What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-12 compared with 2022-11-14 · 225 added, 115 removed, 38 unchanged (90% of the section changed)

Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and

Analysis of Financial Condition and Results of Operations

You should read the following discussion and

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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

notes as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, as amended.

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.

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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.

Therapeutics Limited (UK), Pasithea Clinics Corp., Pasithea Therapeutics Portugal, Sociedade Unipessoal Lda, Alpha 5 Integrin, LLC and

AlloMek Therapeutics, LLC..

Pasithea Clinics Corp.

is incorporated in Delaware Pasithea Therapeutics Portugal, Sociedade Unipessoal Lda

is a private limited company, registered in Portugal.

Alpha-5 Integrin, LLC and AlloMek Therapeutics, LLC are both Delaware limited liability

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:

● our lack of operating history;

● the expectation that we will incur significant operating losses for the foreseeable future and will need

significant additional capital;

● the period over which we estimate our existing cash and cash equivalents will be sufficient to fund our

future operating expenses and capital expenditure requirements;

● our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

● our plans to develop and commercialize our product candidates;

● the timing of our IND submission for PAS-004;

● the timing of our planned clinical trials for PAS-004;

● the ability of our clinical trials to demonstrate safety and efficacy of our future product candidates,

and other positive results;

● disruptions to the development of our product candidates due to the continued spread of COVID-19 and the

resulting global pandemic;

● the timing and focus of our future preclinical studies and clinical trials, and the reporting of data

from those studies and trials;

● the size of the market opportunity for our future product candidates, including our estimates of the number

of patients who suffer from the diseases we are targeting;

● the success of competing therapies that are or may become available;

● the beneficial characteristics, safety, efficacy and therapeutic effects of our future product candidates;

● our ability to obtain and maintain regulatory approval of our future product candidates;

● our plans relating to the further development of our future product candidates, including additional disease

states or indications we may pursue;

● existing regulations and regulatory developments in the United States and other jurisdictions;

● our dependence on third parties;

● the need to hire additional personnel and our ability to attract and retain such personnel;

● our plans and ability to obtain or protect intellectual property rights, including extensions of patent

terms where available and our ability to avoid infringing the intellectual property rights of others;

● our financial performance and sustaining an active trading market for our Common Stock and Warrants;

● our ability to restructure our operations to comply with any potential future changes in government regulation.

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 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.

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.

We are a biotechnology company primarily focused on the discovery, research

and development of innovative treatments for central nervous system (CNS) disorders and RASopathies.

Our primary operations (the “Therapeutics”

segment) are focused on developing our lead therapeutic candidate, PAS-004 , a macrocyclic MEK inhibitor for potential use in a range

of CNS-related indications, including neurofibromatosis type 1 and Noonan syndrome as well as lamin A/C cardiomyopathy and certain oncology

indications that we acquired from AlloMek Therapeutics, LLC (“AlloMek”) in October 2022.

PAS-004 has completed pre-clinical

testing and animal toxicology studies to support an Investigational New Drug application (an “IND”) with the U.S.

Drug Administration (“FDA”) that we plan to file in the second half of 2023 following completion of cGMP manufacturing and

finalization of our toxicology program.

We are also focused on the development of our discovery programs through lead identification of

drug candidates, 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 MS, and PAS-001, a small molecule targeting the compliment component 4A for the treatment of schizophrenia.

Our ability to generate

product revenue will depend on the successful development, regulatory approval and eventual commercialization of one or more of our product

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:

● continue our ongoing and planned research and

development of our product candidates;

● initiate nonclinical studies and clinical trials

for any additional product candidates that we may pursue;

● scale up external manufacturing capacity with

the aim of securing sufficient quantities to meet our capacity requirements for clinical trials and potential commercialization;

● establish a sales, marketing and distribution

infrastructure to commercialize any approved product candidates and related additional commercial manufacturing costs;

● develop, maintain, expand, protect and enforce

our intellectual property portfolio;

● acquire or in-license product candidates and

technologies;

● add clinical, operational, financial and management

information systems and personnel, including personnel to support our product development and planned future commercialization efforts.

Recent Developments

During the first quarter of 2023, we discontinued our at-home services

in New York, NY as well as our services in the U.K.

In addition, we discontinued our clinical operations in Los Angeles, CA and are actively

exploring options for the disposal of related property.

Accordingly, as of the date of this Quarterly Report on Form 10-Q, we have discontinued

the operations of our Clinics segment.

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 2023, and it is uncertain whether we will be able to offset the impact

of inflationary pressures in the near term.

Results of Operations

Three and Nine Months Ended September 30, 2022

Our financial results for the three and nine months

ended September 30, 2022 and 2021 are summarized as follows:

Three Months Ended

September 30,

Cost of services

Three Months Ended March 31, 2023 and 2022

Our financial results for the three months ended

March 31, 2023 and 2022 are summarized as follows:

For the Three Months Ended

Selling, general and administrative

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Loss from operations

Other income (expense), net

Loss before income taxes

Other (expense) income, net

$ (3,265,810 )

$ (1,293,581 )

Nine Months Ended

September 30,

Cost of services

$ (1,972,229 )

Selling, general and administrative

Selling, 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.

Selling, general and administrative

expense also includes 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 and fees for

accounting and consulting services.

Selling, general and administrative expenses remained

relatively flat for the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

We expect selling, general and administrative

expenses to remain relatively flat throughout 2023.

Research and Development

Loss from operations

Other income (expense), net

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.

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.

For the three months

ended March 31, 2023, research and development expenses were approximately $1.1 million.

There were no research and development expenses

for the three months ended March 31, 2022.

The increase is due to the commencement and expansion

of our drug development activities primarily related to PAS-004, our lead product candidate, and PAS-003, our discovery candidate.

We expect research and

development expenses to increase throughout 2023 primarily related to manufacturing, regulatory and clinical development of PAS-004.

Other (expense) income,

For the three months

ended March 31, 2023, Other (expense) income, net decreased by approximately $0.8 million compared to the three months ended March 31,

The decrease is primarily due to the $0.8 million decrease in the fair value of our Public and Representative Warrants that occurred

during the three months ended March 31, 2022, compared to the slight increase that occurred during the three months ended March 31, 2023.

Working Capital

September 30,

The table below presents working capital net of current assets and

liabilities attributable to discontinued operations:

Current assets

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Working capital

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,

Working capital decreased by approximately $3.1 million between December

31, 2022 and March 31, 2023 due primarily to cash used to fund our loss from operations for the three months ended March 31, 2023.

Liquidity and Financial Condition

September 30,

Three Months Ended

$ (3,537,679 )

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$ (3,202,278 )

$ (2,152,158 )

Net cash used in investing activities

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Effect of foreign currency translation

Increase (decrease) in cash and cash equivalents

Decrease in cash and cash equivalents

$ (3,173,801 )

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.

$ (2,676,419 )

Cash and cash equivalents decreased by approximately $3.2 million for the

three months ended March 31, 2023, which was primarily attributable to cash used to fund our loss from operations 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

As of March 31, 2023, we had approximately $29.9 million in operating bank

accounts and money market funds, with working capital of approximately $29.2 million.

Our liquidity needs prior to the consummation of

the Initial Public Offering had been satisfied through proceeds from the issuance 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 needs through twelve months from the issuance date of the

financial statements included in this Quarterly Report.

Funding Requirements

Our primary use of cash is to fund operating expenses,

primarily selling, 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

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:

● the scope, timing, progress and results of discovery,

preclinical development, laboratory testing and clinical trials for our product candidates;

● the costs of manufacturing our product candidates

for clinical trials and in preparation for marketing approval and commercialization;

● the extent to which we enter into collaborations

or other arrangements with third parties in order to further develop our product candidates;

● the costs of preparing, filing and prosecuting

patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

● the costs and fees associated with the discovery,

acquisition or in-license of additional product candidates or technologies;

● expenses needed to attract and retain skilled

● the costs required to scale up our clinical,

regulatory and manufacturing capabilities;

● the costs of future commercialization activities,

if any, including establishing sales, marketing, manufacturing and distribution capabilities, for any of our product candidates for which

we receive marketing approval;

● revenue, if any, received from commercial sales

of our product candidates, should any of our product candidates receive marketing approval.

We will need significant additional funds to meet

operational needs and capital requirements for clinical trials, other research and development expenditures, and business development

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

in the Notes to our Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for a summary of our contractual

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.

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 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.

Quantitative and Qualitative Disclosures about Market Risk

Our critical accounting policies and estimates,

which include (1) stock-based compensation and (2) 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, 2022, as amended.

During the three months ended

March 31, 2023, there were no material changes to our critical accounting policies and estimates from those described in our Form 10-K.

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.

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.

Quantitative and Qualitative Disclosures about Market

Not Applicable.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis