MIRA PHARMACEUTICALS INC

FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Note 1. Description of business and summary of significant accounting policies:

Overview

MIRA Pharmaceuticals, Inc., a Florida corporation (“we,” “us,” “our,” “MIRA,” or the “Company”), is a pre-clinical-stage pharmaceutical development company with two neuroscience programs targeting a broad range of neurologic and neuropsychiatric disorders. The Company holds exclusive license rights in the U.S., Canada and Mexico for Ketamir-2, a novel, patent pending oral ketamine analog under pre-clinical 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, the Company’s novel oral pharmaceutical marijuana, MIRA-55, is currently under investigation for its potential to alleviate neuropathic pain, as well as anxiety and cognitive decline, symptoms often associated with early-stage dementia. MIRA-55, if approved by the U.S. Food and Drug Administration (“FDA”), could mark a significant advancement in addressing various neuropsychiatric, inflammatory, and neurologic diseases and disorders.

The U.S. Drug Enforcement Administration’s (“DEA”) scientific reviews of both Ketamir-2 and MIRA-55 concluded that they would not be considered a controlled substance or listed chemical under the Controlled Substances Act (“CSA”) and its governing regulations.

The Company is incorporated under the laws of the State of Florida in September 2020 and commenced substantive operations, including our pharmaceutical development program, in late 2020. The Company’s accounting and reporting policies conform to accounting principles generally accepted in the United States of America (“GAAP”).

As used herein, the Company’s Common Stock, par value $0.0001 per share, is referred to as the “Common Stock” and the Company’s preferred stock, par value $0.0001 per share, is referred to as the “Preferred Stock”.

Operating updates

In early February 2024, the Company made a significant discovery during the manufacturing and scale-up process of its patented molecule known as “MIRA1a,” which the Company believed was the molecule used in its pre-clinical trials and had been synthesized by a contract manufacturer. Through this process, the Company identified a novel and improved version of the molecule, which the Company calls MIRA-55.

As part of the Company’s due diligence and subsequent testing, which began in late 2023, the Company discovered that the pre-clinical studies the Company conducted, previously attributed to MIRA1a, were in fact performed on MIRA-55. Following this revelation, in early March 2024, the Company promptly filed a provisional patent for MIRA-55, which encompasses all pre-clinical studies. If such patent is issued, the Company will own the patent rights to both MIRA1a and MIRA-55.

Moreover, based on the Company’s pre-clinical analyses to date, the Company believes that MIRA-55 is an improvement over MIRA1a in that it displays enhanced potency and potential for efficacy.

Based on the Company’s discoveries and pre-clinical studies to date, the Company has decided to advance MIRA-55 as its lead compound for the Company’s oral pharmaceutical marijuana drug candidate while still retaining its rights to MIRA1a. As such, the Company’s decided not to move MIRA1a forward.

Significant Accounting Policies

There have been no material changes in the Company’s significant accounting policies from those previously disclosed in the 2023 Annual Report.

Note 2. Liquidity and capital resources:

In accordance withAccounting Standards Codification 205-40, Going Concern, the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. As of June 30, 2024, the Company had cash of approximately $2.8 million. The Company used approximately $1.9 million of cash in operations during the six months ended June 30, 2024.

Historically, the Company has been primarily engaged in developing MIRA-55 and, more recently, has also been focusing on the development of Ketamir-2. During these activities, the Company sustained substantial losses. The Company’s ability to fund ongoing operations and future pre-clinical and clinical trials required for FDA approval is dependent on the Company’s ability to obtain significant additional external funding in the near term. Since inception, the Company financed its operations through the sale of Common Stock, and related party financings. Additional sources of financing are being sought by the Company, which are described below. The Company expects to be able to fund operations through the fourth quarter of 2024, with available borrowings from the related-party loan described in Note 4 below. Additional financing will be needed by the Company to fund its operations after such date to continue and complete pre-clinical and clinical development activities and to commercially develop and ultimately launch its product candidates. However, and particularly given the early-stage nature of the Company and the significant time and capital required to implement the Company’s business plan, there can be no assurance that any fundraising will be achieved on commercially reasonable terms, if at all.

The Company expects to continue to generate losses in the foreseeable future. The Company’s liquidity needs will be determined largely by the budgeted operational expenditures incurred in regard to the progression of its product candidates. The Company does not have sufficient cash and cash equivalents as of the date of filing this Report to support its operations for at least the 12 months following the date the financial statements are issued. These conditions raise substantial doubt about the Company’s ability to continue as a going concern through 12 months after the date the accompanying financial statements are issued.

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 the Company be unable to continue as a going concern.

Note 3. License agreement, related party:

MIRALOGX

On November 15, 2023, the Company and MIRALOGX, LLC, a Florida limited liability company (“MIRALOGX”) which is a related-party owned by Bay Shore Trust, a significant stockholder of the Company (“Bay Shore Trust”), entered into an exclusive license agreement (the “License Agreement”) to develop and commercialize Ketamir-2, a drug product containing 2-(2- chlorophenyl)-2-(methylamino) cyclopentan-1-one as an active agent in the United States, Canada and Mexico (the “Territory”). The exclusive license in the License Agreement includes the right of the Company to sublicense the licensed intellectual property.

Pursuant to the terms of the License Agreement, and subject to the conditions set forth therein, the Company paid MIRALOGX a one-time, nonrefundable payment of $0.1 million upon the signing of the Agreement and will be obligated to pay quarterly royalty payments on sales of the Ketamir-2 in the Territory of 8% of net sales and 8% of other revenue (such as milestone or sublicense payments) from licensed products.

The Company and MIRALOGX have made customary representations and warranties in the License Agreement and have agreed to certain other customary covenants, including confidentiality, cooperation, and indemnity provisions. Either party may terminate the License Agreement for cause if the other party materially breaches or defaults in the performance of its obligations, and, if curable, such material breach remains uncured for 120 days. Unless earlier terminated, the License Agreement will continue in effect until the last to expire of the patent rights licensed pursuant to the License Agreement, unless earlier terminated.

Note 4. Debt, related party:

On November 15, 2023, the Company entered into a Promissory Note and Loan Agreement (the “Loan Agreement”) with MIRALOGX.

Pursuant to the Loan Agreement, the Company may borrow up to $3.0 million from MIRALOGX to fund the development of licensed products under the License Agreement (the “Loan”).

Together with any Advance Request, the Company shall deliver to the Lender a budget for the requested Advance (the “Budget”). The Budget may only include costs directly associated with preparing an Investigational New Drug (“IND”) application for Ketamir-2, exclusive of personnel costs. Any Advances made by MIRALOGX to the Company pursuant to this Loan may be repaid by the Company (together with any and all interest accrued thereon) at any time without penalty or premium in accordance with the terms hereof. Amounts repaid under the Loan may not be reborrowed

The Loan Agreement has a one-year term, and all outstanding principal and accrued but unpaid interest must be repaid in full on November 15, 2024. Interest on the amounts borrowed under the Loan Agreement accrues at an annual fixed rate of 8%. The Company may prepay all or a portion of the outstanding principal and accrued unpaid interest under the Loan Agreement at any time without a prepayment fee. The Company has not borrowed any funds from the MIRALOGX loan as of June 30, 2024.

Bay Shore Trust

In April 2023, the Company entered into a Promissory Note and Loan Agreement with the Bay Shore Trust. Under this Promissory Note and Loan Agreement (the “Bay Shore Note”), the Company had 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 the Company’s IPO. The Bay Shore Note accrued interest at a rate equal 7% per annum, simple interest, during the first year that the note was outstanding.

On July 20, 2023, the Company entered into a conversion agreement with the Bay Shore Trust under which the Bay Shore Trust had converted, at the time of the IPO, $1.1 million of the outstanding principal balance of the Bay Shore Note into shares of Common Stock at a conversion price equal to the price of the Common Stock sold to the public in the IPO, which resulted in the issuance of 157,170 shares of Common Stock to Bay Shore Trust. On August 14, 2023, the Company paid $1.0 million in full to Bay Shore Trust, which was the amount due. The Company also paid accrued interest of $0.03 million. There is a remaining amount of $0.01 million in accrued interest due to Bay Shore Trust as of June 30, 2024.

Note 5. Related party transactions:

*Due from related parties –*During the six months ended June 30, 2024, the Company paid payables on behalf of a related party in the amount of $0.024 million.

*Shared management-*Historically, the Company has shared management with related parties on an as-needed basis, to collaborate and pool resources efficiently. For the six months ended June 30, 2024, the Company incurred $0.010 million in costs related to this arrangement which is recorded in general and administrative expenses.

Shared lease costs- On April 1, 2023 the Company entered into an Agreement For Shared Lease Costs with MIRALOGX, LLC, (the “Shared Agreement”) who is a related party for the jet usage. Under the Shared Agreement, the Company agrees to make monthly contributions or payments in accordance with its monthly use of shared aircraft toward rent payments. However, the Company has not used the aircraft after the termination of the lease on March 31, 2023 and there are no minimum payments due without usage

License agreement - See Note 3.

Debt, related party - See Note 4.

Stock settlement agreement - See Note 7

Note 6. Leases:

The Company’s former corporate headquarters was located in Baltimore, Maryland, which included a lease for office space. This lease began in November 2021 and ended April 2024. The lease was not renewed after April 2024.

Variable lease costs

Variable lease costs primarily include utilities, property taxes, and other operating costs that are passed on from the lessor. Variable lease costs related to the aircraft include usage expenses, which includes pilot expenses, jet fuel and general flight expenses.

The components of lease expense were as follows:

Supplemental cash flow information related to leases were as follows:

Note 7. Stockholders’ equity:

Stock-based compensation

The fair value of each option award is estimated on the grant date using the Black-Scholes valuation model that uses assumptions for expected volatility, expected dividends, expected term, and the risk-free interest rate. Expected price volatility is based on the historical volatilities of a peer group as the Company does not have a multi-year trading history for its shares. Industry peers consist of several public companies in the biotech industry similar to the Company in size, stage of life cycle and product indications. The Company intends to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of the Company’s own stock price becomes available, or unless circumstances change such that the identified companies are no longer similar to the Company, in which case, more suitable companies whose share prices are publicly available would be utilized in the calculation.

Expected term of options granted is derived using the “simplified method” which computes expected term as the average of the sum of the vesting term plus contract term. The risk-free rate is based on the 5-year U.S. Treasury yield curve in effect at the time of grant. The Company recognizes forfeitures as they occur.

During the six months ended June 30, 2024, a total of 1,154,000 options to purchase Common Stock, with an aggregate fair market value of approximately $1.1 million were granted to the members of the Company’s Board of Directors, executive officers and consultants of the Company. The options have a term of 10 years from the grant date. These option vest over various terms ranging from immediate vesting upon grant to the one year anniversary of the grant date.

The following is option activity during the six months ended June 30, 2024.

The estimated fair value of stock options on date of grant was $1.1 million. As of June 30, 2024, options exercisable totaled 1,387,891. There are approximately $0.9 million of unrecognized compensation costs related to non-vested share-based compensation awards, which will be expensed through 2025.

Key assumptions used to value stock options during the six months ended June 30, 2024, are as follows:

Warrants

The Company has granted warrants to purchase shares of Common Stock. Warrants may be granted to affiliates in connection with certain agreements.

As of June 30, 2024, a cumulative total of 1,763,570 warrants, with exercise prices ranging from $2.00 to $7.00 remain exercisable and outstanding. There wereno warrants granted or exercised during the six months ended June 30, 2024.

Earnings Per Share

During the three months and six months ended June 30, 2024 and 2023, outstanding stock options and warrants of 3,705,904 and 1,980,001, respectively, were not included in the computation of diluted earnings per share, because to do so would have had an antidilutive effect.

Stock Settlement Agreement

On April 24, 2024 the Company settled a claim submitted by certain shareholders under Section 16 of the Securities Exchange Act involving the Company that claimed illegal profits were earned on stock transactions involving insiders of the Company. After investigation, the Company informed the insider, Bayshore Trust, of the claim and came to agreement with the shareholders, whereby requiring the disgorgement of profits by the insider back to the Company in the amount of $148,703, which was recorded in additional paid in capital in the accompanying financial statements.