes of Health . We believe that we will continue to expend substantial resources for the foreseeable future on the completion of clinical development and regulatory preparedness of our product candidates, preparations for a commercial launch of our product candidates, if approved, and development of any other current or future product candidates we may choose to develop. These expenditures will include costs associated with research and development, conducting preclinical studies and clinical trials, obtaining marketing approvals, and, if we are not able to enter into planned collaborations, manufacturing and supply as well as marketing and selling any products approved for sale. In addition, other unanticipated costs may arise. Because the outcome of any drug development process is highly uncertain, we cannot reasonably estimate the actual amounts necessary to complete the development and commercialization of our current product candidates, if approved, or future product candidates, if any. There can be no assurance that additional financing will be available to us when needed, on favorable terms or otherwise. Moreover, any such additional financing may dilute the interests of existing shareholders. The absence of additional financing, when needed, could cause us to delay implementation of our business plan in whole or in part, curtail our business activities and seriously harm us and our prospects. Balance Sheet Data: December 31, December 31, 2022 2021 Change % Current assets$ 8,578,351 $ 509,615 $ 8,068,736 1,583 % Current liabilities 975,676 2,217,331 (1,241,655 ) (56 %) Working capital (deficiency)$ 7,602,675 $ (1,707,716 ) $ 9,310,391 (545 %) As ofDecember 31, 2022 , total current assets were$8,578,351 . Total current liabilities as ofDecember 31, 2022 , were$975,676 , resulting in working capital of$7,602,675 . As ofDecember 31, 2021 , total current assets were$509,615 . Total current liabilities as ofDecember 31, 2021 , were$2,217,331 , resulting in a working capital deficit of$1,707,716 for the year endedDecember 31, 2021 . The current assets primarily resulted from$10,022,193 and$650,715 for a total of$10,672,908 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 endedDecember 31, 2022 for net cash provided by financing activities for the period of$10,622,908 . The decrease in current liabilities is due to the repayment of notes payable, forgiveness of the PPP loan, payment of dividends payable and payments on trades payable.
Cash Flows from Operating Activities
Years Ended December 31, 2022 2021 Change % Cash used in operating activities$ (2,710,454 ) $ (300,336 ) $ (2,410,118 ) 802 % Cash used in investing activities $ - $ - $ - - Cash provided by financing activities$ 10,622,908 $ 687,932 $
9,934,976 1,444 % Cash on hand$ 8,417,203 $ 504,749 $ 7,912,454 1,568 % We have not generated positive cash flows from operating activities. For the year endedDecember 31, 2022 , net cash flows used in operating activities was$2,710,454 , consisting of a net loss of$3,028,448 , reduced by depreciation expense of$5,972 , gain on change in warranty liability of$94,025 , amortization of right of use assets of$60,860 , amortization of debt discount of$885,505 , stock-based compensation of$403,956 , gain on forgiveness of the PPP loan of$73,007 , gain on settlement of accounts payable of$328,687 ,$12,625 gain on interest relief on conversion of notes payable and a net change in working capital of$555,205 . For the year endedDecember 31, 2021 , net cash flows used in operating activities was$300,336 , consisting of a net loss of$1,152,134 , adjusted for depreciation expense of$6,218 , change in warranty liability of$579,146 , amortization of right of use assets of$54,616 , stock-based compensation of$910,067 , gain on forgiveness of the PPP of loan of$62,500 , and a net change in working capital of$519,154 . 52
Cash Flows from Investing Activities
For the year ended
Cash Flows from Financing Activities
For the year endedDecember 31, 2022 , we received$10,022,193 from the issuance of common shares and$650,715 from the issuance of convertible notes and repaid$50,000 for a related party note payable. For the year endedDecember 31, 2021 , we received$73,007 from the Paycheck Protection Program and$120,000 from
the issuance of notes payable. Recent Financing OnJanuary 11, 2023 ,Shuttle Pharmaceuticals Holdings, Inc. , aDelaware corporation (the "Company"), entered into a securities purchase agreement (the "SPA") withAlto Opportunity Master Fund , SPC - Segregated Master Portfolio B, a Cayman entity (the "Investor"), pursuant to which the Company sold to the Investor a$4.3 million convertible note (the "Convertible Note") and warrant (the "Warrant") to purchase 1,018,079 shares of common stock, par value$0.00001 per share ("Common Stock"), in exchange for gross proceeds of$4.0 million (the "Investment Amount"). The Convertible Note amortizes on a monthly basis and the Company can make such monthly amortization payments in cash or, subject to certain equity conditions, in registered shares of Common Stock or a combination thereof. For equity repayment, the Convertible Note is convertible into shares of Common Stock at price per share equal to the lower of (i)$2.35 (ii) 90% of the three lowest daily VWAPs of the 15 trading days prior to the payment date or (iii) 90% of the VWAP of the trading day prior to payment date. The Convertible Note is repayable over 26 months and bears interest at the rate of 5% per annum. The Warrant is exercisable for four years from the date of closing and is exercisable at$2.35 per share. In the event the Investor exercises the Warrant in full, such exercise would result in additional gross proceeds to the Company of approximately$2.4 million .Boustead Securities, LLC ("Boustead") served as a placement agent for the Convertible Note and Warrant offering, and received$320,000 cash compensation and a warrant to purchase 71,266 shares of Common Stock, exercisable at$2.35 per share.
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 inthe 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 ofDecember 31, 2022 , we have no derivative financial instruments.
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