Telomir Pharmaceuticals, Inc. 10-K

Item 7. 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 Annual 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 Annual 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 company focused on the development and commercialization of TELOMIR-1, a novel small molecule being developed to function as an oral in situ therapeutic treatment for human stem cells. Our initial focus will be on treatments to inhibit the production of pro-inflammatory cytokines, such as IL-17, by oral administration of TELOMIR-1 as a therapeutic treatment for stem cells in situ. Our goal is to advance the clinical development of TELOMIR-1 in the United States for the treatment of age-related inflammatory conditions such as osteoarthritis and hemochromatosis, as well as in post-chemotherapy recovery, with our initial targeted indications being osteoarthritis, hemochromatosis, and post-chemotherapy recovery. We had net losses of $13.1 million and $0.85 million for the years ended December 31, 2023 and 2022, respectively. Reverse Stock Split Effective December 11, 2023, we completed a reverse stock split of our outstanding common stock upon the filing of our Second Amended and Restated Articles of Incorporation with the Florida Secretary of State. No fractional shares were or will be issued in connection with the reverse stock split, and all such fractional shares resulting from the reverse stock split were and will be rounded up to the nearest whole number. The shares issuable upon the exercise of our outstanding warrants, and the exercise prices of such warrants, have been adjusted to reflect the reverse stock split. Unless otherwise noted, the share and per share information in this Annual 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: ● contracted research and manufacturing; ● consulting arrangements; and ● other expenses incurred to advance the Company’s research and development activities. Our operating expenses have historically been the costs associated with our initial investment in pre-clinical research and development activities. We expect research and development expenses will increase in the future as we advance TELOMIR-1 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. 44 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 administrative functions, as well as fees paid for legal, consulting fees and facilities costs not otherwise included in research and development expense. Legal costs include general corporate legal fees and license 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. Results of Operations for years ended December 31, 2023 and 2022 Year Ended December 31, 2023 2022 Revenues $ - $ - Operating costs: General and administrative expenses 600,192 20,941 Related party travel costs 1,767,550 - Research and development expenses 1,574,306 833,206 Total operating costs 3,942,048 854,147 Interest expense (1,643,049 ) - Loss on extinguishment of debt (7,486,767 ) - Net loss attributable to common stockholders $ (13,071,864 ) $ (854,147 ) General and Administrative Expenses. We incurred general and administrative expenses of $0.6 million and $0.02 million during the years ended December 31, 2023 and 2022, respectively. General and administrative expenses consisted of consulting fees, office and rent expenses. Related Party Travel Costs. We incurred $1.77 million in related party travel costs during the year ended December 31, 2023. There was no such expense incurred during the same period ended December 31, 2022. Related party travel costs consisted of a shared lease and use of an airplane with an entity under common control. The increase in related party travel costs is due to CRO and vendor site visits, plus IPO related efforts. The Company will not participate in the use of the airplane after March of 2024 and, pursuant to the terms of the agreement, constitutes no further obligation under the agreement. 45 Research and Development Expenses. We incurred research and development expenses of $1.57 million and $0.8 million during the years ended December 31, 2023 and 2022, respectively. The increase in research and development expenses during 2023 compared to 2022 is due to the expansion of pre-clinical programs during 2023. Major components of research and development expenses during 2023 is as follows: R&D Category Expense Toxicology $ 0.6 million Pre-clinical research $ 0.5 million R&D consultants $ 0.4 million Interest expense. We incurred $1.6 million in interest expense during the year ended December 31, 2023. There was no such expense during the same period ended December 31, 2022. Interest expense during 2023 was composed of debt issuance costs related to a line of credit financing. Loss on extinguishment of debt. Pursuant to a conversion agreement, the following related party debt was converted to common stock (after giving effect to our 1-for-2.05 reverse stock split that occurred on December 11, 2023) on November 30, 2023: The Bay Shore Line of Credit – see note 4, balance of $1.4 million into 674,637 shares of our common stock and the MIRALOGX balance of $1.7 million. into 837,841 shares of our common stock. The conversion of the Bay Shore Line of Credit and MIRALOGX balances resulted in a loss on the debt conversion of $7,486,767 for the year ended December 31, 2023. Liquidity and Capital Resources Sources of Liquidity Since the Company’s inception in August 2021, we have financed our operations primarily through an unsecured line of credit with a major shareholder and an affiliated company and through a $1.0 million private placement of shares of our common stock that occurred during the first quarter 2023 at $3.73 per share (after giving effect to our 1-for-2.05 reverse stock split that occurred on December 11, 2023). 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 initial public offering that occurred in February of 2024. On June 15, 2023, we entered into a Promissory Note and Loan Agreement with the Bay Shore Trust, a trust established by our founder, Jonnie R. Williams, Sr., and under which various of his family members are beneficiaries. Under this Promissory Note and Loan Agreement (the “Bay Shore Note”), we have the right to borrow up to an aggregate of $5 million 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 (“IPO”). Our right to borrow funds under the Bay Shore Note is subject to the absence of a material adverse change in its 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 to 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 November 30, 2023, the total amount outstanding under the Bay Shore Note was $1.4 million. The total amount outstanding was converted into 674,637 shares of our common stock on November 30, 2023 at a conversion rate of $2.05 per share (after giving effect to our 1-for-2.05 reverse stock split that occurred on December 11, 2023) pursuant to a conversion agreement. As of February 9, 2024, the agreement has been terminated. Since January 1, 2023, MIRALOGX, an intellectual property development and holding company owned by Bay Shore Trust, and The Starwood Trust, a separate trust established by our founder, have advanced funds on behalf of Bay Shore Trust to our company in order to fund operating activities. The total amount advanced and outstanding as of November 30, 2023, was $1.7 million. These advances were converted into 837,841 shares of our common stock on November 30, 2023 at a conversion rate of $2.05 per share (after giving effect to our 1-for-2.05 reverse stock split that occurred on December 11, 2023) pursuant to a conversion agreement. 46 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 $3.9 million for the year ended December 31, 2023 and an accumulated deficit of approximately $14.1 million as of December 31, 2023. As of December 31, 2023 we had cash and cash equivalents of approximately $0.001 million. We currently expect that our cash and cash equivalents, when taking into account the net proceeds of $6.3 million from our initial public offering which closed on February 13, 2024, will be sufficient to fund our operations, development plans, and capital expenditures midway through the fourth quarter of 2024. As such, there is substantial doubt about the Company’s ability to continue as a going concern. We did not have any material non-cancellable contractual obligations as of December 31, 20023. Cash Flows The following table provides information regarding our cash flows for the periods presented: Year Ended December 31, 2023 Year Ended December 31, 2022 Net cash provided by (used in): Operating activities $ (3,859,796 ) $ (468,661 ) Financing activities 3,859,608 470,080 Net change in cash $ (188 ) $ 1,419 Net Cash Used in Operating Activities The cash used in operating activities resulted primarily from our net losses and changes in components of accounts payable and accrued liabilities. For the year ended December 31, 2023, operating activities used $3.9 million of cash, primarily due to a net loss of $13.1 million, a $0.10 million change in accounts payable, accrued and prepaid expenses, offset by $1.6 million in amortization of debt issuance costs and $7.5 million of a loss on the conversion of debt to common stock. Accounts payable was composed of research and development payables, rent and legal expenses. For year ended December 31, 2022, operating activities used $0.47 million of cash, primarily due to a net loss of $0.85 million, offset by a $0.38 million change in accounts payable. Accounts payable was composed of research and development payables and rent expenses. Net Cash Provided by Financing Activities For the year ended December 31, 2023, financing activities provided $3.9 million of cash, resulting from $1.7 million in net borrowings from a related party, $1.5 million in net borrowings under a related party line of credit, $1.0 million from the sale of common stock and offset by a $0.3 million in deferred offering cost and $0.05 million in repayments to related party. For year ended December 31, 2022, financing activities provided $0.47 million of cash, resulting from $0.46 million in amounts due to a related party, $0.06 million in collection of stock subscription receivable, offset by a $0.05 million in deferred offering costs. To date, we have not generated any revenue from product sales. We do not expect to generate revenue from product sales unless and until we successfully complete pre-clinical and clinical development of, receive regulatory approval for, and commercialize a program and we do not know when, or if at all, that will occur. We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the pre-clinical activities and studies and initiate clinical trials. In addition, if we obtain regulatory approval for any programs, we expect to incur significant expenses related to product sales, marketing, and distribution to the extent that such sales, marketing and distribution are not the responsibility of potential collaborators. Further, due to the completion of our initial public offering in February 2024, we expect to incur additional costs associated with operating as a public company. The timing and amount of our operating expenditure will depend largely on the factors set out above. 47 Our funding requirements and timing and amount of our operating expenditures will depend on many factors, including, but not limited to: ● the rate of progress in the development of our TELOMIR-1 program and other development programs; ● the scope, progress, results and costs of pre-clinical studies and clinical trials for any other current and future programs; ● the number and characteristics of programs and technologies that we develop or may in-license; ● the costs and timing of future commercialization activities, including manufacturing, marketing, sales and distribution, for any of our programs for which we receive marketing approval; ● the costs necessary to obtain regulatory approvals, if any, for any approved products in the United States and other jurisdictions, and the costs of post-marketing studies that could be required by regulatory authorities in jurisdictions where approval is obtained; ● the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims; ● the continuation of our existing licensing arrangements and entry into new collaborations and licensing arrangements; ● the costs we incur in maintaining business operations; ● the costs of hiring additional clinical, quality control, manufacturing and other scientific personnel; ● the costs adding operational, financial and management information systems and personnel; ● the costs associated with being a public company; ● the revenue, if any, received from commercial sales of our programs for which we receive marketing approval; ● the effect of competing technological and market developments; and ● the extent to which we acquire or invest in businesses, products and technologies, including entering into licensing or collaboration arrangements for programs. Identifying potential programs, product candidates, conducting pre-clinical studies and clinical trials is a time consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our programs, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for many years, if ever. Accordingly, we will need to obtain substantial additional funds to achieve our business objectives. 48 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 1 to our financial statements appearing at the end of this Annual 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 Generally Accepted Accounting Principles (GAAP) and SEC rules. Summary of Critical Accounting Policies 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 behalf of the Company. 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 the 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 The Company accounts 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. The Company estimates 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. The Company has 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. 49 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, 2027, (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. 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: 42), are set forth on pages F-1 through F-11 of this Report. Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure. None.