Pasithea Therapeutics Corp. 10-Q

Item 1. Financial Statements PASITHEA THERAPEUTICS CORP. CONDENSED CONSOLIDATED BALANCE SHEETS June 30, 2024 December 31, 2023 ASSETS Current assets: Cash and cash equivalents $ 7,967,569 $ 16,331,052 Amount due from sale of assets - 40,500 Prepaid expenses 570,242 215,895 Other current assets 104,654 104,707 Total current assets 8,642,465 16,692,154 Property and equipment, net 131,776 141,208 Right of use asset- operating lease - 79,271 Intangibles, net 7,626,232 7,941,314 Goodwill 1,262,911 1,262,911 Total assets $ 17,663,384 $ 26,116,858 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued liabilities $ 1,394,852 $ 2,552,360 Lease liability- short term portion - 81,680 Total current liabilities 1,394,852 2,634,040 Non-current liabilities Warrant liabilities 93,272 84,366 Total non-current liabilities 93,272 84,366 Total liabilities 1,488,124 2,718,406 Stockholders’ equity: Preferred stock, par value $ 0.0001 , 5,000,000 shares authorized; 0 issued and outstanding - - Common stock, par value $ 0.0001 , 100,000,000 shares authorized; 1,044,081 and 1,041,582 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively 104 104 Additional paid-in capital 59,228,967 58,721,538 Accumulated other comprehensive loss ( 8,184 ) ( 4,652 ) Accumulated deficit ( 43,045,627 ) ( 35,318,538 ) Total stockholders’ equity 16,175,260 23,398,452 Total liabilities and stockholders’ equity $ 17,663,384 $ 26,116,858 See accompanying notes to the unaudited condensed consolidated financial statements. 1 PASITHEA THERAPEUTICS CORP. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) For the Three Months Ended June 30, For the Six Months Ended June 30, 2024 2023 2024 2023 Operating expenses: General and administrative $ 1,587,060 $ 1,800,536 $ 3,878,706 $ 3,916,802 Research and development 2,357,974 2,028,165 4,107,102 3,124,451 Loss from operations ( 3,945,034 ) ( 3,828,701 ) ( 7,985,808 ) ( 7,041,253 ) Other income (expense): Change in fair value of warrant liabilities ( 35,622 ) 113,426 ( 8,906 ) 66,556 Interest and dividends, net 114,407 117,191 267,625 110,803 Other income (expense), net 78,785 230,617 258,719 177,359 Loss before income taxes ( 3,866,249 ) ( 3,598,084 ) ( 7,727,089 ) ( 6,863,894 ) Provision for income taxes - - - - Net loss from continuing operations $ ( 3,866,249 ) $ ( 3,598,084 ) $ ( 7,727,089 ) $ ( 6,863,894 ) Net loss from discontinued operations, net of tax - ( 165,146 ) - ( 437,015 ) Net loss $ ( 3,866,249 ) $ ( 3,763,230 ) $ ( 7,727,089 ) $ ( 7,300,909 ) Weighted-average common shares outstanding, basic and diluted 1,043,312 1,306,401 1,042,895 1,305,034 Basic and diluted loss per share from continuing operations $ ( 3.71 ) $ ( 2.75 ) $ ( 7.41 ) $ ( 5.26 ) Basic and diluted loss per share from discontinuing operations $ - $ ( 0.13 ) $ - $ ( 0.33 ) Comprehensive loss: Net loss $ ( 3,866,249 ) $ ( 3,763,230 ) $ ( 7,727,089 ) $ ( 7,300,909 ) Foreign currency translation ( 2,912 ) ( 317 ) ( 3,532 ) ( 2,800 ) Comprehensive loss $ ( 3,869,161 ) $ ( 3,763,547 ) $ ( 7,730,621 ) $ ( 7,303,709 ) See accompanying notes to the unaudited condensed consolidated financial statements. 2 PASITHEA THERAPEUTICS CORP. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited) Accumulated Additional Other Total Common Stock Paid-in Comprehensive Accumulated Stockholders’ Shares Amount Capital Loss Deficit Equity Balance at January 1, 2024 1,041,582 $ 104 $ 58,721,538 $ ( 4,652 ) $ ( 35,318,538 ) $ 23,398,452 Stock-based compensation: -restricted stock units 1,666 - 48,088 - - 48,088 -stock options - - 297,602 - - 297,602 -warrants - - 787 - - 787 Foreign currency translation - - - ( 620 ) - ( 620 ) Net loss - - - - ( 3,860,840 ) ( 3,860,840 ) Balance at March 31, 2024 1,043,248 $ 104 $ 59,068,015 $ ( 5,272 ) $ ( 39,179,378 ) $ 19,883,469 Stock-based compensation: -restricted stock units 833 - 23,912 - - 23,912 -stock options - - 134,680 - - 134,680 -warrants - - 2,360 - - 2,360 Foreign currency translation - - - ( 2,912 ) - ( 2,912 ) Net loss - - - - ( 3,866,249 ) ( 3,866,249 ) Balance at June 30, 2024 1,044,081 $ 104 $ 59,228,967 $ ( 8,184 ) $ ( 43,045,627 ) $ 16,175,260 Balance at January 1, 2023 1,301,921 $ 130 $ 61,855,659 $ ( 661 ) $ ( 19,356,880 ) $ 42,498,248 Stock-based compensation: -restricted stock units 4,166 1 23,649 - - 23,650 -stock options - - 153,372 - - 153,372 Foreign currency translation - - - ( 2,483 ) - ( 2,483 ) Net loss - - - ( 3,537,679 ) ( 3,537,679 ) Balance at March 31, 2023 1,306,087 $ 131 $ 62,032,680 $ ( 3,144 ) $ ( 22,894,559 ) $ 39,135,108 Stock-based compensation: -restricted stock units 833 1 23,910 - - 23,911 -stock options - - 194,722 - - 194,722 Foreign currency translation - - - ( 317 ) - ( 317 ) Net loss - - - - ( 3,763,230 ) ( 3,763,230 ) Balance at June 30, 2023 1,306,920 $ 132 $ 62,251,312 $ ( 3,461 ) $ ( 26,657,789 ) $ 35,590,194 See accompanying notes to the unaudited condensed consolidated financial statements. 3 PASITHEA THERAPEUTICS CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Six Months Ended June 30, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss from continuing operations $( 7,727,089 ) $( 6,863,894 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 9,432 8,895 Amortization expense 315,082 315,082 Stock-based compensation 507,429 395,655 Change in fair value of warrant liabilities 8,906 ( 66,556 ) Non-cash lease expense - 1,920 Gain on sale of assets - ( 65,048 ) Changes in operating assets and liabilities: Prepaid expenses ( 354,347 ) ( 252,198 ) Other assets 40,553 ( 189,203 ) Accounts payable and accrued liabilities ( 1,157,508 ) 433,403 Lease liabilities ( 2,409 ) - Net cash used in operating activities ( 8,359,951 ) ( 6,281,944 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment - ( 56,996 ) Net cash proceeds from sale of assets - 27,500 Net cash used in investing activities - ( 29,496 ) CASH FLOWS FROM FINANCING ACTIVITIES: Note payable proceeds - 392,354 Principal payments on note payable - ( 259,019 ) Net cash provided by financing activities - 133,335 Effect of foreign currency translation on cash ( 3,532 ) ( 2,800 ) Net cash used in operating activities of discontinued operations - ( 583,133 ) Net cash provided by investing activities of discontinued operations - 323,807 NET CHANGE IN CASH $ ( 8,363,483 ) $ ( 6,440,231 ) Cash - Beginning of period 16,331,052 33,087,864 Cash - End of period $ 7,967,569 $ 26,647,633 Supplemental disclosure of cash flow information: Amount due from sale of assets $ - $ 122,500 See accompanying notes to the unaudited condensed consolidated financial statements. 4 PASITHEA THERAPEUTICS CORP. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023 NOTE 1 – NATURE OF THE ORGANIZATION AND BUSINESS Pasithea Therapeutics Corp. (“Pasithea” or the “Company”) was incorporated in the State of Delaware on May 12, 2020 and completed an Initial Public Offering (the “Initial Public Offering”) on September 17, 2021. The Company is a biotechnology company focused on the discovery, research and development of innovative treatments for central nervous system (CNS) disorders and other diseases, including RASopathies. The Company is leveraging its expertise in the fields of neuroscience, translational medicine, and drug development to bring life-changing therapies to patients. The Company’s primary operations (the “Therapeutics” segment) are focused on developing the Company’s lead product candidate, PAS-004, a next-generation macrocyclic mitogen-activated protein kinase, or MEK inhibitor that the Company believes may address the limitations and liabilities associated with existing drugs targeting a similar mechanism of action. In December 2023, the U.S. Food and Drug Administration (the “FDA”) cleared our Investigational New Drug application (the “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 clinical sites in the United States and plans to open additional 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 neurofibromatosis type 1 (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 amyotrophic lateral sclerosis (“ALS”) for PAS-003 and schizophrenia for PAS-001. During the year ended December 31, 2023, the Company discontinued providing business support services to anti-depression clinics (the “Clinics” segment) in the U.K. and in the United States, previously conducted through partnerships with healthcare providers. During the year ended December 31, 2023, the at home services in New York, NY as well as in the U.K were discontinued and the Company sold and disposed of the assets associated with the Clinics operations in Los Angeles, CA. The lease associated with the related property in Los Angeles was assumed by the buyer in the transaction. 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. Basis of Presentation The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). 5 Emerging Growth Company The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and approval of any golden parachute payments not previously approved. Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period. Liquidity and Capital Resources As of June 30, 2024, the Company had approximately $ 8.0 million of cash and cash equivalents and working capital of approximately $ 7.2 million. The Company’s major sources of cash have been comprised of proceeds from various private offerings, the Initial Public Offering and the exercise of warrants. The Company is dependent on obtaining additional working capital funding from the sale of equity and/or debt securities in order to continue to execute its development plans and continue operations. Based on the foregoing, management believes that the Company will not have sufficient working capital to meet its needs through twelve months from the date of these financial statements if additional funding cannot be obtained. Going Concern Uncertainty The accompanying unaudited condensed consolidated financial statements have been prepared as if the Company will continue as a going concern. The Company has incurred significant operating losses and negative cash flows from operations since inception. On June 30, 2024, the Company had cash and cash equivalents of approximately $8.0 million and an accumulated deficit of approximately $ 43.0 million. The Company has incurred recurring losses, has experienced recurring negative operating cash flows, and requires significant cash resources to execute its business plans. Historically, the Company’s major sources of cash have been comprised of proceeds from various public and private offerings of its capital stock. The Company is dependent on obtaining additional working capital funding from the sale of equity and/or debt securities in order to continue to execute its development plans and continue operations. Without additional funding, there is substantial doubt about the Company’s ability to continue as a going concern through twelve months from the date of these financial statements. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The Company evaluates the need to consolidate affiliates based on standards set forth in Accounting Standards Codification (“ASC”) 810, “Consolidation,” (“ASC 810”). The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Alpha-5, AlloMek, Pasithea Therapeutics Limited (U.K.) (was legally dissolved as of January 2, 2024) and Pasithea Clinics Inc. All significant intercompany transactions and balances have been eliminated in consolidation. These condensed consolidated financial statements are presented in U.S. Dollars. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statement and the reported amounts of revenues and expenses during the reporting period. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Management regularly makes estimates related to the fair value of warrant liabilities; the recoverability of long-lived assets; the fair values and useful lives of intangible assets acquired in business combinations; the potential impairment of goodwill; and income taxes. The Company bases its estimates on historical experience and on various assumptions that are believed to be reasonable, the results of which form the basis for the amounts recorded in the consolidated financial statements. As appropriate, the Company obtains reports from third-party valuation experts to inform and support estimates related to fair value measurements. 6 Research and Development Research and development costs are charged to operations when incurred and are included in operating expense, except for goodwill related to intellectual property and patents. Our research and development costs consist principally of compensation of employees and consultants that perform the Company’s research and development activities, payments to third parties for preclinical, clinical and regulatory activities, costs to acquire drug supply and drug product from contract development and manufacturing organizations and third-party contractors relating to chemistry, manufacturing and controls (“CMC”) efforts, , and research and development costs related to our discovery programs. Depending upon the timing of payments to the service providers, the Company recognizes prepaid expenses or accrued expenses related to these costs. These accrued or prepaid expenses are based on management’s estimates of the work performed under service agreements, milestones achieved and experience with similar contracts. The Company monitors each of these factors and adjusts estimates accordingly. General and Administrative Our general and administrative expenses primarily consist of personnel and related costs, including stock-based compensation, legal fees relating to both intellectual property and corporate matters, accounting and audit related costs, insurance, corporate communications and public company expenses, information technology, office and facility rents and related expenses, including depreciation, amortization and maintenance, and fees for consulting, business development and other professional services. Grants In connection with the acquisition of Alpha-5, the Company legally assumed rights under a grant agreement with FightMND, which was entered into by Alpha-5 on September 23, 2021. FightMND supports pre-clinical research, development and assessment of therapeutics for motor neuron disease, including ALS. Under the grant agreement, the Company is entitled to reimbursements for costs incurred for research related to its monoclonal antibody targeting a5 b 1 integrin as a potential treatment for ALS. There was no grant income recognized for the six months ended June 30, 2024 and 2023. Cash and Cash Equivalents The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents, classified as trading securities. The Company had cash equivalents of $ 7.1 million and $ 13.4 million as of June 30, 2024 and December 31, 2023, respectively. Property and Equipment and Depreciation Property and equipment is recorded at cost, net of depreciation. Depreciation is computed using straight-line and accelerated methods over the estimated useful lives of the related assets which range from three to ten years. Expenditures that enhance the useful lives of the assets are capitalized and depreciated. Maintenance and repairs are expensed as incurred. When properties are retired or otherwise disposed of, related costs and related accumulated depreciation are removed from the accounts. Leasehold improvements are amortized over the shorter of the estimated useful life of those leasehold improvements and the remaining lease term. Warrant Liability The Company accounts for the publicly traded warrants issued in its Initial Public Offering (the “Public Warrants”) and the warrants issued as compensation to the underwriters in its Initial Public Offering (the “Representative Warrants” and together with the Public Warrants, the “IPO Warrants”) in accordance with the guidance contained in ASC 815, “Derivatives and Hedging,” under which the IPO Warrants do not meet the criteria for equity treatment and must be recorded as derivative liabilities. Accordingly, the Company classifies the IPO Warrants as liabilities at their fair value and adjusts the IPO Warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until the IPO Warrants are exercised or expire, and any change in fair value is recognized in the Company’s condensed consolidated statement of operations and comprehensive loss. The fair value of the IPO Warrants was initially measured using a Black Scholes pricing model. Currently, the fair value of the Public Warrants is measured using quoted market prices, and the fair value of the Representative Warrants is based on an estimate of the relative fair value to the Public Warrants, accounting for a small difference in the exercise price. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times, may exceed the Federal Depository Insurance Coverage of $ 250,000 . As of June 30, 2024, the Company has not experienced losses on this account and management believes the Company is not exposed to significant risks on such account. Fair Value of Financial Instruments With the exception of liabilities related to the IPO Warrants, described in the table below, the fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the accompanying balance sheet, primarily due to their short-term nature. 7 Fair Value Measurements Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include: ● Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets; ● Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and ● Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value: Fair value measurements at reporting date using: Fair value Quoted prices in active markets for identical liabilities (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Assets: Cash equivalents, June 30, 2024 $ 7,187,485 $ 7,187,485 $ - $ - Assets: Cash equivalents, December 31, 2023 $ 13,419,860 $ 13,419,860 $ - $ - Liabilities: Public warrant liabilities, June 30, 2024 $ 87,560 $ 87,560 $ - $ - Representative warrant liabilities, June 30, 2024 $ 5,712 $ - $ - $ 5,712 Liabilities: Public warrant liabilities, December 31, 2023 $ 79,200 $ 79,200 $ - $ - Representative warrant liabilities, December 31, 2023 $ 5,166 $ - $ - $ 5,166 The following tables present a reconciliation of the Level 3 Representative Warrants liabilities: Three months ended June 30, 2024 2023 Representative warrant liabilities, April 1 $ 3,530 $ 8,611 Issuances - - Exercises - - Change in fair value 2,182 ( 4,076 ) Representative warrant liabilities, June 30 $ 5,712 $ 4,535 Six months ended June 30, 2024 2023 Representative warrant liabilities, January 1 $ 5,166 $ 8,611 Issuances - - Exercises - - Change in fair value 546 ( 4,076 ) Representative warrant liabilities, June 30 $ 5,712 $ 4,535 8 The change in fair value of the Representative Warrants liabilities is recorded in change in fair value of warrant liabilities on the condensed consolidated statement of operations and comprehensive loss. The fair value of the cash equivalents is based on the fair value of marketable securities invested in U.S. government money market funds. The fair value of the liability associated with the Public Warrants as of June 30, 2024 was based on the quoted closing price on The Nasdaq Capital Market and is classified as Level 1. The fair value of the liability associated with the Representative Warrants as of June 30, 2024 was based on an estimate of the relative fair value to the Public Warrants, accounting for a small difference in the exercise price, and is classified as Level 3. In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement. Net Loss Per Share Net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share is computed similarly to the basic earnings per share, except the weighted average number of common shares outstanding are increased to include additional shares from the assumed exercise of share options, if dilutive. The following outstanding shares issuable upon exercise of stock options and warrants and vesting of restricted stock units were excluded from the computation of diluted net loss per share for the periods presented because including them would have had an anti-dilutive effect: Six Months Ended June 30, 2024 2023 Stock options 198,079 99,000 Warrants 769,300 767,800 Restricted stock units 1,669 5,000 Foreign Currency Translations The Company’s functional and reporting currency is the U.S. dollar. All transactions initiated in other currencies are translated into U.S. dollars using the exchange rate prevailing on the date of transaction. Monetary assets and liabilities denominated in foreign currencies are translated into the U.S. dollar at the rate of exchange in effect at the balance sheet date. Unrealized exchange gains and losses arising from such transactions are deferred until realization and are included as a separate component of stockholders’ equity (deficit) as a component of comprehensive income or loss. Upon realization, the amount deferred is recognized in income in the period when it is realized. Translation of Foreign Operations The financial results and position of foreign operations whose functional currency is different from the Company’s presentation currency are translated as follows: ● assets and liabilities are translated at period-end exchange rates prevailing at that reporting date; ● equity is translated at historical exchange rates; and ● income and expenses are translated at average exchange rates for the period. Exchange differences arising from translation of foreign operations are transferred directly to the Company’s accumulated other comprehensive loss in the condensed consolidated financial statements. Transaction gains and losses arising from exchange rate fluctuation on transactions denominated in a currency other than the functional currency are included in the condensed consolidated statements of operations and comprehensive loss. 9 The relevant translation rates are as follows: As of June 30, 2024 As of December 31, 2023 Closing rate, British Pound (GBP) to $USD at period end 1.2642 1.2747 Average rate, GBP to $USD for the period ended 1.2649 1.2434 Closing rate, Euro (EUR) to $USD at period end 0.9330 0.9052 Average rate, EUR to $USD for the period ended 0.9252 0.9251 Comprehensive Income (Loss) ASC 220, “Comprehensive Income,” establishes standards for reporting and display of comprehensive income (loss) and its components in a full set of general-purpose financial statements. As of June 30, 2024 and December 31, 2023, the Company had no material items of other comprehensive income (loss) except for the foreign currency translation adjustment. Impairment of Long-Lived Assets and Goodwill Long-lived and amortizable intangible assets are assessed annually for impairment or sooner should impairment indicators exist. Significant events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable. Such circumstances may include a significant decrease in the market price of an asset, a significant adverse change in the manner in which the asset is being used or in its physical condition or a history of operating or cash flow losses associated with the use of an asset. An impairment loss is recognized when the carrying amount of an asset exceeds the anticipated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss is the excess of the asset’s carrying value over its fair value. There were no charges related to impairments of long-lived assets for all periods presented. Goodwill is assessed for impairment annually during the fourth quarter, or more frequently if impairment indicators exist. Impairment exists when the carrying amount of goodwill exceeds its implied fair value. The Company may elect to assess goodwill for impairment using a qualitative or a quantitative approach, to determine whether it is more likely than not that the fair value of goodwill is greater than its carrying value. There were no charges related to goodwill impairment for all periods presented. Leases The Company’s has leases related to office space. The Company determines whether a contract is or contains a lease at the time of the contract’s inception based on the presence of identified assets and the Company’s right to obtain substantially all the economic benefit from or to direct the use of such assets. When the Company determines a lease exists, it records a right-of-use (“ROU”) asset and corresponding lease liability on its balance sheet. ROU assets represent the Company’s right to use an underlying asset for the lease term. Lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets are recognized at the lease commencement date at the present value of the remaining future lease payments the Company is obligated for under the terms of the lease. Lease liabilities are recognized concurrent with the recognition of the ROU asset and represent the present value of lease payments to be made under the lease. These ROU assets and liabilities are adjusted for any prepayments, lease incentives received, and initial direct costs incurred. As the discount rate implicit in the lease is not readily determinable in most of the Company’s leases, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. If the Company’s lease terms include an option to extend the lease for a set period, the Company evaluates the renewal option and should it be reasonably certain that the Company will exercise that option, adjusts the ROU asset and liability accordingly. 10 Stock-Based Compensation The Company accounts for its stock-based compensation awards to employees and members of its Board of Directors (the “Board”) in accordance with ASC Topic 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires all stock-based payments to employees and Board members, including grants of employee stock options, to be recognized in the statements of operations by measuring the fair value of the award on the date of grant and recognizing this fair value as stock-based compensation using a straight-line method over the requisite service period, generally the vesting period. Recent Accounting Pronouncements Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s condensed consolidated financial statements. NOTE 3 – PROPERTY AND EQUIPMENT, NET Property and equipment, net consists of the following: As of June 30, 2024 As of December 31, 2023 Leasehold improvements $ 3,193 $ 3,193 Laboratory equipment 155,363 155,363 Office equipment 6,140 6,140 Property and equipment, gross 164,696 164,696 Less: accumulated depreciation ( 32,920 ) ( 23,488 ) Property and equipment, net $ 131,776 $ 141,208 NOTE 4 – LEASES Laboratory Lease – South San Francisco, California In August 2022, the Company, as a lessee, entered into an amended sublease agreement to sublease laboratory and office space in South San Francisco, California. The lease commenced on August 15, 2022. The term of this sublease is for a period of thirty-nine and one-fourth ( 39.25 ) months commencing on the effective date, until May 15, 2024. The lease had a gross monthly rent of $ 15,700 per month to December 31, 2022. Starting January 1, 2023, the monthly rent increased by 3 % annually, to $ 16,171 per month in 2023. Starting January 1, 2024, the monthly rent increased to $ 16,656 . The Company had no remaining lease payments as of June 30, 2024. This lease was accounted for as an operating lease under ASC 842, Leases, which resulted in the recognition of a right of use asset (“ROU asset”) and liability of approximately $ 332,000 at inception. The ROU asset is recorded as a component of non-current assets and the liability a component of current and non-current liabilities on the Company’s consolidated balance sheets. The Company discounted the future lease payments of this lease using the prevailing collateralized lending rate which would be extended to the Company based on its credit profile relative to the period of inception, and the duration of the lease from inception. The interest rate used in calculating the fair value listed above was 7.8 %. 11 As of June 30, 2024 and December 31, 2023, the Company recognized total ROU assets and lease liabilities as follows: As of June 30, 2024 As of December 31, 2023 Non-current leases - right of use assets $ — $ 79,271 Current liabilities - operating lease liabilities $ — $ 81,680 Non-current liabilities - operating lease liabilities $ — $ — Operating lease expense $ 122,103 $ 243,230 Cash paid for amounts included in the measurement of operating lease liabilities $ — $ — NOTE 5 – INTANGIBLE ASSETS Intangible assets, net consists of the following: June 30, 2024 December 31, 2023 Gross Carrying Amount Accumulated Amortization Net Gross Carrying Amount Accumulated Amortization Net In-process research and development $ 2,900,000 $ — $ 2,900,000 $ 2,900,000 $ — $ 2,900,000 Patents and intellectual property 5,671,478 ( 945,246 ) 4,726,232 5,671,478 ( 630,164 ) 5,041,314 Intangible assets, net $ 8,571,478 $ ( 945,246 ) $ 7,626,232 $ 8,571,478 $ ( 630,164 ) $ 7,941,314 As of June 30, 2024, future expected amortization expense of Intangible assets was as follows: 2024 (remaining) $ 315,082 2025 630,164 2026 630,164 2027 630,164 2028 630,164 Thereafter 1,890,494 Remaining future amortization expense $ 4,726,232 There were no changes to goodwill for the six months ended June 30, 2024. 12 NOTE 6 – STOCKHOLDERS’ EQUITY The Company is authorized to issue an aggregate of 105,000,000 shares. The authorized capital stock is divided into: (i) 100,000,000 shares of Common Stock having a par value of $ 0.0001 per share and (ii) 5,000,000 shares of preferred stock having a par value of $ 0.0001 per share. Common Stock The Company had 1,044,081 and 1,041,582 shares of its Common Stock issued and outstanding at June 30, 2024 and December 31,2023, respectively. Each holder of Common Stock is entitled to one vote for each share of Common Stock held on all matters submitted to a vote of the stockholders. Our Second Amended and Restated Certificate of Incorporation and Second Amended and Restated Bylaws do not provide for cumulative voting rights. In addition, the holders of our Common Stock will be entitled to receive ratably such dividends, if any, as may be declared by the Board out of legally available funds; however, the current policy of our Board is to retain earnings, if any, for operations and growth. Upon liquidation, dissolution or winding-up, the holders of our Common Stock will be entitled to share ratably in all assets that are legally available for distribution. Holders of our Common Stock have no preemptive, conversion or subscription rights, and there are no redemption or sinking fund provisions applicable to the Common Stock. The rights, preferences and privileges of the holders of Common Stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of our preferred stock that we may designate and issue in the future. Effective January 2, 2024, the Company amended its Second Amended and Restated Certificate of Incorporation to effect a one-for-twenty ( 1 : 20 ) reverse stock split of our outstanding shares of Common Stock. No fractional shares were issued as a result of the reverse stock split. Any fractional shares resulting from the reverse stock split were paid in cash. The reverse stock split did not otherwise affect any of the rights currently accruing to holders of our Common Stock. 2023 Stock Incentive Plan The Board and stockholders have adopted and approved the Company’s 2023 Stock Incentive Plan (the “2023 Plan”) which took effect on December 19, 2023. The 2023 Plan allows for the issuance of securities, including stock options, restricted stock, and restricted stock units (“RSUs”) to employees, Board members and consultants. The initial number of shares of Common Stock available for issuance under the 2023 Plan was 125,000 shares plus 28,389 unused shares reserved under the Company’s 2021 Stock Incentive Plan, which will, on January 1 of each calendar year, beginning on January 1, 2024 and ending on and including January 1, 2033, unless the Board decides otherwise, automatically increase to equal to the lessor of (A) three percent ( 3 %) of the number of shares of Common Stock outstanding on the final day of the immediately preceding calendar year or (B) such smaller number of Shares as is determined by the Board. On January 1, 2024, the number of shares of Common Stock available for issuance under the 2023 Plan automatically increased by 31,254 shares. As of June 30, 2024, a total of 184,643 shares of Common Stock were available under the 2023 Plan, of which 104,433 shares were issued and outstanding and 80,210 shares were available for potential issuances. Common Stock Issuances for the Three and Six Months Ended June 30, 2024 During the three and six months ended June 30, 2024, the Company issued 833 and 2,499 shares of Common Stock, respectively, due to the vesting of restricted stock units (“RSUs”) and recognized approximately $ 24,000 and $ 72,000 of stock-based compensation expense, respectively, related to its outstanding RSUs. Stock-based compensation expense related to the Company’s RSUs is recognized within general and administrative expense on the condensed consolidated statements of operations and comprehensive loss. 13 As of June 30, 2024, the remaining unamortized RSU stock-based compensation expense was approximately $ 45,000 with remaining six months of amortization. Common Stock Issuances for the Three and Six Months Ended June 30, 2023 During the three and six months ended June 30, 2023, the Company issued 833 and 4,999 shares of Common Stock, respectively, due to the vesting of RSUs, and recognized approximately $ 24,000 and $ 48,000 , respectively, of stock-based compensation expense related to its outstanding RSUs. Stock-based compensation expense related to the Company’s RSUs is recognized within general and administrative expense in the condensed consolidated statements of operations and comprehensive loss. As of June 30, 2023, remaining unamortized RSU stock-based compensation expense was approximately $ 142,000 with remaining 18 months of amortization. The Company did not grant any RSUs or restricted stock during the three and six months ended June 30, 2023. NOTE 7 – STOCK OPTIONS Stock Options Issued, Vested and Cancelled During the three months ended June 30, 2024 , the Company did not issue any stock options. During the three months ended June 30, 2024, stock options to purchase an aggregate of 4,771 shares of Common Stock, subject to time-based milestone vesting conditions, vested. During the six months ended June 30, 2024, the Company issued stock options under the 2023 Plan to employees, to purchase an aggregate of 104,433 shares of Common Stock with a strike price equal to $ 8.13 per share and a term of ten years . Of the stock options granted, stock options to purchase an aggregate of 37,433 shares of Common Stock were fully vested at issuance and the remaining stock options are subject to time-based vesting over a term ranging between one to three years . These stock options had a total fair value of approximately $ 657,000 , as calculated using the Black-Scholes pricing model with the following assumptions: volatility of 88.41 %, discount rate of 4.20 %, expected term of 6.5 years, and an exercise price of $ 8.13 . During the six months ended June 30, 2024, stock options to purchase an aggregate of 47,538 shares of Common Stock, subject to time-based milestone vesting conditions, vested. Stock-Based Compensation For the three months ended June 30, 2024 and 2023, total stock-based compensation expense related to the Company’s stock options was approximately $ 135,000 and $ 195,000 , respectively. For the three months ended June 30, 2024, the Company recognized approximately $ 107,000 of stock-based compensation related to its stock options within general and administrative expense, and approximately $ 28,000 within research and development expense on the condensed consolidated statements of operations and comprehensive loss . For the three months ended June 30, 2023, all stock-based compensation expense was recorded within general and administrative expense on the condensed consolidated statements of operations and comprehensive loss . For the six months ended June 30, 2024 and 2023, total stock-based compensation expense related to the Company’s stock options was approximately $ 432,000 and approximately $ 348,000 , respectively. For the six months ended June 30, 2024, the Company recognized approximately $ 290,000 of stock-based compensation related to its options within general and administrative expense, and approximately $ 142,000 within research and development expense. For the six months ended June 30, 2023, all stock-based compensation expense was recorded within general and administrative expense. 14 The following table summarizes the activity related to the Company’s stock options for the six months ended June 30, 2024: Number of Options Weighted average exercise price per share Weighted average remaining contractual term (years) Aggregate intrinsic value (in thousands) Outstanding, January 1, 2024 99,000 $ 32.38 8.55 $ - Granted 104,433 8.13 9.67 - Expired/Cancelled ( 5,354 ) 9.82 - - Exercised - - - - Outstanding, June 30, 2024 198,079 $ 20.21 8.89 - Exercisable, June 30, 2024 103,038 $ 28.47 8.57 $ - As of June 30, 2024 , the remaining unamortized stock-based compensation expense related to the stock options was approximately $ 610,000 with remaining 31 months of amortization. NOTE 8 – WARRANTS As of June 30, 2024 , the fair value of the Public Warrants was approximately $ 0.398 per Public Warrant based on the closing price of the warrants on The Nasdaq Capital Market. The fair value of the Representative Warrants was approximately $ 0.414 per Representative Warrant, which was based on the relative fair value to the Public Warrants. The following table summarizes the Company’s outstanding warrants: Exercise Price Number of Warrants Weighted-average remaining contractual term (years) Weighted-average exercise price $ 8.13 1,500 9.67 $ 37.60 100,000 3.13 $ 70.00 434,000 2.40 $ 120.00 13,800 2.21 $ 125.00 220,000 2.21 769,300 2.45 $ 82.29 During the three months ended June 30, 2024, the Company did not issue any warrants. During the six months ended June 30, 2024, the Company issued warrants to purchase an aggregate of 1,500 shares of Common Stock in exchange for consulting services. The warrants were issued on March 1, 2024 and become exercisable in twelve equal monthly instalments commencing on April 1, 2024 at $ 8.13 per share. The warrants expire ten years from the date of issuance. For the three months ended June 30, 2024 and 2023, total stock-based compensation expense related to the Company’s warrants was approximately $ 2,360 and $ 0 , respectively, and is recognized within general and administrative expense on the condensed consolidated statements of operations and comprehensive loss . For the six months ended June 30, 2024 and 2023, total stock-based compensation expense related to the Company’s warrants was approximately $ 3,147 and $ 0 , respectively, and is recognized within general and administrative expense on the condensed consolidated statements of operations and comprehensive loss . No warrants were expired/cancelled or exercised during the six months ended June 30, 2024 . 15 NOTE 9 – COMMITMENTS AND CONTINGENCIES Legal and Regulatory Environment The healthcare industry is subject to numerous laws and regulations of federal, state and local governments. These laws and regulations include, but are not limited to, matters such as licensure, accreditation, government healthcare program participation requirement, reimbursement for patient services and Medicare and Medicaid fraud and abuse. Government activity has increased with respect to investigations and allegations concerning possible violations of fraud and abuse statutes and regulations by healthcare providers. Violations of these laws and regulations could result in expulsion from government healthcare programs, together with the imposition of significant fines and penalties, as well as significant repayments for patient services previously billed. Management believes that the Company is in compliance with fraud and abuse regulations, as well as other applicable government laws and regulations. While no material regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation, as well as regulatory actions unknown or unasserted at this time. NOTE 10 – DISCONTINUED OPERATIONS During the year ended December 31, 2023, the Company sold and disposed of our assets associated with the Clinics operations in Los Angeles, CA and disposed of our services in the U.K. The lease associated with the related property in Los Angeles was assumed by the buyer in the transaction. As of June 30, 2024 and December 31, 2023, the carrying amounts of the classes of assets and liabilities related to the discontinued operations of the Clinics operations were $ 0 . The results of operations from discontinued operations for the three and six months ended June 30, 2024 and 2023, have been reflected in the condensed consolidated statements of operations and consist of the following: Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Revenues $ - $ - $ - $ - Cost of services - - - - Gross margin - - - - General and administrative - 165,146 - 502,063 Loss from discontinued operations - ( 165,146 ) - ( 502,063 ) Gain on sale of assets - - - 65,048 Loss from discontinued operations, before income tax - ( 165,146 ) - ( 437,015 ) Income tax expense - - - - Net loss from discontinued operations, net of tax $ - $ ( 165,146 ) $ - $ ( 437,015 ) Weighted-average common shares outstanding, basic and diluted 1,043,312 1,306,401 1,042,895 1,305,034 Basic and diluted loss per share from discontinued operations $ - $ ( 0.13 ) $ - $ ( 0.38 ) In accordance with U.S. GAAP, only expenses specifically identifiable and related to a business to be disposed may be allocated to discontinued operations. As such, the general and administrative expenses recorded in discontinued operations include corporate costs incurred directly in support of the Clinics business. 16 NOTE 11 – RELATED PARTY TRANSACTIONS PsychoGenics, Inc. In April 2023 we entered into a contract with PsychoGenics, Inc. (“PsychoGenics”) for the conduct of one of our preclinical studies. PsychoGenics is a contract manufacturing organization with extensive preclinical experience in CNS and orphan disorders. Pursuant to the contract, we made aggregate payments to PsychoGenics totalling approximately $ 0.3 million over the term of the contract. The contract was completed in September 2023. Dr. Emer Leahy, a member of our Board, is the current Chief Executive Officer and a less than 5 % owner of PsychoGenics. Consulting Agreement With Prof. Lawrence Steinman The Steinman Consulting Agreement memorializes the compensation arrangements pursuant to which Prof. Steinman has been compensated for his services to our Company, as previously disclosed in our public filings. Pursuant to the Steinman Consulting Agreement, Prof. Steinman provides a variety of consulting and advisory services relating principally to the clinical and commercial development of our product candidates, including our research and development strategy through all phases of discovery and preclinical development, identifying potential partners for our pre-clinical assets, and business development efforts related to our pre-clinical assets, among other things. Pursuant to the Steinman Consulting Agreement, Prof. Steinman receives $ 25,000 per quarter for his services. NOTE 12 – SUBSEQUENT EVENTS The Company has evaluated events and transactions subsequent to June 30, 2024 through the date these condensed consolidated financial statements were included on Form 10-Q and filed with the SEC. There are no subsequent events identified that would require disclosure. 17