KTTA Pasithea Therapeutics Corporation

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2024

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______to ________.

Commission file number: 001-40804

PASITHEA THERAPEUTICS CORP.

(Exact name of Registrant as specified in its charter)

Registrant’s telephone number, including area code: (702) 514-4174

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of August 13, 2024, there were 1,044,081 shares of the registrant’s common stock outstanding.

PASITHEA THERAPEUTICS CORP.

FORM 10-Q

For the Quarter ended June 30, 2024

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PASITHEA THERAPEUTICS CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

See accompanying notes to the unaudited condensed consolidated financial statements.

PASITHEA THERAPEUTICS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

See accompanying notes to the unaudited condensed consolidated financial statements.

PASITHEA THERAPEUTICS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

See accompanying notes to the unaudited condensed consolidated financial statements.

PASITHEA THERAPEUTICS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See accompanying notes to the unaudited condensed consolidated financial statements.

PASITHEA THERAPEUTICS CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 

You should read the following discussion and analysis of financial condition and operating results together with our financial statements and the related notes and other financial information included elsewhere in this quarterly report on Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed on March 29, 2024. This discussion contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth in the section of this report captioned “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q as well as the risk factors set forth in the section titled “Risk Factors” included in our Annual Report on Form 10-K, our actual results may differ materially from those anticipated in these forward-looking statements. For convenience of presentation some of the numbers have been rounded in the text below. 

Throughout this report, the terms “our,” “we,” “us,” and the “Company” refer to Pasithea Therapeutics Corp. and its subsidiaries, Pasithea Therapeutics Limited (U.K.), Pasithea Therapeutics Portugal, Sociedade Unipessoal Lda, Pasithea Clinics Inc., Alpha-5 Integrin, LLC (“Alpha-5”), and AlloMek Therapeutics, LLC (“AlloMek”). Pasithea Therapeutics Limited (U.K.), legally dissolved as of January 2, 2024 was a private limited Company, registered in the United Kingdom (U.K.). Pasithea Therapeutics Portugal, Sociedade Unipessoal Lda, is a private limited Company registered in Portugal. Pasithea Clinics Inc. is incorporated in Delaware. Alpha-5 and AlloMek, are both Delaware limited liability companies. The operations of Pasithea Therapeutics Limited (U.K.), Pasithea Therapeutics Portugal, Sociedade Unipessoal Lda, and Pasithea Clinics Inc. have been discontinued.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are generally identified by the use of such words as “may,” “could,” “should,” “would,” “believe,” “anticipate,” “forecast,” “estimate,” “expect,” “intend,” “plan,” “continue,” “outlook,” “will,” “potential” and similar statements of a future or forward-looking nature. These forward-looking statements speak only as of the date of filing this Quarterly Report with the SEC, and include, without limitation, statements about the following:

Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. You should refer to the “Risk Factors” section of this Quarterly Report for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. We operate in an evolving environment and new risk factors and uncertainties may emerge from time to time. It is not possible for management to predict all risk factors and uncertainties. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise. You should review the factors and risks and other information we describe in the reports we will file from time to time with the SEC. 

Company Summary

We are a clinical-stage biotechnology company primarily focused on the discovery, research and development of innovative treatments for CNS disorders and other diseases, including RASopathies.

Our primary operations, the Therapeutics segment, are focused on developing our lead therapeutic candidate, PAS-004, a next-generation macrocyclic mitogen-activated protein kinase, or MEK inhibitor that we believe may address the limitations and liabilities associated with existing drugs with a similar mechanism of action. PAS-004 is a small molecule allosteric inhibitor of MEK 1 and MEK 2 for potential use in the treatment of a range of RASopathies, including neurofibromatosis type 1 (“NF1”)- associated neurofibromas and a number of oncology indications, among others that we acquired from AlloMek Therapeutics, LLC in October 2022. In December 2023, the FDA cleared our IND for PAS-004 and the Company received a study may proceed letter from the FDA for the Company’s Phase 1 multicenter, open-label, dose escalation trial of PAS-004 in patients with MAPK pathway-driven advanced tumors with a documented RAS, NF1 or RAF mutation or patients who have failed BRAF/MEK inhibition. The Company is currently conducting the Phase 1 clinical trial at four clinical sites in the United States and plans to open an additional three sites in Eastern Europe in the third quarter of 2024. The Company’s clinical development plan for PAS-004 is to begin a Phase 1 clinical trial in adult and pediatric NF1-associated plexiform and/or cutaneous neurofibroma and ultimately seek FDA marketing approval in these patient populations.

Additionally, the Company has two programs that are in the discovery stage, which the Company believes address limitations in the treatment paradigm of the indications the Company plans to address with these programs, which are currently ALS for PAS-003 and schizophrenia for PAS-001. During the year ended December 31, 2023, we determined to cease further development of our PAS-002 program for multiple sclerosis due to several factors including the significant capital, resources and time required to develop the program, and the current and projected availability of effective treatment options for MS patients, among others.

Our ability to generate product revenue will depend on the successful development, regulatory approval and eventual commercialization of one or more of our product candidates. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings, or other capital sources, including potential collaborations with other companies or other strategic transactions. Adequate funding may not be available to us on acceptable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of our product candidates.

We expect to continue to incur significant expenses and operating losses for the foreseeable future as we advance our product candidates through all stages of development and clinical trials and, ultimately, seek regulatory approval. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. We expect our expenses and capital requirements will increase significantly in connection with our ongoing activities as we:

Recent Developments

Reverse Stock Split

On December 28, 2023, we filed a Certificate of Amendment to our Second Amended and Restated Certificate of Incorporation reflecting a one-for-20 reverse stock split (the “Reverse Stock Split”) of our issued and outstanding shares of Common Stock which became effective at 12:01 a.m. Eastern Time on January 2, 2024. As a result of the Reverse Stock Split, every 20 shares of Common Stock issued and outstanding were converted into one share of Common Stock, with a corresponding reduction in the number of authorized shares of Common Stock from 495,000,000 to 100,000,000. The Reverse Stock Split affected all stockholders uniformly and did not alter any stockholder’s percentage interest in the Company’s equity, except to the extent that the Reverse Stock Split resulted in some stockholders owning a fractional share. No fractional shares were issued in connection with the Reverse Stock Split. Stockholders who were otherwise entitled to receive a fractional share instead received a cash payment (without interest) equal to such fraction multiplied by the average of the closing sales prices of Common Stock on The Nasdaq Capital Market for the five consecutive trading days immediately preceding the effective date of the Reverse Stock Split (with such average closing sales prices adjusted to give effect to the Reverse Stock Split). All outstanding securities entitling their holders to purchase shares of Common Stock or acquire shares of Common Stock, including stock options, convertible debt and warrants, were adjusted as a result of the Reverse Stock Split, as required by the terms of those securities.

The accompanying condensed consolidated financial statements reflect the Reverse Stock Split. All share and per share information data herein that relates to our Common Stock prior to the effective date has been retroactively restated to reflect the Reverse Stock Split.

Impact of Inflation

We have recently experienced higher costs across our business as a result of inflation, including higher costs related to employee compensation and outside services. We expect inflation to continue to have a negative impact throughout 2024, and it is uncertain whether we will be able to offset the impact of inflationary pressures in the near term.

Results of Operations

Comparison of the Three and Six Months Ended June 30, 2024 and 2023

Our financial results for the three and six months ended June 30, 2024 and 2023 are summarized as follows:

General and administrative

General and administrative expenses consist primarily of personnel expenses, including salaries, benefits, and stock-based compensation expense, for employees and consultants in executive, finance and accounting, legal, operations support, information technology and human resource functions. General and administrative expenses also include corporate facility costs not otherwise included in research and development expense, including rent, utilities, depreciation, amortization, and maintenance, as well as legal fees related to intellectual property and corporate matters, fees for accounting and consulting services and other expenses, including insurance, public company and corporate communications, information technology, and board fees.

General and administrative expenses decreased by approximately $213,000, or 12%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The decrease was primarily driven by decreases in (i) accounting and business development of approximately $27,000 (ii) non-cash amortization and depreciation and stock-based compensation of approximately $184,000, (iii) personnel related expenses of approximately $67,000, (iv) legal expenses of approximately $48,000, (v) public company and corporate communications expenses of approximately $25,000 and (vi) other expenses of approximately $104,000, offset by increases in (i) office expenses of approximately $204,000 and (ii) consulting costs of approximately $38,000.

General and administrative expenses decreased by approximately $38,000, or 1%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The decrease was primarily driven by decreases in (i) personnel costs of approximately $324,000, (ii) accounting and business development of approximately $95,000 and (iii) other expenses of approximately $104,000, offset by increases in (i) legal expenses of approximately $171,000, (ii) office expenses, including franchise taxes and insurance of approximately $145,000, (iii) public company and corporate communications expenses of approximately $80,000, (iv) non-cash amortization and depreciation and stock-based compensation of approximately $52,000 and (v) consulting costs of approximately $37,000.

We expect general and administrative expenses to continue at lower levels in fiscal year 2024 as compared to fiscal year 2023 due to the non-recurring expenses that were incurred in 2023 related to the unsolicited, non-binding proposal to acquire all outstanding shares of the Company from a third party and the tender offer we completed in September 2023.

Research and Development

Research and development expenses relate to activities primarily focused on the development of PAS-004 for the three and six months ended June 30, 2024, and PAS-004, PAS-003, and PAS-001 for the three and six months ended June 30, 2023.

Research and development expenses increased by approximately $307,000, or 15%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The increase was primarily driven by increases in (i) clinical trial costs of approximately $844,000 related to the initiation of the Phase 1 clinical trial of PAS-004, (ii) personnel expenses, including salaries, benefits and severance payments of approximately $279,000 related to the closure of our research laboratory and reduction in related workforce, and (iii) general expenses of approximately $74,000, offset by decreases in (i) manufacturing and CMC expenses of approximately $323,000, (ii) preclinical research and development expenses related to our discovery programs of approximately $ 460,000, (iii) consulting costs of approximately $53,000 and (iv) non-cash stock-based compensation of approximately $54,000.

Research and development expenses increased by approximately $982,000, or 31%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The increase was primarily driven by increases in (i) clinical trial costs of approximately $1,527,000 related to the initiation of the Phase 1 clinical trial of PAS-004, (ii) personnel expenses, including salaries, benefits and severance payments of approximately $257,000 related to the closure of our research laboratory and reduction in related workforce, (iii) consulting costs of approximately $102,000, iv) general expenses of approximately $65,000 and (v) non-cash stock-based compensation of approximately $61,000, offset by decreases in (i) preclinical research and development expenses related to our discovery programs of approximately $893,000 and (ii) manufacturing and CMC expenses of approximately $137,000.

We expect research and development expenses to increase in fiscal year 2024 as compared to fiscal year 2023 primarily due to the clinical development of PAS-004 as well as PAS-004 CMC activities, offset by decreases in preclinical research and development related to the closure of our research laboratory.

Other income (expense), net

For the three months ended June 30, 2024, other income (expense), net decreased by approximately $152,000, or 66%, compared to the three months ended June 30, 2023. The decrease in other income (expense), net is due primarily to a decrease in the fair value of the Public Warrants and the Representative Warrants (as such terms are defined in “Note 2 – Summary of Significant Accounting Policies” in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q) that occurred during the three months ended June 30, 2024, compared to a larger increase in the fair value of the Public Warrants and the Representative Warrants that occurred during the three months ended June 30, 2023.

For the six months ended June 30, 2024, other income (expense), net increased by approximately $81,000, or 46%, compared to the six months ended June 30, 2023. The increase in other income (expense), net is due primarily to dividend income of $268,000 during the six months ended June 30, 2024 compared to approximately $111,000 of dividend income during the six months ended June 30, 2023. This increase was partially offset related to the decrease in the fair value of warrant liabilities. See “Note 2 – Summary of Significant Accounting Policies” in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for more information on the accounting treatment of the Public Warrants and the Representative Warrants.

Discontinued Operations

During the year ended December 31, 2023, we discontinued our support services to anti-depression clinics in the U.K. and related at-home services in New York, NY. We also discontinued our clinical operations in Los Angeles, CA and disposed of the related property. Accordingly, we discontinued the operations of our Clinics segment provided by our subsidiaries, and currently have one reportable segment, the Therapeutics segment, related to the research and development of our therapeutic product candidates. As of June 30, 2023, all activity related to our discontinued subsidiaries is included in Net loss from discontinued operations, net of tax in the condensed consolidated statements of operations and comprehensive loss.

Working Capital

Working capital decreased by approximately $6.8 million between December 31, 2023 and June 30, 2024 due primarily to cash used to fund operations for the six months ended June 30, 2024.

Liquidity and Financial Condition

Cash and cash equivalents decreased by approximately $8.4 million for the six months ended June 30, 2024, compared to a decrease of approximately $6.4 million for the six months ended June 30, 2023, which was primarily attributable to cash used to fund operations and an increase in prepaid expenses.

Liquidity & Capital Resources Outlook

As of June 30, 2024, we had approximately $8.0 million in operating bank accounts and money market funds, with working capital of approximately $7.2 million. We have incurred significant operating losses and negative cash flows from operations. On June 30, 2024, we had an accumulated deficit of approximately $43.0 million. We have incurred recurring losses, have experienced recurring negative operating cash flows, and require significant cash resources to execute our business plans. Historically, our major sources of cash have been comprised of proceeds from various public and private offerings of our capital stock. We are dependent on obtaining additional working capital funding from the sale of equity and/or debt securities in order to continue to execute our development plans and continue operations. Subsequent to the consummation of the Initial Public Offering, our liquidity was and continues to be satisfied through the net proceeds from the Initial Public Offering, the private placement we consummated in November 2021 and the receipt of cash upon the prior exercise of our outstanding warrants. Based on the foregoing, management believes that we will not have sufficient working capital to meet our needs through twelve months from the issuance date of the condensed consolidated financial statements, without raising additional capital.

Liquidity & Capital Resources Outlook

Our primary use of cash is to fund operating expenses, primarily general and administrative and research and development expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable, accrued expenses and prepaid expenses.

Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:

We will need significant additional funds to meet operational needs and capital requirements for clinical trials, other research and development expenditures, and business development activities. We currently have no credit facility or committed sources of capital. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical studies.

Contractual Obligations

See Note 9 – Commitments and Contingencies in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for a summary of our contractual obligations.

Off-Balance Sheet Arrangements

During the periods presented, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated under the Exchange Act.

Critical Accounting Estimates

Our critical accounting estimates, which include (1) revenue recognition, (2) stock-based compensation and (3) fair value measurements, are more fully described in the Notes to our Consolidated Financial Statements included in our Form 10-K for the fiscal year ended December 31, 2023, as filed on March 29, 2024. During the six months ended June 30, 2024, there were no material changes to our critical accounting policies and estimates from those described in our Form 10-K.

Recent Accounting Pronouncements

See Note 2 – Summary of Significant Accounting Policies in the Notes to our Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for a description of recent accounting pronouncements applicable to our financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not Applicable. As a smaller reporting company, we are not required to provide the information required by this Item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures, and have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures, as defined in the Securities Exchange Act of 1934, as amended (the Exchange Act), Rule 13a-15(e), are not effective at a reasonable assurance level due to the material weakness described below.

Notwithstanding the material weakness, our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that the condensed consolidated financial statements included in this Quarterly Report present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in accordance with U.S. Generally Accepted Accounting Principles.

Remediation of Previously Identified Material Weakness

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

As previously disclosed in our Form 10-K for the year ended December 31, 2023, as filed on March 29, 2024, management in connection with our independent auditors identified a material weakness in our controls related to the review of the annual income tax provision prepared by a third-party firm during the audit process related to our fiscal year ended December 31, 2023. Specifically, we did not maintain effective controls to sufficiently review the completeness and accuracy of the annual tax provision in Note 10 to our financial statements (the “Tax Provision Disclosure”) included in our Form 10-K for the year ended December 31, 2023.

In response to the material weakness, management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, initiated a reassessment of our processes and controls related to the Tax Provision Disclosure and developed an action plan to remediate this matter, which included creating processes to ensure a thorough review of all materials and schedules prepared by third parties with respect to the Tax Provision Disclosure and engaging a tax professional to prepare and review any Tax Provision Disclosures. Management believes the involvement of the tax professional provides sufficient remediation, and the related controls will be subject to testing as applicable during the year.

Evaluation of Changes in Internal Control over Financial Reporting

Other than the remediation of the material weakness described above, there have been no changes in the Company’s internal control over financial reporting during the three months ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, we believe would individually or in the aggregate have a material adverse effect on our business, results of operations, financial condition or cash flows. 

Item 1A. Risk Factors

There have been no material changes to the risk factors set forth in the section titled “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed on March 29, 2024. Our business involves significant risks. You should carefully consider the risks and uncertainties described in our Form 10-K, together with all of the other information in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in our Form 10-K. The risks and uncertainties described in our Form 10-K are not the only ones we face. Additional risk and uncertainties that we are unaware of or that we deem immaterial may also become important factors that adversely affect our business. The realization of any of these risks and uncertainties could have a material adverse effect on our reputation, business, financial condition, results of operations, growth and future prospects as well as our ability to accomplish our strategic objectives. In that event, the market price of our common stock and Public Warrants could decline, and you could lose part or all of your investment.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Insider Trading Arrangements and Policies

During the quarter ended June 30, 2024, none of the Company’s directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408, that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c).

Item 6. Exhibits

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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