Pasithea Therapeutics Corp. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide information necessary to understand our audited consolidated financial statements for the fiscal years ended December 31, 2025 and December 31, 2024 and highlight certain other information which, in the opinion of management, will enhance a reader’s understanding of our financial condition, changes in financial condition and results of operations. In particular, the discussion is intended to provide an analysis of significant trends and material changes in our financial position and the operating results of our business during the year ended December 31, 2025, as compared to the fiscal year ended December 31, 2024. This discussion should be read in conjunction with our consolidated financial statements for the fiscal years ended December 31, 2025 and December 31, 2024 and related notes included elsewhere in this Annual Report on Form 10-K. These historical financial statements may not be indicative of our future performance. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains numerous forward-looking statements, all of which are based on our current expectations (as described in the section entitled “Cautionary Note Regarding Forward-Looking Statements”), and could be affected by the uncertainties and risks described throughout this filing, particularly in “Item 1A. Risk Factors.” 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, AlloMek Therapeutics, LLC and Pasithea MacroMEK Pty Ltd. 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 Clinics Inc., legally dissolved as of September 3, 2025, was incorporated in Delaware. Pasithea Therapeutics Portugal, Sociedade Unipessoal Lda, a private limited company, registered in Portugal, and Alpha-5 Integrin, LLC and AlloMek Therapeutics, LLC, are both Delaware limited liability companies. Pasithea MacroMEK Pty Ltd is registered in Australia. The operations of Pasithea Therapeutics Limited (U.K.), Pasithea Therapeutics Portugal, Sociedade Unipessoal Lda, and Pasithea Clinics Inc. have been discontinued. Overview We are a clinical-stage biotechnology company focused on the discovery, research and development of innovative treatments for RASopathies, MAPK pathway-driven tumors, and other diseases, including central nervous system (CNS) disorders. Our primary operations (the “Therapeutics” segment) are focused on developing our lead product 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 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 we received a study may proceed letter from the FDA for our 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 “FIH Phase 1 Advanced Cancer Study”). We are currently conducting the FIH Phase 1 Advanced Cancer Study at four clinical sites in the United States and three additional sites in Eastern Europe. We have completed the initial eight cohorts through 45 mg capsule and have not reached the maximum tolerated dose. We plan to file a protocol amendment to continue dose escalation in the FIH Phase 1 Advanced Cancer Study using our tablet formulation of PAS-004 in an effort to continue to explore the safety, PK, and early signals of efficacy at higher dose levels of PAS-004. Simultaneously, a pilot food effect assessment is planned in a subset of patients who agree to participate in this optional component of the study. As such, we expect to complete the trial in 2028. In May 2025, we initiated our Phase 1/1b multicenter, open-label, dose escalation trial of PAS-004 in adult patients with neurofibromatosis type 1 (“NF1”) with symptomatic and inoperable, incompletely resected, or recurrent plexiform neurofibromas (“PN”). We are currently conducting the trial at a total of five sites in the United States, Australia, and South Korea. 55 The initial indication we plan to seek FDA marketing approval for PAS-004 is the treatment of symptomatic PNs in both adult and pediatric patients with NF1. As such, we aim to conduct a Phase 1 trial for pediatric NF1-PN patients and ultimately complete registrational clinical trials in both adult and pediatric NF1-PN populations. Additionally, we have one program, PAS-001, in the discovery stage, which we believe addresses limitations in the treatment paradigm for schizophrenia. During the year ended December 31, 2025, we determined to cease further development of our PAS-003 program for ALS due to several factors including the significant capital, resources and time required to develop the program. Our ability to generate product revenue will depend on the successful development, regulatory approval and eventual commercialization of one or more of our product candidates. Until such time 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: ● establish a sales, marketing and distribution infrastructure to commercialize our drugs, if approved, and for any other product candidates for which we may obtain marketing approval; ● maintain, expand and protect our intellectual property portfolio; ● hire additional clinical, scientific and commercial personnel; ● add operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts; and ● acquire or in-license or invent other product candidates or technologies. 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. Although we anticipate a decline in the rate of inflation in 2026, we expect inflation to continue to have a negative impact throughout 2026, and it is uncertain whether we will be able to offset the impact of inflationary pressures in the near term. 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-twenty (1:20) 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 shares to 100,000,000 shares (which was subsequently increased to 500,000,000 authorized shares of Common Stock on January 28, 2026 after we filed another Certificate of Amendment to our Second Amended and Restated Certificate of Incorporation, as amended, with the Secretary of State of the State of Delaware to increase such number of authorized shares of Common Stock). The Reverse Stock Split affected all stockholders uniformly and did not alter any stockholder’s percentage interest in the Company’s equity, except to the extent that the Reverse Stock Split resulted in some stockholders owning a fractional share. No fractional shares were issued in connection with the Reverse Stock Split. Stockholders who were otherwise entitled to receive a fractional share instead received a cash payment (without interest) equal to such fraction multiplied by the average of the closing sales prices of Common Stock on The Nasdaq Capital Market for the five consecutive trading days immediately preceding the effective date of the Reverse Stock Split (with such average closing sales prices adjusted to give effect to the Reverse Stock Split). All outstanding securities entitling their holders to purchase shares of Common Stock or acquire shares of Common Stock, including stock options, convertible debt and warrants, were adjusted as a result of the Reverse Stock Split, as required by the terms of those securities. The accompanying consolidated financial statements reflect the Reverse Stock Split. All share and per share information presented herein that relate to our Common Stock prior to the effective date of the Reverse Stock Split have been retroactively restated to reflect the Reverse Stock Split. 56 Results of Operations Years Ended December 31, 2025, and 2024 Our financial results for the years ended December 31, 2025, and 2024 are summarized as follows: For the Twelve Months Ended December 31, 2025 2024 General and administrative $ 12,876,175 $ 7,051,468 Research and development 7,981,120 7,198,494 Loss from operations (20,857,295 ) (14,249,962 ) Other income, net 429,612 345,378 Net loss $ (20,427,683 ) $ (13,904,584 ) General and Administrative General and administrative expenses increased by approximately $5,825,000, or 82.6%, for the year ended December 31, 2025, compared to the year ended December 31, 2024. The increase was primarily driven by (i) an increase in impairment expense of intangible assets and goodwill totaling approximately $4,163,000, (ii) an increase of approximately $1,652,000 in personnel costs, (iii) an increase in office expenses of approximately $313,000, (iv) an increase in accounting and business development expenses of approximately $144,000, (v) an increase in public company and corporate communication costs of approximately $136,000, (vi) an increase in consulting costs of approximately $77,000, offset by (vii) a decrease in stock-based compensation expense of approximately $328,000, (viii) a decrease in legal expenses of approximately $264,000, (ix) a decrease in insurance costs of approximately $62,000 and (x) a decrease in board fees of approximately $6,000. We expect general and administrative expenses to decrease in fiscal year 2026 as compared to fiscal year 2025 primarily due to a decrease in impairment expenses offset by a ramp up in operational activity, public company and corporate communications expenses, and non-cash stock-based compensation. Research and Development Research and development expenses relate to activities primarily focused on the development of PAS-004 and PAS-001 for the year ended December 31, 2025, and PAS-004, PAS-003, and PAS-001 for the year ended December 31, 2024. Research and development expenses increased by approximately $783,000, or 10.9%, for the year ended December 31, 2025, compared to the year ended December 31, 2024. The increase was primarily due to (i) an increase in clinical trial and regulatory expenses of approximately $2,397,000, (ii) an increase in CMC expenses of approximately $564,000, offset by (iii) a decrease in preclinical research expense of approximately $1,811,000, (iv) a decrease in stock-based compensation expense of approximately $148,000, (v) a decrease in consulting expense of approximately $140,000 and (vi) a decrease in other expenses of approximately $79,000. We expect research and development expenses to increase in fiscal year 2026 as compared to fiscal year 2025 primarily due to (i) an increase in clinical trial and regulatory expenses related to our ongoing clinical trials for PAS-004, (ii) an increase in CMC costs related to PAS-004 drug product and drug supply for our clinical trials, as well as the development of a liquid formation of PAS-004, (iii) the initiation of non-clinical absorption, distribution, metabolism and excretion (“ADME”) studies, non-clinical developmental and reproductive toxicology studies, and clinical human ADME studies, (iv) an increase in preclinical research for PAS-004 and PAS-001, and (v) an increase in personnel costs related to anticipated new workforce hires to support our research and development activities. Other Income, Net For the year ended December 31, 2025, other income, net increased by approximately $84,000, or 24.4%, as compared to the year ended December 31, 2024. The increase was primarily driven by (i) an approximate $193,000 increase in the fair value of our Initial Public Offering (“IPO”) warrant liabilities during the year ended December 31, 2025, (ii) a decrease in interest and dividends, net of approximately $96,000, (iii) an increase in foreign currency gain of approximately $30,000, (iv) an decrease in loss on change in fair value of derivative warrant liability of approximately $417,000, (v) an increase in other income of approximately $381,000, which included recognition of a research and development tax credit of approximately $337,000, and (vi) a decrease in realized foreign currency translation loss from dissolution of subsidiaries of approximately $7,000 during the year ended December 31, 2025. 57 Working Capital As of December 31, 2025 2024 Current assets $ 56,459,084 $ 7,368,315 Current liabilities 4,973,961 1,119,871 Working capital $ 51,485,123 $ 6,248,444 Working capital increased by $45.2 million from December 31, 2024, to December 31, 2025, due primarily to net cash provided by financing activities of $63.5 million which was partially offset by cash used to fund operations. Liquidity and Capital Resources For the Twelve Months Ended December 31, 2025 2024 Net loss $ (20,427,683 ) $ (13,904,584 ) Net cash used in operating activities $ (15,211,490 ) $ (13,923,438 ) Net cash provided by investing activities 11,000 - Net cash provided by financing activities 63,518,800 4,517,634 Effect of foreign currency translation on cash 18,766 (2,519 ) Increase (decrease) in cash, cash equivalents and restricted cash $ 48,337,076 $ (9,408,323 ) Cash, cash equivalents and restricted cash increased by approximately $48.3 million for the year ended December 31, 2025. The increase was primarily attributable to net cash provided by financing activities of $63.5 million which was partially offset by cash used to fund operations. Liquidity & Capital Resources Outlook As of December 31, 2025, we had approximately $55.2 million in operating bank accounts and money market funds, with working capital of approximately $51.5 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. During the year ended December 31, 2025, we completed two separate significant capital raises, the May 2025 and December 2025 offerings, which resulted in net proceeds of approximately $59.6 million in the aggregate. Additionally, during the year ended December 31, 2025, we received (i) net proceeds of approximately $2.1 million from the sale of shares of Common Stock under an “at-the-market” (“ATM”) offering program, and (ii) net proceeds of approximately $2.2 million from the exercise of warrants. Such ATM offering program is no longer active and we will not make any additional sales of shares of Common Stock under such ATM offering program. During the year ended December 31, 2024, we completed a private placement (the “September 2024 Private Placement”) of (i) pre-funded warrants (the “September Pre-Funded Warrants”) to purchase up to 1,219,513 shares of our Common Stock, at an exercise price of $0.001 per share, (ii) Series A warrants (the “Series A Warrants”) to purchase up to 1,219,513 shares of Common Stock, at an exercise price of $3.85 per share, and (iii) Series B warrants (the “Series B Warrants” and together with the Series A Warrants, the “September 2024 Warrants”) to purchase up to 1,219,513 shares of Common Stock with an exercise price of $3.85 per share. The combined purchase price per September Pre-Funded Warrant and accompanying September 2024 Warrants was $4.099. The net proceeds to us from the September 2024 Private Placement were approximately $4.5 million, after deducting placement agent fees and estimated offering expenses. Our primary use of cash is to fund operating expenses, primarily general and administrative and research and development expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable, accrued expenses and prepaid expenses. 58 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 personnel; ● 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; and ● revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval. We believe that our current available cash and cash equivalents will be sufficient to meet our working capital needs for at least the next twelve months and beyond. However, we will need significant additional funds to meet operational needs and capital requirements for clinical trials, other research and development expenditures, and business development activities. We currently have no credit facility or committed sources of capital. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical studies. Contractual Obligations See Note 12 – Commitments and Contingencies in the Notes to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for a summary of our contractual obligations. Off-Balance Sheet Arrangements We did not have any off-balance sheet arrangements as of December 31, 2025, as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated under the Exchange Act. 59 Critical Accounting Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“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 statements 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. 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 Representative Warrants, for which there is no active market, based on the relative fair value to the quoted market price of the Public Warrants, accounting for a small difference in the exercise price. ● Assumptions used in the Black-Scholes pricing model for valuation of the derivative warrant liability, such as expected volatility, risk-free interest rate, expected term and expected dividends. Management also regularly makes estimates related to 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. For additional information on critical accounting estimates, see Note 2 to the consolidated financial statements, “ Summary of Significant Accounting Policies and New Accounting Standards ,” in Part II, Item 8, of this Annual Report on Form 10-K. New Accounting Standards For discussion of new accounting standards, see Note 2 to the consolidated financial statements, “ Summary of Significant Accounting Policies and New Accounting Standards ,” in Part II, Item 8, of this Annual Report on Form 10-K. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. As a smaller reporting company, we are not required to provide the information required by this Item. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information called for by Item 8 is included following the “Index to Financial Statements” on page F-1 contained in this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 60