What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-14 compared with 2023-11-13 · 169 added, 145 removed, 162 unchanged (66% of the section changed)

Management’s 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, 2022, as amended on April 4, 2023.

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

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and its subsidiaries, Pasithea

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

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

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These forward-looking statements

speak only as of the date of filing this Quarterly Report with the SEC.

There are a number of important factors that could

cause the actual results to differ materially from those expressed in any forward-looking statement made by us.

These factors include,

but are not limited to:

speak only as of the date of filing this Quarterly Report with the SEC, and include, without limitation, statements about the following:

lack of operating history;

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

plans to develop and commercialize our product candidates;

timing of our Investigational New Drug (“IND”) submission with the U.S.

Food and Drug Administration or other regulatory

submissions with foreign regulatory agencies for PAS-004;

timing of our planned clinical trials for PAS-004;

ability of our clinical trials to demonstrate safety and efficacy of our future product candidates, and other positive results;

plans to develop and commercialize our product candidates involves a lengthy and expensive process, with an uncertain outcome;

initiation, enrollment, timing, progress, results, and cost of our research and development programs and our current and future preclinical

studies and clinical trials, including statements regarding the timing of initiation and completion of studies or trials and related

preparatory work, the period during which the results of the trials will become available;

timing of interim data and final results from our clinical trials for PAS-004;

potential safety and efficacy of our product candidates and the therapeutic implications of clinical and preclinical data;

timing and focus of our future preclinical studies and clinical trials, and the reporting of data from those studies and trials;

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to avoid infringing the intellectual property rights of others;

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

● our financial performance and sustaining an active trading market for

our Common Stock and Public Warrants;

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

● disruptions to the development of our product candidates due to public

health crises, such as epidemics and pandemics, including the COVID-19 global pandemic;

● the impact of global economic and market conditions

and political developments on our business, including, among others, rising inflation and capital market disruptions, economic sanctions,

bank failures, regional conflicts around the world, and economic slowdowns or recessions that may result from such developments which

could harm our research and development efforts as well as the value of our Common Stock and our ability to access capital markets;

business interruptions resulting from geopolitical actions and global events, including political instability, natural disasters and events of terrorism and wars such as the war between Ukraine and Russia, and the corresponding tensions created from such conflict between Russia, the United States and countries in Europe as well as other countries such as China, and the conflict between Hamas and Israel;

our reliance on foreign contract research organizations (CROs) and contract manufacturing organizations (CMOs), including WuXi, that may be subject to U.S.

legislation, including the proposed BIOSECURE bill, trade restrictions and other foreign regulatory requirements which could increase the cost or reduce the supply of material available to us, delay the procurement or supply of such material or have an adverse effect on our ability to secure significant commitments from governments to purchase our potential therapies

Because forward-looking

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Company Summary

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 (NF1) as well as Noonan syndrome, lamin A/C cardiomyopathy and certain oncology indications that

we acquired from AlloMek Therapeutics, LLC in October 2022.

PAS-004 has completed pre-clinical testing and animal toxicology studies

to support a regulatory application to study PAS-004 for the treatment of NF1.

We anticipate initiating our first-in-human Phase 1

clinical trial as soon as possible after the acceptance of our regulatory submission by the regulatory agencies.

We are also focused

on the development of our discovery programs through lead identification of drug candidates, including PAS-003, a monoclonal

antibody targeting α5β1 integrin for the treatment of amyotrophic lateral sclerosis (ALS), PAS-002, a DNA vaccine

targeting GlialCAM for the treatment of multiple sclerosis (MS), and PAS-001, a small molecule targeting the compliment component 4

(C4) gene for the treatment of schizophrenia.

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

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.

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

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Recent Developments

Tender Offer to Repurchase Shares of Common Stock

On July 20, 2023, we announced that our Board

of Directors authorized the repurchase, through a $4.0 million tender offer, of up to approximately 5.7 million shares of our outstanding

common stock at a cash purchase price of $0.70 per share (the “Tender Offer”).

We launched the Tender Offer on August

9, 2023 and it expired on September 8, 2023, subject to the terms and conditions of the Tender Offer.

The Tender Offer resulted in the

Company purchasing 5,323,451 shares of its common stock for an aggregate purchase price of approximately $3.7 million, excluding fees

and expenses relating to the Tender Offer.

For more information on the Tender Offer, see “Note 6 – Stockholders’ Equity”

in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.

Selection of PAS-003 Lead Candidate

On November 9, 2023,

we announced that we selected our PAS-003 lead development candidate, a humanized monoclonal antibody with optimal properties that targets

α5β1 integrin for the treatment of both sporadic and familial ALS.

PAS-003 is now ready for manufacturing and IND enabling

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.

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

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Results of Operations

Comparison of the Three and Nine Months Ended

September 30 , 2023 and 2022

Our financial results for the three and nine months

ended September 30 , 2023 and 2022 are summarized as follows:

Comparison of the Three Months Ended March

31, 2024 and 2023

Our financial results for the three months ended

March 31, 2024 and 2023 are summarized as follows:

For the Three Months Ended

September 30,

Selling, general and administrative

General and administrative

Research and development

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$ (3,537,679 )

For the Nine Months Ended

September 30,

Selling, general and administrative

$ (1,185,877 )

Research and development

Loss from operations

(10,830,579 )

Other income, net

Net loss from continuing operations

(10,476,484 )

Net loss from discontinued operations, net of tax

$ (10,913,499 )

$ (8,818,764 )

$ (2,094,735 )

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.

For the three and nine months ended September

30, 2023, selling, general and administrative expenses were approximately $2.2 million and $6.1 million, respectively.

Selling, general

and administrative expenses decreased for the three and nine months ended September 30, 2023 compared to the three and nine months ended

September 30, 2022 primarily due to the discontinued Clinics operations in 2023.

We expect selling, general, and administrative

expenses to remain relatively flat throughout the rest of 2023.

Research and Development

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 increased by approximately $175,000,

or 8%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

The increase was primarily driven

by increases in (i) non-cash amortization and depreciation and stock-based compensation of approximately $78,000, (ii) legal expenses

of approximately $219,000, (iii) public company and corporate communications expenses of approximately $105,000, (iv) insurance costs

of approximately $30,000 and (v) other expenses totaling approximately $69,000, offset by decreases in (vi) personnel related expenses

of approximately $257,000, (vii) accounting and auditing fees of approximately $44,000, and (viii) business development and consulting

costs of approximately $25,000.

We expect general and administrative expenses

to decrease 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

expenses relate to our activities performed by our Therapeutics segment, which is primarily focused on the development of PAS-004, our

lead product candidate, and PAS-003, our most advanced discovery candidate.

For the three and nine

months ended September 30, 2023, research and development expenses were approximately $1.6 million and $4.7 million, respectively.

and development expenses increased for the three and nine months ended September 30, 2023 compared to the three and nine months ended

September 30, 2022 primarily due to the commencement and expansion of our drug development activities

related to PAS-004 and PAS-003.

We expect research and development expenses to continue to increase

throughout the rest of 2023 primarily due to manufacturing, regulatory and clinical development of PAS-004.

Research and development expenses relate to activities

primarily focused on the development of PAS-004 for the three months ended March 31, 2024, and PAS-004, PAS-003, and PAS-001 for the three

months ended March 31, 2023.

Research and development expenses increased by approximately $652,000,

or 60%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

The increase was primarily driven

by increases in (i) clinical development costs of approximately $683,000 related to the initiation of the Phase 1 clinical trial of PAS-004,

(ii) CMC expenses of approximately $342,000 related to the manufacturing of PAS-004 drug substance and drug product, and (iii) non-cash

stock-based compensation of approximately $92,000, offset by decreases in preclinical research and development expenses related to our

discovery programs of approximately $463,000.

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.

Other income (expense),

For the three months ended September 30, 2023, other income (expense),

net increased by approximately $512 thousand compared to the three months ended September 30, 2022.

The increase in other income, net

is due primarily to the decrease in the fair value of the publicly traded warrants issued in our Initial Public Offering (the “Public

Warrants”) and the warrants issued as compensation to the underwriters in our Initial Public Offering (the “Representative

Warrants”) that occurred during the three months ended September 30, 2023, compared to a larger increase in the fair value of the

Public Warrants and the Representative Warrants that occurred during the three months ended September 30, 2022.

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.

The remaining

increase in other income (expense), net is due to dividend income of $142 thousand during the three months ended September 30, 2023.

For the nine months ended

September 30, 2023, other income, net decreased by approximately $517 thousand compared to the nine months ended September 30, 2022.

decrease is primarily due to the decrease of approximately $67 thousand that occurred during the nine months ended September 30, 2023,

compared to a $1.4 million decrease in the fair value of our Public Warrants and Representative Warrants that occurred during the nine

months ended September 30, 2022, partially offset by an increase in dividend income of $253 thousand during the nine months ended September

For the three months ended March 31, 2024, other income (expense),

net increased by approximately $233,000 compared to the three months ended March 31, 2023.

The increase in other income (expense), net

is due primarily to dividend income of $153,000 during the three months ended March 31, 2024 that did not occur in the three months ended

March 31, 2023.

The remaining increase in other income (expense), net is 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

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 March 31, 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

September 30,

Current assets

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Working capital

(1) the numbers for December 31, 2022, exclude the discontinued

Working capital decreased by approximately $13.5 million between December

31, 2022 and September 30, 2023 due primarily to cash used to repurchase shares of our common stock in the Tender Offer and to fund operations

for the nine months ended September 30, 2023.

Working capital decreased by approximately $3.3

million between December 31, 2023 and March 31, 2024 due primarily to cash used to fund operations for the three months ended March 31,

Liquidity and Financial Condition

Nine Months Ended

September 30,

Three Months Ended

$ (3,860,840 )

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$ (3,202,278 )

Net cash provided by investing activities

Net cash used in financing activities

Net cash used in investing activities

Net cash provided by financing activities

Effect of foreign currency translation

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Cash and cash equivalents decreased by approximately

$13.5 million for the nine months ended September 30, 2023, compared to a decrease of approximately $10.5 million for the nine months

ended September 30, 2022, which was primarily attributable to cash used to repurchase shares of our common shares in the Tender Offer

during the period and cash used to fund operations, partially offset by a decrease of approximately $271 thousand in net cash used in

discontinued operations, compared to a decrease of approximately $1.7 million in the corresponding period of 2022.

$4.3 million for the three months ended March 31, 2024, compared to a decrease of approximately $3.2 million for the three months ended

March 31, 2023, which was primarily attributable to cash used to fund operations and an increase in prepaid expenses.

Liquidity & Capital Resources Outlook

As of September 30, 2023, we had approximately

As of March 31, 2024, we had approximately $12.0

million in operating bank accounts and money market funds, with working capital of approximately $10.7 million.

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 have sufficient working

capital to meet our needs through twelve months from the issuance date of the financial statements included in this quarterly report.

We have incurred significant

operating losses and negative cash flows from operations.

On March 31, 2024, we had an accumulated deficit of approximately $39.1 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 financial statements

included in this annual report, without raising additional capital.

Liquidity & Capital Resources Outlook

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

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

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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 and 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, 2022, as amended on April 4,

During the three and nine months ended September 30, 2023, there were no material changes to our critical accounting policies and

estimates from those described in our Form 10-K.

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 three months ended March

31, 2024, 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

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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