Company: SHPH
Filing Date: 2025-05-08
Form Type: 10-Q
Source: 0001641172-25-009325
Chunk: 10

Company: Shuttle Pharmaceuticals Holdings, Inc.
Filing Date: 2025-05-08
Form: 10-Q
Item: Item 2
Chunk 10
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 well
as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other
factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under
different assumptions or conditions. While the significant accounting policies are described in more detail in the notes to the unaudited
condensed consolidated financial statements included elsewhere in this report, we believe that the following accounting policies are critical
to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s
judgments and estimates.

Our most critical accounting policies and estimates
relate to the following:

    ●
    Research and Development Expenses

    ●
    Fair Value of Convertible Notes

    ●
    Fair Value of Warrant to Purchase Common Stock

    ●
    Fair Value of Derivative Financial Instruments

Research and Development Expense

Research and development expenses are expensed as
incurred and, prior to our initial public offering in September 2022, have historically been offset by contract receivable payments from
an NIH SBIR contract that has supported our scientific research. This is stated in the financials as research and development-net of contract
expense reimbursements.

Fair Value of Convertible Notes

As permitted under ASC 825, Financial Instruments
(“ASC 825”), we elected the fair value option to account for the October 2024 Convertible Bridge Notes. The valuation of the
October 2024 Convertible Bridge Notes utilizes a Monte Carlo simulation model. Monte Carlo simulation models require the use of simulations
that are weighted based on projected future stock prices, the volatility of a set of guideline companies and significant unobservable
inputs including probabilities assigned to not achieving a successful capital raise and a registration of related securities. Each simulation
is based on the range of inputs in a scenario with the mean of the output on each simulation calculated as an average.

The significant inputs and assumptions used to estimate
the fair value also include: (i) the expected timing of conversion, (ii) the amount subject to equity conversion, (iii) the sum of the
notes’ principal and unpaid accrued interest, (iv) expected volatility, (v) risk-free interest rate, (vi) the discount rate, (vii)
volume-weighted average price (“VWAP”), (viii) illiquidity discounts, and (