MIRA PHARMACEUTICALS, INC. 10-K

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock began trading August 3, 2023, on The Nasdaq Capital Market under the symbol “MIRA.” Holders of Common Stock As of March 28, 2024, we had approximately 91 holders of record of our common stock. No cash dividends have been paid on the common stock to date. We currently intend to retain earnings for further business development and do not expect to pay cash dividends in the foreseeable future. Securities Authorized for Issuance Under Equity Compensation Plans See Item 12. - Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Unregistered Sales of Equity Securities and Use of Proceeds None Issuer Purchases of Equity Securities None Item 6. Reserved 68 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis provide information which our management believes is relevant to an assessment and understanding of our results of operations and financial condition. You should read the following discussion and analysis of our results of operations and financial condition together with our financial statements and related notes and other information included elsewhere in this Report. In addition to historical financial information, this discussion contains forward-looking statements based upon our current expectations that involve risks and uncertainties. Our actual results could differ materially from such forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” included elsewhere in this Report. Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future. Overview We are a pre-clinical-stage pharmaceutical development company with two neuroscience programs targeting a broad range of neurologic and neuropsychiatric disorders. We have an exclusive licensing agreement for Ketamir-2, a unique, patent pending novel oral ketamine analog under investigation to potentially deliver ultra-rapid antidepressant effects, providing hope for individuals battling treatment-resistant depression (TRD), major depressive disorder with suicidal ideation (MDSI) and potentially post-traumatic stress disorder (PTSD). Additionally, our novel oral pharmaceutical marijuana, MIRA-55, is currently under investigation for treating adult patients suffering from anxiety and cognitive decline, often associated with early-stage dementia. MIRA-55, if approved by the FDA, could mark a significant advancement in addressing various neuropsychiatric, inflammatory, and neurologic diseases and disorders. The U.S. Drug Enforcement Administration (DEA)’s scientific review of Ketamir-2 concluded that it would not be considered a controlled substance or listed chemical under the Controlled Substances Act (CSA) and its governing regulations. Additionally, we have filed the required paperwork for MIRA-55 to be evaluated by the U.S. DEA. We had net losses of $12 million and $7.1 million for the year ended December 31, 2023 and December 31, 2022, respectively. Recent Developments In early February 2024, we made a significant discovery during the manufacturing and scale-up process of our patented molecule known as “MIRA1a,” which we had been utilizing with a contract manufacturer. Through this process, we identified a novel and improved version of the molecule, MIRA-55. MIRA-55 exhibits enhanced potency and holds promise for improved efficacy compared to MIRA1a. As part of our due diligence and subsequent testing, we discovered that the pre-clinical studies we conducted, previously attributed to MIRA1a, were in fact performed on MIRA-55. Following this revelation, we promptly filed a provisional patent for MIRA-55, which encompasses all pre-clinical studies disclosed in our two registration statements on Form S-1, declared effective on August 2, 2023 and December 27, 2023 (File Nos. 333-273024 and 333-276118, respectively). Moreover, based on our pre-clinical analyses to date, we believe that MIRA-55 is an improvement over MIRA1a in that it displays enhanced potency and potential for efficacy. In early March 2024, we filed a provisional patent application for MIRA-55, aiming for global patent protection. If such patent is issued, we would own the patent rights to both MIRA1a and MIRA-55. Based on our discoveries to date, we have decided to advance MIRA-55 as our lead compound for our oral pharmaceutical marijuana drug candidate while still retaining our rights to MIRA1a. 69 Reverse Stock Split Effective June 28, 2023, we completed a 1-for-5 reverse stock split of our outstanding common stock. Unless otherwise noted, the share and per share information in this Report reflects the reverse stock split. Components of our Results of Operations Research and Development Expenses Research and development expenses represent costs incurred to conduct research and development of our product candidate. We recognize all research and development costs as they are incurred. Research and development expenses consist primarily of the following: ● salaries and benefits; ● contracted research and manufacturing; ● consulting arrangements; and ● other expenses incurred to advance our research and development activities. Our operating expenses have historically been the costs associated with our patent prosecution and initial investment in pre-clinical research and development activities. We expect research and development expenses will increase in the future as we advance Ketamir-2 and MIRA-55 into and through clinical trials and pursue regulatory approvals, which will require a significant investment in costs of clinical trials, regulatory support, and contract manufacturing. In addition, we will evaluate opportunities to acquire or in-license additional product candidates and technologies, which may result in higher research and development expenses due to license fee and/or milestone payments, as well as added clinical development costs. The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. We may never succeed in timely development and achieving regulatory approval for our product candidates. The probability of success of our product candidates may be affected by numerous factors, including clinical data, competition, manufacturing capability and commercial viability. As a result, we are unable to determine the duration and completion costs of our development projects or when and to what extent we will generate revenue from the commercialization and sale of our product candidates. General and Administrative Expenses General and administrative expenses consist of employee-related expenses, including salaries, benefits, and travel, and other administrative functions, as well as fees paid for legal, accounting and tax services, consulting fees and facilities costs not otherwise included in research and development expense. Legal costs include general corporate legal fees and patent costs. We expect to incur additional expenses as a result of becoming a public company, including expenses related to compliance with the rules and regulations of the SEC and Nasdaq, additional insurance, investor relations and other administrative expenses and professional services. Interest expense Interest expense, net consists of accrued interest on a related party line of credit, net of earned interest income. Results of Operations for the year ended December 31, 2023 and 2022 Year Ended December 31, 2023 2022 Revenues $ - $ - Operating costs: General and administrative expenses 6,499,537 2,992,125 Related party travel costs 453,550 1,704,350 Research and development expenses 1,572,963 2,351,465 Total operating costs 8,526,049 7,047,940 Interest expense, net (3,456,294 ) (10,250 ) Net loss attributable to common stockholders $ (11,982,343 ) $ (7,058,190 ) Basic and diluted loss per share $ (0.64 ) $ (0.40 ) Weighted average common stock shares outstanding 18,566,158 17,566,533 70 General and Administrative Expenses . We incurred $6.5 million and $2.9 million in general and administrative expenses during the year ended December 31, 2023 and December 31, 2022, respectively. General and administrative expenses are composed primarily of compensation, insurance, professional fees, stock-based compensation, administration and other related costs. The increase is primarily due to an increase in stock-based compensation, debt issuance costs, and compensation related to the IPO efforts of the executive team. Related Party Travel Costs . We incurred $0.4 million and $1.7 million in related party travel costs during the year ended December 31, 2023 and December 31, 2022 respectively. Related party travel costs consisted of a lease and use of an airplane with an entity under common control. The decrease in related party travel costs in 2023 is due to the termination of the lease in March 2023. Interest expense . We incurred $3.5 million, net in interest expense and interest income during the year ended December 31, 2023, and $0.01 million interest expense during the year ended December 31, 2022, respectively. Interest expense during 2023 included $2.8 million of write-off of unamortized deferred financing costs, $0.44 million of debt issuance costs and $0.02 million of interest income. The remaining 2023 and 2022 interest expense consists of accrued interest on a related party line of credit. Research and Development Expenses. During the year ended December 31, 2023, we incurred $1.6 million in research and development expenses, which were primarily related to initial payments for toxicology studies, consultants and stock compensation. We incurred $2.4 million in research and development expenses during the three months ended December 31, 2022, relating to initial payment for toxicology study costs. Research and development expenses include pre-clinical, toxicology and consultant expenses. Major components of research and development expenses during the year ended December 31, 2023 are as follows: R&D Category Expense R&D consultants $ 0.25 million R&D research $ 0.37 million R&D toxicology $ 0.21 million R&D stock compensation $ 0.74 million Liquidity and Capital Resources Since our inception in September 2020, we have financed our operations primarily through an unsecured line of credit with a major shareholder and an affiliated company and through a private placement of shares of our common stock that occurred during the fourth quarter 2021 and during 2022. We intend to finance our clinical development programs and working capital needs from existing cash, potential new sources of debt and equity financing, including the proceeds from our completed IPO in August 2023. We may enter into new licensing and commercial partnership agreements. On April 28, 2023, we entered into a Promissory Note and Loan Agreement with the Bay Shore Trust, a trust established by our founder, and under which various of his family members are beneficiaries (the “Bay Shore Trust”). Under this Promissory Note and Loan Agreement (the “Bay Shore Note”), we have the right to borrow up to an aggregate of $5,000,000 from the Bay Shore Trust at any time up to the second anniversary of the issuance of the Bay Shore Note or, if earlier, upon the completion of our initial public offering. Our right to borrow funds under the Bay Shore Note is subject to the absence of a material adverse change in our assets, operations, or prospects. The Bay Share Note, together with accrued interest, will become due and payable on the second anniversary of the issuance of the note, provided that it may be prepaid at any time without penalty. The Bay Shore Note will accrue interest at a rate equal 7% per annum, simple interest, during the first year that the note is outstanding and 10% per annum, simple interest, thereafter. The Bay Shore Note is unsecured. As of December 31, 2023, the Bay Shore Note was paid in full except for an unpaid interest balance of $.01 million. In consideration of the loan facility provided by the Bay Shore Trust, we issued to the Bay Shore Trust a common stock purchase warrant on April 28, 2023, giving the Bay Shore Trust the right to purchase up to 1,000,000 shares of common stock at an exercise price of $5.00 per share, which warrant will expire five years after the date of grant. 71 Since January 1, 2023, MIRALOGX, LLC, an intellectual property development and holding company owned by Bay Shore Trust (“MIRALOGX”), has advanced funds on behalf of Bay Shore Trust to our company in order to fund operating activities. The total amount advanced and outstanding from MIRALOGX was $1.6 million immediately prior to being consolidated into the Bay Shore Note in 2023, and such amounts become a part of the outstanding balance of the Bay Shore Note, which as of December 31, 2023, is $0. On July 20, 2023, we entered into a conversion agreement with the Bay Shore Trust under which the Bay Shore Trust agreed to convert, upon the completion of our initial public offering, $1,100,190 of the outstanding principal balance of the Bay Shore Note into shares of our common stock at a conversion price equal to our initial public offering price, which resulted in the issuance of 157,170 shares to the Bay Shore Trust upon the completion of our initial public offering (the “Bay Shore Trust Conversion Agreement”). In August 2023, we completed our IPO of common stock selling 1,275,000 shares at an offering price of $7.00 per share, resulting in gross proceeds of $8.9 million. Net proceeds received after underwriting fees and offering expenses were $8.1 million. We raised $3.2 million in 2022. Substantially all our equity capital had been raised at $1.00 per share (pre-reverse split). We used $3.4 million in operating activities during the year ended December 31, 2023, compared to $5.6 million in operating activities during the year ended December 31, 2022. We have incurred significant losses and negative cash flows from operations since inception and expect to incur additional losses until such time that we can generate significant revenue and profit. We had negative cash flow from operations of approximately $3.4 million for the year ended December 31, 2023 and an accumulated deficit of approximately $21.2 million as of December 31, 2023. As of December 31, 2023, we had cash and cash equivalents of approximately $4.6 million and working capital of $4.4 million. We currently expect that our cash and cash equivalents be sufficient to fund our operations, development plans, and capital expenditures through at least the fourth quarter of 2024. We did not have any material non-cancellable contractual obligations as of December 31, 2023. Cash Flows The following table provides information regarding our cash flows for the periods presented: Year ended December 31, 2023 2022 Net cash provided by (used in): Operating activities $ (4,532,403 ) $ (5,604,759 ) Financing activities 8,783,991 3,146,185 Net change in cash $ 4,251,588 $ (2,458,574 ) 72 Net Cash Used in Operating Activities The cash used in operating activities resulted primarily from our net losses, stock-based compensation expense, amortization of debt issuance costs and changes in components of accounts payable and accrued liabilities. For the year ended December 31, 2023, operating activities used $4.5 million of cash, primarily due to a net loss of $12 million, a $0.6 million change in accounts payable, accrued and prepaid expenses, offset by $2.5 million in stock-based compensation expense, $0.7 million in amortization of debt issuance costs, $3.5 million of interest expense, and $1.1 million of repayments under related party line of credit. Interest expense, net was primarily composed of warrant expense and line of credit expense, offset by interest income. Accounts payable, accrued and prepaid expenses was primarily composed of research and development payables, consultant costs, insurance costs and investor relations expenses. For the year ended December 31, 2022, operating activities used $5.6 million of cash, primarily due to a net loss of $7.1 million, a $0.06 million change in accounts payable, accrued and prepaid expenses, offset by $1.3 million in stock-based compensation expense. Accounts payable, accrued and prepaid expenses was primarily composed of research and development payables, consultant costs, insurance costs and investor relations expenses. Net Cash Provided by Financing Activities For the year ended December 31, 2023, financing activities provided $8.8 million of cash, resulting primarily from $7.7 million in proceeds from sale of common stock, less offering costs and $2.1 million in advances from related party line of credit, offset by $1.1 million of repayments under related party line of credit. For the year ended December 31, 2022, financing activities provided $3.1 million of cash, resulting primarily from $2.9 million in proceeds from sale of common stock, less offering costs, offset by $0.16 million of repayments under related party line of credit. We currently anticipate that we will seek to monetize our product candidates, Ketamir-2 and MIRA-55, at the end of our planned Phase 2 studies. Prior to that time, we anticipate that additional capital may be required to support ongoing activities and further phases of development. Should that be required, our available capital may be consumed more rapidly than currently anticipated, resulting in the need for additional funding. In addition, there can be no assurance that additional funding, when and if required, will be available at commercially favorable terms, if at all. Accordingly, we may need to raise additional capital, which may be available to us through a variety of sources, including: ● public equity markets; ● private equity financings; ● commercialization agreements and collaborative arrangements; ● sale of product royalty; ● grants and new license revenues; ● bank loans; and ● public or private debt. Additional funding, capital, or loans (including, without limitation, milestone, or other payments from potential commercialization agreements) may be unavailable on favorable terms, if at all. If adequate funds are not available, we may be required to significantly reduce or refocus our operations or to obtain funds through arrangements that may require us to relinquish rights to certain technologies and drug formulations or potential markets, any of which could have a material adverse effect on us, our financial condition, and our results of operations. To the extent that additional capital is raised through the sale of equity or convertible debt securities or exercise of warrants and options, the issuance of such securities would result in ownership dilution to existing stockholders. 73 If we are unable to attract additional funds on commercially acceptable terms, it may adversely affect our ability to achieve our development and commercialization goals, which could have a material and adverse effect on our business, results of operations and financial condition. We believe that we have sufficient resources available to support our development activities and business operations and timely satisfy our obligations as they become due into the fourth quarter of 2024. We do not have sufficient cash and cash equivalents as of the date of filing this Annual Report on Form 10-K to support our operations for at least the 12 months following the date the financial statements are issued. These conditions raise substantial doubt about our ability to continue as a going concern through 12 months after the date that the financial statements are issued. To alleviate the conditions that raise substantial doubt about our ability to continue as a going concern, we plan to secure additional capital, potentially through a combination of public or private equity offerings and strategic transactions, including potential alliances and drug product collaborations; however, none of these alternatives are committed at this time. There can be no assurance that we will be successful in obtaining sufficient funding on terms acceptable to us to fund continuing operations, if at all, identify and enter into any strategic transactions that will provide the capital that we will require or achieve the other strategies to alleviate the conditions that raise substantial doubt about our ability to continue as a going concern. If none of these alternatives are available, or if available, are not available on satisfactory terms, we will not have sufficient cash resources and liquidity to fund our business operations for at least the 12 months following the date the financial statements are issued. The failure to obtain sufficient capital on acceptable terms when needed may require us to delay, limit, or eliminate the development of business opportunities and our ability to achieve our business objectives and our competitiveness, and our business, financial condition, and results of operations will be materially adversely affected. In addition, the perception that we may not be able to continue as a going concern may cause others to choose not to deal with us due to concerns about our ability to meet our contractual obligations. The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business, and do not include any adjustments relating to recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern. Recently Issued and Adopted Accounting Pronouncements A description of recently issued and adopted accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 8 to our financial statements appearing at the end of this Report. Off-Balance Sheet Arrangements During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements as defined under SEC rules. Summary of Critical Accounting Policies Income taxes We are a C corporation. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases. Deferred tax assets are recognized for temporary differences that will result in deductible amounts in future years and for loss carryovers. A valuation allowance is recognized regarding deferred tax assets, if any, if it is more likely than not that some portion of the deferred tax asset will not be realized. 74 Research and development expenses Research and development costs are expensed in the period in which they are incurred and include the expenses paid to third parties, such as contract research organizations and consultants, who conduct research and development activities on our behalf. Patent-related costs, including registration costs, documentation costs and other legal fees associated with the application, are expensed in the period in which they are incurred. Use of estimates The preparation of financial statements in accordance with generally accepted accounting principles in the United States of America requires our company’s management 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 and the reported amounts of expenses during the reporting period. Actual results may differ from such estimates and such differences could be material. Stock-based compensation We account for stock-based compensation under the provisions of FASB ASC 718, “ Compensation - Stock Compensation ”, which requires the measurement and recognition of compensation expense for all stock-based awards made to employees, directors and consultants based on estimated fair values on the grant date. We estimate the fair value of stock-based awards on the date of grant using the Black-Scholes model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods using the straight-line method. We have elected to account for forfeiture of stock-based awards as they occur. Emerging Growth Company Election We are an “emerging growth company” as defined in Section 2(a) of the Securities Act and have elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards. We expect to continue to take advantage of the benefits of the extended transition period, although we may decide to early adopt such new or revised accounting standards to the extent permitted by such standards. We expect to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and non-public companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. This may make it difficult or impossible to compare our financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used. In addition, we intend to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act and compliance with applicable laws, if, as an emerging growth company, we rely on such exemptions, we are not required to, among other things: (a) provide an auditor’s attestation report on our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002; (b) provide all of the compensation disclosures that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010; (c) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis); and (d) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation. We will remain an emerging growth company under the JOBS Act until the earliest of (a) December 31, 2028, (b) the last date of our fiscal year in which we had total annual gross revenue of at least $1.07 billion, (c) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC or (d) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the previous three years. 75 Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Smaller reporting companies are not required to provide the information required by this item. Item 8. Financial Statements and Supplementary Data. Our Consolidated Financial Statements and Notes thereto and the report of Cherry Bekaert, our independent registered public accounting firm (PCAOB ID: 677 ), are set forth on pages F-1 through F-22 of this Report. Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure. None.