Telomir Pharmaceuticals Inc

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

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

Overview

Telomir Pharmaceuticals, Inc. (“Telomir” or the “Company”) was formed in August 2021 and is a Florida incorporated early pre-clinical stage biopharmaceutical company that is developing its licensed product candidate, TELOMIR-1, the first novel small molecule designed to lengthen the DNA’s protective telomere caps, thereby promoting longevity in humans and canine animals by treating age-related conditions. Telomeres, the protective end caps of chromosomes composed of DNA sequences and proteins, naturally shorten as humans age. This shortening is accelerated by metal reactivity, which increases the risk of degenerative and age-related diseases.

As such, TELOMIR-1 is undergoing studies to provide a therapeutic intervention against contracting a number of degenerative and age-related diseases. Telomir’s goal is to develop and commercialize TELOMIR-1, proposed to be dosed orally, with the broader aim of promoting longevity and enhancing overall quality of life.

Substantive operations began in late 2022 and the Company’s initial Investigative New Drug (“IND”) application is anticipated to be filed with the U.S. Food and Drug Administration (“FDA”) in the second half of 2025. National phase filings are expected to be made during the third quarter 2025.

As used herein, the Company’s common stock, no par value per share, is referred to as the “Common Stock” and the Company’s preferred stock, no par value per share, is referred to as the “Preferred Stock”.

Basis of Accounting

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, all adjustments considered necessary for the fair presentation of the financial statements for the periods presented have been included. The results of operations for the nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for future periods.

Initial Public Offering

On February 13, 2024, the Company closed its initial public offering (the “IPO”) consisting of 1,000,000 shares of Common Stock at a price of $7.00 per share for approximately $7.0 million in gross proceeds. After deducting the underwriting commission and other offering expenses totaling $1.2 million, the net proceeds to the Company were $5.8 million. The Common Stock began trading on The Nasdaq Capital Market on February 9, 2024 under the symbol “TELO”.

Significant Accounting Policies

There have been no material changes in the Company’s significant accounting policies from those previously disclosed in the Company’s 2023 Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which was filed with the Securities and Exchange Commission (“SEC” or the “Commission”) on March 29, 2024, with the exception of stock compensation as discussed below.

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.

Note 2. Liquidity and capital resources

As of September 30, 2024, the Company had cash of approximately $0.8 million. The Company used approximately $4.5 million of cash in operations during the nine months ended September 30, 2024.

Historically, the Company has been primarily engaged in developing TELOMIR-1. During these activities, the Company has sustained substantial losses. The Company’s ability to fund ongoing operations and future clinical trials required for FDA approval is dependent on the Company’s ability to obtain significant additional external funding in the near and also over the long term. Since inception, the Company has financed its operations through an initial public offering, related party financings and a private financing. During the nine months ended September 30, 2024, the Company secured a $5 million line of credit from the Starwood Trust, a trust related to the Company’s majority shareholder (see Note 4). Although additional sources of financing may be sought by the Company, there can be no assurance that any fundraising will be achieved on commercially reasonable terms, if at all.

As of the date of filing, the Company will continue to generate losses and have insufficient cash and cash equivalents on hand 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 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:

The Company licenses the U.S. patent rights for the use of TELOMIR-1 in human applications from MIRALOGX, LLC (“MIRALOGX”), a related party intellectual property development and holding company owned by the Bay Shore Trust, a trust established by the Company’s founder for the benefit of the founder’s family, which such trust is also currently the majority shareholder of the Company (“Bay Shore Trust”).

On August 11, 2023, (the “Effective Date”), the Company and MIRALOGX entered into an Amended and Restated Exclusive License Agreement (the “Initial MIRALOGX License Agreement”), under which the Company has the exclusive perpetual right and license to TELOMIR-1 patent rights to make, have made, use, and sell “Licensed Products” (as defined in the Initial MIRALOGX License Agreement) in the U.S. for human uses and preclinical studies and activities of any kind conducted in furtherance of obtaining regulatory approval or commercialization for human uses.

On November 10, 2023, the Company and MIRALOGX entered into the Amendment No. 1 to the Initial MIRALOGX License Agreement, pursuant to which the field of use relating to the license was amended to include therapeutic treatments and other medical or health uses in animals, in addition to humans, and related preclinical studies and activities conducted in furtherance of obtaining regulatory approval for and commercialization of veterinary, in addition to human, therapeutic treatments and uses (such amendment, together with the Initial MIRALOGX License Agreement, the “MIRALOGX License Agreement”). The Company has the right to grant corresponding sublicenses under the licensed patent rights. The MIRALOGX License Agreement provides for the payment to MIRALOGX of an 8% royalty (payable quarterly) on the Company’s net sales of Licensed Products, as defined, by the Company or its sublicensees and on non-royalty bearing milestone revenue. There are no up-front, execution, or milestone payments in the MIRALOGX License Agreement. Further, no payments have been made to date under the agreement.

The term of the MIRALOGX License Agreement will continue through the date of the expiration of the last-to-expire licensed patent or, if later, the date of the expiration of the last strategic partnership/sublicensing agreement covering the licensed products. The patent rights are expected to extend through 2043, assuming patents are issued by the U.S Patent and Trademark Office, and additional patent terms may be awarded, including additional patent terms based on the time taken for regulatory review of drug products.

The MIRALOGX License Agreement also provides that the Company may bring suit in its own name to enforce patent rights. However, MIRALOGX will control the prosecution of the patent applications for TELOMIR-1. The Company is required to be kept informed by MIRALOGX of patent prosecution activities and may select identified countries for patent protection. The Company is to reimburse MIRALOGX for patent prosecution and maintenance costs.

Note 4. Related party transactions:

Due from related parties-

Amounts due from related parties as of both September 30, 2024 and December 31, 2023 totaled $0.13 million. These advances are due on demand and are non-interest bearing.

Due to related parties-

During the periods ended September 30, 2024 and December 31, 2023, the Company received working capital advances from companies under common control. These advances are due on demand and are non-interest bearing. During the fiscal year ended December 31, 2023, advances in the amount of $1.7 million were converted into 837,841 shares of Common Stock at a conversion rate of $2.05 per share resulting in a loss on the conversion of debt of $4.1 million. As of September 30, 2024 and December 31, 2023, $0.1 million and $0.5 million, respectively, advances remained outstanding.

Shared management-

Historically, the Company has shared management with related parties on an as-needed basis, to collaborate and pool resources efficiently. For the nine months ended September 30, 2024, the Company incurred $0.04 million in costs related to this arrangement which is recorded in general and administrative expenses. As of September 30, 2024, the Company no longer expects to share management with related parties on an as-needed basis.

Bay Shore Trust Line of Credit-

On June 15, 2023, the Company entered into a Promissory Note and Loan Agreement (the “Bay Shore Note”) with Bay Shore Trust. Under 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 IPO. The Company’s right to borrow funds under the Bay Shore Note was subject to the absence of a material adverse change in its assets, operations, or prospects. The Bay Shore Note, together with accrued interest, was to become due and payable on the second anniversary of the issuance of the note, and allowed prepayment of the note at any time without penalty. The Bay Shore Note accrued interest at a rate equal 7% per annum, simple interest, during the first year that the note was outstanding and 10% per annum, simple interest, thereafter. The Bay Shore Note was unsecured.

In consideration of the Bay Shore Note, the Company issued to the Bay Shore Trust a Common Stock purchase warrant on June 15, 2023 giving the Bay Shore Trust the right to purchase up to 2,439,025 shares of Common Stock at an exercise price of $3.73 per share, and such warrant will expire five years after the date of grant. Pursuant to a registration rights agreement, the Company has granted to Bay Shore Trust the right to require the Company, at any time after one year following the IPO, to register for resale the shares issuable upon the exercise of the warrant, with such registration rights being in the form of demand and “piggyback” registration rights that are subject to customary limitations and restrictions. As of September 30, 2024, these shares have been registered for resale. Upon issuance, the warrant met the criteria to be classified as equity based on an analysis under Accounting Standards Codification (480) ASC 480, “Distinguishing Liabilities from Equity” and was measured at fair value, resulting in an initial fair value of approximately $5.95 million upon issuance of the warrant, using Black-Scholes valuation techniques.

The borrowings from Bay Shore Trust were paid in full during the three months ended March 31, 2024, and the Company has fully amortized the relating financing costs and future borrowings are no longer available due to the terms of the agreement, specifically the closing of the IPO, which occurred on February 13, 2024.

Starwood Trust Line of Credit-

On September 24, 2024 the Company entered into an unsecured Promissory Note and Loan Agreement (“the Starwood Note”) with the Starwood Trust, a separate related party trust established by the Company’s founder for the benefit of the founder’s family. Under the Starwood Note, the Company has the right to borrow up to an aggregate of $5 million from the Starwood Trust at any time up until the second anniversary of the note. The Company’s right to borrow funds under the Starwood Note is subject to the absence of a material adverse change in its assets, operations, or prospects. The Starwood Note, together with accrued interest, is to become due and payable on the second anniversary of the issuance of the note, provides for prepayment at any time without penalty, and accrues simple interest at a rate equal 7% per annum. As of September 30, 2024, the Company has not borrowed any amounts under the Starwood Note.

Related Party Travel Costs-

On April 1, 2023 the Company entered into an Agreement For Shared Lease Costs (the “Shared Agreement”) with MIRALOGX, a related party. Under the Shared Agreement, the Company agrees to make monthly contributions or payments in accordance with its use of shared aircraft toward rent payments. During the nine months ended September 30, 2024 and September 30, 2023, the Company incurred $0.4 million and $1.2 million, respectively, for travel-related expenses to MIRALOGX for rental charges and airplane-related expenses. The Company will not participate in the use of the MIRALOGX airplane after March of 2024 and, pursuant to the terms of the Shared Agreement, has no further obligation under the Shared Agreement.

MIRALOGX License Agreement – (See Note 3).

Related Party Rental Agreement- (See Note 5).

Note 5. Leases:

The Company’s former corporate headquarters was located in Baltimore, Maryland, which included a lease for office space. This lease began in November 2022 and expired in April 2024. The lease was not renewed.

The Company moved all corporate related activities in April 2024 to the shared space in Tampa, Florida referenced below with variable lease costs. In September 2024, the Company decided to no longer utilize the shared space and moved to a virtual office model and does not have a physical office space.

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.

Beginning August 1, 2023, the Company’s accounting and administrative staff began sharing office space with a related party. During the nine months ended September 30, 2024, this variable lease cost related to the Tampa, Florida space totaled $0.02 million and included in general and administrative expenses.

Note 6. Stockholders’ equity:

Capital stock

The Company has the authority to issue 400,000,000 shares of capital stock, consisting of 300,000,000 shares of Common Stock and 100,000,000 shares of undesignated Preferred Stock, whose rights and privileges will be defined by the Board of Directors when a series of Preferred Stock is designated.

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 September 30, 2024, a cumulative total of 2,824,057 warrants, with exercise prices ranging from $3.73 to $15.42 remain exercisable and outstanding. There were no warrants exercised during the nine months ended September 30,2024.

Underwriter warrants

In connection with the IPO, the Company issued 50,000 warrants to purchase Common Stock to the IPO underwriter (or its designees) at an exercise price of $7.00 which expire after a four-and-a-half-year period commencing six months after the commencement of sales in the IPO. The warrants will be exercisable at any time and from time to time, in whole or in part, during the four-and-a-half-year period commencing six months after the commencement of sales in the IPO.

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 nine months ended September 30, 2024, a total of 2,370,170 options to purchase Common Stock, with an aggregate fair market value of approximately $9.1 million were granted to the members of the Company’s Board of Directors, executive officers, employees and consultants of the Company. The options have an exercise price of $5.02, a term of 10 years from the grant date, and vest over various terms ranging from immediate vesting upon grant to the second anniversary of the grant date.

The following is option activity during the nine months ended September 30, 2024.

As of September 30, 2024, options exercisable totaled 1,046,335. There are approximately $4.3 million of unrecognized compensation costs related to non-vested share-based compensation awards, which will be expensed through 2026.

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

Earnings Per Share

During the three and nine months ended September 30, 2024 and 2023, outstanding stock options and warrants of 5,194,227 and 2,774,057, respectively, were not included in the computation of diluted earnings per share, because to do so would have had an antidilutive effect.