Pasithea Therapeutics Corp. 10-Q

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, 2021. 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 (UK), Pasithea Clinics Inc., and Alpha 5 Integrin, LLC. Pasithea Therapeutics Limited (UK) is a private limited Company, registered in the United Kingdom (UK). Pasithea Clinics Inc. is incorporated in Delaware, Pasithea Therapeutics Portugal, Sociedade Unipessoal Lda, a private limited Company, registered in Portugal, and Alpha-5 integrin, LLC, is a Delaware limited liability company. The full extent to which the COVID-19 pandemic may directly or indirectly impact our business, results of operations and financial condition, will depend on future developments that are uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional, national and international customers and markets. We have made estimates of the impact of COVID-19 within our financial statements, and although there is currently no major impact, there may be changes to those estimates in future periods. Actual results may differ from these estimates. Company Summary We are a biotechnology company focused on the discovery, research and development of innovative treatments for central nervous system (CNS) disorders. We are focused on developing our lead therapeutic candidate, PAS-004 (CIP-137401), a potential best-in-class macrocyclic mitogen-activated protein kinase kinase 1/2 (MEK) inhibitor for use in a range of CNS-related indications, including neurofibromatosis type 1 (NF1) and Noonan syndrome that we acquired from AlloMek Therapeutics, LLC (“AlloMek”) in October 2022. PAS-004 is an IND-ready asset and we are preparing to initiate cGMP manufacturing to support an Investigational New Drug (“IND”) application with the U.S. We are also focused on the development of our high potential discovery programs aimed at developing drug candidates based on novel targets, including PAS-003, a monoclonal antibody targeting a5b1 integrin for the treatment of ALS, PAS-002, a DNA vaccine targeting GlialCAM for the treatment of Multiple Sclerosis, and PAS-001, a small molecule targeting the compliment component 4 (C4) gene for the treatment of schizophrenia. Our secondary operations are focused on providing business support services to anti-depression clinics. Our operations in the U.K. involve providing business support services to registered healthcare providers who assess patients, and if appropriate, administer intravenous infusions of ketamine, and our operations in the United States involve providing business support services to entities that furnish similar services to patients who personally pay for those services. Operations initially take place across the United States and the U.K. through partnerships with healthcare companies, including Zen Healthcare and The IV Doc. Our operations are limited to providing business support services to healthcare companies. In the United States, certain of these business support services will be subcontracted to through a Business Support Services subcontract. We do not provide professional medical services, establish or own anti-depression clinics, provide psychiatric assessments, or be responsible for the administration of intravenous infusions of ketamine in the United States. Furthermore, we do not obtain or administer ketamine, nor do we maintain any license or registration to own, maintain or dispense controlled substances in the U.K. or in the United States. We provide business support services to properly authorized companies that provide clinical services of the type described above to self-pay patients, and we subcontract certain of these business support services. 17 Results of Operations Three and Nine Months Ended September 30, 2022 and 2021 Our financial results for the three and nine months ended September 30, 2022 and 2021 are summarized as follows: Three Months Ended September 30, 2022 2021 Revenues $ 218,608 $ - Cost of services 86,465 - Selling, general and administrative 3,223,955 1,273,600 Research and development 1,159,001 - Loss from operations (4,250,813 ) (1,273,600 ) Other income (expense), net (335,317 ) (252,508 ) Loss before income taxes $ (4,586,130 ) $ (1,526,108 ) Nine Months Ended September 30, 2022 2021 Revenues $ 245,847 $ - Cost of services 114,503 - Selling, general and administrative 8,587,866 2,551,156 Research and development 1,278,922 - Loss from operations (9,735,444 ) (2,551,156 ) Other income (expense), net 916,680 (252,508 ) Loss before income taxes $ (8,818,764 ) $ (2,803,664 ) Revenues for the three and nine months ended September 30, 2022 relate to our operations providing business support services to registered healthcare providers who assess patients, and if appropriate, administering intravenous infusions of ketamine in the U.K. and the U.S. The increase in our loss before income taxes for the three and nine months ended September 30, 2022 compared to the same period of 2021 is mainly attributable to increased selling, general and administrative expenses as a result of further expansion of operations, non-recurring expenses in connection with the acquisition of Alpha 5 and AlloMek, ongoing legal and proxy expenses related to the dissident shareholder campaign, and research and development expenses related to the development of PAS-001, PAS-002 and PAS-003. These losses were partially offset by a decrease in the fair value of our warrant liabilities of $0.9 million for the nine months ending September 30, 2022. Working Capital As of September 30, 2022 December 31, 2021 Current assets $ 44,469,392 $ 53,300,457 Current liabilities 1,513,982 447,280 Working capital $ 42,955,410 $ 52,853,177 Working capital decreased by $10.0 million between December 31, 2021 and September 30, 2022 due primarily to cash used to fund our loss from operations for the period ended September 30, 2022. 18 Liquidity and Financial Condition Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021 Net loss $ (8,818,764 ) $ (2,803,664 ) Net cash (used in) operating activities (10,143,230 ) (1,429,725 ) Net cash (used in) investing activities (305,546 ) (8,570 ) Net cash provided by financing activities - 21,763,726 Effect of foreign currency translation (119,697 ) (3,762 ) Increase (decrease) in cash and cash equivalents $ (10,568,473 ) $ 20,321,669 The decrease in cash and cash equivalents was primarily attributable to cash used to fund our operations, research and development, and make equipment purchases during the period. Liquidity & Capital Resources Outlook As of September 30, 2022, we had $42,398,233 in our operating bank accounts and working capital of $42,955,410. Our liquidity needs prior to the consummation of our Initial Public Offering had been satisfied through proceeds from the issuance of shares of Common Stock in private placements. Subsequent to the consummation of the Initial Public Offering and the November 2021 Private Placement, our liquidity was and will continue to be satisfied through the net proceeds from the consummation of the Initial Public Offering and the November 2021 Private Placement. Based on the foregoing, management believes that we will have sufficient working capital to meet our liquidity needs through twelve months from the issuance date of the financial statements included in this quarterly report. Contractual Obligations See Note 4 – 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 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. 19 Critical Accounting Policies and Estimates Our critical accounting policies, which include (1) revenue recognition, (2) stock-based compensation and (3) fair value measurements, are more fully described in the notes to our financial statements included in our 10-K for the fiscal year ended December 31, 2021. We believe that the following critical accounting estimates are particularly subject to management’s judgment and could materially affect our financial condition and results of operations: ● Assumptions used in the Black-Scholes pricing model for valuation of stock option awards, such as expected volatility, risk-free interest rate, expected term and expected dividends. ● Valuation of the liability for Warrants, which requires that we make certain assumptions involving assumptions similar to those described above, as well as to changes in relative fair value. ● Assumptions used in the valuing of our intangible assets related to our acquisition, and those used in the calculation of the potential earnout. For additional information on critical accounting policies and estimates, see Note 2 to the Financial Statements, “Summary of Significant Accounting Policies and New Accounting Standards,” in Part I, Item 1, of this Quarterly Report on Form 10-Q. New accounting standards For discussion of new accounting standards, see Note 2 to the Financial Statements, “Summary of Significant Accounting Policies and New Accounting Standards,” in Part I, Item 1, of this Quarterly Report on Form 10-Q. 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.